GAO: 'Americans Still Vulnerable to IRS Audits Over Personal Beliefs'

A House Oversight subcommittee hearing today will provide more pushback to President Barack Obama’s claim to the Daily Show that there was no IRS targeting of conservative nonprofits.

The hearing, which will take testimony from IRS commissioner John Koskinen, will zoom in on a new report from the Government Accountability Office that will deliver this bombshell: The GAO now says that IRS political “targeting is indeed possible in the audit process” for nonprofits, largely due to poor agency oversight and controls.

“Unfortunately, the IRS has not taken sufficient steps to prevent targeting Americans based on their personal beliefs,” the GAO says.

Specifically, The GAO found that “control deficiencies” do “increase the risk” that the IRS nonprofit unit “could select organizations for examinations in an unfair manner—for example, based on an organization’s religious, educational, political or other views.”

It was former IRS official Lois Lerner “who personally evaded” these same, deficient controls to target Tea Party or conservative groups, the House subcommittee had found. Lerner, who served as director of the IRS’s tax-exempt unit, has apologized for the IRS targeting controversy, has pled the Fifth Amendment before Congress, and has been held in contempt.

Judicial Watch, a watchdog group, says it has obtained Freedom of Information Act filings that show IRS workers were using donor lists from conservative nonprofit groups to target people for audit. It also says documents detail a October 2010 meeting between former IRS official Lois Lerner, Justice Department officials and the FBI to plan "for the possible criminal prosecution of targeted nonprofit organizations for alleged illegal political activity," and that the IRS transferred confidential tax returns from 113,000 nonprofit social welfare groups to the FBI "as part of its prosecution effort." The documents also show "the Obama DOJ wanted IRS employees who were going to testify to Congress to turn over documents to the DOJ before giving them to Congress."

The GAO also found that a quarter of the IRS nonprofit audit case files it reviewed had no description of any allegation that triggered the audit to begin with. The IRS doesn’t sufficiently document why it even started nonprofit audits in the first place, the watchdog group says. All of these “weaknesses undermine the integrity of tax administration,” the GAO warns.

The new GAO report also found that a quarter of the IRS non profit audit shows that the IRS targeting controversy goes beyond the notion that the president has raised, that IRS scrutiny was necessary because the U.S. Supreme Court’s 2010 Citzens United decision opened the floodgates of money into the electoral system.

Instead, the GAO report shows how easy it is for politicians to use the IRS to shut down an opposition party to get elected, in turn undercutting the integrity of the U.S. “voluntary” tax system. It’s an ugly history that has tainted the FDR, Eisenhower, Nixon, Kennedy and Clinton Administrations.

Read: What Taxpayers Deserve to Know in IRS Nonprofit Controversy

The new GAO report found that nearly one out of five, or 18%, of the IRS’s audits of nonprofits in fiscal 2014 came from “referrals,” meaning, complaints the IRS gets from third parties to look into nonprofits, including from members of Congress, the general public, or even IRS officials.

Between 2010 to 2012, ten high-profile Democrats sent letters, often on their committee stationery, to then-IRS commissioner Doug Shulman demanding that the IRS investigate opposition politicking by nonprofits, even threatening legislation to change IRS standards if the IRS didn’t act. The Democrat senators included Max Baucus, Carl Levin, Charles Schumer and Al Franken, as well as Rep. Peter Welch.

Read: How Political Pressure on the IRS Began

More than two years ago, the IRS was found to be improperly targeting organizations applying for nonprofit status based largely on their names or ideology. The Treasury Inspector General for Tax Administration (TIGTA), J. Russell George, found the IRS had used inappropriate criteria to select certain groups for extra scrutiny.

The terms the IRS used to screen nonprofits included “Tea Party,” “Patriots,” or “9/12 project.” The issues involved were government spending, government debt or taxes, education of the public by lobbying to “make America a better place to live” or statements that “criticize how the country is being run.”

According to disclosures last year from the House Oversight Subcommittee, former IRS official Lerner believed the Obama Administration needed to take steps to undermine the Supreme Court’s 2010 Citizens United ruling which overturned restrictions on political campaign spending, all in advance of the upcoming 2012 elections--in order to protect Democrats.

According to the report, one of Lerner’s senior IRS advisors had emailed Lerner an article “about allegations that unknown conservative donors were influencing U.S. Senate races. The article explained how outside money was making it increasingly difficult for Democrats to remain in the majority in the Senate,” the report says. Lerner emailed back on May 17, 2011:  “Perhaps the FEC will save the day.”

The GAO also says that the IRS will secretly conduct surveillance, or monitor, a nonprofit “without making any taxpayer contact” in order to “build a case for an audit.”

That includes poring through a nonprofit’s blogs and websites “without notifying the groups they are under review,” the GAO says. In fact, the GAO reports that former IRS official Lerner “established” this “review of operations” approach in 2005. The IRS worked on 2,005 such “review” cases in fiscal 2014.

That extra scrutiny is also what the groups targeted for extra scrutiny complained about, that the IRS subjected them to further investigation, including demands that they turn over names of donors, contracts, training materials, lists of books their members were reading, and information they had posted on social media sites, among other things.

The GAO also found a lot of power is held in the hands of a few in the IRS nonprofits unit. Only a small, three-person committee reviews referrals for potential audits—a small coterie easily influenced by the upper ranks, operating with few checks and balances. Moreover, the GAO found the “same small group” of IRS officials have been reviewing complaints about these audits for years “without oversight of their decisions.”