IRS Chief Forced To Quit After Targeting Tax-Exempts

May 16, 2013       Mark Hrywna      

Internal Revenue Service Interim Commissioner Steven Miller, who at one time headed the IRS’s Exempt Organizations Division, resigned when asked to step down by U.S. Treasury Secretary Jacob Lew. He will leave the job next month.

The resignation comes just days after it became public that the IRS targeted the applications for tax exempt status of Tea Party and other 501(c)(4) conservative-sounding organizations.

“Americans have a right to be angry about it, and I’m angry about it,” President Barack Obama said during a news conference. “It should not matter what political stripe you’re from. The fact of the matter is the IRS has to operate with absolute integrity.”

Via an interagency memo, Miller told IRS staff: “This has been an incredibly difficult time for the IRS, given the events of the past few days, and there is a strong and immediate need to restore public trust in the nation’s tax agency. I believe the service will benefit from having a new acting commissioner.”

He is slated to testify tomorrow on Capitol Hill before the House Ways and Means Committee.

Miscommunication and ineffective management oversight within the Internal Revenue Service (IRS) caused almost 300 organizations to be caught up in a regulatory purgatory.

The Treasury Inspector General for Tax Administration (TIGTA)’s audit of the IRS process of handling tax-exempt applications for a handful of 501(c)(4) organizations found that a third of the organizations had the phrases “Tea Party,” “Patriots,” or “9/12” in the name. None of the 298 organizations were denied but 28 withdrew the applications while 108 were approved, as of Dec. 17, 2012. More than half (160) had their cases open from six months to as more than three years.

Released in May less than a week after IRS Exempt Organizations (EO) Director Lois Lerner apologized for the agency “targeting” conservative organizations’ applications, the TIGTA audit made nine recommendations to improve the process. Among the recommendations, some of which already have started to be implemented, were to better document reasons why applications are chosen for review, develop a process to track requests for assistance, and develop and publish guidance and training for employees as well as request that social welfare activity guidance be developed by the Department of Treasury.

The 55-page audit was prompted after concern by Congressional representatives about the treatment of organizations applying for tax-exempt status. The report focused on allegations that the IRS targeted specific groups applying for tax-exempt status, delayed the processing of their applications, and requested unnecessary information.

The audit determined that the IRS Determinations Unit in the Cincinnati, Ohio office used inappropriate criteria to identify applications from organizations with the words “Tea Party,” “Patriots” and “9/12” in their names. Applications also were identified with “evidence of significant political campaign intervention” that were not forwarded to the specialists. In the majority of the 298 cases, the audit agreed that applications included indications of “significant political campaign intervention,” while 91 (or 31 percent) did not but had complete documentation.

In June 2011, Lerner “immediately directed that the criteria be changed” after being briefed about it, and in July 2011, they were changed to focus on the potential “political, lobbying, or advocacy activities” of the organizations. Still, potential political cases experienced significant processing delays, the audit found.

No work was completed on the majority of the applications for 13 months due to delays in getting assistance from the EO function at IRS Headquarters, according to the audit. The team of specialists stopped processing cases in October 2010 without closing any of the 40 cases started. The Determinations Unit program manager thought the cases were being processed waited for assistance from the Technical Unit instead of continuing to process the cases but written guidance was not received until 13 months later, in November 2011.

Despite the flap, the number of 501(c)(4)s approved by the IRS increased 2010, 2011 and 2012, although the percentage of applications approved dropped from 88 percent in 2011 to 84 percent in 2012, according to IRS statistics.

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