IRS Attempts to “Bag” Tea Party

IRS officials Admit Targeting Conservative Groups 

On Friday, the Internal Revenue Service apologized for “mistakes” made in the past few years in its flagging conservative groups’ applications for tax-exempt status. Lois Lerner, the director of tax-exempt organizations for the IRS admitted publicly on Friday to using terms such as “tea party” and “patriot” to flag tax-exempt status applications for additional scrutiny. Although Lerner insisted that the keywords were used as a shortcut for picking applications for further review, both the House Ways & Means Committee and the Senate Finance Committee are not accepting Lerner’s reasoning. 

 

Senate and House Demanding IRS Accountability

The IRS is part of the Treasury Department, but is an independent enforcement agency. The House Ways and Means Committee, which oversees the IRS, has announced that it will hold a hearing on the allegations on Friday. Meanwhile both the Senate Finance Committee and the House Intelligence Committee have called for a full investigation into the IRS’ practices of auditing certain applications for tax-exempt status. 

 

Targeted Scrutiny Prompted by Supreme Court Decision

In 2010 the Supreme Court lifted the ban on corporate spending in political campaigns, in its Citizens United v. Federal Election Commission ruling. Most of the applications which were subject of the keyword scrutiny fell under section 501(c)(4) of the Internal Revenue Code, which grants an exemption of income taxes on contributions received by social welfare groups. These groups can engage in political activity, so long as it is not their primary mission. As a result, the Citizens United ruling has made tax-exempt groups an attractive avenue for political spending. Lerner claims that the specific term or keyword targeting of conservative groups applying for tax-exempt status was an efficient means of dealing with the influx of tax-exempt applications following the Citizens United ruling. 

 

Application of Extra Scrutiny

The IRS’ main office of the tax-exempt unit is located in Cincinnati, Ohio. During the period following the Citizens United ruling in 2010, through 2012, that office selected approximately 300 groups’ applications for additional scrutiny. According to the IRS, of the 300 groups affected, 130 have had their tax-exempt status approved, while 25 have withdrawn their applications altogether.  

By Misty Priest

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Posted in: Federal Tax Law

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