The Real IRS Scandal

By: Leandra Lederman

It is well known that the IRS was accused in 2013 of targeting Tea Party and other conservative groups for delays in their 501(c)(4) applications for tax-exempt status. TIGTA’s May 2013 report (and Lois Lerner’s statements at an ABA Tax Section meeting a few days earlier) launched the controversy, which harmed the IRS and a number of its employees. (Cf. my earlier Surly post, “Don’t Impeach IRS Commissioner Koskinen.”)

In 2016, I published an article, “IRS Reform: Politics As Usual?,” analyzing the facts underlying these accusations and the law applicable to the IRS’s determination of tax-exempt status. I argued that the facts showed that the IRS was not motivated by partisan politics. Rather, what happened was that IRS employees included a keyword approach in its efforts to triage the large volume of applications for tax-exempt status it was receiving. Its “Be On the Lookout” (BOLO) list of words was designed to help it identify for further scrutiny those organizations that were engaged in more political activity than was permitted under section 501(c)(4), which, generally speaking gants exempt status to organizations “for the promotion of social welfare.” As I describe in that article, the IRS tried but failed to get ahead of a brewing political controversy on this. There was evidence even in the 2010 IRS PowerPoint highlighting types of groups applying for a determination of exempt status under 501(c)(4) that the IRS had both Tea Party and progressive political organizations on its radar. But the news was full of stories of the IRS supposedly targeting conservative tax-exempt organizations.

The Washington Post has reported in an article titled Liberal groups got IRS scrutiny, too, inspector general suggests, that TIGTA will be issuing a new report finding that the IRS also used keywords to try to identify progressive groups engaging in too much political activity to qualify for the tax exemption under 501(c)(4) they were applying for. The new TIGTA report reportedly focuses on cases between 2004 and 2013, a longer period than the previous report. (The TIGTA report does not seem to be publicly available yet but the Washington Post article says it is scheduled to be released today.) The new TIGTA report reportedly also looked at a broader range of IRS screening criteria than its earlier report did, “including affiliation with the now-defunct Association of Community Organizations for Reform Now (ACORN), as well as names referencing ‘Progressive,’ ‘Green Energy,’ ‘Medical Marijuana,’ and ‘Occupy.'”

According to the Washington Post, the new TIGTA report “identified 146 cases in which the IRS examined groups for suspicion of engaging in disallowed political activity using those criteria.” This finding is not a surprise. The fact that IRS employees were using keywords to identify progressive as well as conservative organizations doing too much political activity to qualify under 501(c)(4) should have been clear to anyone who dug into the public documents. But it wasn’t the message that the House Oversight Committee–and thus many media stories–disseminated. The real scandal was the damage the resulting witch hunt did to the IRS. I wrote about that in my article linked above and in a related, short article I published in Tax Notes, “The IRS, Politics, and Income Inequality,” focused in part on IRS underfunding. I hope that TIGTA’s new report helps set the record straight.

5 thoughts on “The Real IRS Scandal

  1. A colleague who worked with me at the EO Division wondered, “Why do some unfamiliar church exemption applicants use such outlandish names?”
    “Well, a name like “The Church That Captured Aliens” is bound to draw more attention than “The Third Baptist Church.”
    While we treated church applicants with exceptional care to avoid disparate treatment based on an unusual name or other subjective criteria, we would be derelict if we failed to recognize an unusual pattern of unfamiliar applications. So, I continue to believe (it wasn’t me, I had retired) that using names or other readily identifiable criteria to get a handle on applications that presented similar unusual or novel issues was perfectly acceptable. The error was not in the identification (and now we know it was undertaken across the political spectrum – which makes sense since the Division was apolitical) methodology, it was in the delayed processing and tone-deaf development.
    We knew how to handle hot potatoes. Deny those that are clearly out-of-bounds, approve the rest with a follow-up examination.

    Liked by 2 people

  2. This post seems to be current again, given the debate that’s arisen on the TaxProf blog. (It’s approximately the 5th anniversary of the 2013 TIGTA report, which was released on May 14, 2013.)

    There’s a lot of debate about the facts of the IRS targeting controversy. In case it helps anyone researching this issue, note that I analyzed the public documents to try to reconstruct the facts of what actually happened in “IRS Reform: Politics As Usual?,” 7 Columbia Tax J. 36 (2016), (Around the same time, I published a related short piece with a different focus, “The IRS, Politics, and Income Inequality,” 150 Tax Notes 1329 (2016),


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