By: Philip Hackney
Documents recently released in a court case demonstrate that 282 of 426 organizations caught in the IRS political advocacy, “Tea Party,” nonprofit organization net that caused such a hullabaloo three years ago, were in fact conservative. This comes three years after Lois Lerner apologized to Tea Party groups on behalf of the the IRS because, she said, it “inappropriate(ly)” selected these conservative groups’ applications for tax exemption for scrutiny based on name alone rather than legal cause.
An NPR report by Peter Overby concludes about the new information: “Whatever the IRS meant to do, this hodgepodge of a list illustrates how the agency bollixed the nonprofit application process.” In this post, I examine this seemingly “common-sense” claim and find it wanting. Additionally, because I have written publicly about this matter both at the time and more recently. I re-examine my conclusions in those writings in light of this new information.
Early on, I assumed that only about 1/3rd of the organizations caught in the IRS net were conservative. I made this assumption based on the TIGTA report because it noted that 96 of 298 applications, or 1/3rd of the organizations, were Tea Party, Patriot or 9/11 groups. I left wiggle room in my writing, but in the back of my mind, this was my assumption. I assumed TIGTA would have reported every conservative group that was in the lot. But, it turns out that about 2/3rds of the organizations were conservative. Thus, my assumption was wrong. The vast majority of the organizations caught in the net were conservative. Nevertheless, I don’t think this new information demonstrates some additional level of bungling by the IRS that was hitherto unknown. And, frankly, a list like this with little context does nothing to tell us about whether the IRS was fair or not.¹
The most significant indictment of the IRS in this Tea Party matter has always been that the IRS “targeted” conservative organizations. No one has ever quite given any content to what this exactly means. Presumably it means that the IRS intentionally scrutinized conservative organizations in the application process in order to harm those conservative organizations and did not do the same to liberal organizations. The Inspector General reviewed whether the IRS “targeted” conservative organizations and found that the IRS used “inappropriate criteria” in selecting the Tea Party cases and that this could lead to impartial results. He found no evidence of some animus on the part of the IRS to support a targeting claim.
The targeting assertion, and the Inspector General’s assessment, give us a couple claims that new information could go towards proving: 1) the IRS scrutinized conservative nonprofits more than liberal nonprofits in its application process, and (2) either (a) the IRS did this intentionally, or (b) the IRS did this negligently. Point 2(a) and (b) can be broken out more and can be independent of point 1. Under point 2(a), the IRS could have intentionally set out to scrutinize conservative nonprofits more than liberal ones, and failed or succeeded. Under point 2(b) the IRS could have acted negligently in the manner it screened these applications and this negligence either resulted in some fairness harm or it did not. The TIGTA report supports only 2(b). It does not prove 1, but suggests that it is possible that negligence did result in some unfairness to conservative organizations.
The new information provides some proof regarding whether point 1 is correct. In a numerical sense alone as to the population included (426 total organizations) we could answer question 1 with a yes (because 282 of those 426 organizations were conservative). However, our information is incomplete. There is still an important unknown: did the IRS use the same, or close to the same, level of scrutiny on the total number of liberal organizations applying as it used on conservative? In other words, did the IRS either look at every conservative and liberal organization who applied during the relevant time-period, or did it look at the two in roughly the same proportions? We still don’t know the answer to this question. There are many ways we could slice and dice this equality analysis, (what is the relevant time period to observe, does the IRS have to always apply the same level of scrutiny to all of these types of organizations, might prior knowledge of a particular organization, liberal or conservative, allow the IRS the ability to not apply close scrutiny, and might the size or level of activity of the organization matter?), but the fact remains we as the public do not have the information to assess this question. I thus think the claim that this evidence shows some new level of bungling to be incorrect because it lacks context.
The new information does not provide proof regarding point 2(a). It tells us nothing about whether the IRS acted intentionally. No investigator has found that the IRS acted with intentional animus and this does nothing to change that. The information also fails to tell about 2(b) and whether the IRS acted negligently. It could go towards the level of that negligence, but given that it is provided without any context as to the total application population, and particularly the balance between conservative and liberal organizations applying, it tells us nothing new.
What does this information say about my prior conclusions? In my first quick analysis after the TIGTA report came out I argued that the IRS failed to adopt a careful selection process, asked too many intrusive questions, and subjected them to too great of delays. However, I suggested the IRS was set up for this failure because it had too many complex applications and not enough staff to review all applications with care. It has to pick and choose organizations to focus upon and it is likely to miss applying appropriate scrutiny to many applications that should have received greater scrutiny while applying that scrutiny to a few organizations in a similar position, and to apply too much scrutiny to applications that should have received little or none. I argued that because of application volume and IRS staffing, the IRS was set up for the type of failure identified in the Tea Party affair. I still think this is about right, and the new information says nothing new about that conclusion.
Later in Should the IRS Never Target Taxpayers I argued that TIGTA wrongly took a position that the IRS is prohibited from using names as a means for selecting organizations for audit or for scrutiny of particular applications. It had no firm legal basis for making this claim. TIGTA based it on the principal that the IRS should be unbiased in its work. While certainly true, it seemed to be asserting that there was a duty of consistency as to every application that comes before the IRS. With the quantity of applications and staff, this is not even close to possible. And yet, TIGTA’s claim of “no using names” has become the measuring stick with which the public and commentators review this matter. The IRS can and should use names in order to accomplish enforcement goals, but it needs some legal reason to use a name in selecting a taxpayer for audit or to screen its application system. Once it has that legal reason, it can use names for these purposes. However, in order to avoid unconstitutional selective enforcement, when a selection is based on an issue that touches on a tag of constitutional import, such as race or political speech, the IRS should exercise a greater level of care in that selection process.
Where the IRS is selecting a taxpayer for enforcement purposes on an issue such as inurement, and it wants to use a name, I believe it can use ordinary care. When enforcing the prohibition on inurement against Joe, it does not have to check to ensure that it is enforcing the inurement provision against every other possible Tom, Dick, or Harry. We recognize that a requirement to look at everyone with the same level of scrutiny would debilitate the IRS. It could not possibly accomplish this. However, where the IRS is enforcing a matter that implicates political speech, it has a higher level of care to ensure that it is approaching some level of equality in the way it enforces the provision. I don’t think it must do this in an absolute sense, because it does not have the resources to do this, but it must try to get as close as possible to equality on this front and it should develop a record of its process to be able to demonstrate the process was fair.
Based on the TIGTA report, indicating the IRS did not show a high level of care in the way in which it approached this application process on issues of political speech, I think the IRS did not use the right level of care. In my article, I indicated this was an ethical failing rather than a legal failing. I used the term negligence above, but don’t think this ethical failing has the legal significance of that term in a tort sense. I argued that there was no selective enforcement case that could be made under these facts. None of the new information changes this basic conclusion. Does it though tell us anything about whether the negligence of the IRS resulted in some sort of fairness harm to the conservative organizations? Again, not really. We need to have a much more full context to make that assessment. Without the knowledge of the full range of political speech related applications at issue, we simply have no idea. Yes, within this select group of applications, the IRS looked at more conservative organizations in an absolute sense, but we have no idea if that might have been roughly proportional to the total applications.
In the Tea Party cases the IRS had many reasons to believe these organizations might be violating the law by engaging in too much political activity for a section 501(c)(4) social welfare organization. In fact their names alone were evidence of such a potential intent. Additionally, given the substantial numbers of these cookie-cutter-like organizations, the IRS had good reasons to review all of the Tea Party and Patriot groups to ensure uniformity of treatment and a proper understanding of all of the relevant facts. However, because the IRS was enforcing a legal provision that impacted political speech it should have exercised greater care in its selection process. This new information tells us nothing about these basic conclusions.
Overby seems to suggest that this new information further damns the IRS’s behavior in the Tea Party matter. I find the evidence does not support this conclusion.
¹The list comes from an attempt to certify a class in a class action against the IRS. The NorCal Tea Party Patriots sought to certify a class consisting of the 298 organizations that were reviewed by TIGTA in its report on this Tea Party matter. According to the TIGTA report those 298 applications were from organizations that the IRS applied greater scrutiny to between the period May 2010 and May 31, 2012. The list is described by the government as “the names of the 426 entities that have not opted out of the class action.” According to the government’s letter, 40 organizations opted out. It is unclear why the original TIGTA audit group and the number of organizations listed in the disclosure do not more closely match up. There is no indication that this list is the entire universe of organizations that applied for exemption during this particular period with an indication of an attempt to engage in political speech.