In early 2010, an Internal Revenue Service team in Cincinnati began noticing a stream of applications from groups with political-sounding names, setting in motion a dragnet aimed at separating legitimate tax-exempt groups from those working to get candidates elected.
The IRS officials decided to single out one type of political group for particular scrutiny. “These cases involve various local organizations in the Tea Party movement,” read one internal IRS e-mail sent at the time.
A few hours north in Fremont, Ohio, the owners of a drainage supply shop, Tom and Marion Bower, were wondering why it was taking so long to get a tax exemption for their new tea party group.
“I didn’t think any of us thought we’d be targeted,” said Marion Bower, of American Patriots Against Government Excess. “We started the group because we wanted to learn about our country and educate people. Now I’m becoming a little paranoid. If they can do this, what else can they do?”
Groups such as the Bowers’ were among more than a hundred conservative organizations singled out for extra screening by the IRS, part of an attempt to identify politically active groups not eligible for tax exemptions. The revelations, described in detail last week by the IRS watchdog, have caused a political earthquake — prompting the resignations of two top IRS officials, a criminal investigation and multiple congressional probes, including hearings scheduled for this week.
The story of the IRS’s policy of targeting right-leaning groups, which played out over several years in Cincinnati, Washington, and dozens of other cities and towns, was one of a bureaucracy caught in a morass of uncertainty and outside pressure. The actions also confirmed the suspicions of many conservatives after they had complained for years of harassment by the tax agency.
According to the inspector general’s report, as IRS officials in Cincinnati tried to decide what to do about the groups — political advocacy organizations seeking what is known as 501 (c)(4) status — they sent out intrusive questionnaires seeking donor lists, copies of meeting minutes and reams of other documents. Applications sat around for months, sometimes years; some organizations ended up folding while awaiting answers that never came.
IRS officials in Cincinnati were ignorant of the law and did not recognize that they should not scrutinize groups solely based on terms such as “tea party,” “patriots” and other conservative-sounding descriptions in their names, the inspector general’s report said. Many liberal-leaning and nonpolitical groups were also caught up in the effort.
At the same time, the IRS faced growing criticism from the outside that it was not doing enough to examine an increasing number of politically active groups seeking tax-exempt status.
“You had a lot of pressure on the IRS to figure out who and what should be a (c)(4) and complaints being filed by groups saying they had erred in granting (c)(4) status,” said Trevor Potter, president of the Campaign Legal Center and a former Federal Elections Commission chairman. “You had (c)(4)s on both the Democratic and Republican side spending a lot on politics. That’s the background of how we got here.”
On July 4, 2009, the Bowers threw a tea party event in a strip mall by their home in Fremont, about 40 miles from Toledo. The speakers’ stage was a flatbed trailer. The pair worried about how big of a crowd they could possibly draw in a town with fewer than 17,000 residents. Then 500 people showed up.
The Bowers decided there was enough interest to start their own nonprofit group and applied to the IRS in December 2009 as a 501(c)(4). The couple held weekly meetings at their shop, inviting local politicians to speak, showing films and discussing books. A woven basket was put out for cash donations, which usually amounted to no more than $15.
“We saw we weren’t the only ones worried about things,” Tom Bower said. “Others thought our country was going in the wrong direction.”
The desire by the Bowers to form a nonprofit group reflected two broader trends in American politics. First was the rise of the tea party movement — hundreds of local organizations, frustrated by spending in Washington and the growing national debt, whose power would soon be seen in local, state and, in 2010, congressional elections.
Second, campaign finance laws were changing. In January 2010, the Supreme Court ruled in Citizens United v. Federal Elections Commission that corporations and unions could spend unlimited funds on elections, setting off a tidal wave of political spending that would wash over the next two election cycles.
Nonprofit groups that do not have to pay taxes are supposed to ensure that political activity is not their primary purpose, so evidence that some of the new organizations seeking tax-exempt status were fronts for campaign organizations drew bipartisan interest. Good-government groups started pressuring the IRS to more closely scrutinize applicants. One such group, Democracy 21, wrote a series of letters to the IRS arguing that many of the groups should not receive favored tax status.
“In all of these cases, the groups were claiming (c)(4) status basically for the purpose of hiding their donors,” said Democracy 21 President Fred Wertheimer.
The IRS is not well equipped to make political judgements. Its accountants and lawyers are sticklers and technocrats, trying to enforce the letter of the law. When the law is left vague — as it is for 501(c)(4)s and political advocacy groups — it could take years to come up with clear guidelines.
“Unless there is a higher-up push to get something done and get guidance done, it doesn’t happen,” said Louisiana State University law professor Philip Hackney, who worked in the chief counsel’s office of the IRS from 2006 to 2011.
By late summer 2010, the IRS officials in Cincinnati, part of what was called a “determinations unit,” decided they needed a better way to track the influx of advocacy groups. It had been an informal process before — just e-mails sent out among the team highlighting groups that might need closer scrutiny.
They created a spreadsheet of group names and activities to watch, called a “be on the lookout” list, or BOLO, borrowing jargon used by police. The list soon included 40 groups, including 22 with “tea party” in their names.
The determinations unit wanted to send additional questions to the groups to determine whether they were too involved in political campaigns to receive tax-exempt status. They requested help from headquarters officials in Washington to draft the language of such letters.
But no definitive help was forthcoming, according to the inspector general’s report. Months passed without agreement on what should be asked, frustrating the team in Cincinnati.
The Bowers were frustrated, too. In 2010, they had called the IRS to see what was happening with their application. “They said they were behind but they were getting to it,” Marion Bower said. The same thing happened in the spring of 2011.
It took two years from when they applied to get a response. In a letter, the IRS said it wanted copies and recordings of all speeches given at their group’s meetings. They wanted notes and copies of every handout or brochure distributed at all events they organized or participated in. It took three weeks to gather the materials, which amounted to about 80 pages, the Bowers said.
Marion Bower told them about films they showed, including the “American Heritage Series,” consisting of 10 DVDs about the early history of the United States recounted by evangelical minister David Barton, and a book the group read about the Founding Fathers, “The 5000 Year Leap.”
“They wanted a lot of information, and they wanted it quickly,” Bower said. “Each set of questions had a subset of questions. And none of them were yes or no. But the questions themselves did not seem that outrageous with the first letter.”
A second letter came with dozens of additional questions. The IRS wanted a synopsis of films the group may have shown or books the group may have read. Bower was outraged.
“I’m a 68-year-old woman. I don’t do book reports anymore, and I certainly don’t do them for the IRS,” she said. “I sent them copies of everything, including the book. It’s not a very thick book, and it’s not ‘Mein Kampf,’ for Pete’s sake. They can read it if they want.”
In early March 2012, the group mailed off its second package of documents to the IRS and waited.
As the Bowers’ case dragged on, the IRS determinations unit was stuck in bureaucratic sludge. In June 2011, the Washington official who oversees the unit, Lois G. Lerner, organized a meeting to discuss its work on political advocacy groups. She expressed concerns about the broad reach of the BOLO list.
About 100 groups had made it on the list simply because their names included reference to the “tea party,” “patriots” or “9/12,” a term associated with conservative commentator Glenn Beck. Other criteria included a focus on government spending, debt or taxes; a focus on how to “make America a better place”; or critical comments about how the country is being run.
Lerner asked that the criteria be changed to a more neutral theme — organizations involved in politics, lobbying or advocacy. A “triage” was also conducted, trying to determine which groups actually required scrutiny.
But as Lerner pressed to broaden the criteria, the Cincinnati unit began to send letters out to conservative groups. Some asked for donor information.
Still, the determinations unit was having trouble using the general criteria advocated by Lerner. It decided on an alternative phrasing: “political action type organizations involved in limiting/expanding government, educating on the Constitution and the Bill of Rights, social economic reform/movement.”
At the end of February 2012, Lerner stopped the letters. But it was too late. Conservative groups began complaining, sparking media interest. Lawmakers lodged complaints. In March, eight months before Election Day, the House Oversight and Government Reform Committee contacted the IRS inspector general to ask what was going on.
Throughout 2012, Lerner and other officials were quietly trying to come up with new policies for examining nonprofits. Higher-level officials, including then-IRS Commissioner Douglas H. Shulman, a George W. Bush appointee, and his deputy, career employee Steven T. Miller, became aware of the problems. They instituted new internal rules in an effort to make sure the issues did not recur.
But the IRS did not tell the public or Congress about what was going on. On May 9 of this year, knowing that the inspector general’s report was imminent, Lerner called a member of the IRS’s tax-exempt advisory council. Lerner requested that the council member ask her at a conference the next day about the status of tax-exempt organizations that were facing additional scrutiny.
The next morning, Lerner responded to the planted question, acknowledging that the IRS had improperly scrutinized conservative groups. She apologized. She held a conference call later that day in which she struggled to answer a fusillade of questions from reporters, at one point exclaiming in response to a query about the specific number of groups targeted, “I’m not good at math.”
By Wednesday, Obama had demanded and received Miller’s resignation and appointed a new acting IRS commissioner, Daniel Werfel, a budget adviser who has served in Republican and Democrat administrations.
On Friday, Miller was testifying on Capitol Hill, at the first in a series of hearings scheduled for coming weeks. Miller said that the IRS was guilty of “horrible customer service” but that its motives were not political.↓
Marion Bower was in the audience. “I really didn’t want to come,” she said. “But what they did was wrong. I felt it was time for me to speak up so this doesn’t happen again to someone else.”
Josh Hicks and Juliet Eilperin contributed to this report.
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