2013 IRS Controversy: Scrutiny of Tax-Exempt Applications

Open Graph
Download the roster

Following accusations of political bias in Internal Revenue Service (IRS) management of applications for tax-exempt status beginning in 2012, on May 10, 2013, the IRS confirmed it had selected certain organizations for additional scrutiny based on their political affiliations during the application process for tax-exempt status.

On that date, IRS Exempt Organizations Division Director Lois Lerner apologized before a convening of the American Bar Association on behalf of the agency’s “absolutely wrong and inappropriate” actions in targeting for extra scrutiny predominately tea party-affiliated organizations applying for 501(c)(4) status between 2010 and 2012. In a subsequent statement, Lerner explained the action as a function of poor planning in the face of an unexpected increase in the volume of 501(c)(4) applications, rather than an intentional policy of discrimination.

Within one week, the Treasury Inspector General for Tax Administration (TIGTA) released a detailed report indicating the IRS had inappropriate criteria in place for processing exempt applications and recommending nine specific corrective actions. In response, the House and Senate held a series of oversight hearings on the issue, during which lawmakers heard testimony from top IRS and Treasury officials and exempt organizations affected by the additional scrutiny. Congress directed the IRS to implement all of the recommendations put forth in the TIGTA report and requested periodic follow-up reports from both the IRS and TIGTA until implementation was complete.

Two House Committees, on Ways and Means and on Oversight and Government Reform, also launched bipartisan investigations into the matter, resulting in conflicting narratives from interviewees. The Senate Finance Committee also conducted its own bipartisan inquiry, which later found mismanagement at the IRS and presented competing interpretations for the root cause of such failures.

On May 13, 2013, Diana Aviv, then-president and CEO of Independent Sector, released the following statement:

Independent Sector is deeply troubled that applications for tax exempt status were singled out by IRS personnel for additional scrutiny based on the applying organizations’ names or the nature of their exempt activities. The IRS’s proper role in approving, and subsequently regulating, exempt organizations is not determining the worthiness of their cause, but their compliance with the law. We understand the Treasury Inspector General for Tax Administration will make public the findings from its investigation into this matter sometime this week, and we are eager to see the full report.

We believe that the IRS, due in large part to the post-Watergate reforms that increased the agency’s independence and insulated it from partisan politics, is the most appropriate agency for oversight of the tax exempt sector. To ensure that the IRS continues doing its work in an independent and nonpartisan fashion, we call on the Administration to respond to the inspector general’s report in a timely manner with an action plan to ensure the problems identified are not allowed to take place in the future.

The Administration announced several changes in leadership at the IRS as a result of the controversy, including the early retirement of former IRS Commissioner Steve Miller, EO Director Lois Lerner, and several other administrators. The Senate then confirmed Obama nominee John Koskinen to lead the agency through 2017. Following an independent two-year investigation by the Justice Department, which ended in December, 2015, no charges were filed against Lerner or anyone else at the IRS. Nevertheless, some Republican House Members are still pursuing further consequences for IRS officials, including impeachment charges against Commissioner Koskinen on grounds of intentional destruction of evidence relevant to the previous Congressional investigations.

To get more updates on this topic, please visit our blog.

Key Insights

Related Resources