[From] Inspector General for Tax Administration
Department of the Treasury
Washington, D.C. 20005
June 26, 2013
[To] The Honorable Sander M. Levin
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515-6348
Dear Representative Levin:
This letter is in response to letters dated June 24, 2013 and June 26, 2013 regarding our recent audit report entitled "Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review." We appreciate the opportunity to clarify our recent report in response to your questions.
TIGTA’s audit report focused on criteria being used by the Internal Revenue Service (IRS) during the period of May 2010 through May 2012 regarding allegations that certain groups applying for tax-exempt status were being targeted. We reviewed all cases that the IRS identified as potential political cases and did not limit our audit to allegations related to the Tea Party. TIGTA concluded that inappropriate criteria were used to identify potential political cases for extra scrutiny - specifically, the criteria listed in our audit report. From our audit work, we did not find evidence that the criteria you identified, labeled "Progressives," were used by the IRS to select potential political cases during the 2010 to 2012 timeframe we audited. The "Progressives" criteria appeared on a section of the "Be On the Look Out" (BOLO) spreadsheet labeled "Historical," and, unlike other BOLO entries, did not include instructions on how to refer cases that met the criteria. While we have multiple sources of information corroborating the use of Tea Party and other related criteria we described in our report, including employee interviews, e-mails, and other documents, we found no indication in any of these other materials that "Progressives" was a term used to refer cases for scrutiny for political campaign intervention.
Based on the information you flagged regarding the existence of a "Progressives" entry on BOLO lists, TIGTA performed additional research which determined that six tax-exempt applications filed between May 2010 and May 2012 having the words "progress" or "progressive" in their names were included in the 298 cases the IRS identified as potential political cases. We also determined that 14 tax-exempt applications filed between May 2010 and May 2012 using the words "progress" or "progressive" in their names were not referred for added scrutiny as potential political cases. In total, 30 percent of the organizations we identified with the words "progress" or "progressive" in their names were processed as potential political cases. In comparison, our audit found that 100 percent of the tax-exempt applications with Tea Party, Patriots, or 9/12 in their names were processed as potential political cases during the timeframe of our audit.
The following addresses the specific questions presented in your June 24, 2013 letter:
• Please describe in detail why your report dated May 14, 2013 omitted the fact that "Progressives" was used.
Our audit did not find evidence that the IRS used the "Progressives" identifier as selection criteria for potential political cases between May 2010 and May 2012. The focus of our audit was on whether 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. We determined the IRS developed and used inappropriate criteria to identify applications from organizations with the words Tea Party in their names. In addition, we found other inappropriate criteria that were used (e.g., 9/12, Patriots) to select potential political cases that were not included in any BOLO listings. The inappropriate criteria used to select potential political cases for review did not include the term "Progressives."
The term "Progressives" appears, beginning in August 2010, in a separate section of the BOLO listings that was labeled "TAG [Touch and Go] Historical" or "Potential Abusive Historical." The Touch and Go group within the Exempt Organizations function Determinations Unit is a different group of specialists than the team of specialists that was processing potential political cases related to the allegations we audited.
• Did you investigate whether the criteria "Progressives" in the BOLO lists was developed in the same manner as you did for "Tea Party"? If not, why?
TIGTA did not audit how the criteria for the "Progressives" identifier were developed in the BOLO listings. We did not audit these criteria because it appeared in a separate section of the BOLO listings labeled as "Historical" (as described above) and we did not have indications or other evidence that it was in use for selecting potential political cases from May 2010 to May 2012.
• Please also explain why footnote 16 on page 6 was included in the audit report.
Footnote 16 was included in our report because TIGTA was aware of other named organizations being on BOLO listings that were not used for selecting cases related to political campaign intervention. TIGTA added this footnote to disclose that we did not audit whether the use of the other named organizations was appropriate. Following the publication of our audit report, we communicated information regarding other names on the BOLO listings to Acting Commissioner Daniel Werfel, and, to the extent authorized by Title 26 U.S.C. § 6103, the Senate Committee on Finance and the House Committee on Ways and Means.
• If your organization overlooked the existence of the "Progressives" identifier, please describe in detail the process by which your organization investigated the BOLO lists created and circulated by the EO Determinations Unit.
As part of our audit, we reviewed the section of the BOLO listings that related to the specific criteria that the IRS stated were used to identify potential political cases for additional scrutiny. TIGTA also found that certain criteria (e.g., Patriots, 9/12, education of the public by advocacy/lobbying to "make America a better place to live," etc.) used to select potential political cases were not in any BOLO listings.
• Your report states that TIGTA "reviewed all 298 applications that had been identified as potential political cases as of May 31, 2012." (See page 10 of your report.) Your report includes the following breakdown of the potential political cases by organization name: (1) 96 were "Tea Party," "9/12," or "Patriots" organizations; and (2) 202 were "Other." Why did your report not identify that liberal organizations were also included among the 298 applications you reviewed?
TIGTA did not make any characterizations of any organizations in its audit report as conservative or liberal and believes it would be inappropriate for a nonpartisan Inspector General to make such judgments. Instead, our audit focused on the testing of 296 of the 298 potential political cases (two case files were incomplete) to determine if they were selected using the actual criteria that should have been used by the IRS from the beginning to screen potential political cases. Those criteria were whether the specific applications had indications of significant amounts of political campaign intervention (a term used in Treasury's Regulations). For 69 percent of the 296 cases, TIGTA found that there were indications of significant political campaign intervention, while 31 percent of the cases did not have that evidence. We also reviewed samples of 501 (c)(4) cases that were not identified as potential political cases to determine if they should have been. We estimate that more than 175 applications were not appropriately identified as potential political cases.
TIGTA’s audit report determined that certain cases were referred for potential political review because their names used terms in the IRS selection criteria. We could not tell why other organizations were selected for additional scrutiny because the IRS did not document specifically why the cases were forwarded to a team of specialists. TIGTA recommended that the IRS do so in the future.
• Why did your testimony before the Committee on Ways and Means, the Oversight and Government Reform Committee, and the Senate Finance Committee not include a discussion of this aspect of the 298 applications?
When I testified, I attempted to convey that our report did not characterize organizations as conservative or liberal and I believe it would be inappropriate for a nonpartisan Inspector General to make such judgments.
• In the course of your audit, what did you discover about the processing of cases with the "Progressives" identifier? Were the cases processed in the same manner as the cases with the "Tea Party" and associated terms identifiers? Or were they processed differently?
TIGTA's audit did not review how TAG Historical cases (including the "Progressives" identifier) were processed because we did not find evidence that the IRS used the TAG Historical section of the BOLO listings as selection criteria for potential political cases between May 2010 and May 2012.
• If you are now auditing or investigating the processing of tax-exemption applications with the "Progressives" identifier, please provide the date that you started the audit or investigation and documentation to support this assertion. We also would like to know if you have briefed and alerted anyone at the IRS or Department of Treasury of such audit or investigation.
TIGTA’s Office of Audit made a referral to our Office of Investigations on May 28, 2013 stating that our recently issued audit report noted the use of other named organizations on the BOLO listings that were not related to potential political cases reviewed as part of our audit. TIGTA's Office of Audit requested the Office of Investigations investigate to determine: 1) whether cases meeting the criteria on the "watch list" [a particular section of the BOLO listings] were routed for any additional or specialized review, or were simply referred to the same group for coordinated processing; 2) how many (if any) applications were affected by use of these criteria; 3) who was responsible for the inclusion of these criteria on the BOLO lists; and 4) whether these criteria were added to the BOLO for an improper purpose.
TIGTA also discussed the BOLO listings with the Acting Commissioner of the IRS on May 28, 2013, and expressed our concerns and the importance of the IRS following up on this matter. We notified the Acting Commissioner of our review of this matter on that date. In addition, I informed the Department of the Treasury's Chief of Staff and General Counsel about this matter.
Pursuant to authorization under Title 26 U.S.C. § 6103, we also provided these BOLO listings to House Ways and Means Committee Majority staff and the Senate Finance Committee Majority and Minority staff on June 7, 2013. We spoke to staff from House Ways and Means Committee Majority staff on the BOLOs on June 6 and June 11, 2013, and Senate Finance Committee Majority and Minority staff on June 10, 2013. We informed the staff we met with of our ongoing review of this matter.
Because of Privacy Act and Title 26 U.S.C. § 6103 restrictions, TIGTA cannot comment specifically on the status of any ongoing investigation. TIGTA will continue its efforts to provide independent oversight of IRS activities and accomplish its statutory mission through audits, inspections and evaluations, and investigations of criminal and administrative misconduct.
In your June 26, 2013 letter, you raised concerns about statements attributed to TIGTA sources by members of the media. Many of the press reports are not accurate. Please rely on our statements in this letter, my testimony, and our published materials for an accurate portrayal of our position.
We hope this information is helpful. If you or your staff has any questions, please contact me at 202-622-6500 or Acting Deputy Inspector General for Audit Michael E. McKenney at 202-622-5916.
J. Russell George
* * *
Rep. Dave Camp puts his April 9 referral letter in perspective:
Today [April 9, 2014], House Ways and Means Committee Chairman Dave Camp (R-MI) announced that the Committee, acting under its authority granted in Sec. 6103 of the Internal Revenue Code, voted out a criminal referral letter to Department of Justice (DOJ) Attorney General Eric Holder regarding actions taken by IRS employee Lois Lerner. Chairman Camp, in sending the letter on behalf of the Committee, urged Holder to take a serious review of the evidence uncovered through the Committee’s investigation to determine whether Lerner violated criminal statutes.
The Committee uncovered three specific acts undertaken by Lerner that may have violated one or more criminal statutes documented in the letter:
- Lerner used her position to improperly influence agency action against only conservative organizations, denying these groups due process and equal protection rights under the law. She showed extreme bias and prejudice towards conservative groups. The letter lays out evidence on how Lerner targeted conservative organization Crossroads GPS as well as other right-leaning groups, while turning a blind eye to similarly-organized liberal groups, like Priorities USA.
- Lerner impeded official investigations by providing misleading statements in response to questions from the Treasury Inspector General for Tax Administration (TIGTA).
- Lerner risked exposing, and may actually have disclosed, confidential taxpayer information, in apparent violation of Internal Revenue Code section 6103 by using her personal email to conduct official business.
If convicted of these crimes, Lerner could face up to 11 years in prison.
Upon releasing the letter, Chairman Camp stated, “This investigation has uncovered serious, unprecedented actions taken by Lois Lerner that deprived conservative groups of their rights under the Constitution. Almost a year ago we learned that the IRS subjected certain groups to extra scrutiny because of their political beliefs. At the time, Lois Lerner shamefully attempted to blame the mistreatment on low-level employees in Cincinnati. The investigation to date has demonstrated that the targeting did not happen until IRS headquarters in D.C. intervened. Today’s action highlights specific wrongdoing for the Department of Justice to pursue. DOJ has a responsibility to act, and Lois Lerner must be held accountable. It is also important that the American people know what really occurred at the IRS, so this powerful agency cannot target American taxpayers ever again.”
The Internal Revenue Code explicitly provides a procedure for the House Ways and Means Committee to release taxpayer information to the House under section 6103 of the Internal Revenue Code. The letter to DOJ was marked up by the Committee in closed executive session. Upon approval of the letter, it was then made public to the House.
The letter to DOJ can be read here.
Timeline of Lois Lerner’s Targeting of Conservatives
January 21, 2010:
Citizen’s United Ruling : Supreme Court issues ruling in Citizens United case, which would lead to an active campaign by Democrats against conservative groups – a campaign Lerner was well aware of and reacted to.
January 27, 2010:
President Obama Goes on the Attack : In his State of the Union address, President Obama states: “With all due deference to separation of powers, last week the Supreme Court reversed a century of law that I believe will open the floodgates for special interests – including foreign corporations – to spend without limit in our elections. I don't think American elections should be bankrolled by America's most powerful interests, or worse, by foreign entities.”
IRS Targeting Begins : According to TIGTA, the IRS’s Determinations Unit “began searching for other requests for exemption involving the Tea Party, Patriots, 9/12 and IRC § 501(c)(4) applications involving political sounding names, e.g., 'We the People' or
'Take Back the Country.'"
September 26, 2010:
White House Steps Up Attacks: David Axelrod, then-senior advisor to President Obama, referred to Crossroads GPS and similar groups as “front groups for special interests. These are front groups for foreign-controlled companies, which would have been banned under the bill that we put through Congress, and they don't want the American people to know, and the American people ought to be alert to that."
October 12, 2010:
Democrat Leaders Join Attack: Assistant Majority Leader Dick Durbin urges the IRS to investigate the tax status of Crossroads GPS and “other orgs” – though no other organizations were named.
October 19, 2010:
Lerner on Alert: Speaking to students at Duke University, Lois Lerner states that 501(c)(4) organizations were spending money on campaign activity in the wake of the Citizens United decision and claimed, “[E]verybody is screaming at us, ‘fix it now before the election….”
Lerner Calls Conservatives “Dangerous,” Start to Take Control: Lois Lerner sends email to IRS employees “Tea Party Matter very dangerous ….Cincy should probably NOT have these cases.”
March 24, 2011:
Democrats Step Up Attacks : DCCC launches website to “expose donors of Crossroads GPS.”
June 3, 2011:
Congressional Inquiries Begin: Chairman Camp sends letter to Commissioner Shulman inquiring about IRS targeting of taxpayers who donated money to conservative groups, as well as information regarding audits of 501(c)(4) organizations.
June 19, 2012:
White House Continues to Attack: President Obama’s lawyer demands that Crossroads GPS disclose its donors, saying in a complaint to the Federal Election Commission that the group is plainly a “political committee” subject to federal reporting requirements.
February 1, 2012:
Democrats Continue to Attack : National Public Radio reports that Senate Democrats, led by Senator Chuck Schumer (D-NY), want to investigate groups such as Crossroads GPS.
July 10, 2012:
Lerner’s Mindset Revealed : Lois Lerner, in response to a story sent to her regarding the complaint to the FEC against Crossroads GPS replies “Perhaps the FEC will save the day.”
July 17, 2012:
Lerner Starts to Prepare Cover Story : Lerner sent an email to Holly Paz and Nikole Flax offering comments on a talking point that referred to an “uptick in political advocacy cases,” drafted for then-Deputy Commissioner for Services and Enforcement Steve Miller. However, Lerner admits that, “I know we don't have published SOI stats” to support such a claim." [See letter to DOJ]
July 27, 2012:
Democrats Attack, Again : Senator Carl Levin (D-MI) sends another letter to the IRS regarding Crossroads GPS and others, seeking a probe and status.
December 14, 2012:
IRS Leaks : Crossroads GPS’s application is leaked to ProPublica, though the tax-exempt status of the group had not been determined, a violation of federal law.
November 2, 2012:
Lerner Misleads TIGTA : Lerner sends misleading response to TIGTA investigatory audit questionnaire. [See letter to DOJ]
January 4, 2013:
Lerner Leaps Into Action : Lerner organizes a meeting with Democracy 21 and also with the Office of Chief Counsel and the Office of Tax Policy at the Department of the Treasury for January 4. This begins a series of specific actions by Lerner that targets only conservative groups. [See letter to DOJ]
January 4, 2013:
Lerner Pressures Review Committee : Lerner inquires to the status of Crossroads, and finds that the group had not been selected for audit. She subsequently sent an email to the Director of Examinations in Dallas, TX, Nanette Downing, demanding to know why the group had not yet been audited. In her email to Downing, she notes that she wants all moves regarding Crossroads to be coordinated in DC. [See letter to DOJ]
January 24, 2013:
Lerner Ponders Job for Obama Organization : In response to a news story about the formation of the President’s Organizing For Action, a 501(c)(4), Lerner remarked to EO Senior Technical Advisor Sharon Light, “Oh—maybe I can get the DC office job!” [See letter to DOJ]
January 31, 2013:
Lerner Attempts to Influence Independent Appeals Process : In an email to the Chief of IRS Appeals, Chris Wagner, Lerner offers unsolicited advice on the independent appeals process notwithstanding a prohibition against such contact. [See letter to DOJ]
May 10, 2013:
Lerner Misleads Public : At an American Bar Association function, Lois Lerner, director of the IRS’s Exempt Organizations Division, publicly apologizes for what she claimed were inappropriate actions by the Cincinnati office of the IRS to subject conservative groups to extra scrutiny.