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former IRS commissioner Steven Miller forced to resign following tea-party targeting. (Photo Credit: govexec.com)

Former IRS commissioner Steven Miller forced to resign following tea-party targeting (Photo Credit: govexec.com)

Recent reports revealed that the IRS improperly targeted right-wing organizations for additional tax scrutiny.  It’s not good news for anyone.

For the affected groups, mainly tea-party affiliated political action committees (PACs), their worst fears of the IRS as a corrupt, politicized, out to get you agency have been legitimized.

For the President, it’s just one more tool his opponents can use to further deter his economic and budget objectives.

For Congress, their abominably low approval ratings might dip again.  Congress sets tax policy, the IRS enforces it.

For the IRS, which prides itself on being apolitical, the ‘scandal’ is a stain on their reputation.  That’s the last thing they need when trying to work around a crippled budget and a growing anti-tax sentiment.  The incident is being called a public relations disaster.

For IRS commissioner Steven Miller, one of two political appointees in the agency, it means he needs to look for a new job.  President Obama announced today that Treasury Secretary Jacob E. Lew had asked for and accepted Mr. Miller’s resignation.

And for everyone else, it’s just one more headline-dominating gossip story that we’ll have to roll our eyes at for weeks.

What Happened

On May 3, 2012, acting IRS Commissioner Steven Miller was informed that some groups applying for tax-exempt status as 501(c)4 organizations were inappropriately designated for investigation based on their names.  The WSJ reports that two GOP lawmakers said Miller failed to disclose this information in letters sent to them following Republican concerns of unfair targeting of tea-party groups applications for tax-exempt status.

But the IRS knew of the allegations as early as June, 2011.  Lois G. Learner, senior IRS official and Director of IRS Exempt Organizations, was told that groups whose names contained “Tea Party,” `’Patriot” or “9/12 Project” were being flagged for additional and often burdensome scrutiny, according to an inspector general’s report obtained by the Associated Press.

The IRS is barred from using labels to identify individuals as tax protestors.  The IRS office in Cincinnati is tasked with reviewing applications for 501(c)4 tax-exempt organizations.  These groups differ from 501(c)3 non-profit organizations in their ability to not disclose donors (thanks to Citizens United), and engage in political advocacy and campaigns as long as that is not the primary function of their organization.

Herein lies the conflict.  Organizations like Priorities USA, the Obama supporting Super-PAC, and Crossroads GPS, the major Republican backed PAC are nightmares for the IRS.  The 501(c)4 format is open to abuse and definitions surrounding permitted activities are vague.

taxed-enough-alreadyIn 2009 and 2010, the IRS received an influx of applications for tea-party affiliated organizations.  The ‘tea’ in tea-party stands for taxed enough already.  So, the IRS was dealing with hundreds of applications from organizations who are openly against big government, the IRS, and taxes, and who were requesting to be arranged as 501(c)4 tax-exempt organizations.  It would be hard not to be skeptical of granting these applications when their foundation is directly political.

NPR quoted a Washington-Based attorney representing one of these groups as saying that’s no excuse.  ”Hire more employees, hire temps [and] hire contractors,” he said. “Reallocate resources; find more efficient ways to review applications… It’s one thing to ask us to document the activities we engaged in… It’s wholly another to ask these questions that had nothing to do with the exemption application.”

Whether or not the questions asked by the IRS were too burdensome or crossed a line will be a key argument in legal battles to follow.  The budget cuts to the IRS may also play a role in the debates; the agency may claim they did not have the means to hire more employees, temps and contractors, as Hattch suggested.

It’s all Politics

The report does not specify whether Miller’s predecessor, Douglas Shulman, or President Obama were informed of the allegations.  Mr. Obama said he learned of the allegation following news reports on Friday.  On Monday he said, “If in fact IRS personnel engaged in the kind of practices that have been reported on, and were intentionally targeting conservative groups, then that’s outrageous.”

Obama vowed to hold those responsible “fully accountable,” but said he would reserve judgement on the matter until after the Treasury Inspector General for Tax Administration’s report on the incident is released.  The president does not have the authority to remove Learner or any lower-level IRS employee.

Although Miller’s involvement with the scandal is questionable, Sen. Orrin Hattch (R-Utah) claims the commissioner “purposely misled” Republicans following inquiries into the allegations.

Republicans and Democrats alike have expressed outrage over the IRS actions.  But while no politician is endorsing the targeting of tea-party groups for extra tax scrutiny, the issue is undoubtedly a blow to the president and congressional Democrats.

The Hill reports: “People are really outraged about [the IRS targeting], and they’re also saying, ‘This is why we’re so concerned about the government being so large. This is what we mean about the country needing to operate within the rule of law,’ ” Jenny Beth Martin, co-founder of Tea Party Patriots, said.

Attorney General Eric Holder ordered an investigation of the IRS following Friday’s reports.  In an attempt to bridge party lines he said, “This will not be about parties. This will not be about ideological persuasions. Anyone who has broken the law will be held accountable.”

President Obama echoed similar views today: “It should not matter what political stripe you’re from. The fact of the matter is the I.R.S. has to operate with absolute integrity.”

Indeed, at the forefront of the IRS mission statement, it reads, “enforce the law with integrity and fairness to all.”

“The American public expects the Internal Revenue Service to be apolitical in its enforcement of our tax laws.  News that the agency admits it targeted American taxpayers based on politics is both astounding and appalling. The Committee on Ways and Means will get to the bottom of this practice and ensure it never takes place again” said Congressman Dave Camp, (R-Mich.) chairman of the Committee on Ways and Means.

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At JDKatz: Attorneys at Law, each of our attorneys brings a unique set of experiences and perspectives to bear on our clients’ legal problems. For each case or task we take on, we assemble a team of lawyers ideally situated to our client’s specific needs and goals. Our managing partner, Jeffrey D. Katz, founded our firm in 2000 after starting his career in the tax department of Big Four accounting firm KPMG Peat Marwick. To learn more about our attorneys’ backgrounds and qualifications, please review their individual profiles.

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