IRS Asked Inappropriate Questions Of Nonprofit Applicants

Fallout from the way the Internal Revenue Service (IRS) singled out certain groups applying for 501(c)(4) status under the federal tax code prompted a spirited exchange when Cleta Mitchell, a lawyer and conservative activist, went head to head with John Pomeranz, a lawyer advocating for more bright lines in how the IRS makes its determinations, and Marcus Owens, a former director of the IRS Exempt Organizations Division, a unit that Mitchell would like to see abolished. “Just rip it out,” she said.

The Hudson Institute’s William Schambra moderated the discussion last week with everyone agreeing that the revelations that came to light earlier this year were indeed a scandal that was not put to rest when Lois Lerner, director of the IRS Exempt Organizations Division, during an American Bar Association meeting in May apologized for the agency’s behavior. The question that lingers, as Schambra put it, is the IRS “devilishly clever at pursuing their political enemies,” or was the listing of groups with Tea Party or Patriots in their name the result of haplessness by an overburdened and under-resourced agency?

Mitchell was the first to take the microphone. She said she first realized something was amiss at the IRS in the fall of 2009 and spring of 2010 when organizations she represented were left waiting for unusually long periods of time. When she checked with the IRS, she was told that a client’s application was turned over to “someone who better understands your type of organization.”

Her clients were then peppered with all kinds of “unrelated questions, pages and pages with sub-parts,” which she turned over to House and Senate staffers, convinced, as she put it, that “something was going on at the White House… When Lois issued her apology and blamed rogue agents in Cincinnati, I knew she was lying,” Mitchell said. “I dealt with Washington always.”

An IRS agent, who she dubbed “my parole officer” because she checked in so often, told her that analysts at the Exempt Organizations Division did not generally understand the difference between a 501(c)(3), with limited ability to lobby, and a 501(c)(4), which can engage in unlimited lobbying, but is restricted in its political activity.

“This is not the first time we’ve been to this rodeo,” the second speaker, John Pomeranz countered, recalling when gay and lesbian groups first sought tax-exempt status. “Awfully inappropriate questions have been asked before this most recent nonsense,” he said. “It’s really hard for a low level IRS — or hell, a high-level IRS person” — to make these determinations. And, they often fall back on the ‘facts and circumstances’ test to justify their decisions, the ‘we know it when we see it’ judgments that create uncertainty and suspicion about the agency’s motives and possible politicization depending on which political party holds the White House.

When Pomeranz heard Lerner’s apology and “the IRS’ ham-handed disclosure,” he and several of his colleagues rushed to release a document they had been working on for some time that lays out in understandable language what constitutes political intervention, and what a tax-exempt organization can and can’t do to stay within the law. A threshold question, for example, would be, “Are you expressing a view about a candidate?” That would cross a line. Non-partisan voter guides are okay “as long as you give everyone equal chance to hang themselves,” he said,  “and you can say where you stand.” Pomeranz’ work can be found on the web site, Brightlinesproject.org. “Some of us believe the dysfunction of the IRS has to do with competence; others believe more malign motives,” he said, “But we do need to fix this.”

The third and final speaker, Marcus Owens, led off saying, “I have a darker view of what’s happening at the IRS.” He said the agency is struggling to process applications received in April 2012, and reviewing its website, he saw it took them five months to get beyond the March applications. Owens led the IRS’s Tax Exempt Division and was with the agency from 1975 through 2000.

He said “fissures” started showing up in 2003, when the IRS stopped publishing training manuals. They tried to fill the gap with video conferencing and webinars, but Owens said it’s not the same as the three days of classroom training they used to do. “I don’t know if Lois Lerner was lying or telling the truth, she probably didn’t know what was going on in the field,” he said. “This has been building for a decade. It just happened to break open over a fissure in C-4 applications, but it could have been anything else.”