[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
        IRS ABUSES: ENSURING THAT TARGETING NEVER HAPPENS AGAIN

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 30, 2014

                               __________

                           Serial No. 113-135

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 PETER WELCH, Vermont
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan        Vacancy
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 30, 2014....................................     1

                               WITNESSES

Mr. David Keating, President, Center for Competitive Politics
    Oral Statement...............................................     5
    Written Statement............................................     8
Mr. Hans A. Von Spakovsky, Manager, Election Law Reform 
  Initiative, and Senior Legal Fellow, Edwin Meese III Center for 
  Legal and Judicial Studies, The Heritage Foundation
    Oral Statement...............................................    16
    Written Statement............................................    18
Ms. Cleta Mitchell, Partner, Foley & Lardner LLP
    Oral Statement...............................................    26
    Written Statement............................................    29
Mr. James Sherk, Senior Policy Analyst in Labor Economics, The 
  Heritage Foundation
    Oral Statement...............................................    37
    Written Statement............................................    39

                                APPENDIX

The Hon. Michael R. Turner, a Member of Congress from the State 
  of Ohio, written statement.....................................    74
The Hon. Gerald E. Connolly, a Member of Congress from the State 
  of Virginia, written statement.................................    75
The Hon. Matthew Cartwright, a Member of Congress from the State 
  of Pennsylvania, written statement.............................    77
Staff Report ``Making Sure Targeting Never Happens: Getting 
  Politics Out of the IRS and Other Solutions....................    78
Oversight.house.gov Majority Staff Report, April 7, 2014.........   101
Screening Workshop Notes, July 28, 2010, submitted by Rep. Davis.   148
Statement for the record from Prashant K. Khetan, Senior Counsel.   151


        IRS ABUSES: ENSURING THAT TARGETING NEVER HAPPENS AGAIN

                              ----------                              


                        Wednesday, July 30, 2014

                  House of Representatives,
      Committee on Oversight and Government Reform,
                                           Washington, D.C.
    The committee met, pursuant to call, at 9:34 a.m., in Room 
2154, Rayburn House Office Building, Hon. Darrell E. Issa 
[chairman of the committee] presiding.
    Present: Representatives Issa, Mica, Turner, Jordan, 
Chaffetz, Walberg, Lankford, Meehan, Gowdy, Farenthold, 
Woodall, Massie, Collins, Meadows, Bentivolio, DeSantis, 
Maloney, Norton, Tierney, Connolly, Kelly, Davis, Cardenas and 
Horsford.
    Staff Present: Richard A. Beutel, Senior Counsel; Molly 
Boyl, Deputy General Counsel and Parliamentarian; Lawrence J. 
Brady, Staff Director; David Brewer, Senior Counsel; Sharon 
Casey, Senior Assistant Clerk; Drew Colliatie, Professional 
Staff Member; John Cuaderes, Deputy Staff Director; Adam P. 
Fromm, Director of Member Services and Committee Operations; 
Linda Good, Chief Clerk; Tyler Grimm, Senior Professional Staff 
Member; Mark D. Marin, Deputy Staff Director for Oversight; 
Laura L. Rush, Deputy Chief Clerk; Jessica Seale, Digital 
Director; Andrew Shult, Deputy Digital Director; Peter Warren, 
Legislative Policy Director; Rebecca Watkins, Communications 
Director; Tamara Alexander, Minority Counsel; Portia Brown, 
Minority Counsel; Aryele Bradford, Minority Press Secretary; 
Jennifer Hoffman, Minority Communications Director; Juan 
McCullum, Minority Clerk; Dave Rapallo, Minority Staff 
Director; Donald Sherman, Minority Chief Oversight Counsel; and 
Katie Teleky, Minority Staff Assistant.
    Chairman Issa. The committee will come to order.
    Without objection, the chair is authorized to declare a 
recess of the committee at any time.
    The Oversight Committee exists to secure two fundamental 
principles. First, Americans have a right to know that the 
money Washington takes from them is well spent; and, second, 
Americans deserve an efficient, effective government that works 
for them. Our duty on the Oversight and Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold government accountable to taxpayers because 
taxpayers have a right to know what they get from their 
government. It is our job to work tirelessly in partnership 
with citizen watchdogs to deliver the facts to the American 
people and to bring genuine reform to the Federal bureaucracy. 
This is our mission.
    Today's hearing continues the committee's oversight of the 
IRS and its targeting of conservative applicants for tax-exempt 
status. The committee continues to conduct a thorough and 
comprehensive investigation of the IRS' targeting.
    From this oversight work, we know a great deal about the 
IRS' targeting. We know that in 2010, as the President traveled 
the country criticizing the Supreme Court's decision in 
Citizens United, the IRS began systematically scrutinizing and 
delaying tax-exempt applications.
    We know Lois Lerner talked about the political pressure on 
the IRS, ``to fix the problem.'' Again, to fix the problem 
caused by Citizens United. We know that Lois Lerner called 
conservative tax-exempt applicants, ``very dangerous,'' and 
ordered them through a multitier review. And we know that 
conservative tax-exempt applicants faced enhanced scrutiny, 
extensive delays, and inappropriate questions and requests from 
the IRS.
    While there is much the committee knows about the IRS 
targeting, there is still much more work to be done, and for 
that reason, the committee continues its oversight. Today, 
however, we start the discussion of steps that can be taken to 
restore confidence in the IRS and ensure that targeting never 
occurs again.
    Our mission on the Oversight and Government Reform 
Committee is to make government work better for the American 
people. We meet today for that reason, to make the IRS work 
better for the American taxpayer.
    Our investigation has made it clear that one reform is 
absolutely critical to improving the IRS. We must get politics 
out of the IRS. To accomplish this, yesterday we issued a new 
staff report outlining 15 significant potential long-term 
reforms to stop abuse and get politics out of the IRS. Here are 
some of the ideas.
    First, the IRS should not be in the business of regulating 
political speech. When there is no--regulating political speech 
when there is no impact on tax revenue. This process is where 
targeting happened. Other Federal agencies exist to regulate 
political campaigns and their elections, and this is not the 
IRS' job.
    This committee found it very frustrating to have to 
repeatedly remind Members on the dais here that 501(c)(4)s, in 
fact, get no tax deduction, no special tax treatment, and that 
all contributions are post-tax. And yet the IRS took special 
interest in who their contributors were, even though they were 
paying for it with money after they had paid their taxes. And 
Congress should consider changing that law.
    Second, the current structure of the IRS as a single-
director agencies allowed freedom to people like Lois Lerner 
and the Exempt Division to grow and gain power. It also 
allowed--also created the circumstances under which White House 
was informed of Lois Lerner's lost emails months before 
Congress and the public knew.
    If Congress created a bipartisan, multimember commission, 
it would create assurances that the IRS truly is an 
independent, nonpartisan agency.
    Third, TIGTA, the special IG for--Treasury IG covering IRS, 
and the IRS knew that groups had been targeted from May of 
2012, but did not take immediate action to help the aggrieved 
parties. This was wrong, and this is the kind of inappropriate 
behavior that, again, affects the outcome of elections.
    We must examine the current structures of the Treasury 
Inspector General for Tax Administration and the IRS' Oversight 
Board to ensure that they are living up to their oversight 
responsibilities not only to know, but to take action.
    Our report notes 15 problems and offers 15 solutions for 
Congress to discuss. I am sure there are more good reforms and 
more good reform ideas that should be part of the discussion, 
and I expect some Members to raise concerns with aspects that 
we have already suggested.
    Our investigation must also continue, because we clearly do 
not have the full knowledge of what happened. We don't even 
have a significant portion of the emails from the most 
important figure in this investigation.
    Serious debate and discussion about reforming a failed 
agency and getting politics out of the IRS is a good and 
worthwhile exercise, even though there may not be any clear 
consensus for those major reforms today. Last week the 
committee took bipartisan steps on some of these measures.
    As we develop future ideas, I hope we will continue to work 
in a bipartisan spirit. Our witnesses today will help us to 
explore the other steps that Congress can take to improve the 
accountability of the IRS. With an agency like the IRS, reform 
will not be accomplished overnight. This is an important 
process that will continue into the future and expand to many 
other committees and stakeholders.
    But this is a process we must start today. And from that 
standpoint, I want to welcome our witnesses, and I look forward 
to hearing their testimony.
    Chairman Issa. And I would now recognize the distinguished 
gentleman from Illinois Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. 
Unfortunately, the ranking member Mr. Cummings could not be 
here today, and I am substituting or sitting in for him.
    Today is the twelfth hearing our committee has held on the 
IRS investigation over the past year. We have held six hearings 
on this topic in just the last 6 weeks. The IRS Commissioner 
has testified three times before our committee and a fourth 
time before the Ways and Means Committee in just the past 
month.
    The same is true for the organizations testifying here 
today. Representatives from all three groups, True the Vote, 
The Heritage Foundation, and the Center for Competitive 
Politics, testified before the committee in February of this 
year. I welcome our witnesses here today, or perhaps I should 
say welcome them back.
    Some may say our efforts are duplicative. It makes no 
sense, for example, to require IRS witnesses to submit to 
transcribed interviews with the Oversight Committee first and 
then force them to appear again before the Ways and Means 
Committee, but that is what these two committees on which I 
serve are doing.
    Unfortunately, one person who is not here today is 
Inspector General Russell George. The title of today's hearing 
is ``IRS Abuses: Ensuring that Targeting Never Happens Again.'' 
So it would have made sense to hear from the official who 
issued the report in 2013 that first identified inappropriate 
criteria used by IRS employees to screen tax-exempt 
applications. He could have told us how the IRS is doing in 
terms of implementing the recommendations in his report. Last 
week Ranking Member Cummings requested that the committee 
invite the inspector general, but he's not here today.
    Other people who are not here include progressive groups 
that were singled out. On April 17, 2014, Chairman Issa stated, 
``There is simply no evidence that any liberal or progressive 
group received enhanced scrutiny because its application 
reflected the organization's political views.'' But the 
committee has obtained substantial evidence that IRS employees 
treated progressive groups in a manner similar to conservative 
groups. For example, a ``be on the lookout'' list, or BOLO 
list, from 2010 directed IRS screeners to look for ``ACORN 
successors.'' Another directed IRS employees to screen for, 
``progressives.''
    A PowerPoint presentation from 2010 included images of a 
donkey and an elephant, and it instructed IRS screeners to look 
for the terms, ``progressive'' alongside, ``Tea Party.''
    And a training presentation listed successors to ACORN as 
examples of organizations to watch for.
    Witnesses also confirmed that progressive groups were 
subjected to extended reviews and delays. He stated that I am--
during a transcribed interview with committee staff on October 
29, 2013, a senior technical advisor in the Exempt 
Organizations Division testified that progressive emerge groups 
were subjected to multitiered reviews that included 
consolidating cases and working with attorneys in the Office of 
Chief Counsel. During a hearing before the committee on July 
18, 2013, the inspector general testified that he did not 
become aware of documents relating to progressive groups until 
after his audit was complete. He stated, ``I am disturbed that 
these documents were not provided to our auditors at the 
outset, and we are currently reviewing this issue.'' It is now 
more than a year later and we still have not heard his update, 
and we will not hear today.
    Finally, late last night, the chairman issued a Republican 
staff report with new recommendations for the IRS. This report 
was not provided to committee members in advance, so we did not 
have an opportunity to review it or offer our opinions.
    The primary recommendation is to eliminate the position of 
IRS Commissioner, one of only two political appointees in the 
entire agency, and replace it with a board full of political 
appointees. Personally, I was surprised by this recommendation 
because it seems to contradict the Republican narrative for 
this investigation. If you believe there is too much political 
activity at the IRS, I don't see how increasing the number of 
political appointees would help.
    I also wonder, given the committee's focus on 
overpoliticized and dysfunctional boards at the Nuclear 
Regulatory Commission and the Chemical Safety Board, why this 
model is best for the IRS.
    With that, Mr. Chairman, I thank the witnesses very much 
for being here and look forward to their testimony.
    Chairman Issa. Thank you.
    Members may have 7 days in which to submit their opening 
statements.
    I now ask unanimous that the aforementioned majority 
report, ``Making Sure Targeting Never Happens Again: Getting 
Politics Out of the IRS and Other Solutions,'' be placed in the 
record. Without objection, so ordered.
    Additionally, I will add the previously published April 7, 
2014, Committee on Oversight report, ``Debunking the Myth of 
the IRS Targeting Progressives.'' Without objection, both will 
be ordered in.
    I might note for the record that we asked repeatedly for 
the minority to submit a witness. If they wanted the IG to be 
their witness, they certainly could have had them.
    Today we welcome our witnesses. Mr. David Keating is 
president of the Center for Competitive Politics. Thank you.
    The Honorable Hans von Spakovsky----
    That's right.
     --is the manager of Election Law Reform Initiative and a 
senior legal fellow at The Heritage Foundation.
    Miss Cleta Mitchell is a partner at Foley & Lardner, LLP.
    And Mr. James Sherk is the senior policy analyst in labor 
economics at The Heritage Foundation.
    Thank you all for being here.
    Pursuant to our committee rules, would you please rise to 
take the oath. And, yes, please raise your right hands.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Please be seated.
    Let the record reflect that all witnesses answered in the 
affirmative.
    In order to allow time for discussion, please try to limit 
your testimony to 5 minutes. Your entire written statement will 
be made part of the record.
    We'll begin with Mr. Keating.

                       WITNESS STATEMENTS

                   STATEMENT OF DAVID KEATING

    Mr. Keating. Mr. Chairman and members of the committee, 
thank you for the invitation to speak to you today, and thank 
you also for the investigative work you've done on this very 
important topic.
    While the investigations here and elsewhere are still 
ongoing, and we don't know the full extent of what happened, we 
do know enough to make some recommendations already to ensure 
that nonprofit groups are never targeted again.
    I think the most important of these recommendations is to 
get the IRS out of the speech police business as soon as 
possible. Given the importance of First Amendment rights and 
the effect of tax compliance on revenue collections, the IRS is 
perhaps the last agency that we could envision as the speech 
police. As a revenue-collecting agency, the IRS has proven that 
it's in incompetent at regulating political speech, and that in 
term undermines its primary function of collecting tax revenue. 
Its continued worked in this area could cost the government 
tens or even hundreds of billions of dollars in tax revenue if 
lack of trust in the IRS causes tax compliance to fall by even 
a tiny amount.
    Now, in fairness to the career staff of the IRS, this is 
very difficult work. As I like to tell people, campaign finance 
law is extremely complicated. It makes the tax law seem like a 
model of simplicity and clarity. Imagine, if you will, if we 
gave the Federal Election Commission the job of writing a tax 
regulation or enforcing the tax law. Well, the FEC would 
probably make a hash of it, too.
    The IRS is simply not equipped, it doesn't have the 
culture, and it doesn't understand First Amendment 
constitutional rights. And the most important case in this area 
was the landmark Buckley v. Vallejo discussion. In that ruling 
the Supreme Court said the supposedly clear-cut distinction 
between discussion, laudation, general advocacy, and 
solicitation puts the speaker in circumstances wholly at the 
mercy of the varied understanding of his hearers and 
consequently whatever inference may be drawn as to his intent 
and meaning. Such a discussion offers no security for free 
discussion. In these conditions it blankets with uncertainty 
whatever may be said. It compels the speaker to hedge and trim.
    Now, this is exactly the problem with the IRS guidance 
today for nonprofit organizations. This advocacy places 
nonprofit groups in, ``circumstances wholly at the mercy of the 
varied understanding of his hearers''; in this case, IRS 
agents.
    Now, the Court's solution was simple and elegant, and it 
essentially said that political advocacy was defined as 
communications that in express terms advocate the election or 
defeat of a clearly identified candidate.
    Shortly after this ruling, the Federal Election Commission 
came up with regulations to implement the decision. The IRS did 
nothing. Nothing. And as a result, it didn't recognize the 
Buckley decision, and it didn't modify its guidance in any way 
to reflect it.
    Congress recently, and I'm talking about in the last 15 
years, has tried to move the IRS more into the area of 
political regulation, and this has embroiled the IRS in 
political fights the Service should avoid.
    Given the history of the agency from the 1930s through the 
1970s, where there was considerable history of Presidents of 
both parties attempting to use the IRS to attack political 
enemies, the Service has long been prickly, and justifiably so, 
about being dragged into political wars.
    Now, I'm concerned that this distrust of the IRS could lead 
to a fall of tax compliance. If tax compliance fell just 1 
percentage point, the government could lose 170 billion in tax 
collections over the next 10 years.
    And that is why we think the solution is pretty simple, and 
that is to get the IRS out of speech police business. We 
already have agencies in all 50 States, and we have the Federal 
Election Commission to regulate speech. And, in fact, the IRS' 
own National Taxpayer Advocate Nina Olson wrote in her report 
last year, it may be advisable to separate political 
determinations from the function of revenue collection. Under 
several existing provisions that require nontax expertise, the 
IRS relies on substantive determinations from an agency with 
programmatic knowledge.
    We already have such an agency. As I said, it is the 
Federal Election Commission. If the FEC decides a group 
conducts excessive political activities, it can force, and 
indeed has forced, such groups to register and report to the 
FEC. If they are a political committee, then they automatically 
become a 527 organization and are no longer a social welfare 
business, trade, or union.
    So I think that's the most important change that could be 
made. The IRS could and should do it on its own, and that is 
getting out of the speech police business. And that's the only 
solution I believe that can guarantee a similar scandal will 
not occur again. It will protect against a decline in tax 
compliance and help restore the agency's reputation.
    Chairman Issa. Thank you.
    [Prepared statement of Mr. Keating follows:]

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    Chairman Issa. Mr. von Spakovsky.
    You know, and I grew up in a neighborhood with a lot of 
those names. I should be better. But if your name was 
Jazbinski, I'd have been much more skilled in saying it.
    Thank you. Please. You are recognized.

               STATEMENT OF HANS A. VON SPAKOVSKY

    Mr. von Spakovsky. Thank you. Mr. Chairman, I appreciate 
the invitation to be here today for your first hearing on how 
to fix the problems at the IRS, and that is how to prevent the 
IRS from abusing its tremendous power.
    In May of last year, Lois Lerner, as everyone knows, 
revealed that the IRS has been targeting Tea Party and other 
conservative organizations. This was apparently made public 
just before the public release of an inspector general report 
that detailed the, ``inappropriate criteria,'' used by the IRS 
to identify/review the applications of conservative 
organizations for tax-exempt status under 501(c)(4) of the 
Internal Revenue Code. These reviews, again quoting the IG 
report, ``resulted in substantial delays in processing'' of 
their applications, and they were also subjected to voluminous 
requests for totally irrelevant documents and information.
    This represents one of the most dangerous actions that can 
be taken by a government agency, abusing its power to target 
disfavored individuals and disfavored organizations. What is 
worse is that the IRS seems to have learned nothing from this 
effort to regulate political speech, which is outside its 
statutory mandate, instead of sticking to its mission, which is 
collecting tax revenue. In fact, the IRS recently proposed new 
regulations that would, in essence, implement the inappropriate 
criteria that the IRS used in its unlawful targeting scheme. 
And, unfortunately, as we all know, the IRS has a history of 
abusive behavior, starting with Franklin Delano Roosevelt, who 
used the power of the agency against a host of political rivals 
and business opponents.
    Now, I've got six recommendations that I will make very 
quickly, although there are certainly others that we can 
discuss.
    First of all, I highly recommend the IRS be made an 
independent agency run by a multimember commission. When 
compared to other Federal agencies like the FEC or the SEC, the 
IRS lacks the safeguards needed to assure citizens that tax 
regulation enforcement will not be used to stifle political 
opposition of the party in power.
    Specifically, for example, the FEC is an independent 
agency. And unlike the Treasury Department and the IRS, it is 
not directly accountable to the party controlling the White 
House.
    Additionally, the FEC has a bipartisan makeup of six 
Commissioners, instead of just one. Since it takes four votes 
to carry out any action, it requires the consensus of both 
parties represented there to take any action. This reassures 
the public that the agency's policies, regulations, and 
enforcement decisions are based on the legal and factual merits 
rather than on partisan and ideological considerations. The IRS 
lacks both of these important institutional safeguards.
    The second recommendation is to place a time limit on the 
IRS' review of applications or eliminate the IRS review 
requirement entirely. The investigations revealed that at one 
point for 27 months the IRS did not approve a single tax 
exemption application from a Tea Party organization.
    This kind of years-long delay can be obviated with a time 
limit placed on the IRS for review, such as 60 days. That 
exemption could be granted then automatically if the IRS does 
not respond within 60 days, and you could even give the IRS the 
ability to extend that period once if it makes a written 
request for relevant information.
    Alternatively, organizations could be automatically granted 
tax-exempt status as soon as they submit a basic application to 
the IRS. That would prevent the type of manipulation that 
occurred. If the IRS later obtains evidence that an 
organization is abusing its tax-exempt status, it can then 
conduct an investigation or an audit, just as it does for any 
other taxpayers when a problem arises. But there is no logical 
reason why the IRS should conduct a review of newly formed 
organizations just starting their activities.
    Third, the IRS should only be allowed to take into account 
political speech or activity that consists of express advocacy. 
Now, I actually agree with Mr. Keating that they ought to get 
out of this business entirely, but that is also something that 
should be considered.
    Also, the IRS has completely misinterpreted the definition 
of the promotion of social welfare. And this is my fourth 
recommendation. As you know, in order to be a 501(c)(4), what 
the law says is you must be operated exclusively for the 
promotion of social welfare. The IRS has wrongly interpreted 
that term to exclude all political activity. However, in a 
democracy, political involvement and participation are within 
the definitions of social welfare.
    If you want to promote social welfare, it requires advocacy 
in the election process, given the broad and extensive scope of 
modern government. In today's America, you can't promote social 
welfare without interacting with government officials and 
legislators, as well as promoting the election of candidates 
with positions on issues that particular organizations believe 
are important in achieving their goals for promoting social 
welfare.
    I also think IRS employees should be held personally liable 
for certain violations of the law, which is not currently the 
effort.
    And, finally, the IRS should be prohibited from using 
campaign finance reports or public disclosures of a taxpayer's 
political donations at the FEC as the basis for commencing an 
IRS investigation.
    Thank you.
    [Prepared statement of Mr. von Spakovsky follows:]

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    Mr. Mica. [Presiding.] Thank you.
    I now recognize Ms. Mitchell, partner with Foley & Lardner. 
Welcome, and you are recognized.

                  STATEMENT OF CLETA MITCHELL

    Ms. Mitchell. Thank you, Mr. Chairman, members of the 
committee. I want to thank you for conducting this hearing, but 
I also want to thank the committee and the chairman--I'm sorry 
he's not here for me to personally thank--and to thank the--
this committee, because you've been determined and dogged and 
relentless in trying to get to the truth. And from those of us, 
and particularly my clients, who were on the receiving end of 
the IRS targeting, I can tell you that the IRS was determined 
and dogged and relentless in the denial of the First Amendment 
rights of hundreds of citizens groups and thousands of law-
abiding, patriotic Americans.
    So my--my sympathy for the poor IRS being subjected to all 
of this investigation is not very--not very high.
    You've asked us for recommendations about ensuring this 
targeting never happens again, and I come before you today as 
somebody who has represented clients before the IRS many--for 
many years before the targeting started, represented clients 
during the targeting, and now represent clients in suing the 
IRS in three different lawsuits that are cases that have arisen 
from this unlawful targeting.
    And I want to say, first of all, that I believe that the 
IRS is such a corrupt and rotten and broken agency that it 
cannot be salvaged. And, frankly, for that reason, I would urge 
the Members of Congress to support Representative Jim 
Bridenstine's bill, House Joint Resolution 104, which would 
repeal the 16th Amendment, abolish the income tax, and, by 
definition and extension, abolish the IRS, because I don't 
think this agency can be saved.
    But knowing that that takes a little while, in the 
meanwhile I have 10 recommendations I'm going to go through 
quickly, which are things that Congress needs to do to 
reinstate the rule of law at the IRS, because that's what has 
been lost through all of this is an abiding by the IRS of the--
with the rule of law.
    First of all, I believe that IRS employees should be 
prohibited from being unionized. They should not be in a 
political organization that gives 94 percent of its 
contributions to Democrats, including 11 members of this 
committee, all Democrats. No Republicans have received any 
contributions from this union.
    I think, number two, that we should eliminate the 
application process for all 501(c) organizations other than 
(c)(3)s. There's absolutely no reason for organizations to go 
through this ``Mother may I?'' with the Federal Government to 
find out whether they can operate as a tax-exempt organization. 
They do not receive the tax-deductible contributions. Contrary 
to what I hear constantly from Members of Congress at these 
hearings--it makes me--makes my head spin--contributions to a 
501(c)(4) organization are not tax deductible to the donor, and 
there's no reason for organizations from any 501(c) category, 
all 29 of them-- there's no reason for them to have to get 
permission from the government to operate.
    Number three, define by statute that political activities 
are social welfare activities. We should be encouraging, not 
discouraging, the people from participating in political 
activities, and citizens organizations have a--have a right and 
a duty to do that.
    Number four, repeal the tax that is imposed on political 
expenditures by 501(c) organizations. It is a hateful 
violation, in my view, of the First Amendment to tax citizens 
groups for the exercise of their First Amendment rights.
    Number five. This one needs a lot of work. Congress has got 
to take section 26 U.S.C. 6103, which was enacted by Congress 
to protect taxpayers from unlawful inspection, release of their 
tax information. The IRS has turned it on its head and now uses 
6103 as a basis for denying the rights of citizens and 
taxpayers, denying Congress access to information about 
misdeeds by the IRS. We need to give taxpayers a private right 
of action and opportunity to recover treble damages from 
individual IRS employees who violate their 6103 rights.
    We need to repeal--number six--repeal the requirement that 
organizations must--must reveal to the IRS their donors. That 
is a terrible law, and it has given rise already. The first 
inkling we had of IRS targeting of conservatives was when we 
saw the IRS going after donors to a conservative group and 
tried to impose a gift tax on them. There is no public interest 
and no public policy imperative for citizens to have to 
disclose to the government who their donors are. These are not 
public documents, and they should not be subject to being 
disclosed to the IRS.
    Number seven, as Hans said, we must--and I think the 
committee should expand its investigation and ask and 
investigate, because I'm absolutely convinced that the IRS has 
used campaign finance reports and, in particular, donors to the 
Romney Presidential campaign or super PAC as the basis of 
conducting personal IRS tax audits, and I think that that 
should be illegal. But this committee needs to get to the 
bottom of that particular situation, because I have heard too 
many stories from too many people from all over the country to 
not think that that--that something is afoot there.
    We need to give a--number eight--a private right of action 
to citizens to be able to go--to file lawsuits and to recover 
damages for the violation of their constitutional rights by 
Federal employees. Just as they can today against State and 
local employees, that should be extended to Federal employees.
    Number nine, we have to reaffirm, Congress should reaffirm 
that the laws that Congress has enacted to protect taxpayers 
and citizens from an overreaching Federal Government in fact 
apply to the IRS. I have listened and watched and read the IRS 
say that things like the Administrative Procedures Act, the 
Regulatory Flexibility Act, the Paperwork Reduction Act don't 
apply to them. And we've seen that the IRS has completely 
disregarded its statutory obligations under the Federal Records 
Act and the Federal Information Security Management Act, and 
they're making a joke out of FOIA, because now they either 
don't answer your questions, make you sue them, or they lie.
    And finally, that we should make a law, 18 U.S.C. Section 
1001 makes it a crime for any citizen to make a false statement 
to a Federal agency, agent, or investigator. Well, I believe 
that the IRS, and its employees and Federal employees should be 
held to the same standard when they lie to us.
    The IRS Commissioner came--Doug Shulman came before this 
committee in March of 2012 and told this committee that there 
was no targeting of conservative groups, and that was a lie. 
And what has happened to him? And I--Lois Lerner has lied. 
Other members of the IRS, they have lied, and I think that they 
should be subject to the rule of law, and all the laws that 
Congress has enacted that apply to everybody else ought to 
apply to the IRS. Thank you.
    Mr. Mica. Thank you for your testimony.
    [Prepared statement of Ms. Mitchell follows:]

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    Mr. Mica. We will now turn to our final witness, Mr. James 
Sherk. He is the senior policy analyst in labor economics at 
The Heritage Foundation. Welcome. And you are recognized, sir.

                    STATEMENT OF JAMES SHERK

    Mr. Sherk. Representative Mica, Representative Davis, and 
committee members, thank you for the invitation to testify.
    My name is James Sherk, and I--though I work at The 
Heritage Foundation, my testimony this morning should not be 
construed as an official position of The Heritage Foundation.
    This morning I want to explain to you that the law makes it 
very difficult to fire Federal employees, and that this 
shelters workers who engage in misconduct. Congress should 
streamline the firing procedures to discourage employees at the 
IRS and at other agencies from abusing their positions.
    There are three facts about the current civil service 
system that Congress should understand. The first fact is that 
trying to fire a Federal employee takes years of effort. 
Agencies can remove workers; however, even after severe 
misconduct, doing so takes incredible time and effort. An 
agency must show that a reasonable person would more likely 
than not conclude that the evidence justifies a firing. 
Gathering the evidence to show this can take months. Then the 
agency must give the employee 30 days' advance notice before 
removing them. During this time they cannot hire a replacement 
and must pay the employee. If the employee during this time 
alleges that their supervisor is firing them for exposing 
misconduct, they can ask for a whistleblower investigation, 
during which time they also cannot be fired, even if it's a 
completely baseless investigation.
    After all this, the agency can remove the employee; 
however, the employee can appeal their firing to the Merit 
Systems Protection Board, or MSPB. In 2013, this initial appeal 
took an additional 3 months. If the employee loses this appeal, 
they can then file a second appeal to the MSPB headquarters in 
Washington. In 2013, this second appeal took an average of over 
9 months. If the MSPB rules against the employee again, they 
can appeal then to the EEOC or to the Federal courts.
    In total, it can take several years to fire employees for 
even flagrant misconduct. For example, it took the Treasury 
Department 5 years to fire Lester Erickson for lying to 
investigators during an internal misconduct investigation.
    For many managers, successfully removing a problem employee 
becomes a full-time job in its own right, and doing nothing is, 
unfortunately, often the path of least resistance. An Office of 
Personnel Management study found that managers feel it takes 
``heroic'' efforts to remove problematic employees.
    The second fact is that this causes Federal employees to 
rarely lose their job, sheltering those who abuse their 
position. Most Federal agencies are not run by heroes; they are 
run by managers trying to operate the government. An OPM survey 
found that only 8 percent of managers with poorly performing 
employees attempted to remove them, less than 1 in 10. And of 
those who attempted to do so, over three-quarters reported that 
their efforts had had no effect whatsoever. So, unsurprisingly, 
the statistics show that Federal employees rarely get fired.
    OPM data also shows that last year the Federal Government 
fired less than 10,000 workers out of its 2.1 million-man 
workforce for discipline or performance reasons. Almost half of 
those firings occurred among new hires in the probationary 
period. Last year the government fired just one-quarter of 1 
percent of tenured employees with 2 or more years of 
experience.
    Now, employees who engage in misconduct know how hard it is 
to remove them. The Office of Personnel Management reports that 
many managers stated in their agencies, ``The unwritten policy 
was to avoid any situation that could lead to an appeal or 
lawsuit.''
    In other words, managers frequently let misconduct slide. 
For example, at Housing and Urban--at the Department of Housing 
and Urban Development, an employee spent over one-third of his 
time over the course of 5 years conducting private business 
deals using his official email account. One of those business 
deals involved providing a lap dancer to a private party. HUD 
officials did not even try to fire him.
    And this system also shelters the IRS employees who target 
Americans for their political views. IRS employees have the 
same notice and appeals process as other government workers. 
Consequently, IRS managers had and still have strong incentives 
to ignore employees targeting Americans for their political 
beliefs. It would take heroic efforts to remove employees 
engaging in such conduct.
    Now, the third fact is that Congress can fix these problems 
by reforming America's civil service laws. Ideally Congress 
should return to the spirit of the original Pendleton Act, 
which regulated the hiring of Federal employees to prevent a 
political spoils system while allowing managers to remove 
employees at will. Congress should return to this policy and 
make Federal employees at will while still preventing patronage 
and nepotism appointments in the hiring process.
    Barring such reform, Congress should at least streamline 
the firing process so it takes less time and effort. Congress 
can take several steps to do so, such as allowing Federal 
managers to immediately suspend employees without pay when 
they've engaged in misconduct, and then providing the due 
process after their suspension.
    Congress should also eliminate the ability of Federal 
employees to appeal their dismissal through multiple forums. 
They should have to pick one.
    Congress should also extend the probationary period from 1 
to 3 years to give managers more time to vet employees and 
remove those likely to cause problems later.
    And to encourage good behavior, Congress should transform 
the current seniority-based step increases into performance-
based raises.
    Thank you. I appreciate the opportunity to explain that the 
law makes it very difficult to fire Federal employees, and that 
this shelters workers who engage in misconduct.
    [Prepared statement of Mr. Sherk follows:]

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    Mr. Mica. Thank you, Mr. Sherk and the other witnesses, for 
their testimony.
    Ms. Mitchell, unfortunately you seem to be very wavering in 
whether you think we should do something about the IRS. But all 
humor aside, it sounds like you represented some people who 
also were targeted, and maybe could you tell us a little bit 
more about again about what you've seen and people--the other 
thing, too, is these people, if you're defending them, you're 
the attorney. Who's absorbing the cost? What's this doing to 
their lives?
    Now, we're here to look at a remedy, but I think it's also 
important to look at the impact. And you are by far one of the 
most forward-speaking people about the damage that has been 
done by IRS that we've had before our committee. So would you 
mind commenting?
    Ms. Mitchell. I'm happy to do that, Mr. Chairman.
    I testified in February before Mr. Jordan's subcommittee. I 
told the story, but this wasn't the full committee.
    I first--I represent people who apply for tax-exempt 
status. And I've been doing this for many years. I've been 
dealing with IRS Exempt Organizations Unit for many, many 
years, representing groups seeking tax-exempt status of various 
kinds, (c)(3), (c)(4), (c)(6)s. And it used to take--prior to 
the onset of this scandal, to get a 501(c)(4) application 
reviewed and processed would take 3 to 4 weeks.
    I had an application for--I first began to realize 
something was going on at the IRS in early 2010, because I had 
a client--we applied for tax-exempt status for 501(c)(4) group 
in the fall of--October of 2009, and IRS cashed the check, 
because you do have to pay for this privilege, and then we 
didn't hear from them again until June of 2010. And this was 
very unusual. This had never happened before.
    And in early 2010--and then, you know, I have another 
application that we file----
    Mr. Mica. How long before--you said 2010. How long before 
were you handling these kinds of cases?
    Ms. Mitchell. Oh, decades.
    Mr. Mica. So----
    Ms. Mitchell. Yeah, I mean, this wasn't----
    Mr. Mica. This was quite a departure from----
    Ms. Mitchell. It was a total departure.
    Mr. Mica. Total departure.
    Ms. Mitchell. It was a total departure.
    And, by the way, that organization that filed for tax-
exempt status in October 2009 did not get its 501(c)(4) tax 
status granted until July of last year, and only after this 
committee--the scandal broke and this committee began this 
work.
    So, I mean, I've represented a number of organizations that 
applied for tax-exempt status during that period and were 
associated with--they were conservative or Tea Party groups. 
They were groups that were opposing Obamacare. And I really do 
believe, frankly, that that one is one of the triggers. We 
don't know all the information that you know and that your 
investigators know, but I think one of the criteria that the 
IRS was looking at was whether these organizations were 
opposing Obamacare as a matter of policy.
    And now you have a situation, I think it goes to the--my 
colleagues' testimony, which is that when you have an agency 
that now not only is collecting taxes, but is the agency that 
is enforcing Obamacare, and now it's regulating political 
activities, you're mixing things that should not be mixed in an 
agency that is set up to collect revenue.
    Mr. Mica. Did you have any progressive groups also come to 
you with----
    Ms. Mitchell. Well, you know, it doesn't really work that 
way. The fact is--you gotta choose. You're gonna for play for 
USC or Notre Dame; you can't play for both. And people have 
lawyers who--or, in our case, the University of Oklahoma or 
Oklahoma State. I see my Congressman from Oklahoma City, which 
is where I'm from.
    Mr. Mica. Your future Senator.
    Ms. Mitchell. My future Senator. Yes.
    But, you know, Republicans have lawyers, and Democrats have 
lawyers. You know, they represent them because--and same with--
--
    Mr. Mica. Were you aware of--I mean, the accusation is 
that----
    Ms. Mitchell. I'm well aware of that.
    Mr. Mica. --that this was also a targeting towards 
progressive groups?
    Now, I just asked the staff, there was one of the principal 
promotions--what was the name of it? Organizing for Action. I 
think it was approved in 73 days, and 27 months there was a 
freeze on conservative groups. It doesn't appear to us that the 
other side was targeted.
    Ms. Mitchell. They were not----
    Mr. Mica. Let me say this, too. If you were targeting 
progressives, if this was all about progressives or liberals, 
the ceiling would be coming down----
    Ms. Mitchell. Yes, it would.
    Mr. Mica. --and there would be riots in the street.
    Ms. Mitchell. Mr. Chairman, if you look at the documents, I 
mean, I know that this is something that the minority members 
of this committee and the House keep saying, but it simply 
isn't borne out by the facts.
    If you look at the documents, frankly, that have been 
posted by Congressman Levin on the Democratic--the Democrats--
the minority pages of the Ways and Means Committee, he has 
posted a lot of documents from the IRS, and he posted it to 
stand for the proposition that progressives were referenced 
just the same as Tea Party groups in these monthly reports.
    And I've read the training materials to which Mr. Davis 
refers, but if you read what they said in the training, and you 
look at what the instructions were, here's what the 
instructions were for progressive groups: You look at those. 
Yes, they were on a BOLO list, but if you found them, what the 
instructions said was there are some progressive groups who 
have applied for 501(c)(3) status; it is more appropriate to 
tell them to be (c)(4)s.
    If you look at what it said for the Tea Party groups, it 
said, send them all--basically quarantine them in a--in a 
special unit in Cincinnati. And that's the difference. Yes, 
they looked at them, but they looked and got different 
treatment depending on whether they were progressive or Tea 
Party. If they were Tea Party, they literally were quarantined 
for a period of years. The progressive groups were looked at to 
make sure they'd applied for the right status, and then they 
got their tax status. That's the difference.
    And in the case of many of these conservative groups and 
Tea Party groups, there's one--the Tea Party of Albuquerque 
still hasn't gotten its tax-exempt status. And there are many 
of these small groups, when they got these letters from the IRS 
saying, tell us everyone who has spoken at your meetings, tell 
us everybody who is on your board, every--who are your 
volunteers; how many volunteers do you have; what are their 
names; who attended your meetings; do you have transcripts of 
who spoke, of everything they said when they spoke to you; tell 
us everywhere where your president spoke in the last year and 
where she plans to speak in the next 2 years. These are 
impossible questions, and a lot of these groups when they got 
these very burdensome letters from the IRS saying things like, 
did you have candidate debates? Did you do voter registration? 
And I had people saying, were we not supposed to do candidate 
debates? Are we not supposed to conduct voter registration? 
Because they think if the government's asking them those 
questions, that maybe they were doing something wrong.
    And so what did they do? They started backing away. Many 
times groups just went away because they couldn't get 
contributions because they didn't have their tax status. And 
it--it had the desired chilling effect, and that viewpoint 
discrimination caused injury to hundreds and hundreds of 
organizations nationwide.
    Mr. Mica. And gagged a particular viewpoint prior to a 
national election.
    Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Seems to me that the logical place to start this discussion 
is with the report issued by the inspector general in May of 
last year. And it is my understanding that Mr. Cummings did ask 
that the inspector general be a part of this hearing.
    That the inspector general found that IRS employees in 
Cincinnati developed what he called inappropriate criteria for 
screening applications for attempt status. He also identified 
serious deficiencies by IRS managers. He found that Lois Lerner 
was not aware that these employees were using these criteria 
for a full year. He also found that even though she ordered an 
immediate stop to them, the employees used different, 
inappropriate criteria anyway.
    Since then the committee has obtained evidence that 
progressive groups were also singled out in similar ways, being 
listed expressly in so-called ``be on the lookout,'' or BOLO, 
lists, receiving lengthy questionnaires, facing long delays, 
and sometimes being denied. I agree that no groups, 
conservative or progressive, should be singled out based on 
inappropriate criteria.
    In his report, the inspector general made nine 
recommendations for reform at the agency. Ms. Mitchell, let me 
ask you, in your opinion, how do you think the IRS is doing in 
implementing these recommended reforms?
    Ms. Mitchell. Congressman, I have to tell you in all 
honesty I think the application process is completely broken. 
It is Humpty-Dumpty. It is off the wall, and it cannot be put 
back together again.
    What the IRS has done subsequent to the TIGTA report is to 
make matters worse.
    Mr. Davis. Well, then, let me ask our witness----
    Ms. Mitchell. Can I give you an example what they've done?
    Mr. Davis. Yes.
    Ms. Mitchell. Because this--they issued those regulations 
the day after Thanksgiving, which had clearly been in process 
for many months, if not years. I think this committee released 
an email from Ruth Madrigal from the Treasury Department to 
Lois Lerner that was dated, I want to say, maybe even 2011.
    And they--so they'd been working on regulations off plan, 
not in public view, which they sprung on the American people 
over the Thanksgiving holiday and gave us until February 28 to 
issue comments. And there were over 160,000 comments. I want to 
tell you that some of us worked pretty darn hard to get those 
comments filed. And what those regulations would have done 
would have codified the egregious, horrible principles that 
were in all of those, ``development letters'' that were sent to 
the conservative groups.
    But since that----
    Mr. Davis. My time is running so just----
    Ms. Mitchell. One other thing.
    Mr. Davis. Let me just ask the other witnesses what their 
opinions are.
    Mr. Keating. Well, I think one of the recommendations was 
for the IRS to come up with clearer rules. And I think the IRS, 
as Cleta indicated, their proposed rulemaking was horrible.
    We did a study of all the comments filed, and the 
opposition was almost unanimous. And you had groups, left and 
right, business and labor unions, were unanimous in their 
criticism of the agency's rules.
    So I don't think the IRS gets it, I don't think they 
understand the First Amendment, and that's why I think the key 
recommendation is the IRS should get out of the speech police 
business.
    And this is something that the National Taxpayer Advocate 
and independent voice inside the IRS, Nina Olson, she actually 
has a background in low-income taxpayer compliance and 
advocacy, and she came to the same conclusion, and I think it 
is something the IRS should do.
    Mr. von Spakovsky. Congressman Davis, I'll just make one 
comment on that. And to show you just how confused the IRS was, 
these new regulations they proposed, they were all, in essence, 
to have what their definition would be of campaign-related 
activity. Well, their definition of campaign-related activity 
would completely conflict with the Federal Election 
Commission's definition of campaign-related activity. So things 
that the FEC thinks are just fine and are not campaign related, 
the IRS would say, no, no, those are campaign related, which 
would put all kinds of organizations in this untenable 
position.
    And these regulations were so bad that I and seven other 
former FEC Commissioners wrote an extensive public comment 
pointing out all of the basic errors and mistakes that the IRS 
had made with these proposed new regulations.
    Mr. Davis. Let me just hear from Mr. Sherk.
    Mr. Sherk. Representative, would it take an act of Congress 
for the IRS to be able to streamline their firing procedures. I 
mean, there's some internal agency regulations, but the core of 
it is mandated by Congress. And Chapter 43 and Chapter 75 of 
Title V of the U.S. Code, and unless Congress acts, they can't 
do much to make it easier to remove people quickly for 
misconduct.
    Mr. Davis. Thank you very much, Mr. Chairman. And I assume 
we are going to come back. And I have got some other questions 
I'd like to raise on that.
    Chairman Issa. [presiding.] So we've had 12 hearings, and 
you still have questions. I appreciate that, Mr. Davis.
    Mr. Jordan.
    Mr. Jordan. I thank the chairman.
    And I want to thank our witnesses for being here today, 
but, more importantly, for all the work they have done in 
helping let the American people know what the Internal Revenue 
Service was up to, what they did, how they harassed people and 
targeted people for exercising their most fundamental right, 
their right to speak out in a political fashion against--
against their government.
    Let me just dispel one thing; 104 to 7. Those are the 
numbers. One hundred four conservative groups we know were 
targeted, harassed, delayed, delayed, delayed. Seven 
progressive groups were put on a different list, as Ms. 
Mitchell pointed out, put on a different list, got their (c)(4) 
status, and never received anything close to the same kind of 
treatment. So this idea that it's wrong, it's false, it is just 
simply not borne out by the facts.
    The idea that the IRS is involved in way too many things. 
Of course. Mr. von Spakovsky, they're not the FEC, for goodness 
sake. They can't enforce election law. They shouldn't be 
involved in healthcare law. Of course.
    And the rule that Mr. Keating just brought up. We had a 
hearing several months ago where we had the ACLU, Tea Party 
Patriots, Motorcycle Association of America, and Home School 
Legal Defense Association, all opposed to the rule. Now, when 
you have the ACLU, and the Tea Party, and home schoolers and 
Harley riders all against the same thing, you know that they--
this is unbelievable.
    The thing I want to get to the question, just get your 
responses. I know we have people with a background--there's 
another hearing going on. That's why you see a lot of Members 
over at the other hearing dealing with the special prosecutor 
resolution that passed Congress with 26 Democrats, I might 
point out. Every single Republican, 26 Democrats supported a 
resolution saying what the Justice Department is doing in their 
investigation here warrants an outside special counsel. So I 
want to get your thoughts on that.
    And let me just--let me just prompt you with one thing. Two 
weeks ago we had James Cole, Deputy Attorney General, the 
number two guy at the Justice Department, James Cole, sitting 
right where you all are sitting, and we asked him a pretty 
basic question: When did you learn, when did the Justice 
Department learn that the Internal Revenue Service had lost 
Lois Lerner's emails? And his response shocked us all. He said, 
we learned when it was reported in the press that they had been 
lost, even though, sitting at that same table a week ago, Mr. 
Koskinen told us he knew in April, and his chief counsel knew 
in February. And the Justice Department learns June 13th, when 
the rest of America learned, that they had lost Lois Lerner's 
emails.
    So I want your thoughts on do we need a special--I'll just 
go right down the list, but particularly Mr. von Spakovsky and 
Ms. Mitchell, who I know have had a background in dealing with 
this. But let's start with Mr. Keating.
    Mr. Keating. I think that would be advisable. I think I 
first suggested that--I wasn't the first to suggest, but I 
first suggested that last year shortly after the scandal broke.
    Mr. Jordan. Thank you.
    Mr. von Spakovsky, if I'm correct, you worked in the 
Justice Department.
    Mr. von Spakovsky. I did. And I, frankly, was astonished at 
Cole's answer for this reason. In May of last year is when 
Attorney General Eric Holder announced that he was opening up a 
criminal investigation of this. Well, I was involved in 
investigations with the Justice Department. The first thing you 
would do if you have the FBI as your investigator situation 
like this is go and seize all of the documents and information 
the way the FBI does when they're investigating a private 
organization. A year and a half later, they clearly had not 
done that and didn't even know that all of the evidence they 
were supposedly supposed to be looking at, all those emails, 
didn't exist.
    Mr. Jordan. And when we asked that specific question, did 
you get a court order, did you get a warrant, did you go in--
did you go to Lois Lerner's office, did you grab all the 
documents, did you get her computer, of course they hid behind, 
well, there's an ongoing investigation. We can't comment.
    But based on witnesses we have had in depositions and 
transcribed interviews, it sure seems like they haven't. And 
based on what--the response, it sure looks like they haven't.
    Mr. von Spakovsky. No, I don't think they've taken the most 
basic steps you would take in a real investigation.
    Mr. Jordan. Yes. Ms. Mitchell.
    Ms. Mitchell. I don't think there's any question that there 
should be a special prosecutor. You know, the problem is that 
the longer they wait, the harder it is to conduct an authentic 
investigation because of the spoliation of evidence, et cetera.
    We filed a motion in our civil suit. True the Vote sued the 
IRS and a number of individual IRS employees for the denial of 
its First Amendment rights in the consideration of its 
application. And so we filed 3 weeks ago a motion for a 
preliminary injunction asking the court to conduct an 
evidentiary hearing into what has happened. And that motion is 
pending. We had a hearing, and we are waiting. And the judge 
ordered the IRS to file three declarations that are supposed to 
be first-person, authentic evidence. And, you know, and the 
Justice Department told the court that this is in the civil 
case.
    Mr. Jordan. Yeah. Mr. Sherk, yeah.
    Ms. Mitchell. But they didn't know until they read it in 
the paper.
    Mr. Sherk. It certainly seems that such an investigation 
would be warranted. But even if you had a special prosecutor 
who brought charges against the IRS, individual IRS employees, 
it would still take the agency months to remove them, and in 
many cases be collecting pay.
    Mr. Jordan. Mr. Chairman, if I--are we giving a little 
extra time here, Mr. Chairman?
    Chairman Issa. If no one objects.
    Mr. Jordan. Okay. Well, I'll wait for the second round. I 
don't want to do that. I know we have got----
    Chairman Issa. The gentlelady from Illinois Ms. Kelly.
    Ms. Kelly. Thank you, Mr. Chair.
    Mr. Sherk, in April our chairman made this statement: 
``There is simply no evidence that any liberal or progressive 
group received enhanced scrutiny.'' Do you agree with that 
statement?
    Mr. Sherk. I'm an expert on the firing procedures, and 
Federal workforce. I would defer to the others on the panel who 
have more expertise on the specifics of the targeting.
    Ms. Kelly. So you have no opinion?
    Mr. Sherk. I would certainly give the other chairman always 
the benefit of the doubt, and I would assume it would be 
accurate. But if you'd like to talk to me about ways we can fix 
the--how--the civil service laws, I'd be happy to answer those 
questions.
    Ms. Kelly. Well, I'd like to go through some of the 
evidence our committee has obtained during our investigation. 
These should be simple yes-or-no answers. First, we received a 
copy of a so-called BOLO list from November 2010 that directs 
IRS employees to screen for progressives. It states, ``Common 
threat is the word progressive. Activities appear to lean 
toward a new political party. Activities are partisan and 
appear anti-Republican.''
    Were you aware of that document?
    Mr. Sherk. I'm aware to the extent I've heard it discussed 
at this hearing, that there was differential treatment between 
the two groups. But again, my focus and expertise is on labor 
policy and on the Federal civil service laws.
    Ms. Kelly. Well, let me go on. Another BOLO list from 
August 2010 directs IRS screeners to look specifically for 
ACORN successors. Were you aware of that document?
    Mr. Sherk. I was not aware of that, although, as 
Representative Jordan pointed out, it was something like 104 to 
7 was the differential treatment between groups on the right 
and groups on the left.
    Ms. Kelly. So there were probably more Tea Party groups 
that applied, so you probably would have some differences.
    A BOLO list from February 8, 2012, includes an entry for 
Occupy organizations. Were you aware of that document?
    Mr. Sherk. No, I was not, but I wasn't looking for it. 
Again, I was looking into Federal firearm procedures.
    Ms. Kelly. Yes or no is fine.
    A PowerPoint presentation from 2010 includes images of a 
donkey and an elephant and instructs IRS screeners to look for 
the terms ``progressive'' alongside ``Tea Party'' when 
reviewing tax-exempt applications. Were you aware of that 
document?
    Mr. Sherk. That's not something I looked into because, 
again, my expertise is on the Federal civil service laws.
    Ms. Kelly. Thank you.
    Notes from an IRS screening workshop in 2010 list emerged, 
``groups'' alongside ``patriot,'' and 9/12 organizations. Were 
you aware of that document?
    Mr. Sherk. Again, as with all your questions----
    Ms. Kelly. You can just say yes or no.
    Mr. Sherk. No, I was not, Representative.
    Ms. Kelly. Progressive groups were sent lengthy 
questionnaires almost identical to the ones sent to Tea Party 
groups, and they also had to wait years to receive tax-exempt 
status. For example, a Palestinian rights group in Minnesota 
received inquiries that were almost identical to those sent to 
conservative groups and waited more than 2 years for final IRS 
tax-exempt status approval.
    Were you aware of those questionnaires? Just yes or no.
    Mr. Sherk. No, I was not, Representative.
    Ms. Kelly. Thank you.
    How about witness testimony? Our committee interviewed 
witnesses who testified that progressive groups went through a 
multiyear, multitiered IRS review process similar to that used 
for conservative groups. For example, during a transcribed 
interview with committee staff on October 29, 2013, a senior 
technical adviser in that Tax-Exempt Government Entities 
Division explained that, like Tea Party organizations, emerge 
cases were grouped together and subjected to a lengthy 
multitiered review.
    Were you aware of that testimony?
    Mr. Sherk. No, I was not, Representative.
    Ms. Kelly. Many people point to the number of Tea Party 
cases that were screened as evidence of bias, but the simple 
fact is that there were many, many, many more tax-exempt 
applications during this timeframe from Tea Party groups. And 
it's really time for us to stop politicizing this issue. People 
on both sides of the aisle in this room, we don't want bias and 
discrimination and wrongful treatment against any group. We 
just want to get to what the fact of the matter is and make 
sure that each group is treated fairly.
    And I might add that the IG said that he was not aware of 
the BOLOs for screening progressive groups before his audit was 
released. That's why the report was skewed. And I wish the IG 
was here to actually answer questions about this.
    I yield back.
    Chairman Issa. I thank the gentlelady. You have only your 
ranking member to complain to for not asking for the IG.
    Is there anyone else who would like to answer that question 
or comment, since Mr. Sherk, quite frankly, was probably the 
worst person as far as, A, looking at those questions?
    Ms. Mitchell.
    Ms. Mitchell. Mr. Chairman, I've seen most of those. I've 
reviewed most of those reports to which the Congresswoman was 
referring. And those training materials from July of 2010 
specifically state progressive does not equal Tea Party. That's 
in the outline. That's in the minutes of that training session. 
And what they--and, yes, they were looking for that term. They 
were looking for the term and given different instructions as 
to what to do if they saw it.
    And I'll give you an example. There's an organization 
called Progress Texas----
    Chairman Issa. The gentlelady might want to remain. This is 
still your time and answers to your questions.
    Ms. Kelly. Right. But I've stayed long, and I have another 
committee that I have to go to.
    Chairman Issa. I understand.
    Continue, please.
    Ms. Mitchell. There is an organization called Progress 
Texas, and in a report that was leaked to USA Today in 
September of last year, this was a November 2010, maybe 2011, 
report of the IRS, and it was a sensitive case report. And it 
had, I think, 162 cases on it. And it did have some progressive 
groups, but what happened was Progress Texas, when it had the 
comments about Progress Texas, it said, seems to have anti-Rick 
Perry propaganda. And within 6 months, they had their tax-
exempt status, their (c)(4) status, compared to my client, King 
Street Patriots from Houston, where it said, likely approval. 
You know when they got their 501(c)(4) status? November. I'm 
sorry, December of 2013. They just got it. And we got another 
round of questions last August after the scandal broke.
    So, yes, progressive groups--the word ``progressive'' was 
on some of those reports, but what the IRS employees were 
instructed to do when they saw that term was totally different 
from what they were instructed to do when they saw a Tea Party, 
9/11 or other conservative group.
    Chairman Issa. I thank the gentlelady for making the 
answers complete, and I hope MSNBC will broadcast both.
    We now go to the gentleman from Oklahoma Mr. Lankford.
    Mr. Lankford. You are an optimist on that, Mr. Chairman.
    I do have a couple follow-up questions. The specific goal 
of this hearing is to be able to determine how do we keep this 
from happening again. Now, there's several comments that have 
been made, and I appreciate all of your written statements and 
your oral statements as well to be able to walk through this.
    Probation changes. Mr. Sherk, you mentioned this, as well, 
change in the probation, extending that. You made a brief 
comment on that. I'd like for you to expand on that. From 1 to 
3 years for new employees so we can deal--if there's a problem 
early, we can discover it early. What's the difference on 
trying to be able to deal with discipline for an employee in 
their probation status versus once they've been there?
    Mr. Sherk. Thank you, Representative.
    For the first year in most agencies, in some agencies it 
extends to 2 years, employees are called basically 
probationary, and they can be fired almost at will. There's 
only two reasons you can't fire them during the probationary 
period. One is for political discriminations; you can't say 
you're a Republican, you're a Democrat, get out of the Federal 
service. And the second is on the basis of marital status. For 
any other reason beyond those two, they can be fired, and 
fairly large numbers of them are. Again, if you look at the 
figures for terminations, for layoff in performance in the 
Federal Government for last year, almost half of them came from 
employees with less than 2 years of experience.
    Mr. Lankford. Okay. So is that something you'd recommend 
governmentwide, or are you recommending that simply for the 
IRS?
    Mr. Sherk. I'd recommend it governmentwide. Give the 
managers more time to review the employees and get rid of 
people they think might cause problems later.
    Mr. Lankford. Okay. Thank you very much.
    Ms. Mitchell, thanks for being here, as well. We can speak 
Okie to each other back and forth off the dais as well.
    But the second recommendation, ``Eliminate the application 
process for exempt organizations other than 501(c)(3) entities. 
Stop the Mother, may I.''
    Ms. Mitchell. Yes.
    Mr. Lankford. Can you go into greater detail why that would 
matter? There are lots of folks coming in that say, if they're 
going to be tax exempt, they're, ``getting Federal funds, and 
so they should be limited.''
    Ms. Mitchell. Well, that is simply not true, and it 
demonstrates a lack of understanding of how the process works 
and the end result when you get a letter of determination from 
the IRS. And I recall that when this committee had then-IRS 
Commissioner Shulman appear before it in March of 2012, and 
when he lied to the committee and said there was no targeting 
when there was, the other thing that he said at that hearing 
was, well, you know, 501(c)(4) organizations don't even have to 
have a letter of determination from the IRS in order to operate 
as a 501(c)(4). So but if they submit themselves to our 
jurisdiction, we can ask them whatever we want, which I thought 
was a pretty arrogant comment, frankly.
    But anything else you do, and if you want to open any kind 
of entity, if I want to open a flower shop, if I, you know, am 
going to be my mother's estate executor, I have to open a bank 
account, I file a form with the IRS, I tell the IRS what it is 
that the entity is going to be, and then I just start 
operating. And I file the correct tax return, and the IRS deals 
with it after the fact.
    And one of the problems here with the 501(c)(4) screening 
process that they employed was that they started trying to 
conduct program audits during the review process, the 
application review process. They completely abandoned their 
published rules and application and all.
    501(c)(3) is the only organization, the only type of 
entity, that offers a benefit to the donor that you give money 
to it, and you get a tax deduction. Every other 501(c) group 
is--as the chairman pointed out, receives contributions after 
tax. So there's no reason to have all of this process in the 
first place. Just get rid of it.
    Mr. Lankford. Right. What about the publication of donors 
and submitting the list of donors to the IRS?
    Ms. Mitchell. Every tax-exempt organization has to file a 
Schedule B with its Form 990 tax return in which it must 
disclose to the IRS all donors of $5,000 or more. Now, that is 
not a public schedule. The public is not entitled to it. It is, 
by law, confidential. So the only people you're telling the 
information to is the IRS.
    And since, as I said, for all organizations other than 
(c)(3)s--I mean, I would probably get rid of it for (c)(3)s, 
because I don't really see the point--but if they can make an 
argument that they're in a different category because 
contributions are deductible, but there's no public policy 
reason to tell the government who has given of their after-tax 
dollars to an exempt organization.
    Mr. Lankford. Are they cross-referencing that to the 
individual's tax returns?
    Ms. Mitchell. Well, there's no reason to because they don't 
get any tax benefit.
    Mr. Lankford. Okay. So that is the question, then, of why 
you gather that. That limits the authority, that IRS typically 
functions in the gray areas of the law, and that's where they 
have the greatest amount of power.
    You had also started a comment earlier telling a story 
about the new rulemaking, and you were giving an example that 
we had run out of time on. Can you finish that story briefly?
    Ms. Mitchell. The day that--thank you, Congressman. The day 
that the comments closed was February 28 of 2014, and at last 
count I think it's over 160,000 comments. The following 
Tuesday--that was on a Thursday. The following Tuesday, March 
4, the IRS issued new guidance for reviewing applications for 
exempt status for 501(c)(4)s. Guess what's in that guidance? It 
is all of the questions--many of the questions that they were 
trying to include in their new definition of candidate-related 
political activities are now in their guidance as to the kinds 
of development letters and questions that every 501(c)(4) 
organization can anticipate receiving from the IRS if you file 
an application for (c)(4) status going forward.
    I just will tell you from a practitioner's point of view, I 
think it is malpractice if I ever submit another one of those 
applications to the IRS until we get rid of it. So I just think 
the whole process is completely broken, and it just needs to be 
eliminated.
    Mr. Lankford. Okay. I yield back.
    Chairman Issa. Thank the gentleman.
    We'll go to the gentleman from Nevada Mr. Horsford.
    Mr. Horsford. Thank you, Mr. Chairman, and to the ranking 
member.
    Thank you to the witnesses who are here today.
    Let me begin by saying, as I have said before, I think, 
this is probably over our fifteenth hearing or something like 
that on this issue. I am not a----
    Chairman Issa. The gentleman wasn't here, but it was noted 
by the ranking member it's the twelfth.
    Mr. Horsford. Okay. Twelve, fifteen, they all kind of run 
together when it's the same regurgitated issues with no 
resolution. I'm not a defender of the IRS; I'm a defender of my 
constituents who want there to be accountability. I believe 
that there was wrongdoing by individuals, staff-level 
individuals, and part of this committee's oversight and 
government reform function should be to get those facts and to 
address those concerns. I am not here nor do I care about how 
this hearing plays with MSNBC or FOX News, because it's the 
constituents back home and their opinion that matters to me 
most.
    So I have one question for each of you, and I would ask you 
to be brief so I can tackle another issue that I'd like to put 
on the record, and that is this title is ``IRS Abuses: Ensuring 
that Targeting Never Happens Again.''
    So what is one concrete suggestion that this committee 
should act on in order for the targeting that did occur, the 
IRS wrongdoing that did occur can be addressed? Each of you, if 
you could limit your comments, one suggestion.
    Mr. Keating. Well, my one suggestion would be to do what 
Nina Olson, the National Taxpayer Advocate, the independent 
ombudsmen inside the IRS, recommended, and that is to get the 
IRS out of the business of making political determinations 
about speech. And this is something I think the committee 
should encourage the IRS to do, it already has the authority to 
do, and it has other agencies to make these determinations, and 
the IRS wouldn't have to do anything further.
    Mr. Horsford. Thank you.
    Mr. von Spakovsky. Congressman, I have to agree with that, 
and that is something that all organizations--I don't care 
whether they're conservative, liberal or moderate, all of them 
should want that the IRS not be looking at and analyzing the 
speech and activity they engaged in to determine whether they 
think it's political or not.
    Mr. Horsford. So is your point that some other entity 
should perform that function and that determination?
    Mr. von Spakovsky. No. It's just that the IRS has the wrong 
definition that it uses when it looks at 501(c)(4)s. I detailed 
this in my testimony, but basically they've misinterpreted the 
law in a way they shouldn't be doing to use that against 
organizations, and they simply should not be doing that.
    Mr. Horsford. Thank you.
    Ms. Mitchell. Well, when you have 10 children, I've just 
recommended 10 things, I've got to pick my favorite. So if you 
want to be sure that there's no targeting of citizens groups, 
you eliminate the process of having to ask the IRS for 
permission to operate as a citizens group. Just eliminate that 
application process altogether, and then you won't get into a 
fight about whether it was progressives or Tea Party because 
you take away the power of the IRS to make that determination 
in the first place.
    Mr. Sherk. I would reform our civil service laws to return 
to the spirit of the original Pendleton Act in which you 
regulate the hiring to prevent a political spoils system, while 
leaving the government fairly free to fire people for 
misconduct and firing without this extensive appeals process 
afterwards.
    Mr. Horsford. Thank you.
    You know, I respect people's suggestions, and, again, I 
want to hear and listen to what those suggestions should be. 
And we have now had some 45 transcribed interviews, some 250 
employees from the IRS, some 700,000 pages of documents, and 
the IRS, at taxpayer expense, has spent over $18 million 
responding to congressional inquiries, but yet we have not, as 
a committee, taken action on anything, but we continue to have 
these hearings where allegations about White House involvement 
is alleged, you know, from the very beginning when the chairman 
first started this process, when the inspector general first 
issued his report.
    It was Chairman Issa who went on national television and 
said, ``This was the targeting of the President's political 
enemies, effectively, and lies about it during an election 
year.''
    Hal Rogers, the chairman of the Committee on 
Appropriations, stated.
    Chairman Issa. The gentleman's time is expired, but please 
continue--
    Mr. Horsford. Thank you.
    ``Of course, the enemies list out of the White House that 
IRS was engaged in shutting down or trying to shut down the 
conservative political viewpoint across the country, an enemies 
list that rivals that of another President some time ago.''
    But after this exhaustive investigation, the committee has 
obtained no evidence to support these accusations. And so, 
again, I have asked the chairman respectfully, and to my 
Members on the other side who I have talked with, you know, 
let's get to the place where we can fix what is broken so that 
there is no longer targeting and this never happens again, 
because there are some of us who have that concern and want to 
get to that point. But we don't think that it should involve 
conspiracies and accusations that are unfounded, not after $18 
million of taxpayer investment has been wasted.
    I yield back my time.
    Chairman Issa. I thank the gentleman.
    I might note for the record that long before I made those 
statements, I suggested that the White House would be well 
served to hire accountants rather than attorneys, but they 
didn't take my advice on that either.
    Mr. Meadows, would you like to be next up? The gentleman is 
recognized.
    Mr. Meadows. Thank you, Mr. Chairman.
    I will be very brief, but, Ms. Mitchell, I want to come 
back to you on a couple of areas, because one thing that was 
troubling to me as we went through 12 hearings was that the IRS 
early on said that if you were applying for a 501(c)(4) status, 
that there was a waiver, kind of an exemption, that you really 
didn't have to apply. And out of the people that you've 
represented or the ones that you know that have been 
represented that were caught up in this targeting, how many of 
them were notified by the IRS that there was this exemption; 
that if it went over I think it's 270 days, that, you know, 
one--how many of them were notified by the IRS?
    Ms. Mitchell. Well, for--actually for a 501(c)(4) 
application, this is what I'm saying, that you don't have to 
have a letter of determination----
    Mr. Meadows. Right.
    Ms. Mitchell. --from the IRS in order to function as a 
501(c)(4) organization. However, if you want to raise money 
from the public----
    Mr. Meadows. Right.
    Ms. Mitchell. --and you--you have to file charitable 
registrations in 38 States, and those States all require a 
letter from the IRS or a copy of your application that you're 
trying to get one, which is why they've got to eliminate the 
process. So--but the 270-day threshold only applies to 
501(c)(3)s. Once you apply as a (c)(4) or (5) or (6) or (7) or 
(8) or (9), you are at the mercy of the IRS to decide when it's 
going to issue your letter. And you don't have any statutory 
right to pursue a civil remedy in court.
    In the case of True the Vote, the IRS and the Department of 
Justice filed on the day their answer was due in our lawsuit. 
They said, oh, we decided to give you your (c)(3) status.
    Mr. Meadows. So are you telling me when Mr. Shulman came 
here to this particular body and said that there was these 
waivers and they really didn't have to do that, that that was, 
at best, disingenuous, what----
    Ms. Mitchell. Well, what he was saying, as I understood his 
testimony at the time--and as I said, I thought it was very 
arrogant where he said that, well, these groups don't have to 
come to us for a letter, which is technically true; but if they 
do, then we can ask them whatever we want to. That was the 
position that he took before this committee. And I thought at 
the time that that was actually--that ignored the rule of law--
--
    Mr. Meadows. Right.
    Ms. Mitchell. --because there are standards, and there are 
application and instructions, and they shouldn't be able to go 
beyond the four corners of that.
    But there's one other exemption waiver thing that I think 
that you might also be recalling. You will remember that when 
Interim Commissioner Werfel went before Ways and Means in June 
of last year, he told the Ways and Means Committee--and they 
sent letters to all of those whose applications were still 
pending, that had not--all the Tea Party groups who had not 
gotten their exempt status waiting for all this period of time, 
hundreds of them, and several of my clients. And they received 
letters from the IRS saying, if you will promise that you will 
never engage in more than 40 percent political activity, and if 
you will also promise--and they threw in there a ringer that 
said, counting not only your program expenditures, which is 
what the law says, but they threw in--as I say, they have 
abandoned the rule of law--they threw in this other category of 
counting volunteer activity. Well, how are you supposed to do 
that? There's no standard. There's no--you know, and I told 
several clients who have said, what should I do, I said, well, 
I don't know how to tell you to answer that, because you're 
going to have to sign under penalty of perjury from now on that 
you're complying with something that has no legal definition.
    Mr. Meadows. Well, what it sounds like, we talked about 
banks that are too big to fail. It sounds like the IRS has 
gotten too big not to fail. Would you agree with that?
    Ms. Mitchell. Well, that's why my number one recommendation 
is that everybody ought to sign on to Congressman Jim 
Bridenstine's House joint resolution, what is it, 104, to 
abolish--to repeal the 16th Amendment, abolish the income tax 
and get rid of the IRS, because I think it's become the tail 
wagging the dog of our country, and I think it's a detriment to 
our Nation.
    Mr. Meadows. All right. Mr. Sherk, let me go to you from a 
labor standpoint. One of the frustrations, as a business guy, I 
sometimes call the government ``the big easy,'' that once you 
get here, there's no way that you get fired. Would you say that 
after someone has been with the government for 2 years that the 
chances of them getting fired are slim to none?
    Mr. Sherk. They are incredibly minuscule. Like I said in my 
testimony, once you pass that probationary period, your odds of 
getting fired are one-quarter of 1 percent. So, you know----
    Mr. Meadows. How does that compare to the private sector?
    Mr. Sherk. So the private sector, monthly, the best we know 
from the Bureau of Labor Statistics is they have a figure for 
both layoffs and discharges. So both we fired you for showing 
up drunk, and we fired you because we're losing business. It's 
not strictly comparable to the Federal Government, because, of 
course, the Federal Government doesn't go out of business in 
the same way private-sector companies do. But that monthly 
layoff and discharge rate is about 1.3 percent versus an annual 
termination rate for performance and misconduct rate of, you 
know, basically one-quarter of 1 percent. So it's--the monthly 
private-sector rate is five times greater than the annual 
Federal rate.
    Mr. Meadows. So a fraction of the private sector?
    Mr. Sherk. Exactly.
    Mr. Meadows. I appreciate the patience of the chair. I'll 
yield back.
    Chairman Issa. I thank the gentleman.
    I'll go to the gentleman from Michigan Mr. Bentivolio.
    Mr. Bentivolio. Thank you very much, Mr. Chairman.
    Ms. Mitchell, thank you very much for all the work you're 
doing. God bless you. As a Tea Party Republican, I'm a big fan. 
And since this story broke, thanks to you, about the IRS 
targeting Tea Party groups and conservative groups, a number of 
people have come to me back in my district saying they believe 
that they've been targeted because of their political beliefs 
working as a schoolteacher that's run by the Michigan 
Educational Association.
    Auto dealers that lost their dealership at GM and Chrysler 
during the bailouts lost their dealerships not because of their 
past performance, but because the dealer owners donated to 
Republican groups.
    And now there are churches. I'm hearing some people that 
are--have to go before the IRS and explain what they're doing 
in their church regarding their political activities.
    Have you heard of any other groups being targeted because 
of their political position?
    Ms. Mitchell. Well, as I said in my testimony, I think that 
this is something the committee really should investigate, and 
that is, I have heard repeatedly from Romney donors across the 
country that they were subject to personal income tax audits by 
the IRS, or their businesses were subjects to audits. And I 
just have a sense that it's too common to be--it's not 
scientific. I've spoken with TIGTA about it.
    I think that it's really important that the IRS answer the 
one question, did you use, have you ever used campaign finance 
reports and donor information to target individuals for IRS 
audits? And I think they should be forced to answer that 
question. And then you have to then ask, did you do it equally 
to donors to the Obama super PAC as you did to the Romney super 
PAC? Because I think that this committee needs to get to the 
bottom of that, because I really firmly believe that that's 
been going on, and I think that that should be made statutorily 
illegal.
    Mr. Bentivolio. Thank you very much. Once again, thank you 
for all that you do.
    Mr. Chairman, I yield back.
    Chairman Issa. Would the gentleman yield to me?
    Mr. Bentivolio. Yes.
    Chairman Issa. Briefly, I just want to get one thing on the 
record that we haven't talked about. And I know Mr. Horsford 
was interested in the reforms, but he didn't stay to hear them 
nor apparently read what we put out on the suggested reforms.
    But, Mr. Keating, we already previously made clear 
501(c)(4)s get no tax exempt, no--you pay with after-tax 
dollars if you want to belong to that affiliated group.
    What's the best way for people to understand the history of 
anonymous giving to groups that represent them in some cause? 
Call it political, call it ideological, but isn't there a long 
history of the Court looking at people's ability to have 
anonymous free speech through association so that they not be 
ultimately persecuted for their attempt to bring some form of 
justice? Can you give us, either of you give us some of the 
history?
    Mr. Keating. Well, probably the most famous case that 
people are aware of is NAACP v. Alabama. And obviously, back in 
the 1950s, the State of Alabama was not that keen on the types 
of recommendations being made by the NAACP, and they sought to 
get their membership list and presumably their donor records as 
well. And this case went up to the Supreme Court, and the 
Supreme Court said the State had no right to get that 
information under the circumstances designed in the law.
    But this is not the only case. There's another case that I 
would like to cite. I believe it's Tally, but I may be getting 
the name wrong. There was an ordinance passed to require labor 
organizers to register or display names while they were trying 
to organize, and the Court, again, said there's no right for 
the government to force that kind of disclosure.
    What we like----
    Chairman Issa. I suspect that the tag should say ``hit me'' 
in the anti union movement potentially so--I mean, that clearly 
you would have been sectioned out; that was a way to go after 
the union movement, if they would have been allowed.
    Mr. Keating. Absolutely. And, you know, what we point out 
is the purpose of disclosure is to allow citizens to monitor 
their government and to monitor government officials. The 
purpose of disclosure shouldn't be for government to monitor 
the citizens or for people to use that in coordination with the 
people in power to monitor citizens or harass citizens for 
their political activity.
    Chairman Issa. So the history of anonymous free speech, of 
the right of people to associate, and to associate in a way in 
which their ideas can be put forward without retribution is, in 
fact, not a conservative history; in many ways it's a 
progressive history of the Court finding on behalf of the 
American people that right, isn't it?
    Mr. Keating. Absolutely.
    Chairman Issa. Thank you.
    With that, we go to Mr. Woodall.
    Mr. Woodall. Thank you, Mr. Chairman.
    I was just watching it on TV back in the office, and I was 
so enjoying everybody's answers and solutions, and I thought I 
want to come see it in person before folks leave.
    I don't want to slow you down any further. You represent--
well, I came up in that big freshman class in 2010, and you 
represent the pulling on the rope that so many of those Members 
from both sides of the aisle--that inspiration that brought 
them here. The Heritage Foundation has been the touchstone to 
which folks have looked not for blame, but for opportunity to 
make a change for decade upon decade. There's no one else who 
has played that role better.
    Ms. Mitchell, your name has come up--I won't tell you for 
how many years your name has come up in my readings and 
dealings. I didn't have to get any further than the first page 
of your testimony where you said the secret is just to repeal 
the 16th Amendment, and then we can solve these issues. You had 
me right there. We were committed.
    And, of course, Mr. Keating has been in this business a 
while, trying to pull on the rope and make a difference. 
Candidly, I'd never thought about why it was post-Watergate we 
decided that the executive branch manipulation of the IRS was a 
bad thing, but if Congress wanted to manipulate the IRS, maybe 
that would be okay. That makes no sense whatsoever. While Ms. 
Mitchell's recommendation to repeal the 16th Amendment would 
solve it better, prohibiting Congress from manipulating it 
would certainly make a difference.
    I, too, heard Mr. Horsford ask about what the solutions 
are, which is the question I would hope 435 people wanted to 
ask, but if you guys are not doing what you do, we never get 
around to the asking of the question. I can't tell you how many 
conversations I had where folks said, oh, the IRS would just 
never do that. That could never happen. This is America. This 
would never happen in America.
    And until somebody cares enough, Ms. Mitchell, to make sure 
that grievances get heard, you think it could never happen in 
America, but it does. Without the think tank, without the 
watchdog groups, we are lost.
    I looked at your testimony, and I thought, golly, where are 
the liberal witnesses on this panel? And I thought, you know 
what? This is not really a conservative or a liberal issue. 
Free speech, without it neither of us could persist.
    So I won't delay you any longer. Just know how much I 
appreciate what it is that you do. I can't tell you how many 
conversations we've had in this freshman class of 2010 that say 
we want to make a difference, but it's so hard to figure out 
how sometimes. You all don't have a voting card, but you have a 
long list of resources and an endless amount of passion that 
folks who do have voting cards look to to try to make a 
difference for families back home, and I'm grateful to each one 
of you for that.
    Mr. Chairman, I yield back.
    Chairman Issa. I thank the gentleman.
    This may come as a surprise, but I never asked my first 
round of questions, so I'm going to sort of finish by asking.
    We made a number of suggestions in the document we put in. 
It was provided to all of you. But there's more than one way to 
skin a cat is an old expression. Are they equal, acceptable; 
would they all be improvements is the general set of questions.
    Mr. Sherk, you looked at what we did in the way of civil 
service reform last week. Was that a good start?
    Mr. Sherk. I think it's certainly a good start. It's moving 
in the right direction. I think, though, that you need to move 
beyond the SES; that a lot of the employees engaging misconduct 
are not the managers, but the rank and file. And if Congress 
isn't going to wholesale overhaul the civil service 
protections, things like allowing people to be immediately 
removed without pay instead of waiting for 30 days, things like 
extending the probationary period, and really just making it--
reducing the number of appeals employees can have. That's what 
really gets the agencies upset is that it's, you know, the in-
house review, okay, that's one thing, but then when it goes to 
the Merit Systems Protection Board, then it goes to 
headquarters, then it goes to the EEOC, then it goes to the 
courts. Just pick one forum and only one set of appeals. Don't, 
you know, get to relitigate it time and time again so it drags 
out over a course of years, I think, would make the Federal 
managers more willing to use those procedures.
    Chairman Issa. Well, one of the suggestions that's been 
made, and I want your opinion on it, is that people have to 
choose to either be members of a union and come under that 
union contract protection or civil service, but not both.
    Mr. Sherk. Well, it sort of works that way now. So you can 
either use your union grievance procedures, or you can use the 
Merit Systems Protection Board. So to that limited extent 
you've got one forum, but then at the end of the either the 
union grievance, the arbitration or the MSPB, then you can 
appeal to Federal courts. Then you can--if you're alleging 
discrimination, you can appeal to the EEOC. And I think you 
should have to pick one. If you're saying you're fired for 
discriminatory reasons, appeal to the EEOC right at the 
beginning. Don't go through the grievance, then go to the EEOC, 
then go to the courts. Just pick one forum.
    Chairman Issa. Now, on another subject, the question of 
should there be one Commissioner or a board. We put that out, I 
think I'd get a general agreement that you think that the 
normal commission process where you have a bipartisan 
commission of some sort, whether it's five with the Chairman 
being the party of the President, such as the SEC and so on, or 
six, such as the FEC where it's truly an equal board, you all 
think that would be an improvement over the current 
Commissioner who is strictly a political appointee of the 
current President; is that right?
    Mr. von Spakovsky. I certainly agree with that, and I speak 
from experience as a Commissioner at the FEC. I mean, the whole 
advantage of having a multimember commission is that the board 
has to work to try to reach consensus on issues. And therefore, 
if something comes up on an enforcement question, a regulatory 
question, a policy question, you've got people with different 
points of view raising issues about it. It's particularly 
important, quite frankly, to have members of both political 
parties there.
    Chairman Issa. So your point would be that by having a 
multimember commission, when they all agree, American 
confidence is much greater than when the political appointee of 
one party makes a decision?
    Mr. von Spakovsky. No, that's exactly right. And frankly, 
look, when they disagree--for example, look, there are rare 
occasions, it's actually a very small percentage despite what 
people may believe, when the FEC, which has six Commissioners, 
will disagree 3 to 3. Well, if they're disagreeing on the 
interpretation of a regulation, then it's probably a good thing 
that regulation is not going in place, because if the six 
Commissioners who are tasked with enforcing the law disagree on 
what the law means, then you shouldn't be forcing that on the 
public to try to comply with a confusing regulation or 
confusing law.
    Chairman Issa. Now, there's a suggestion that we remove the 
political question entirely from the IRS, which means that, for 
example, with a 501(c)(3), the question of the deductibility 
would remain at the IRS; however, whether the American Heart 
Association, American Lung Association, the Red Cross, whether 
they crossed lines of political speech and, if so, what the 
reporting requirement would shift to the FEC. Is that your 
understanding?
    And I said 501(c)(3) for a moment because we've only talked 
about the (c)(4)s and other corporations. Would it be the same 
for 501(c)(3)s in your interest, or would there be a legacy 
there?
    Mr. Keating. I think there has to be a difference. The 
statute specifically says a 501(c)(3) can engage in no 
political activity at all.
    Chairman Issa. I agree with you, except that the precedent 
is, yes, they can, and they do. It's been limited to, ``de 
minimis.'' The American Lung Association actively supports laws 
that reduce smoking, and they campaign on television supporting 
the establishment of, let's just say, a vote to ban smoking in 
public places. They do that. The question is to the extent that 
there is any activity, who should regulate it?
    And I ask that for a reason. Inevitably, free speech 
becomes political by somebody's interpretation. Now, there's 
not an R or a D after, you know, clean air. There's not an R or 
a D after smoking and nonsmoking. I've noticed people of both 
parties will choose one side or the other, so it's not 
partisan, per se.
    But the question is should we transfer entirely to the FEC 
any and all responsibility for compliance with any and all laws 
related to political activities?
    Mr. Keating. Well, generally I think for any other 501(c) 
organizations other than (c)(3), where there's a prohibition on 
political activity, and by that I believe really means express 
advocacy for or against a candidate, not for or against an 
issue, I don't think there's any----
    Chairman Issa. So as long as that definition is maintained, 
you're comfortable with the 501(c)(3)s as they are because 
their ban would be absolute, and thus it's not a judgment call?
    Mr. Keating. Right, although I do think the rules there 
need to be clearer as well.
    Chairman Issa. All right. I appreciate that.
    Let me ask one more question, and it goes sort of like 
this: If we were to move political oversight to the Federal 
Election Commission, consolidate in one place with one 
expertise, and, Ms. Mitchell, as you said, with a consistent 
definition, which would certainly be helpful, then would one of 
the reforms of the IRS be, as we said earlier, a multimember 
commission, or, in the alternative, if Congress in the process 
felt that a Commissioner that did not serve at the pleasure of 
the President, but rather, like the FBI Director or the Fed 
Chairman, served a tenure that was longer than a particular 
President and thus had a level of freedom, would either of 
those, in your opinions, be an improvement? Not saying you're 
picking favorites, but just would either be an improvement over 
the present situation in which you have an overt appointee of 
the President who is beholden to the President every day for 
his or her appointment?
    Ms. Mitchell.
    Ms. Mitchell. Well, I think either of those would be an 
improvement, but I would certainly caution that that reform, 
absent some of these other statutory changes, will not be 
sufficient to reinstate the rule of law at an agency which has 
essentially gone rogue.
    Lois Lerner talked about rogue agents in Cincinnati. The 
agency itself has gone rogue, and there is a real need for--and 
that's one of the reasons that I'm so grateful that this 
committee is conducting oversight of this agency, intensive 
scrutiny of this agency. Yes, it may be uncomfortable, it may 
be expensive, it may be time-consuming, but this agency is out 
of control, and I'm sure every member of this committee, 
Democrat and Republican, has heard horror stories from 
constituents about the IRS. And Congress has got to reassert 
its authority over this agency because it feels as though it is 
capable of completely thumbing its nose at the people's 
representatives, and I don't care what party affiliation, I 
would be very offended by that if I were a Member of Congress. 
I certainly am as a taxpayer.
    Chairman Issa. Thank you.
    Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman.
    If I might, just I want to make sure that the record is 
clear regarding the publicly released notes regarding the July 
2010 screening workshop for IRS employees. Contrary a bit to 
what Ms. Mitchell has said, although it says that, 
``progressive and Tea Parties are not the same and should not 
be sent to the Tea Party coordinator,'' the notes direct IRS 
screeners to treat Tea Party and progressive groups the same.
    It says, ``Current political activities discussion focused 
on the political activities of Tea Parties and the like. 
Regardless of the type of application, if in doubt, err on the 
side of caution and transfer to 7822. Indicated the following 
names or titles were of interest and should be flagged for 
review: 9/12 Project, Emerge, Progressive, We the People, Rally 
Patriots, and Pink Slip Program.''
    I ask that these notes be included in the record.
    Mr. Collins. [Presiding.] Without objection, so ordered.
    Mr. Davis. And I might also note that, you know, it's 
interesting to have political ideologies and philosophies, but 
I also note that the IRS Commissioner as well as the inspector 
general, who were in place as these allegations surfaced, were 
both President Bush appointees, which sort of would indicate to 
some people that they may have had some Republican leaning, 
although not necessarily so. But that would appear to be some 
type of implication.
    I also might note that the inspector general, while he or 
she cannot change law, they can make recommendations. And this 
inspector general made nine recommendations, all of which the 
Internal Revenue Service has complied with and gone beyond. And 
so I think it's an indication that the Internal Revenue Service 
is moving progressively to try and make sure that it improves 
its operation, and that whatever happened in the past is not 
necessarily what is going to happen in the future and is not 
what's happening now.
    And I know there are people who would not like to pay 
taxes, and so they'd like there not be a mechanism for which to 
collect, but I doubt very seriously--we have difficulty 
agreeing on very minor things around here, so I doubt very 
seriously if we would reach that point.
    Mr. Collins. Well, thank you, Mr. Davis. I would love to 
see the fair tax, and then we can go on from that.
    And I know, Mr. Woodall, would that be an amen from the 
front row up there?
    Mr. Woodall. Support the chair. Amen.
    Mr. Davis. Well, I think we'll be working on taxation for a 
long, long time. And I want to thank the witnesses for being 
here, I want to thank the chairman for holding this hearing, 
and I yield back.
    Mr. Collins. I thank the gentleman.
    At this time the chair recognizes himself for questions, 
and just a few questions here. And I just have to say on the 
point of, first, Mr. Spakovsky, your book, ``Obama's 
Enforcer,'' you actually detailed one of my inquiries with the 
non-enforcer-in-chief, I think the obstacle-in-chief a lot of 
times for this administration. And I think it sort of shows--
frankly, it's very disturbing. I think it's sort of been 
developed over time in many of these agencies there's just a 
disdain for coming up here and having Congress do its normal 
oversight role. We may disagree, but there is a role for both 
to play, and I do appreciate that.
    And between--and, Ms. Mitchell, I have a question. Tea 
Party tax-exempt application experienced significant delays 
when they were in the determination process, with some waiting 
years to hear back from agencies regarding their status. These 
delays cause the groups to lose support and funding and can 
even cause them to disband. Therefore, you know, to me it's 
worth considering proposals to streamline the IRS tax-exempt 
application process by implementing a time limit to evaluate 
applications.
    What are the consequences of an IRS delaying applications 
of these potential tax-exempt groups, and then, also, what your 
thoughts on a timeline would be?
    Ms. Mitchell. Well, it's very detrimental to these 
organizations, and particularly most of these organizations are 
not the Karl Rove-type groups. I mean, these are mom-and-pop 
organizations. They're small citizens groups that operate on 
very small budgets, and the cost to them of the delay meant 
people thought, well, maybe they weren't legitimate, so they 
couldn't raise money. For some of the larger groups who were 
trying to build a network that they could help then smaller 
groups, then they would run into trouble with the State 
regulators because they didn't have letters of exempt status.
    But my basic belief is that we should just eliminate that 
application process altogether, and then you just get rid of 
it. Then there's no temptation. You just let a citizens group 
file, say I'm a 501(c)(4), I'm a 501(c)5, I'm a 501(c)6, 
whatever, just the same way you do for any other entity in 
America. To open a bank account, you get an employer ID number. 
And then they file their 990s, and then the IRS can, you know, 
on a random statistical basis--not on a basis of selection 
based on political philosophy, but on a random basis--be able 
to look at organizations, and look at their operations through 
their Form 990s, and look at their programs after the fact, 
after they've been operating for a few years.
    But what the IRS did here through this application process, 
and which they've said they're going to continue to do--this is 
the part that I want everybody to understand. The IRS said on 
March the 4th of this year they're going to continue to do 
this. And it's in their guidance. It's not in any regulations, 
and they buried it at the bottom of a newsletter that about 
four of us received, and that I read at 3 o'clock in the 
morning because I was waking up and couldn't sleep. And it says 
they're----
    Mr. Collins. Not the most open and transparent process 
there.
    Ms. Mitchell. No. And they're going to continue. And 
they're going to try to look--the questions that they're going 
to ask applicants presuppose that these are organizations that 
have been operating for 2 or 3 years before they can answer the 
question.
    So we just need to--we need to make--here's clarity: 
Abolish the process. Here's clarity: Define political activity 
for all purposes for any--who--whatever agency is doing it, 
whether it's the FEC or the IRS, as expressly advocating the 
election or defeat of a clearly identified candidate, using 
words such as ``support,'' ``oppose,'' ``elect,'' ``defeat,'' 
``vote for,'' ``vote against.'' If we did that, we would 
clarify. That is clarity, and that's the kind of thing that we 
need to have Congress do.
    Mr. von Spakovsky. Yeah. No, I totally agree with that. I 
think you should eliminate the IRS having to approve an 
application. If Congress doesn't want to go that far, I mean, 
this fall-back position is to put in a time limit. Give the IRS 
60 days to approve it, and if they don't approve it in that 
time, then it automatically becomes approved.
    There's certainly precedent for that. A 60-day time limit, 
for example, was the time limit imposed by statute and 
regulation on the Department of Justice under section 5 of the 
Voting Rights Act. So there's precedent for this, and that's 
the way to do it.
    Mr. Collins. Well, and I think that, again, is fairness for 
all. Let's just make it simple. Let's make it a process. If 
you're doing wrong, you're doing wrong, and you get it fixed, 
and that's the catch process, not the front end that seems to 
be such a problem.
    One issue I think that is just stuck in the craw of most 
Americans that they just don't figure out--and Mr. Woodall and 
I are from Georgia, we get this question all the time-- you 
know, it's why somebody either, one, can't be fired. This has 
been an amazing discussion we've had in this office before, in 
this hearing room before. But when Ms. Lerner left between May 
2013 and September 2013, she collected full pay and benefits, 
and roughly 60- to 100,000, that was her annual.
    At what point does there also need to be personnel changes 
or personnel issue development in the IRS and possibly a 
bigger--Mr. Keating, anybody, want to tackle that in my last 
little--as we finish up here?
    Mr. Sherk. Well, I'd just like to say that we've got a 
horrible system that makes it very difficult to remove 
government employees for any reason. I think Congress quite 
sensibly didn't want to have a lot of these jobs handed out on 
the basis of political connections and help with the campaign, 
but we've gone way overboard where you not only regulate the 
hiring on a merit basis, which I think is quite reasonable, but 
make it very difficult to remove employees.
    I mean, I outlined if you just stay within the Merit 
Systems Protection Board process, it takes an advantage of 
about a year and a half from start to finish, from when a 
supervisor says, I want to remove a problem employee, to when, 
you know, that level of appeals are done, outside of any 
appeals to the EEOC or to the Federal courts. I mean, when the 
Office of Personnel Management says that managers describe the 
efforts needed to remove an employee as, ``heroic,'' then I 
think we know we've gone too far.
    Mr. Collins. Right. I think protection needs to be there, 
but at the same point, it shouldn't take an--almost literally 
an act of Congress to do something.
    Well, I think what we're seeing here is interesting. I 
think the hearing has been, I think, something to discuss, the 
fact that there are many problems here. But I think the one 
thing we can all come to a conclusion, as I told the 
Commissioner of IRS when he was sitting here just a little over 
a week ago, I said, you've lost the trust of the American 
people. It was never the highest in the world, but just by 
basically what they did, but we've now lost the trust in 
everything.
    It doesn't matter how much work we've been, because, as my 
friend Congressman Davis said, there is a tax system, there is 
a collection system right now. We may not like it, we work to 
change it, but this is a system, and when you've lost trust in 
the very ones who are supposed to be actually enforcing that 
and taking that in, that's a problem, and the people aren't 
satisfied with that.
    With that, I'd like to thank our witnesses for taking their 
time out of their busy schedule to appear before us today. And 
with that, the committee stands adjourned.
    [Whereupon, at 11:27 a.m., the committee was adjourned.]


                                APPENDIX

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