Curious IRS Timing

The IRS has admitted targeting groups that wanted to speak on issues during the 2012 election season. But did the agency also target tax-exempt groups that opposed Administration policy priorities?

At a House oversight hearing last week, Treasury Inspector General Russell George opened the door on the possibility of more IRS political targeting. Asked by Chairman Darrell Issa whether there were other political criteria that IRS workers had been told to “be on the lookout” for, Mr. George said he could “not give you a definitive answer, sir, at this time. But I certainly will.”

A definitive answer is needed because troubling cases are surfacing. The Arlington, Virginia-based Leadership Institute, a 501(c)(3) that trains young conservative activists, says it was audited in 2011-2012 and had to produce some 23,000 pages of documents for the IRS as well as answer questions about where its interns came from and where they are currently employed.

Curiously, the intrusive questionnaire came from the IRS’s Baltimore office on February 14, 2012, soon after the Cincinnati office asked the Hawaii Tea Party on January 26, 2012 to “provide details regarding your relationship with the Leadership Institute” and “provide copies of their training materials.” The group’s audit fell squarely within the IRS’s 2010-2012 season for conservative targeting.

A Pennsylvania pro-Israel group called Z Street says it filed for 501(c)(3) status in December 2009, intending to operate purely as an educational group. Founder Lori Lowenthal Marcus says that its tax counsel called the IRS in July 2010 to check on the slow pace of approval, and the IRS acknowledged its targeted enforcement.

Asked about the slow pace of approval, the IRS auditor on the case, Diane Gentry, said the application was taking so long because auditors were supposed to give special scrutiny to groups “connected with Israel.” Ms. Marcus says Ms. Gentry further explained that many applications related to Israel had to be sent to “a special unit in D.C. to determine whether the organization’s activities contradict the Administration’s public policies.” Z Street filed suit in August 2010 in federal court in Pennsylvania alleging “viewpoint discrimination,” and its case has since been moved to Washington, D.C. Ms. Gentry did not return our phone calls.

Bloomberg

U.S. Treasury Inspector General J. Russell George during a House Oversight and Government Reform Committee hearing in Washington, D.C., on May 22nd.

Why the special scrutiny for pro-Israel groups? A New York Times article in July 2010 provided a clue: Tax-exempt groups were donating to West Bank settlers, and State Department officials wanted the settlers out. “As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank,” the Times wrote, “the American Treasury helps sustain the settlements through tax breaks on donations to support them.”

Did the T-men take their political cues from such stories, or did Administration officials give them orders? Either explanation would be a violation of public trust.

This would also suggest a pattern: Washington officials sent a message for tougher scrutiny of certain 501(c) groups, and the IRS coincidentally adjusted its enforcement regime. That’s what happened in 2010 and 2012 when Democrats Max Baucus and Chuck Schumer encouraged the IRS to tighten the screws on conservative tax-exempt groups.

Most tea party groups targeted by the IRS were applying for 501(c)(4) status, which allows considerable leeway for political engagement. A 501(c)(4) group can spend 100% of its money on lobbying and may spend directly in support of candidates or campaigns as long as that activity isn’t its primary purpose.

This is what most tea party groups targeted by the IRS wanted to do. IRS questions about books read, Facebook posts, donor names or the content of a group’s prayers may have yielded information on what that group would advocate, but they have zero relevance for 501(c)(4) status. There’s still much we don’t know about the scandal of politicized tax enforcement.