IRS scandal and the aftermath

While many in the business news world have been chasing the story of Bloomberg reporters using functions to track subscribers, there’s another scandal looming that could have a broader impact for the nation. The Internal Revenue Service is now being investigated for actions it may have taken against conservative causes.

Here are some of the details from the Wall Street Journal:

The Internal Revenue Service’s scrutiny of conservative groups went beyond those with “tea party” or “patriot” in their names—as the agency admitted Friday—to also include ones worried about government spending, debt or taxes, and even ones that lobbied to “make America a better place to live,” according to new details of a government probe.

The investigation also revealed that a high-ranking IRS official knew as early as mid-2011 that conservative groups were being inappropriately targeted—nearly a year before then-IRS Commissioner Douglas Shulman told a congressional committee the agency wasn’t targeting conservative groups.

The new disclosures are likely to inflame a widening controversy over IRS handling of dozens of applications by tea-party, patriot and other conservative groups for tax-exempt status.

The details emerged from disclosures to congressional investigators by the Treasury Inspector General for Tax Administration. The findings, which were reviewed by The Wall Street Journal, don’t make clear who came up with the idea to give extra scrutiny to the conservative groups.

The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax exempt status. John McKinnon reports on the News Hub.

The inspector general’s office has been conducting an audit of the IRS’s handling of the applications process and is expected to release a report this week. The audit follows complaints last year by numerous tea-party and other conservative groups that they had been singled out and subjected to excessive and inappropriate questioning. Many groups say they were asked for lists of their donors and other sensitive information.

The Washington Post wrote in a blog post Monday that the problems at the IRS could turn into major issues for Democrats as more details about the targeting emerge:

What became clear in the first 72 hours of the story was that this (a) wasn’t an isolated, dumb incident by some random field office, (b) was something high-level officials were aware of, and (c) was going to be in the news cycle for quite some time.

The problem for Democrats is that the IRS’s targeting of conservatives plays directly into a long-held belief by many Republicans (and even some independents) that official government arms are being used to carry out political agendas.

According to ABC News, the scandal is reaching even farther than previously thought:

THE PLOT THICKENS: ABC News has obtained a draft of a soon-to-be-released investigative reporting showing that the Internal Revenue Service began targeting conservative groups as far back as 2010 and that senior IRS officials in Washington have known about it for almost two years. Last week, we learned that the IRS was targeting groups with “tea party” or “patriot” in their names, but it goes beyond that, ABC’s JONATHAN KARL reports. The draft report, conducted by the IRS’s internal watchdog, says the agency was tracking groups who’s goals included, quote “limiting government” and “educating on the Constitution and Bill of Rights” and that, “criticize how the country is being run.” Friday, the White House says it had it no idea the IRS was targeting Tea Party-allied groups. WATCH Karl’s “Good Morning America” report: http://abcn.ws/19igrJV

The timeline in the New York Times offers details about which types of organizations are being targeted:

The I.R.S. has been under pressure from Democrats and campaign finance watchdogs for some time to crack down on abuse of the 501(c)4 tax exemption, which is supposed to go to organizations primarily promoting “social welfare” but which is routinely granted to overt political advocacy groups with little or no social welfare work.

The New York Times obtained a 12-page timeline from the inspector general’s audit on Sunday. It suggests that the effort to single out Tea Party groups goes back to March 2010 when a special Determinations Unit in the Cincinnati office of the I.R.S. began searching tax-exemption applications that focused on groups on one side of the political spectrum, rather than broadly on political groups without a social-welfare mission.

The unit searched for groups using the names “Tea Party,” “Patriots” or “9/12 Project,” a movement begun by Glenn Beck. The unit was also looking for “applications involving political sounding names” like “We the People” or “Take Back the Country,” according to the document. That time frame brought the “Be On the Lookout” list back to the Tea Party movement’s early months, well before the movement helped fuel a historic Republican landslide in 2010.

On June 29, 2011, the document states, Ms. Lerner was briefed. By then the search appeared even more refined to conservative groups. Beyond “Tea Party,” “Patriots” and “9/12 Project,” the Cincinnati team was looking at issues of government spending, debt and taxes; educational efforts to “make America a better place to live”; and statements in the case file that “criticize how the country is being run.”

Ms. Lerner said Friday that the terms “Tea Party” and “Patriots” were used as a “shortcut” by the unit, not as a tool to single out any one political outlook. But the timeline suggests that the search went well beyond a few keywords. Over 100 applications had been identified by that briefing, using criteria with distinctly conservative undertones.

While this might seem like a political story, there are some business implications as well. As Congress begins to debate the overhaul of the tax code, including what corporations will pay, making sure that organizations are properly classified and monitored will be important. And given the relaxed rules corporations have for donating to political causes, this will likely be an important issue for their giving programs as well. Any time government entity that deals with money takes a reputational hit, we should all pay attention.