Taxable Talk

I did catch a portion of the Senate Finance Committee hearing this morning. More interesting will be tomorrow’s House hearing where Lois Lerner will be testifying but taking the Fifth Amendment (“I refuse to answer the question on the grounds that the answer would tend to incriminate me.”).

Now, that does not mean that Ms. Lerner is guilty of anything; she’s well within her rights to take the Fifth. However, it does indicate that in some manner she thinks her answers could cause her legal difficulties. It also indicates to the public that there is something here in this scandal.

We also have a report from the National Review that the direction for the “rogue low-level employees in Cincinnati” came from the Technical Unit of Rulings and Agreements Office in Washington. The idea that two (or four) low-level IRS employees in Cincinnati could have done this on their own has always been, for me, ridiculous. That said, the idea that a group of IRS lawyers decided to implement this policy doesn’t seem reasonable to me. Still, I think the answer is far more likely to be in Washington than Cincinnati.

Finally, we’re now on the sixth version of what the White House knew (or didn’t know) on this scandal:

Just a day after telling reporters that chief of staff Denis McDonough had learned of the situation about a month ago, press secretary Jay Carney revealed that White House officials had consulted with the IRS on how to initially present to the public the story that the agency had targeted conservative tax-exempt groups for extra scrutiny.

There was “discussion about the possibility of a speech” by Lois Lerner, who oversaw the IRS’s work on tax-exempt groups, Carney said, and conversation about testimony by the acting commissioner of the agency and “what he would say” if asked about the issue…

The press secretary said the Treasury Department worked with Mark Childress, a deputy White House chief of staff.

I’m pretty sure there will be a seventh version of events from the White House later this week.

Years ago, I had the misfortune to work for a business that committed a major faux pas. The company admitted its mistake saying the equivalent of “We goofed and we want to make things right.” There was no cover up, just a forthright admission of the facts and a desire (followed up by actions) to correct the problem. Here, we’re seeing what to me is looking like a cover-up. It might not be–it’s possible that the White House is clueless (that says something else, too)–but as my father once told me, “It’s the appearance of impropriety that matters.” When you combine the changing stories from the White House with a senior IRS employee taking the Fifth Amendment, you have a huge appearance of impropriety.

The IRS scandal is now linked into the White House. The Wall Street Journal is reporting that a “senior White House official” was told around April 22nd of the results of the TIGTA audit (note: Link is for subscribers of the WSJ). Kathryn Ruemmler, White House Chief Counsel, was told by Treasury Department attorneys that there was improper scrutiny of Tea Party and conservative organizations.

President Obama stated that he didn’t learn of the scandal until everyone did. I think the chance of that is about zero: I find it impossible to believe that Ms. Ruemmler didn’t tell the President when she learned of this. The bigger question is whether the scandal originated in the White House. I also find it hard to believe that two (or four) low level bureaucrats in Cincinnati decided on their own to target conservative groups.

Meanwhile, the Washington Post reported that there’s surprise among the IRS employees in Cincinnati over the scandal. “Everything comes from the top. We don’t have any authority to make those decisions without someone signing off on them. There has to be a directive.” The IRS employees interviewed believed it was middle managers who decided to implement this policy. That may well be the case, or it could be that they got directives. Sooner or later the full details will come out on this scandal.

Some news came out of the first of what will be many Congressional hearings on the IRS scandal.

First, the question that occurred just one week ago and started the controversy–yes, it’s only been one week–was planted. The question came from Attorney Celia Roady. Per a spokesperson from her law firm:

“On May 9, I received a call from Lois Lerner, who told me that she wanted to address an issue after her prepared remarks at the ABA Tax Section’s Exempt Organizations Committee Meeting, and asked if I would pose a question to her after her remarks. I agreed to do so, and she then gave me the question that I asked at the meeting the next day. We had no discussion thereafter on the topic of the question, nor had we spoken about any of this before I received her call. She did not tell me, and I did not know, how she would answer the question.”

Why did it come out last Friday? That’s easy, the TIGTA report was going to be released the following week; maybe an apology on a Friday afternoon would diffuse a crisis. (Nope.)

Acting Commissioner Stephen Miller didn’t like the use of the word “targeting.” Well, that’s exactly what it was. But Commissioner Miller did admit that the IRS provided horrible customer service during this episode.

Congressmen Joe Crowley (D-NY) and Sander Levin (D-Mich) asked for the resignation of Lois Lerner, the IRS manager at the heart of the scandal.

The New York Times notes that TIGTA let senior officials at the Department of the Treasury know about this. My question: Did this go up to the White House? We don’t know that yet.

Not from the hearing, but related to it: A conservative group sent a Freedom of Information Request to the IRS asking for documents from the tax-exempt division related to the “Tea Party.” The IRS responded that it “found no documents specifically responsive to your request.” Oops. (The request and the IRS response are available at the link.)

Commissioner Miller also stated today that the actions taken by the IRS were not illegal. What?! If they weren’t illegal (I’m not an attorney), they were, at minimum, reprehensible.

The IRS asked about content of prayers. I am not making this up. (Apparently the Tea Party group that sent a copy of the Constitution to the IRS should have also sent a copy of the Bill of Rights.)

I was talking with my mother this evening, and she said we’ll find out all of the truth when someone writes a tell-all book: “Targeted.” Given the magnitude of this scandal, I’m hoping we’ll find out the truth far sooner than that.

Some music from the 1980s which contains an apropos reference to the IRS:

In a story that has not yet been picked up nationally, Fox19 News in Cincinnati reported that the four IRS workers at the supposed core of the story, “simply did what their bosses ordered.” Here’s the video from Fox19:

This report states that there are four employees, not two; and the four employees allege they were just following orders. Meanwhile, in other news from the scandal:

– Stephen Miller, Acting IRS Commissioner, sort of resigned. While President Obama said he was fired, Mr. Miller will be leaving the IRS when his term as Acting Commissioner is over. In an email to employees Mr. Miller noted he is leaving not because he was fired, but because his term will end in early June.

– The number of groups targeted is now 500, up from 300, according to Darrell Issa.

– Franklin Graham, President of the Billy Graham Ministries, alleges that the IRS audited his organization because of their support of a North Carolina ballot proposition.

So we just have more little drips of revelations yesterday. The most interesting is the allegation of following orders. While I’m certain the IRS and the Obama Administration want this to be “rogue” employees and bad management, the truth might be something else entirely.

The Treasury Inspector General for Tax Administration’s (TIGTA) report on the targeting of Tea Party and other conservative groups was released late today. If you were to step back in time to May 1st, you would have said that everything being alleged to have been occurring were paranoid delusions. Today we find that the cynics were absolutely correct. First, the conclusions of the report:

1. The Determinations Unit developed and used inappropriate criteria to identify applications from organizations with the words Tea Party in their names….
2. The Determinations Unit developed and began using criteria to identify potential political cases for review that inappropriately identified specific groups applying for tax-exempt status based on their names or policy positions instead of developing criteria based on tax-exempt laws and Treasury Regulations….
3. While the team of specialists reviewed applications from a variety of organizations, we determined during our reviews of statistical samples of I.R.C. § 501(c)(4) tax-exempt applications that all cases with Tea Party, Patriots, or 9/12 in their names were forwarded to the team of specialists. [I’ll discuss the specialists a little later.]
4. Organizations that applied for tax-exempt status and had their applications forwarded to the team of specialists experienced substantial delays. As of December 17, 2012, many organizations had not received an approval or denial letter for more than two years after they submitted their applications….
5. [T]he Determinations Unit requested irrelevant (unnecessary) information because of a lack of managerial review, at all levels, of questions before they were sent to organizations seeking tax-exempt status….

So let’s look at all the allegations that had been alleged. First, that Tea Party groups were targeted. They were.

Next, that a “special unit” had been developed to look at them. There was such a special unit (see the reference above to a team of specialists).

Next, that information was requested from Tea Party groups that shouldn’t have been. True again.

There’s more, though. First, this scandal was not caused in Cincinnati. As Joe Kristan noted in his analysis,

Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office.

That means a big part of the problem was in Washington, not just in Cincinnati, as the spinners would like us to believe. [Emphasis in original.]

So Washington was involved. And like a bad infomercial, there’s more (from the TIGTA report):

After being briefed on the expanded criteria in June 2011, the Director, EO, immediately directed that the criteria be changed. In July 2011, the criteria were changed to focus on the potential “political, lobbying, or [general] advocacy” activities of the organization. These criteria were an improvement over using organization names and policy positions. However, the team of specialists subsequently changed the criteria in January 2012 without executive approval because they believed the July 2011 criteria were too broad. The January 2012 criteria again focused on the policy positions of organizations instead of tax-exempt laws and Treasury Regulations. After three months, the Director, Rulings and Agreements, learned the criteria had been changed by the team of specialists and subsequently revised the criteria again in May 2012.

These directors are in Washington, not Cincinnati. And these are people one to three levels below the IRS Commissioner. The chance of either then-IRS Commissioner Douglas Shulman or current Acting Commissioner Stephen Miller having been truthful in their testimony to Congress–where both individuals denied having any knowledge of the targeting of Tea Party Groups–is about zero in my eyes.

The TIGTA report was commissioned because,

TIGTA initiated this audit based on concerns expressed by members of Congress. The overall objective of this audit was to determine whether allegations were founded that the IRS: 1) targeted specific groups applying for tax‑exempt status, 2) delayed processing of targeted groups’ applications, and 3) requested unnecessary information from targeted groups.

TIGTA was not asked (and has no conclusions on) why this practice began. Did someone at the IRS spontaneously decide that targeting organizations on the right (politically) was a great idea? Did someone at the White House ask the IRS to implement this policy? We don’t know the answer to that question. Since we know that other offices were involved (El Monte and Laguna Niguel), why were they involved? Who directed them to be involved? There are plenty of questions that still need answering.

I suspect the Congressional hearings will be a spectacle.

ABC published a list of some of the questions. Some are ridiculous and obviously impossible to answer (one asked for all stories published about an applicant).

Congressman Darrell Issa (R-CA, Chairman of the House Oversight Committee):

“How dare the administration imply that they’re going to get to the bottom of it,” said Issa in an interview on CBS’s “This Morning.”

“This was the targeting of the president’s political enemies effectively and lies about it during the election year so that it wasn’t discovered until afterwards,” he added. “The fact is this is the kind of investigation that has to be open and transparent to the American people.”

EPA waives fee requests for “green” groups but not conservative groups. While I won’t be covering this in detail, it sure looks like a pattern. And the FCC helps pro-net neutrality groups but not conservative groups on Freedom of Information Act requests. It’s the appearance of impropriety that’s the issue…and there’s more than an appearance here.

It has been an interesting few days to be a tax blogger.

The scandal involving the targeting of conservative groups continues to grow with new revelations. ABC obtained a timeline (purportedly from the soon to be released TIGTA report) which shows that the targeting began in 2010, not as Ms. Lerner of the IRS said in 2011. That’s bad as Ms. Lerner’s apology appears to be wrong.

Unfortunately for the IRS (and the Obama Administration) there’s more–a lot more. Next, we find that the IRS sent confidential applications to a liberal-oriented group according to that group. Amazingly enough, this included nine organizations that hadn’t been approved. Those applications for 501(c)(4) status aren’t supposed to be released but they were. And they were published by ProPublica.

Next, we discover that this wasn’t confined to the Cincinnati Service Center. The Washington Post has an update that hits close to home for me:

IRS officials at the agency’s Washington headquarters sent queries to conservative groups asking about their donors and other aspects of their operations, while officials in the El Monte and Laguna Niguel offices in California sent similar questionnaires to tea-party-affiliated groups, the documents show.

We next discover an allegation that there’s a secret group working on conservative organizations. Normally, I wouldn’t believe this. However, I am forced to remember, “Sometimes the cynics are right.” Attorney Dan Backer alleges that an IRS analyst told him that there’s such a group.

“More than a year ago, one of these guys, really a slip of the tongue, [said] ‘Yeah we have this new working group that’s really looking at all these conservative organizations,’” Backer said. “And that’s when we knew it was gonna be a problem.”

We have the National Organization for Marriage’s lawsuit against the IRS alleging that IRS employees revealed the confidential portion of their Form 990 filing. (Some portions of Form 990 are released; however, some portions do remain confidential. The list of donors to a non-profit is listed on Schedule B of Form 990; that is considered confidential.)

Lost in all this is another black eye for the IRS: The GAO said that the IRS has 60 deficiencies in their internal controls. I guess the news stories of the day might make one believe that’s the case.

At this point in time, the paranoid are believing that there’s an “Enemies List” and that higher-ups are organizing IRS vendettas against conservatives and conservative groups; and that the Enemies List comes from higher-ups in Washington, DC. One week ago, I would not have believed someone who told me, “The IRS deliberately targeted conservative groups and this had gone on for three years and it goes up to the IRS Chief Counsel’s Office.” Yet that absolutely appears to be the case. I’m forced to admit that the paranoid in this case could be correct. I don’t know if we’re heading toward a repeat of what happened with Watergate, but I am certain that there will be a lot of tough questions for a lot of individuals at the IRS.