IRS Hearings, And What to Expect

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Published May 14, 2013

| FOXBusiness

The “social welfare” mission for tax-exempt nonprofit groups certainly covers issues about government spending, government debt, federal taxes, “how the government is run,” the Bill of Rights and the Constitution.

Those educational efforts are within the letter of the tax law and the IRS code, tax pros say.

So why did the IRS zero in on nonprofit applicants with the words “Tea Party” or “patriot” in their names for doing just that, rejecting their tax-exempt status for educating the public on issues that affect all taxpayers? 

Why did the IRS start applying a new political test in January 2012, according to the Washington Post, for these “social welfare” groups that apply for tax-exempt status?

Did the IRS also do a deep dive of left wing groups with the words “progressive” or “move on” in their names, as Rep. Daryl Issa (R-Calif.) asks?

“Unfortunately, it appears as though the IRS looked only at conservative groups applying for the exemption, an inexcusable mistake,” The New York Times now says.

The Tea Party News Network tells FOX Business the IRS gave it a hard time, putting it through multiple hoops, demanding donor names, events, and drilling down into the detailed list of guests at these events.

The IRS is not some mindless, denatured, acultural thing, like a sewing machine. It’s populated by human beings prone to political pressures. It’s a bureaucracy as powerful and as secretive as the FBI or the CIA, and it’s the only agency where taxpayers are guilty until proven innocent. The IRS’s nasty history shows what to expect from coming hearings (see below).

These are just some of the issues the IRS will likely have to address at Congressional hearings, as politicians from both sides of the political aisle are clamoring to put agency officials on the docket. The story also shows once again that one of the country’s most powerful agencies is also the most underreported on.

To date, there has been no indication or evidence presented that the White House knew about this targeting.

President Barack Obama said: “If IRS personnel engaged in practices reported on and intentionally targeted conservative groups, that’s outrageous and there’s no place for it. They have to be held fully accountable.”

Despite the fact that Lois Lerner, head of the division on tax-exempt organizations, already issued a formal apology, noting the agency's actions were "absolutely incorrect" and "inappropriate."

IRS HEARINGS

Rep. Dave Camp, (R-MI), chairman of the House Ways and Means Committee and Rep. Sander Levin (D-MI), ranking member of Ways and Means, announced that the committee will hold a hearing on the IRS this Friday.

Senate Finance Committee chairman Max Baucus (D-Mont.) also said in a statement: “The IRS should be prepared for a full investigation into this matter by the Senate Finance Committee.”  

CITIZENS UNITED DECISION

The so-called ‘dark money’ flooding into campaigns via nonprofits after the Supreme Court’s 2010 Citizens United decision will likely come up.

According to OpenSecrets.org, a watchdog division of the Center for Responsive Politics, even before the SCOTUS decision, the seven top GOP candidates had raised a combined $254 million by the end of 2007—but Democrat contenders Barack Obama and Hillary Clinton raised even more, $318 million.

Subsequently, more money was spent on TV commercials in the last presidential race by 501(c)(4) social welfare nonprofits than by any other type of independent group, says ProPublica.

The number of groups seeking tax-exempt status as 501(c)(4) social welfare organizations has doubled since the SCOTUS decision, estimates show. The Citizens United decision may be cited as the reason that the IRS is justified in stepping up its questioning of non-profits.

IRS TESTIFYING

The problem is, the IRS itself is restricted in talking about IRS scandals like the one breaking open now, due to confidentiality laws enacted after IRS scandals under the Nixon Administration.

To give its side of the story, the agency likely will have to get waivers from taxpayers themselves—which would either more fully show its complicity or exonerate it.

Still, despite the more than half a dozen committees that oversee it, Congress has historically been lacking in oversight, too, with a small number of Congressmen doing the heavy lifting.

Former Democratic Senator John Glenn, who orbited the Earth alone in a space capsule, once said he commonly flew solo at IRS hearings, noting after one hearing in the ‘90s that he sat “up there taking testimony all by myself.”  

IRS-HEALTH REFORM CONCERNS

The latest controversy is all the more alarming given the fact the IRS must now help oversee the enforcement of health reform.

The law now carries 47 new taxes and regulations, says the Government Accountability Office, including the individual mandate tax, plus potential new “1099”-type forms taxpayers must fill out disclosing details about their health insurance.

The loose structure of the IRS has historically left it prone to all sorts of meltdowns and scandals. The IRS’ Cincinnati office is the central office where all tax-exempt applications are reviewed, and it is where the current apparent abuses took place.

IRS nonprofit chief Lerner reportedly had ordered IRS workers to broaden the focus on all applicants beyond just conservative groups, after she had heard about Tea Party applicants being singled out for review through keyword searches in applications. But that order apparently went unheeded.

Top IRS officials were made aware of the push nearly two years ago but nothing was said about it.  

NASTY IRS HISTORY

What is happening now at the IRS veers close to political abuses of the agency, political abuses at the IRS which date back to President Franklin Delano Roosevelt and allegedly continued through President Bill Clinton.

The problem was, early in the 20th century, the federal government willy-nilly rubber-stamped tax exemptions, giving this tax-free status to practically anyone or group who wanted one, including several dozen groups that bruited their ties to the Soviet Union and communism in the ‘30s. 

In the ‘30s, the IRS began audits of “subversive organizations” that were an extension of the FBI’s efforts to target extremist groups, at the direction of J. Edgar Hoover. Senate hearings in  Those probes grew after 1969 disclosed allegations that nonprofits were engorging themselves at taxpayers’ expense as they raised tax-free money for their causes.

That led to the IRS’s “Special Services Staff,” which collected information on Vietnam War protestors, many of whom refused to file tax returns in protest of the war.

Complicating the history, too, is the fact that what was then called the Alcohol and Tobacco Tax division, (now called the Bureau of Alcohol, Tobacco, Firearms and Explosives) was part of the IRS until 1972.

That meant the IRS oversaw a federal law enforcement unit that made it easier for elected officials to enlist the IRS to do all sorts of politically charged probes of taxpayers, including combating “racketeers and communism in the 1950s, organized crime in the 1960s, and narcotics as well as the enemies of the Nixon administration in the 1970s,” a memo from former John F. Kennedy’s IRS chief counsel Mitchell Rogovin said.

Later, Freedom of Information Act disclosures revealed a nasty history of the IRS probes into taxpayers, which included wiretaps in the ‘50s and ‘60s, even in public phone booths at the IRS, planting informants, the use of omni-directional microphones and infrared binoculars, the use of two-way mirrors in IRS offices, even opening mail.

The IRS’s past also includes the launch of secret operations that targeted American citizens, secret programs with names such as Operation Leprechaun, Project Southwest, Operation Snowball, Projects Haven and Tradewinds, the Kennedy’s Ideological Organizations Project, President Nixon’s enemies list and his IRS Special Services Staff, regrettably nicknamed the SSS, IRS documents show.

KENNEDY’S SECRET AUDITS

As FOX Business has reported, the Kennedys systematically used the IRS to muzzle both right-wing and left-wing groups, and the auditing was done at the behest of politicians, not the professionals at the IRS. This reporter covered White House political audits and IRS targeting, including under the Nixon, Kennedy and Clinton administrations, while at the Wall Street Journal.

FOIA documents also show the Kennedys randomly used the IRS to audit whomever they pleased—for example, John F. Kennedy was miffed that taxpayers on a boat adjoining his in Cape Cod were so noisily interrupting his vacation time, he had the IRS audit them, FOIA documents show.  

The political audits were kept secret by the Kennedy administration. "If the president is interested in a particular program, you would certainly in some instances give attention to some area he's interested in," Mortimer Caplin, IRS commissioner under President Kennedy had said. "I am comfortable with that as a commissioner, though you prefer to be left alone. But if the president should call, and you feel that he has a reasonable request, you will be compliant."

Both right wing and left wing groups, even non-partisan groups, were caught up in the Kennedys’ dragnet. President John F. Kennedy urged the IRS "to go ahead with [an] aggressive program on both sides of center,” according to a penciled note on an IRS memo. "The thinking was, the further we reached out, the more neutral the program would be," Caplin had said.

The list of audit targets included groups like B’Nai Brith, the Daughters of the American Revolution, and the Zionist Organization of America (later deleted from the list). President Kennedy’s IRS program also audited Lee Harvey Oswald’s group, Fair Play for Cuba Committee, already under investigation by the FBI and CIA. "We recognized the sensitivity of just going after [the] right wing, so we wanted to add both left- and right-wing groups for balance," Caplin had said. "It's unclear who selected these groups, though.”

Caplin also had said: “Many left-wing groups had already been given a difficult time during the Eisenhower years. They had already been audited. So, we scraped the bottom of the barrel to find groups that had not already been audited.”

IRS memos show that President Kennedy was delighted with the program, which broadened to potentially target 10,000 groups and lasted until the early years of the Lyndon B. Johnson Administration. The LBJ White House continued to grant Congressional committees access to any “tax returns for the years 1948 to 1967,” IRS memos show.

Under LBJ, the IRS targets included businessmen, union officials, religious figures, entertainers or sports figures. Much of this information is also supported by ground breaking research done by Franklin & Marshall academic John Andrew, author of “Power to Destroy: The Political Uses of the IRS from Kennedy to Nixon.”

NIXON’S SECRET AUDITS

The Nixon administration’s abuses of the IRS took place between 1969 and 1973, where it pressured the IRS to audit and harass opponents of the administration or its policies. But disclosures show the Nixon White House never managed to gain complete control of the IRS because ultimately IRS officials stopped it.

For example, one IRS document shows that President Richard Nixon proposed auditing all Democratic senators running for re-election in 1970. “What we cannot do in a courtroom, the IRS could do by administrative action,” reads one White House memo. But the IRS refused.

White House aide John Ehrlichman complained to then IRS commissioner Randolph Thrower to stop the IRS from probing President Nixon’s brother Donald, due to alleged underreporting involving political donations and kickbacks arising from his connections to the billionaire Howard Hughes and Nixon friend Bebe Rebozo, IRS research shows.

IRS veteran and Democrat William Loeb, then a deputy IRS commissioner, stymied White House aide G. Gordon Liddy’s dreams to have “hundreds of additional agents” working outside normal IRS reporting channels on behalf of the White House, IRS documents show.

Frustrated with the IRS, President Nixon sent aide H.R. Haldeman an “eyes only” memo in March 1973, asking: “What happened to the suggestion that the IRS should run audits on all members of Congress?”

But President Nixon did get his way, as the IRS launched its “Special Services” Group in 1970 which initially probed, often at the behest of the FBI’s J. Edgar Hoover, war tax resisters and communist sympathizers. Later this list grew to 11,000 taxpayers and groups.

However, IRS commissioner Donald Alexander stepped in and stopped the SSS in 1973, and ordered a probe, IRS research shows. Still, Congress held no separate hearings on the SSS or these IRS audits. Watergate investigations later revealed that two-thirds of all SSS probes had nothing to do with tax compliance, IRS research shows.

However, President Nixon’s enemies list of 767 taxpayers targeted for IRS audits included Shirley MacLaine, Doris Day, Frank Sinatra, Sammy Davis, Jr., Lucille Ball, and future President Ronald Reagan. Often at the urging of the FBI, the IRS audited nonprofits and taxpayers, such as the Southern Christian Leadership Conference under Martin Luther King, Jr, the Ku Klux Klan, and Howard Hughes, as well as Jimmy Hoffa.

An internal IRS document in August 1972 showed that the IRS’s own review of SSS files found that about 37% of the 767 taxpayers targeted “were not worthy of staff consideration.

AUDITS UNDER THE CLINTON ADMINISTRATION

The Clinton Administration was alleged to have reactivated targeted, political IRS audits against at least 50 nonprofits thought to be engaging in political activities, mostly conservative groups, that opposed President Clinton’s policies, including churches. The list includes the Heritage Foundation, Judicial Watch, Citizens Against Government Waste, and the National Rifle Association, including individuals like Gennifer Flowers, Juanita Broaddrick, and Paula Jones.

IRS documents show that the then IRS commissioner made a rare offer not allowed under the confidentiality laws enacted after the Nixon controversy: Give Congress confidential tax return information in order to challenge “inaccurate and misleading” allegations that the IRS was abusing taxpayers for political reasons. But the IRS never followed through, sources indicate.

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