[Senate Hearing 114--910]
[From the U.S. Government Publishing Office]
REVISITING IRS TARGETING:
PROGRESS OF AGENCY REFORMS
AND CONGRESSIONAL OPTIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT, AGENCY
ACTION, FEDERAL RIGHTS
AND FEDERAL COURTS
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
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JULY 29, 2015
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Serial No. J-114-27
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-398 PDF WASHINGTON : 2025
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COMMITTEE ON THE JUDICIARY
CHARLES E. GRASSLEY, Iowa, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont, Ranking
JEFF SESSIONS, Alabama Member
LINDSEY O. GRAHAM, South Carolina DIANNE FEINSTEIN, California
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
MICHAEL S. LEE, Utah RICHARD J. DURBIN, Illinois
TED CRUZ, Texas SHELDON WHITEHOUSE, Rhode Island
JEFF FLAKE, Arizona AMY KLOBUCHAR, Minnesota
DAVID VITTER, Louisiana AL FRANKEN, Minnesota
DAVID PERDUE, Georgia CHRISTOPHER A. COONS, Delaware
THOM TILLIS, North Carolina RICHARD BLUMENTHAL, Connecticut
Kolan L. Davis, Chief Counsel and Staff Director
Kristine Lucius, Democratic Chief Counsel and Staff Director
SUBCOMMITTEE ON OVERSIGHT, AGENCY ACTION,
FEDERAL RIGHTS AND FEDERAL COURTS
TED CRUZ, Texas, Chairman
CHARLES E. GRASSLEY, Iowa CHRISTOPHER A. COONS, Delaware,
ORRIN G. HATCH, Utah Ranking Member
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
JEFF FLAKE, Arizona RICHARD J. DURBIN, Illinois
LINDSEY O. GRAHAM, South Carolina CHARLES E. SCHUMER, New York
MICHAEL S. LEE, Utah SHELDON WHITEHOUSE, Rhode Island
DAVID VITTER, Louisiana AMY KLOBUCHAR, Minnesota
RICHARD BLUMENTHAL, Connecticut
Thomas L. Jipping, Republican Chief Counsel
Theodore Schroeder, Democratic Chief Counsel
C O N T E N T S
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OPENING STATEMENTS
Page
Cruz, Hon. Ted................................................... 1
Coons, Hon. Christopher A........................................ 4
WITNESSES
Aviv, Diana L.................................................... 43
Prepared statement........................................... 183
Colvin, Gregory L................................................ 45
Prepared statement........................................... 195
Greim, Edward D.................................................. 38
Prepared statement........................................... 168
Responses to written questions............................... 239
Koskinen, John................................................... 6
Prepared statement........................................... 68
Responses to written questions............................... 244
Martin, Jenny Beth............................................... 44
Prepared statement........................................... 192
Mitchell, Cleta.................................................. 36
Prepared statement........................................... 72
Responses to written questions............................... 267
Noble, Lawrence.................................................. 40
Prepared statement........................................... 175
Sekulow, Jay Alan................................................ 47
Prepared statement........................................... 210
Responses to written questions............................... 275
Spaulding, Stephen............................................... 37
Prepared statement........................................... 78
Walker, Toby Marie............................................... 41
Prepared statement........................................... 233
APPENDIX
Items submitted for the record................................... 67
REVISITING IRS TARGETING:
PROGRESS OF AGENCY REFORMS
AND CONGRESSIONAL OPTIONS
----------
WEDNESDAY, JULY 29, 2015
United States Senate,
Subcommittee on Oversight, Agency Action, Federal
Rights, and Federal Courts,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:05 p.m., in
Room 106, Dirksen Senate Office Building, Hon. Ted Cruz,
Chairman of the Subcommittee, presiding.
Present: Senators Cruz [presiding], Sessions, Lee, Coons,
Durbin, Whitehouse, Klobuchar, and Blumenthal.
Also present: Senator Tillis.
OPENING STATEMENT OF HON. TED CRUZ,
A U.S. SENATOR FROM THE STATE OF TEXAS
Chairman Cruz. This hearing will come to order. Welcome,
everyone. Welcome, Mr. Koskinen. We appreciate your being here.
We are here today convening this hearing for two
unfortunate reasons. The main reason we are here is because we
have a broken tax system in this country. Our income tax system
today, embodied in the IRS, hurts the American dream. It takes
money out of the pockets of hardworking Americans. It reduces
their take-home pay. It stifles economic growth. It keeps small
businesses from becoming big businesses. It has created a
labyrinth of credits and deductions that empowers politicians
at the expense of hardworking Americans.
The other reason we are here is because with the
exponential growth of the Tax Code, with the unbelievable
complexity of our current tax system, we have seen the creation
of an entity that I believe is no longer serving the interests
of the American people.
The IRS has been considered by the American people to be an
abusive agency for so long that for many Americans it has
become the embodiment of what is wrong with Government and what
is wrong with Washington.
As it has metastasized over the decades, taking more and
more out of the pockets of hardworking taxpayers, the IRS has
become more and more powerful. There are few things more
terrifying to an American citizen than the IRS come knocking at
your door.
The last 6\1/2\ years, it has taken an even darker turn.
Students of history are well aware that Richard Nixon attempted
to use the IRS to target his political enemies. That was wrong.
It was an abuse of power. It is to the credit of the
professionals at the IRS that they refused President Nixon's
demands that the IRS be turned into a political weapon.
The last 6\1/2\ years, unfortunately, the IRS did not
demonstrate that same courage, that same integrity, that same
willingness to stand up to political demands. The available
evidence indicates that not only did the Obama administration
attempt to use the IRS to silence, to punish its political
enemies, but the Obama administration succeeded in doing so.
When Richard Nixon abused his power, he was rightly
condemned by both parties for an abuse of power. Indeed, in the
early days of the IRS scandal, the same was true of the Obama
administration. On the day that the Inspector General report of
the Treasury Department broke, President Obama said he was
outraged. He said, ``I am angry, and the American people have a
right to be angry as well.''
I do not say this often, but I agree emphatically with
President Obama. The American people have a right to be angry
when an instrument of the Federal Government is used as a
partisan cudgel to punish, to silence citizens that dare speak
out against their Government, that dare take a differing policy
view than the current party in power.
Yet although the American people had a right to be angry,
many months have passed, years have passed, and not one single
person has been indicted. Years have passed, and many of the
victims of illegal targeting have yet to be interviewed.
Some might think that is curious. If the President of the
United States was telling the truth when he said he was angry,
one would expect action from prosecutors. Yet subsequently the
rather stunning news broke that the Obama Justice Department
put in charge of the investigation a major Democratic donor who
had given over $6,000 personally to President Obama and the
Democrats.
Wonder of wonder, marvel of marvels, when you ask a major
Democrat donor to investigate whether the IRS is targeting the
political enemies of the Obama White House, nothing happens.
Twice we have seen Lois Lerner come before the U.S.
Congress, raise her hand, and plead the Fifth. Now, that is her
right under the Constitution, under the Bill of Rights. It is
worth understanding what that means. When you are pleading the
Fifth, you are saying, ``If I answer your questions, I may well
implicate myself in criminal conduct.'' A senior official of
the IRS twice saying, ``If I answer your questions, I could end
up in the slammer.''
Anyone who cares about integrity in Government should be
horrified at senior Government officials saying, ``I cannot
tell you what I did because criminal liability may result.''
Yet those protestations of how angry the President was, how
angry the American people should have been, somehow faded into
the mist. With a pattern we have seen of scandal after scandal
after scandal of this administration, on day one the President
always says he is angry. Then the next step kicks in. The
administration begins stonewalling, begins denying witnesses,
begins resisting turning over documents, begins suddenly
saying, ``We have lost Lois Lerner's emails.''
Wonder of wonder, do not expect a Government agency to
actually keep records of emails being sent by senior Government
officials. ``We have destroyed the hard drives.'' I have to say
Richard Nixon's ghost must have been smiling at that
protestation. Tricky Dick understood well destroying emails. In
his day, it was erasing tape. It was much the same. We should
expect accountability from our Government, and we should expect
to know the extent to which the Federal Government continues to
target those who appear to be the political enemies of the
President.
There is a reason there is a growing human cry across this
country to abolish the IRS altogether. Part of it is simply the
abuses of the Tax Code, the burdens on job creation, the
burdens on people struggling to achieve the American dream.
Part of it is the complexity that nobody, it seems, understands
fully what the Tax Code says. Even those with advanced
professional training have to hire specialized accountants to
keep up with the vast complexity. The real reason why more and
more Americans in all 50 States are saying, ``Enough is
enough,'' is we should not have a Federal Government agency
that becomes an intimidator going after citizens, going after
citizen groups, violating their First Amendment right.
No politician has the right to use the machinery of the
executive branch to target their political enemies. When
Richard Nixon did it, it was wrong, and he rightly resigned
from the Presidency in disgrace for his abuse of power.
I am reminded of noted liberal constitutional law
professor, Jonathan Turley, who voted for President Obama in
2008--he is no conservative--and yet Professor Turley has told
Congress that President Obama has become the embodiment of the
imperial Presidency, that Barack Obama has become the President
that Richard Milhous Nixon always wished he could be.
This hearing is about ensuring accountability at the IRS,
both for past misconduct that continues to be covered up, to be
stonewalled, that continues to lack any accountability, and
also for current and future practice, to answer the question,
what is happening today? Right now, who is being targeted by
the Obama IRS? Is it limited to 501(c)(3) and (c)(4) groups? Or
is it targeted to individuals?
I cannot tell you how many individuals across this country,
as I travel the country, relay stories that say, you know, ``I
got involved in the last election, the 2012 election. I
supported, I raised money for Mitt Romney, I raised money for
Rick Perry, I raised money for some Republican candidate. I
have been in business 20, 30, 40 years. I have never been
audited. As soon as my name was published in the papers, within
months the tax man comes knocking.''
One or two anecdotal stories does not prove a pattern. It
is incumbent on the Senate, it is incumbent on Congress to ask:
Is there a pattern? If the IRS has become a partisan arm of the
Democratic National Committee, there can be no stronger
argument for ending the IRS as we know it so that no
administration, Democrat or Republican, can use the IRS to
target its political opponents.
If a Republican President did this, as Richard Nixon tried,
I can assure you I would be every bit as loud and clear that it
is an abuse of power. For a Democratic administration to do
this and to find Democratic defenders of this abuse of power is
profoundly dangerous to the liberty that is the basis for the
incredible miracle we call the United States of America.
Senator Coons.
OPENING STATEMENT OF HON. CHRISTOPHER A. COONS,
A U.S. SENATOR FROM THE STATE OF DELAWARE
Senator Coons. Thank you, Mr. Chairman.
Let me just state at the outset that the IRS activity that
is at the root of this hearing was unacceptable and
unfortunate. American citizens ought to be confident that their
Government will not target them for special scrutiny because of
their names or their political views.
I would also note that the Treasury Inspector General of
Tax Administration has concluded that the IRS did not willfully
withhold or destroy documents, and many of the allegations just
made at the opening of this hearing strike me as a rehashing of
complex conspiracy theories already thoroughly investigated and
dismissed by the Inspector General himself.
In 2010, a narrow five-Justice majority of the Supreme
Court decided Citizens United, which overturned multiple
Supreme Court precedents and threw open the door to unfettered
campaign spending by corporations and mega donors. This
decision led to a significant increase in political and
campaign spending, with 30 percent more being spent by outside
groups in the 2010 midterms than in 2008, and then in 2012 an
increase of six-fold over 2008.
While much of this spending was done independently or
through 527s or super PACs, much of it was also done through
501(c)(4) organizations. At first, one might think 501(c)(4)'s
as nonprofit social welfare organizations exist wholly apart
from the disputed campaign finance industrial complex. Such
organizations, after all, are required by statute to be, quote,
``operated exclusively for the promotion of social welfare,''
close quote. IRS regulations specify that social welfare
activities do not include campaign activity.
Rather than interpreting the statutory requirements for
such organizations in a strict and technical fashion, however,
the IRS has for many, many years decided to permit some
political activity by 501(c)(4)'s, provided that their primary
purpose is the promotion of social welfare.
The world we live in is one where almost every PAC now has
an associated 501(c)(4) which is permitted to engage in some
electioneering activity as long as it does not do too much of
it and can, thus, operate totally tax free and totally outside
of the public disclosure regime that is virtually all that
remains of the now tatters of our campaign finance laws.
The IRS in this regard has an exceptionally difficult job
to do. The Supreme Court, having dismantled the heart of the
McCain-Feingold campaign finance reform bill, has left the IRS
to stand in the place of the Federal Election Commission.
Thousands of groups present themselves as though they exist to
promote social welfare, but really in many cases they actually
exist to funnel secret dollars around the country to influence
elections.
Many have seized upon the use of inappropriate criteria by
the IRS to single out 501(c)(4) applicant organizations for
further review as compelling evidence that the IRS is, as I
think has just been suggested, an evil organization. You have
heard the Chairman accuse the administration of planning this
activity at the highest levels and of having been caught and of
engaging in a far-ranging scheme to cover up that involvement.
These are very serious allegations. They are also unfounded
allegations.
The Republican Inspector General has found not one shred of
evidence that the inappropriate targeting of applicant
organizations was directed by individuals or entities in
Washington. IRS field personnel have uniformly denied any
involvement by supervisors in Washington or the White House.
The supervisor of the screening agent who first utilized 9/
12 and Tea Party to screen organizations for further review was
himself a self-identified conservative Republican who has said,
and I quote, ``I do not believe that the screening of these
cases had anything to do other than with consistency and
identifying issues that needed further development.''
An IRS specialist in Washington called the idea that there
was White House involvement in directing this, quote,
``laughable.'' Progressive groups as well as conservative ones
were screened for further development investigation of their
files. Any disparity in the raw numbers of organizations on
either side that were targeted is likely a result of the fact
that, in 2010 to 2013, more than five times as many
conservative as liberal groups filed for tax-exempt status
under this Code section.
Much has been made of the great difficulty the IRS had had
producing emails from relevant custodians over the relevant
time period. My understanding through discussions with
Commissioner Koskinen is that the total number of emails
available to the IRS but not initially produced is actually
quite small, and that none of these emails suggest a
politically motivated conspiracy on the part of the IRS or the
administration. I suspect we will develop that further in these
discussions today.
I will just note again that the Treasury Inspector General
has concluded the IRS did not willfully withhold or destroy
documents. Our campaign finance laws, frankly, are broken. More
and more power is being concentrated by super-advantaged donors
who are able to exert influence through the propagation of
shadowy organizations that lurk in the vague rules that govern
501(c)(4) organizations. The actions by IRS at the center of
this hearing and about which many Americans are rightfully
upset and concerned were not the result of malicious intent
but, rather, the result of workers attempting to administer an
unworkable system that has no clear lines and, frankly, makes
little logical sense.
Rather than trying to score political points by distorting
a set of unfortunate but basically honest mistakes by civil
servants, we should instead ask ourselves the question: How is
it that we have all allowed such an irrational system to
continue to exist? We need clearer rules, rules that define
which activities are properly viewed as social welfare, and
which are properly viewed as political. We need rules that put
organizations on fair notice, and we need rules the IRS can
administer.
I hope that the witnesses today will be able to shed some
light on this question: How do we reform the Tax Code and the
rules so that all Americans once again can regain confidence
that the IRS is operating fairly, transparently, and without
favor to enforce the laws that Congress has enacted?
Thank you. Thank you, Mr. Chairman.
Chairman Cruz. Thank you, Senator Coons.
I ask Mr. Koskinen to please stand, raise your right hand.
Do you affirm that the testimony you are about to give before
the Committee will be the truth, the whole truth, and nothing
but the truth, so help you God?
Mr. Koskinen. I do.
[Witness is sworn in.]
Chairman Cruz. Thank you, Mr. Koskinen. I welcome you to
this Committee. I thank you for coming to testify.
The Honorable John Koskinen is the 48th Commissioner of the
Internal Revenue Service. Prior to his appointment,
Commissioner Koskinen served as the nonexecutive chairman of
Freddie Mac from 2008 to 2012, and its acting chief executive,
of course, in 2009. Previously, he served as president of the
U.S. Soccer Foundation, Deputy Mayor and City Administrator of
Washington, DC, and Deputy Director for Management at the
Office of Management and Budget. He began his legal career
clerking for Chief Judge David L. Bazelon on the U.S. Court of
Appeals for the D.C. Circuit. Mr. Koskinen holds a bachelor's
degree from Duke University and a law degree from Yale Law
School, something for which I am sure we can all forgive him.
[Laughter.]
Chairman Cruz. Mr. Koskinen.
STATEMENT OF HON. JOHN KOSKINEN,
COMMISSIONER, INTERNAL REVENUE SERVICE, WASHINGTON, DC
Commissioner Koskinen. Chairman Cruz, Ranking Member Coons,
and Members of the Subcommittee, thank you for the opportunity
to discuss the work the IRS has been doing to correct the
management mistakes associated with the determination process
for tax-exempt status 2 years ago. Let me reiterate my belief
that the IRS must continue to do everything possible to make
sure all individuals and organizations can be confident they
will be treated fairly in their dealings with this agency. They
need to know they will receive fair unbiased treatment,
regardless of their political affiliation, their position on
contentious political issues, or whom they supported in the
last election.
Even with our declining resources, the IRS will still audit
over 1 million individual taxpayers this year. When someone
hears from us regarding their tax return, they need to
understand that it is only because of something that is or
should be in their return and not other factors. If someone
else has the same issue on their return, they will hear from us
as well, within the limits of our budget resources.
The situation described by the Inspector General in his May
2013 report should never have happened, and we are doing
everything possible to ensure that the mistakes referenced in
that report do not happen again. As part of our work to move
forward, we have implemented all of the recommendations of the
Inspector General made in his report. The IG noted our efforts
in a follow-up report issued in March of this year. These are
important steps.
For example, we have eliminated the use of inappropriate
criteria. We have expedited the processing of section 501(c)(4)
applications. We have developed new training for employees in
the determination area. We have established a new process for
documenting the reasons why applications are chosen for further
review. We have instituted a quality review process to ensure
that unnecessary or improper information requests are not sent
to applicants.
We have also reduced the inventory of section 501(c)(4)
applications, including the group of 145 cases in the priority
backlog that were pending for 120 days or more as of May 2013.
As of last month, 140 of these cases, or 97 percent of them,
have been closed.
In addition, the Department of the Treasury and IRS have
begun the process of drafting guidance on how to measure social
welfare and nonsocial welfare activities of section 501(c)(4)
organizations. Our efforts to develop this guidance have been
greatly informed by the more than 160,000 public comments
received in response to the 2013 proposed regulations.
We asked for and received comments on several issues,
including three major ones: first, the proposed definition of
``political campaign activity''; second, which tax-exempt
organizations the definition should apply to; and, third, the
amount of political activity an organization can engage in
consistent with its particular tax-exempt status. Our goal is
to provide guidance that is clear, fair to everyone, and easy
to administer.
The investigations into the determination process for tax-
exempt status also raised another issue that we have been
working to address, that is, the need to improve the IRS'
records retention practices. The IRS produced well over 1
million pages of documents to comply with document requests
from the 7 investigations ongoing into this event. Our
antiquated system for storing emails made the process of
retrieving those records extremely difficult and time-
consuming. Efforts are now underway to develop a more modern
email retention system at the IRS. This will allow the agency
to more easily archive, search, and protect electronic official
records.
Once a modern system is established, the IRS should be able
to respond to even complex congressional inquiries much more
efficiently and effectively than in the past. Our goal is to
ensure that we have the ability to obtain official records of
the agency in a reliable and consistent manner.
Chairman Cruz, Ranking Member Coons, and Members of the
Subcommittee, this concludes my testimony, and I would be happy
to take your questions.
[The prepared statement of Commissioner Koskinen appears as
a submission for the record.]
Chairman Cruz. Thank you very much, Mr. Koskinen. I would
like to start by just asking: Was President Obama wrong to say,
quote, ``Americans have a right to be angry about it, and I am
angry about it?''
Commissioner Koskinen. Yes.
Chairman Cruz. In the 806 days that have followed since
this scandal broke, through the Treasury Department's Inspector
General's report, has anyone been indicted?
Commissioner Koskinen. No.
Chairman Cruz. Has anyone been fired?
Commissioner Koskinen. There have been--at this point the
five major people, starting with the Commissioner on down
through the Director of Exempt Organizations, are all new.
Everyone else is gone.
Chairman Cruz. Was anyone fired for misconduct?
Commissioner Koskinen. Starting with the Acting
Commissioner, they were all dismissed--not all of them. I am
sorry. The Acting Commissioner was, some retired.
Chairman Cruz. Let me ask you, based on your assessment,
were citizens wrongly targeted for their political beliefs?
Commissioner Koskinen. I have said in the past that the
process of selecting for determination review organizations
simply by the name of their--by the nature of their name was
totally inappropriate, it should not have happened, and it
should not happen again.
Chairman Cruz. I appreciate that. Let me ask the question
again: Were citizens wrongfully targeted for their political
beliefs?
Commissioner Koskinen. At this point, that is the subject
of several investigations going on. The Senate Finance
Committee will issue its report sometime in the next 2 weeks.
That has been the subject of their investigation. They are the
ones making that determination. I have not made a separate
investigation.
Chairman Cruz. My friend Senator Coons suggested that this
was all--I am paraphrasing here--much ado about nothing, that
this had all been resolved and there is nothing to see here.
Yet, I would note in September of last year, the Senate
Committee on Homeland Security and Governmental Affairs, the
Permanent Subcommittee on Investigations, then Chaired by
Democratic Senator Tom Carper, found that conservative groups
were targeted? And at this point, without objection, I am going
to move the full report of that Committee, all 228 pages, into
the record.
[The information appears as a submission for the record.]
The report's Majority Staff Executive Summary found, among
other things, that not only did, quote, ``the IRS use
inappropriate screening criteria when it flagged for increased
scrutiny applications based on the applicant's names or
political views rather than direct evidence of their
involvement with campaign activities,'' but that it also was
responsible for, quote, ``significant program mismanagement,
including years-long delays in processing 501(c)(4)
applications and inappropriate, intrusive, and burdensome
questions of groups.''
Indeed, I will point out the raw numbers: 100 percent of
all tax-exempt applications with the word ``Tea Party,''
``patriots,'' or ``9/12'' in their names were processed as
political cases, compared to 30 percent of applications with
``progressive'' in their name.
There were 298 total political advocacy cases; 83 percent
of those--that translates to 248 out of those 298 of these
groups--were, quote, ``right-leaning organizations.''
Mr. Koskinen, does that strike you as anything other than
targeting citizen groups based on their political views?
Commissioner Koskinen. As the report you cited noted, there
were inappropriate criteria used, and we have agreed with that
and said you should never be selected for review simply on the
basis of your name. The question of whether there was, quote,
``targeting,'' and whether this was directed for political
purposes or by someone outside the IRS as the subject of the
investigation, thus far my understanding is there has been no
evidence that there is any outside influence on the IRS in this
area.
Chairman Cruz. Were senior IRS officials motivated by
partisan political animus?
Commissioner Koskinen. That is what the investigations are
about. That report that you cited did not find that. The IG's
report did not find that.
Chairman Cruz. Are you aware of any information to suggest
that senior IRS officials were motivated by partisan political
animus?
Commissioner Koskinen. I have not reviewed the information
that has been provided. We have provide over 1,300,000
documents. I have not reviewed----
Chairman Cruz. I would suggest that there is nothing more
important for you to review, and willful blindness is not an
acceptable approach. I would point out that----
Commissioner Koskinen. I would object to the criterion of
``willful blindness.'' We have----
Chairman Cruz. You said you have not reviewed the evidence.
Commissioner Koskinen. Right, because we have been asked by
investigators, particularly the Inspector General, not to do an
investigation, not to interfere with their work, and we have,
in fact, therefore, avoided pursuing any discussions with IRS
employees so that we would not interfere or look like we were
trying to prejudice those investigations. That is anything but
``willful blindness.''
Chairman Cruz. I will point out that among the Lois Lerner
emails that have been made public, Ms. Lerner, in November
2012, referred to conservatives as, quote, ``our own crazies,''
and compared them to, quote, ``terrorists.''
I will point out as well, in February 2011, Ms. Lerner
stated, quote, ``Tea Party is very dangerous.'' In your
judgment, does that strike you as partisan political animus?
Commissioner Koskinen. As your information noted, 30
percent of the groups called ``progressives'' were also
selected inappropriately for review.
Chairman Cruz. I will ask the question again. Do those
descriptions from a senior Government official strike you as
partisan political animus?
Commissioner Koskinen. Political animus? It demonstrates
clearly her political view. It does not demonstrate whether she
encouraged anyone to take any action based on her views.
Chairman Cruz. I have introduced legislation in Congress to
make it a Federal criminal offense for any officer or employee
of the Internal Revenue Service, regardless of whether the
officer or employee is acting under color of law, to willfully
act with the intent to injure, oppress, threaten, intimidate,
or single out and subject to undue scrutiny for the purpose of
harassment any person or organization in any State based solely
or primarily on the political, economic, or social positions
held or expressed by the person or organization.
In your judgment, should targeting an individual based on
their political views be a Federal crime?
Commissioner Koskinen. That is a decision of the Congress,
but I would certainly agree that anyone who does that in the
IRS should be dismissed.
Chairman Cruz. Would you agree it should be a criminal
offense for the IRS to use the full Government power entrusted
to it to target citizens for expressing their political views?
Commissioner Koskinen. I would agree that citizens should
never be targeted for expressing their views, and if Congress
decided to make that criminal offense, we would certainly
support that.
Chairman Cruz. Very good. Senator Coons.
Senator Coons. Commissioner Koskinen, thank you for
appearing before us here today.
Just to review, you became the Commissioner of the IRS at a
time when it had had some significant and serious problems. How
many times have you now appeared to testify about this
501(c)(4) controversy before Congress?
Commissioner Koskinen. Virtually every time I testify, it
has some elements of (c)(4) to it. This is almost my 30th
hearing in my year and a half.
Senator Coons. You have never turned down a request to
testify, have you?
Commissioner Koskinen. Never.
Senator Coons. Roughly how many documents have you turned
over in response to the TIGTA investigations that you just
referenced?
Commissioner Koskinen. As I noted, we have turned over to
the investigators 1,300,000 documents.
Senator Coons. Roughly how many of the emails from Ms.
Lerner did you produce?
Commissioner Koskinen. We produced 78,000, including 24,000
from the period of her hard drive crash.
Senator Coons. TIGTA is the Treasury Department Inspector
General for Tax. How many of Ms. Lerner's emails has TIGTA
found that you did not produce?
Commissioner Koskinen. The Inspector General found 1,000,
which he noted had nothing to do with the investigation.
Senator Coons. None of those emails were found to show
evidence of a politically motivated plot by the administration
or IRS senior leadership. Is that correct?
Commissioner Koskinen. That is correct.
Senator Coons. Let me also just make sure I understand. The
Inspector General is charged with looking into and
investigating the very troubling, concerning, even angering
allegations that there was inappropriate targeting based on the
names, just the filed names of applicants for 501(c)(4)'s. It
was the Inspector General that urged you not to conduct your
own separate investigation, and that is the reason that TIGTA
has been the primary leader of investigations within the IRS
into the resolution of this matter rather than you as
Commissioner. Is that correct?
Commissioner Koskinen. That is correct. There are also six
other investigations going on, and we have agreed with all of
them that we also would not interfere with their
investigations, we would not try to talk to any of the
witnesses they wanted to talk to before they did.
Senator Coons. Has the Inspector General released a report
with concrete and specific recommendations about how to cure
some of the management flaws that were revealed and how to deal
with the outcome so far of this investigation of the handling
of 501(c)(4) cases?
Commissioner Koskinen. Those were included in the Inspector
General's report in May 2013.
Senator Coons. Have you complied with all nine of the
recommendations in that report?
Commissioner Koskinen. We have complied with all of them.
As I noted, one of them was that we should provide clearer
guidance to (c)(4) organizations, and we are working on that
one.
Senator Coons. Just to get to that point, if I could, Mr.
Commissioner, the IRS Code says that (c)(4) organizations must
be--this is in the Code--operated exclusively for social
welfare, yet it is IRS regulations that say that campaign
activity can occur as long as it is less than 50 percent. Is
that correct?
Commissioner Koskinen. That is correct. The IRS regs say
that as long as you are primarily a social welfare
organization--and social welfare activities have been held not
to include political campaigning--you are eligible to be and
maintain status as a (c)(4).
Senator Coons. What are the benefits to an applicant of
being a 501(c)(4)?
Commissioner Koskinen. Contributions are not tax
deductible, earnings of the 501(c)(4) revenues are not taxes,
and also donors are not publicly revealed.
Senator Coons. Did not the IRS attempt to clarify the rules
for (c)(4) in 2013 in a rulemaking?
Commissioner Koskinen. A couple weeks before my
confirmation hearing, they did put out regulations, draft
regulations, which generated the 160,000 comments. They were
controversial drafts.
Senator Coons. Can you just explain the general principles
that you think any subsequent rulemaking ought to follow and
give us some insight into the timing and direction of this
important rulemaking effort?
Commissioner Koskinen. One of the significant questions we
asked is to which (c) organizations, exempt organizations,
should a definition of ``political activity'' apply. We had a
lot of comments on all sides. When you look at the framework--
statutory framework set up by the Congress, including (c)(3)'s,
(4)'s, (5)'s, (6)'s, and 527s, it is clear that the Congress
has set up a framework under which organizations can pick and
choose where they want to fit. Therefore, we think that you
ought to look at this as a full statutory framework rather than
isolate any one particular organization.
If an organization wants to spend less than half of its
money on politics, they can choose to become a (c)(4). If they
want to spend more money on politics, if they would like to
spend all their money on politics, they can do that and be tax
exempt as a 527.
Our view is the IRS does not tell you where to go. The
framework does that if we actually have a consistent definition
across those terms. It should look at--a definition of
``political activity'' should be clearer than it has been. It
should not depend just on facts and circumstances. As we have
looked at it, we are still working through all of this, but the
congressional definitions have been for 527s, (c)(5)'s, and
(c)(6)'s, primarily, so primarily it does appear to be the
appropriate statutory interpretation.
Again, we are not trying, as we look at this to change
significantly the rules under which people have been operating.
What we are trying to change is the lack of clarity in terms of
what counts as social welfare activity, what counts as
political activity, what counts as business-related support,
what counts as political activity. We think if we could provide
clearer definitions, those running these organizations would
have less to worry about somebody coming after the fact and
disagreeing with them because of the quote ``facts and
circumstances.''
Senator Coons. Last question for you. There has been some
discussion about audits as well as the initial filing. The
General Accounting Office, or GAO, which is widely recognized
as an independent review arm of the Federal Government,
conducted a study of the IRS' audit practices into exempt
organizations. Has there been any suggestion through that that
anybody in the IRS has targeted groups for auditing based on
their perceived political viewpoint?
Commissioner Koskinen. The GAO report found no evidence of
bias in the selection process for audits of exempt
organizations. The IG has advised us, as they have done
specific investigations, of no evidence of any bias.
On the other hand, GAO did have suggestions as to how we
could improve our controls, and we are implementing those
because we think it is important to ensure that the examination
process also is fair to everyone and does not select anyone for
review on the basis of who they are, who they voted for, what
political rally they went to last week.
Senator Coons. Thank you, Commissioner.
Chairman Cruz. Thank you. Senator Lee.
Senator Lee. Thank you very much, Mr. Chairman. Thank you
for joining us today.
I want to ask you, as a general matter, is the decision of
a Supreme Court case, a single decision by the Supreme Court,
grounds for reevaluating which organizations might be eligible
for tax-exempt status and which might not?
Commissioner Koskinen. It depends on what the Supreme Court
says and what is at issue.
Senator Lee. Okay. One question I want to ask on this
subject is: If you watched or are familiar with the Supreme
Court's decision in the Obergefell case, during the oral
argument in that case, Justice Alito asked a very important
question of Solicitor General Verrilli. He asked him whether,
in light of the Supreme Court's ruling 30 years ago in Bob
Jones University v. United States, whether if the Supreme Court
decided, as it now has decided, that there is a constitutional
right to same-sex marriage, whether pursuant to that ruling in
Bob Jones University v. United States the IRS might ultimately
conclude that, for example, a religious college or a university
might be denied its tax-exempt status on the basis that that
religious college or university does not recognize same-sex
marriage, and on that basis might make a decision, for example,
about eligibility for residing in housing for married students.
He asked this question of Solicitor General Verrilli. In light
of that, if we recognize a constitutional right to same-sex
marriage, is there a risk of one of these colleges or
universities losing their tax-exempt status?
Solicitor General Verrilli's response was chilling to many.
He said, ``That is going to be an issue, Justice Alito. That is
certainly going to be an issue.'' He reiterated this three or
four times. He seemed quite confident in his response.
I would ask you whether you share that view. Is that going
to be an issue? Could that be an issue?
Commissioner Koskinen. The Chairman last week asked the
same question in a letter asking for our response. We responded
to the Chairman and we have responded publicly that at this
time we see no basis for changing our examination criteria as a
result of the Supreme Court case.
Senator Lee. Okay. When you say ``at this time,'' is that
meant to qualify or restrict your answer? Are you saying there
is no basis upon which you could revisit tax-exempt status?
Commissioner Koskinen. At this time, there is no basis for
us to revisit tax-exempt status on that grounds. We will
continue, obviously, to ensure that those who enjoy tax-exempt
status are still doing the work they said they were going to
do, but that exam and those reviews will continue as they
always have.
Senator Lee. I am still troubled by the fact that you
preface all this with ``at this time.'' Are you saying that you
are holding open the possibility that at some future point the
IRS might open that up, might revisit that question?
Commissioner Koskinen. It is a good point. I do not mean to
leave uncertainty there. It is not the IRS' position to make
public policy. We implement the laws as they stand. It is our
view right now, in terms of the overall lay of the land, there
is no basis for us at this point to make any change in our
review policies or exam policies.
We cannot predict over the next years what is going to
happen in terms of decisions that will be made about public
policy, but those are not decisions we are going to make.
Senator Lee. Who would have to make those decisions about
public policy if they were to be made?
Commissioner Koskinen. They would be legislative decisions.
They would be court decisions. They would not be decisions by
the Internal Revenue Service.
Senator Lee. Okay. That would need to be made by another
branch of Government, certainly could not be made within the
IRS, because this is a legislative decision as a policy matter.
Is that correct?
Commissioner Koskinen. Correct, yes.
Senator Lee. To the extent that Solicitor General Verrilli
was suggesting otherwise when he said, ``That is certainly
going to be an issue,'' he was mistaken?
Commissioner Koskinen. No, I think what--you would have to
ask him, I guess. He could say better. He did not say----
Senator Lee. You would disagree with that characterization?
Commissioner Koskinen. Not necessarily. He was not saying I
would be an issue with the IRS. I think what he was saying is
over time, in other areas over time, public policy decisions
have been made by courts and legislators that ultimately then
did influence tax-exempt status. The Bob Jones case is one of
those. That was not a case of policy made by the IRS. That was
a case over 15 or 20 years of decisions made by courts and
legislators.
Senator Lee. That was based on a determination made by the
IRS. That was on the basis of an action--Bob Jones University
v. United States involved a judicial challenge of a decision by
the IRS that a particular university was no longer entitled to
tax-exempt status.
Commissioner Koskinen. That is right.
Senator Lee. That was, in fact, made by the IRS, right?
Commissioner Koskinen. That was made by the IRS----
Senator Lee. Not by Congress.
Commissioner Koskinen [continuing]. By regulation, or I
will accept--the regulation put out by the IRS before that case
was based on decisions made by Congress and the courts, and
everyone was given plenty of notice what the IRS interpretation
was. There is no basis for us to issue such regulation at this
time.
Senator Lee. There was no act of Congress requiring the
action that IRS took in that case. The IRS took the action.
Commissioner Koskinen. There were court cases and
legislative cases, actions, taken over a 20-year period before
the IRS acted.
Senator Lee. Ultimately, that was not a decision made by
Congress as to that particular university.
Commissioner Koskinen. Congress had passed various
antidiscrimination laws, as had State courts had made rulings.
All of those decisions were made by people outside the IRS. All
we do is follow whatever the public policy that is set by other
organizations.
Senator Lee. Okay. Mr. Chairman, I see my time has expired.
I would like to point out, as I recall, in that case, the
determination was made by the IRS. There was a finding made by
the IRS that the university in question was no longer
charitable and, therefore, no longer entitled to tax-exempt
status.
It is not my intent to revisit that case. This is old
caselaw going back more than 30 years. It is, however, my point
to make that in this case we could be talking about IRS action
that could occur.
Commissioner Koskinen. At this point, other actions would
have to take place before the IRS would consider issuing a
regulation, which would give people notice as to what we
thought the public policy was, and then cases and exams would
be conducted under that. At this point, as I say, those actions
will have to be taken by others. It is not within the realm of
the IRS to make those public policy choices.
Senator Lee. Okay. It could be preceded by legislation or
perhaps regulation.
Commissioner Koskinen. It could be preceded by legislation
or court cases. The regulation in that particular case simply
reflected court cases and decisions that had been made by other
agencies and reflected a public policy that had been adopted.
It was not a policy decision by the IRS.
Senator Lee. Thank you, Mr. Chairman.
Chairman Cruz. Thank you. Senator Durbin.
Senator Durbin. Thank you, Mr. Chairman. Thank you for
being here, Mr. Commissioner.
Just so--there is one aspect here I would like to ask a
question. The story broke in May 2013, about the improper
conduct involving the Internal Revenue Service, and it is my
understanding in the more than 2 years that have transpired,
you are testifying that either you or someone from the agency
has testified before Congress more than 30 times?
Commissioner Koskinen. Correct.
Senator Durbin. Produced more than 1,300,000 documents?
Commissioner Koskinen. Correct.
Senator Durbin. I understand some 52 current and former
employees have been interviewed?
Commissioner Koskinen. Yes.
Senator Durbin. Do you have any idea how much this has cost
taxpayers in terms of expenses by the IRS?
Commissioner Koskinen. We estimate both the hard costs and
the employee costs are about $20 million.
Senator Durbin. What has happened to the appropriations for
the Internal Revenue Service in the last, say, 5 years?
Commissioner Koskinen. Over 5 years, every year the
appropriation has been cut by a total from $1 billion to $2
billion.
Senator Durbin. If you begin with the premise--and I think
most Americans would--that organizations and people in the
United States should pay the taxes that are legally required,
what has been the situation with the IRS when it comes to
holding fast to that principle--auditing where necessary to
make sure that there is compliance and that those who legally
pay their taxes are not necessarily harassed, but those who do
not pay their taxes are held accountable?
Commissioner Koskinen. At this point we have 5,000 fewer
revenue agents, revenue officers, and criminal investigators.
The number of our exam audits in the field are going down. The
number of our collections as a result of examination processes
are going down.
Senator Durbin. Is it fair to conclude, then, that some
people, some organizations, that are not paying their proper
taxes, their legally required taxes, are getting off the hook?
Commissioner Koskinen. Unfortunately, that is correct.
Senator Durbin. Meanwhile, we call you back up here again
for more testimony and more evidence on a case that is more
than 2 years old that the IRS has spent some $20 million in
complying with requests for information by Congress.
Commissioner Koskinen. That is correct.
Senator Durbin. It appears, as my colleague Senator Coons
says, that this started with a Supreme Court decision in
Citizens United, but it really gets down to a question as to
whether an organization can be exempt from paying taxes under
our laws in the United States and can keep the sources of their
money secret, confidential, closed if they qualify as a certain
organization under the Internal Revenue Service Code. Is that
correct?
Commissioner Koskinen. That is correct.
Senator Durbin. It comes down to a basic question as to
whether this organization is a social welfare organization
operated exclusively for the promotion of social welfare. Is
that correct?
Commissioner Koskinen. That is correct.
Senator Durbin. A 1960 Treasury regulation interpreted that
to mean the organization is primarily engaged in promoting in
some way the common good and general welfare of the people of
the community. Are you familiar with that?
Commissioner Koskinen. Yes.
Senator Durbin. The regulation also states the promotion of
social welfare does not include direct or indirect
participation or intervention in political campaigns on behalf
of or in opposition to any candidate for public office. Is that
also correct?
Commissioner Koskinen. That is correct.
Senator Durbin. It appears to be, from what I have heard
here today, a period when there were a large number of people
applying to become one of these 501(c)(4) organizations.
Commissioner Koskinen. Yes.
Senator Durbin. Do you recall the volume of organizations
or people, applications coming forward after Citizens United?
Commissioner Koskinen. There were well over 100, close to
200, 250, who showed up across the spectrum asking for
qualifications, determinations that they could be a (c)(4). I
would note you can be a (c)(4) organization without getting a
determination from us. You can set up a business and simply
start filing the requisite annual reports.
Senator Durbin. You have made it clear that you do not
believe--and I share this belief--that a group should be
targeted because their name suggests a political leaning or a
political bias. Is that correct?
Commissioner Koskinen. That is absolutely correct.
Senator Durbin. Does the IRS have any obligation to
establish or determine whether an applicant, in fact, is
eligible to be tax-exempt, that is, to escape liability in
paying the laws of the United--taxes of the United States?
Commissioner Koskinen. It is our obligation to enforce the
Tax Code, and I might note there is some indication abroad,
while we are looking at new regulations, as if we are not going
to be enforcing the Tax Code, and that could not be farther
from the truth. The GAO, in effect, has reviewed our exam
procedures and said they are appropriate, we need to improve
our controls, and we are going to do that. We are not out of
business. We will continue to operate under what we think are
unclear but existing regulations that have been around for a
long time on facts and circumstances, and we have an obligation
to enforce the law.
Senator Durbin. Mr. Commissioner, I have an impression and
I want to know if you share it. The vast majority of Americans
as individuals and organizations and companies do their best to
pay their legally obligated taxes.
Commissioner Koskinen. That is our experience as well, and,
in fact, we have tried to make it clear. If you are trying to
be compliant, we are anxious to work with you. If you are
having difficulties, you do not have to hire somebody off late-
night TV to talk to us. We will talk with you, we will work
with you. The people that we chase are the people who are
consciously deciding not to pay their taxes.
Senator Durbin. I hope the chase continues, and I hope we
give you the resources to do it.
Chairman Cruz. Thank you. Senator Sessions.
Senator Sessions. Thank you.
Mr. Koskinen, I have great respect for the line officers in
the IRS. As a Federal prosecutor, I always held them in high
esteem and great respect. I am not questioning their fidelity,
but what I am concerned about is the leadership of the IRS at a
critical point in history using the power of that august
institution for political ends. That is what President Nixon
apparently--or his underlings--did, and they paid a great price
for it. It is absolutely unacceptable, I think you would agree.
Commissioner Koskinen. I would agree.
Senator Sessions. With regard to the cost of this, we have
not spent too much money trying to get to the bottom of this.
Frankly, I do not think we have had the kind of cooperation
from the President, from the agency, the Service, or the FBI or
Department of Justice for that matter. There are real problems
out here. We have not cleared the air.
The Tea Party sprang up at this time, and they requested
what they were entitled to under the law, and they were pretty
clearly targeted in a degree that was extraordinary. You said
they were targeted because of their names. Apparently, if your
name is conservative, one of the names in the title was
conservative, ``Tea Party'' or ``patriot,'' you got targeted. I
think that leads us quite to believe that they were targeted
for their political views more than left-leaning groups were
targeted.
Mr. Koskinen, how often have you been to the White House
since you have been in office?
Commissioner Koskinen. I have been, I think, three or four
times. Most all of those were to meet with the Treasury
Secretary and the Secretary of HHS to coordinate last fall the
implementation of the back end of the Affordable Care Act.
Senator Sessions. That does not surprise me too much. There
could be quite legitimate reasons for that. Lois Lerner, who
was in charge of this program, apparently went to the White
House 35 times. Does that strike you as odd?
Commissioner Koskinen. No. It depends what she was going
for. There were numerous meetings in the White House throughout
the period of the implementation, for instance, of the
Affordable Care Act. The IRS has had----
Senator Sessions. She did not have the Affordable Care Act
under her portfolio, did she? She had tax-exempt groups. Is
that right?
Commissioner Koskinen. Right, I have no idea what she was
doing. I had not realized she went 35 times.
Senator Sessions. You do not know who she talked to.
Commissioner Koskinen. I have no idea who she----
Senator Sessions. You do not know what was said in those
conversations.
Commissioner Koskinen. I do not.
Senator Sessions. You acknowledge that there was an
inappropriate targeting of tax-exempt groups and groups
applying for tax-exempt status.
Commissioner Koskinen. There was an inappropriate
selection. The question of whether they were targeted is the
question that the investigators are looking at. Clearly, that
inappropriate selection should not have happened. It should not
have happened to conservative groups. It should not have
happened to progressive groups. You should not be subject to
special review because of the name of your organization or the
activity of your organization.
Senator Sessions. You are exactly right about that. I do
not think we have gotten to the bottom of it. That is what I am
concerned about. I know we have had a number of hearings, but I
do not think we have gotten there yet.
Do you think if the FBI was going to investigate--and they
did investigate, did they not?
Commissioner Koskinen. To my understanding, yes, the FBI
and the Justice Department are one of the investigations. There
are four congressional investigations. The Inspector General
has had two investigations.
Senator Sessions. Has the FBI notified you that the
investigations are still ongoing? Or have they been concluded?
Commissioner Koskinen. We have had no information from the
FBI either way.
Senator Sessions. I am very careful about how I conduct
myself in these matters. I did have an opportunity to talk to
Mr. Comey and suggested he talk to the victims of the
activities from the IRS. Do you think it would be proper for
the IRS to interview people who have had their tax-exempt
status delayed or otherwise investigated improperly?
Commissioner Koskinen. I do not think we ought to be
talking with them. I think we ought to do what we have done,
which is proceed to promptly process their applications. We
should talk to them to find out whatever we need to know. We
obviously asked inappropriate questions and far too much
irrelevant data from them in that timeframe, and that will not
happen again.
Senator Sessions. I think we have got to get to the bottom
of what happened. Watergate did not just say, ``We are not
going to see it happen again.'' They said, ``Who did what when?
Who knew what when?'' We have not gotten to the bottom of that,
and I am not happy that the FBI has not even investigated and
interviewed some of the victims in my State who had their
status delayed improperly, it appears.
Commissioner Koskinen. The Senate Finance Committee is one
of the investigators, and they hopefully will put out their
report, they said, sometime in the next couple weeks, and we
will see what they have found.
Senator Sessions. They do not have grand jury power behind
them.
With regard to the million pages you talked about providing
to the FBI or to, I guess, other agencies, is it not a fact
that Lois Lerner and Sarah Ingram sent the FBI 21 discs
containing a million pages of taxpayers' filings focusing on
the possible prosecution of conservative groups?
Commissioner Koskinen. My understanding is those discs,
which are shared to the public--we distribute those to the
public---were shared with the Department of Justice.
Senator Sessions. They certainly did, and they were
apparently calling on them--look, we all know what the
situation was. The Tea Party had sprung up in America. The
President was running for reelection. A lot of these groups,
they seized upon the ability to establish these kind of
organizations and seek a taxpaying tax status that they wanted
to achieve. It was delayed and obstructed. I believe the, 20,
30-some-odd visits to the White House by Mrs. Lerner were not
all innocent. I believe it had something to do with the
election. I think we are in the real world here. Every Member
of this body has to run for reelection. We know that those kind
of actions should not take place.
I do not suppose that we know everything yet, but I do not
think we have gotten to the bottom of it, and I hope that we
will.
Thank you, Senator Cruz, for having this hearing.
Chairman Cruz. Thank you. Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman.
Welcome, Commissioner Koskinen. I wanted to ask you about
the forms that applicants to the Internal Revenue Service for
501(c)(4) or 501(c)(3) status are obliged to fill out. The
application, is that a--that is an official Government form,
correct?
Commissioner Koskinen. Yes.
Senator Whitehouse. What are your expectations as to the
truthfulness of the applicant's content in the submission of
the form?
Commissioner Koskinen. They submit those forms as a general
matter under penalty of perjury. They, in fact, submit those as
if they accurately describe the activities they are about to
engage in.
Senator Whitehouse. If an organization says on a 1024 Form,
for instance, or if it is a 501(c)(3), a 990 Form, that it has
not engaged in any political activity or that it has no plans
to engage in any political activity, what are your expectations
with regard to that statement on those forms?
Commissioner Koskinen. Our expectation would be it would be
like 90 percent of the 501(c)(4)'s, and that is, it would have
nothing to do with politics. Those are local Kiwanis Clubs,
Garden Clubs, a lot of social welfare activity organizations
that have nothing to do with politics.
Senator Whitehouse. You would expect that assertion to be a
truthful one. Correct?
Commissioner Koskinen. You would.
Senator Whitehouse. Let's say that you find out that the
organization has, in fact, engaged in political activity after
having filed the form indicating to the contrary. What takes
place then?
Commissioner Koskinen. When we do examinations of exempt
organizations, in particular, it is not an on-off switch. If
you move over a line one way or another, we do not immediately
say, well, you are no longer eligible to be tax-exempt. For
most (c)(3)'s, (4)'s, (5)'s, and (6)'s we audit, if there is a
problem, it is usually a modest one that they have done
something wrong. Oftentimes, they forgot to pay their payroll
taxes or something else. Our goal is to----
Senator Whitehouse. On this question of claiming that you
will not be involved in political activity----
Commissioner Koskinen. If they say they are not going to be
involved in political activities and the organization is
eligible to be, then we would put them on warning that they
need to accurately and adequately report their activities. If,
after being given that advice, they continue to operate, they
continue not to perform appropriately, then we would consider
revoking their exemption.
Senator Whitehouse. Have you done that recently?
Commissioner Koskinen. I do not think I am aware of any
tax-exempt organization in the last year or two that we have
revoked, but we have, when we have reviewed them, given them
guidance, education, encouraged them to make sure that they are
following both the prescriptions and the laws and regulations,
but also their representations as to what their activities
would be.
Senator Whitehouse. How do you engage with them once you
have discovered that they are not conforming to the statement
that they made to your organization under penalty of perjury?
Commissioner Koskinen. We will oftentimes, depending on the
nature of the difference, correspond with them in writing. We
will contact them, depending if it is a more egregious issue.
On occasion, we will visit them. We will review their books and
records if that is appropriate. It does not happen often.
Generally, our review of tax-exempt organizations have to do
with failure to pay employee taxes, failure to pay unrelated
business income taxes, or defalcations where there has been
private inurement as a result of misbehavior by an executive.
Senator Whitehouse. Is it important that organizations who
apply to the IRS for one of these types of status tell the
truth to you about their political activity? If so, why is that
important?
Commissioner Koskinen. It is important to us because, as I
said earlier, Congress has set up a framework for tax exemption
that allows organizations to decide where in that framework
they would fit, but they ultimately are getting the benefit of
a tax exemption, either on their income or, if they are a
501(c)(3), contributions are tax deductible to the donor. It is
important for them to fit within the framework that Congress
set up; otherwise, they are not eligible for those tax
benefits.
Senator Whitehouse. Are you familiar at all with 18 U.S.C.
Sec. 1001, the false statement statute?
Commissioner Koskinen. I know about it generally.
Senator Whitehouse. Do you know enough about it to know
whether or not Form 1024 and Form 990 qualify as Federal forms
that are subject to its strictures against filing false
statements?
Commissioner Koskinen. I would assume they are, but I do
not know that for a fact.
Senator Whitehouse. Okay. I will leave it at that. Thank
you very much.
Chairman Cruz. Thank you. Senator Blumenthal.
Senator Blumenthal. Thanks, Mr. Chairman.
Regarding 501(c)(3)'s and 501(c)(4)'s and focusing for the
moment on how the IRS will monitor the political activity of
501(c)(4)'s, organizations that will be active in the coming
election, I take it that regulations are necessary for the IRS
to do its job concerning 501(c)(4)'s, and the IRS has indicated
that regulations defining political activity are unlikely to be
introduced until after the 2016 election. Is that correct?
Commissioner Koskinen. Those would be the updated
regulations. There are regulations that exist now that have
been in effect since 1959 that still guide us in our
examinations.
Senator Blumenthal. Was that 1959?
Commissioner Koskinen. 1959. The existing regulations
talking about judging political activities on a facts and
circumstances basis have been out there that long. The goal in
response to the Inspector General was to make those regulations
clearer so there would be less doubt, less concern on all
parties' parts as to what counts and does not count.
Senator Blumenthal. If those regulations are not released
before the election, does that not create enforcement problems
for the IRS?
Commissioner Koskinen. No. That is what I said. There is a
misimpression that while we are drafting updated or new
regulations that we simply do not have any authority. We
actually continue to have the authority we have always had for
the last 50 years under the existing regulations, and our
intention is to continue to discharge our obligation to enforce
the tax law.
Senator Blumenthal. Will the new regulations be different
from the ones that exist now?
Commissioner Koskinen. We are working hard in response
especially with the benefit of the advice we have gotten from a
lot of organizations to make them clearer, easier to
understand, and easier for us to enforce.
Senator Blumenthal. They are going to be the same
substantively, just clearer?
Commissioner Koskinen. They will basically--as a friend of
mine says, we are not trying to adjust the strike zone. We are
trying to dust off home plate and make it clearer, what fits
within the definition of ``political activity'' and what does
not, and to whom it does apply.
Senator Blumenthal. Okay. I would say that might make the
strike zone slightly different. It is not just looking down at
home plate. It is also looking at the other features of the
strike zone. Would you not agree?
Commissioner Koskinen. Yes. We need to, as I say--the
biggest change, if there is one, will be to make it clear to
everyone that there is a statutory framework set up by Congress
that runs from the 501(c)(3)'s through the 527s. Organizations
can pick where they want to be, but we hope that we will be
able to provide clearer guidance, particularly with regard to
political activity, as to what counts and what does not count.
Senator Blumenthal. You anticipate no problems in the
enforcement of the existing regulations to 501(c)(4)
organizations?
Commissioner Koskinen. We will continue to enforce the
existing regulations. The only problem is I think the Inspector
General is right. Purely a facts and circumstances test, even
with all the examples we provided, provides less clarity than
we think is important and necessary, but we will live with the
regulations we have until new regulations are in force.
Senator Blumenthal. There is talk--and, in fact, more than
talk, there are proposals to, in effect outside--outsource part
of IRS tax enforcement to private debt collectors. How would
privatizing IRS enforcement in the highway bill, for example,
affect the IRS' ability to effectively collect payments?
Commissioner Koskinen. We have tried that twice before, and
notwithstanding the projections that you would make more money
that way, the Government did not make more money. It
complicates our life because we have to spend a lot of time
making sure that there is not abuse of taxpayers by those tax
collectors.
In the present day and age, it is even more complicated
than it was in those two previous circumstances because one of
the most prevalent tax scams right now is people calling and
masquerading as if they are from the IRS, threatening people,
causing them to make improper payments to criminals, provide
criminals with personal information.
Now, if you suddenly have private debt collectors calling
up saying they are from the IRS, they are going to run into the
work that we and the Inspector General and everybody else has
had, warning taxpayers that, you know, we do not--if you are
surprised to hear from us, you are not hearing from us. There
is going to be more difficulty for somebody from the private
sector trying to collect taxes.
Senator Blumenthal. Which goes to my next and final
question relating to calls that ordinary taxpayers and people
may receive from people, mostly con artists, purporting to be
from the IRS. Have you detected an increase in the frequency of
those kinds of scams--``I am from the IRS. We need to know your
Social Security number''?
Commissioner Koskinen. It is a rampant scam for the last
year and a half. The Inspector General has 600,000 reports of
those scams. We have been trying to say if you are surprised to
hear from us, you are not hearing from us. We write you first.
You will get several notices from us.
Second, when we call you, we will never threaten you. We
will never tell you to make a payment immediately. We will
never tell you to put it on a debit card. We will never tell
you to mail it to some post office box that you have never
heard of.
Senator Blumenthal. What will you tell them to do? What
should they expect?
Commissioner Koskinen. What they should expect is they
should get a notice from us, a letter explaining what the audit
or the request is, why we think there is an issue on their
return. We advise them of their rights to appeal if they
disagree. We encourage them to make payments. We provide
installment payment opportunities as well for them. But they--
--
Senator Blumenthal. Do you do that on the phone, or do you
invite them in?
Commissioner Koskinen. We will do that by letter, we will
do it by phone, and ultimately, we will do it in person if we
move through the entire process.
Senator Blumenthal. Thank you very much. Thank you for your
service.
Chairman Cruz. Thank you very much.
Mr. Koskinen, when was the political leadership at the IRS
first aware of the improper targeting of citizens?
Commissioner Koskinen. My understanding is that Lois Lerner
knew of what were called ``be on the lookout lists'' or ``BOLO
lists'' sometime in the 2012 period.
Chairman Cruz. When was the political leadership at the
Department of Treasury aware of it?
Commissioner Koskinen. I have no idea.
Chairman Cruz. When was the political leadership at the
White House aware of it?
Mr. Koskinen. I have no idea. This all pre-dates my
appearance on the scene.
Chairman Cruz. The public revelation of this did not occur
until 2013, after the 2012 election. Is that correct?
Commissioner Koskinen. That is correct.
Chairman Cruz. What can you tell us--Mr. William Wilkins,
the Chief Counsel of the IRS, on April 23, 2012, met with
President Obama and 12 others in the Roosevelt Room. Now, tax
analysts have claimed that meeting was a photo op, and yet the
meeting lasted 7 hours. Wilkins checked in at 3:45 p.m.; he
left at 11:09 p.m. The IRS changed the targeting criteria 2
days later.
What can you tell us about that meeting with the President
of the United States?
Commissioner Koskinen. I have no information about that
meeting.
Chairman Cruz. All right. Let's shift to something else.
The IRS demanded of one citizens group, the Coalition for Life
of Iowa, that they tell the IRS the content of their prayers.
Is it appropriate for the IRS to demand of citizens they share
the content of their prayers?
Commissioner Koskinen. I think that that sounds totally
inappropriate and should not happen.
Chairman Cruz. The IRS also demanded that each member of
the Coalition for Life send a signed declaration that they
would not picket Planned Parenthood. Is it appropriate for the
IRS to demand of citizen groups that they pledge not to
exercise their free speech rights?
Commissioner Koskinen. Absolutely not.
Chairman Cruz. Is the IRS still doing it?
Commissioner Koskinen. Absolutely not.
Chairman Cruz. So, that is not being done? There will not
be any testimony from any citizens groups that the current IRS
is making similar demands?
Commissioner Koskinen. If they are, it will be the first I
hear of it, and we will pursue that immediately because we have
made it clear that we should not have any interest whatsoever
in whatever your issue is that you are advocating for. Issue
advocacy is part of social welfare. People are advocating on
issues, on both sides of many controversial issues. We
encourage that. That is the whole purpose of the social
welfare--part of the purpose. There are a lot of Kiwanis Clubs.
Basically we support that. We should not be indicating any
preference as to how people exercise their right to advocate on
behalf of either side of any issue.
Chairman Cruz. Are you willing to apologize on behalf of
the IRS to demanding of a citizen group the content of their
prayers?
Commissioner Koskinen. I already have apologized to anyone
who was inappropriately selected for inappropriate questions. I
have apologized to those who were stuck in the process for an
inordinate amount of time. No one should have to wait for 2
years to get an answer. I would note you could get--you can be
a (c)(4) and go out and you do not need our determination, but
the reason people want determinations to some extent is because
the law is unclear enough that they would like to have some
representation from the IRS that what they are planning to do
is all right and within the realm, and that is appropriate. We
have apologized, and I would apologize again today. People
should not be treated that way.
Chairman Cruz. Can you tell the Committee why the IRS
settled with the National Organization of Marriage for $50,000
in taxpayer money for wrongfully giving their confidential IRS
documents to an individual who was working with the Obama
Presidential campaign?
Commissioner Koskinen. I do not know anything about that
particular case.
Chairman Cruz. I would ask you to follow up with this
Committee in writing and to explain why the IRS gave
confidential information to an individual who was working with
the Presidential campaign as a partisan operative.
Let me ask a different question. The lead investigator at
the Department of Justice of this scandal is a major Democratic
donor, has given over $6,000 to President Obama and Democrats.
Are you comfortable with this scandal being investigated by a
major Democratic donor?
Commissioner Koskinen. It is not my position to make a
determination who, whether it is in the congressional
investigations, the IG investigation, or the Department of
Justice investigation, is doing the investigation. We have
supported all of them.
Chairman Cruz. I would think as the Commissioner you would
be concerned about the integrity of the IRS. Have you asked
either Attorney General Holder or Attorney General Lynch for a
special prosecutor who, at a very minimum, is not a major
Democratic donor?
Commissioner Koskinen. I have had no conversations with
either of them about this.
Chairman Cruz. All right. Let me ask one additional
question or a couple of additional questions on a different
line. I mentioned in my opening that I have received numerous
anecdotal reports from individuals who became donors or
bundlers for Republican Presidential candidates who
subsequently found for the first time in their lives they were
the target of IRS audits.
Of the individuals who were publicly identified as bundlers
for the John McCain 2008 Presidential campaign, do you know
what percentage of those individuals were audited?
Commissioner Koskinen. I do not.
Chairman Cruz. Do you know what percentage of the 2008
Obama campaign bundlers were audited?
Commissioner Koskinen. I do not.
Chairman Cruz. In 2012, do you know what percentage of the
bundlers for Mitt Romney were audited?
Commissioner Koskinen. I do not.
Chairman Cruz. Do you know what percentage of the bundlers
for President Obama's campaign were audited?
Commissioner Koskinen. No.
Chairman Cruz. I am going to follow up with a letter asking
you to provide this Committee that information, not individual
tax returns but the aggregate numbers, the percentages of the
publicly released lists of bundlers for each of those
campaigns.
Commissioner Koskinen. Right. As I have noted, we will do a
million audits this year, even with the constrained resources.
Those will include people active in politics on both sides of
the political spectrum, people who have never been involved in
politics, people who go to rallies, people who organize, people
who demonstrate. The only reason we are contacting them--and
our process has been reviewed. GAO has been reviewing it. GAO
is issuing a report today or tomorrow on our exam selection
process with suggestions of how to make it better but finding
no examples of anyone who was improperly selected for an audit.
We take this very seriously.
Chairman Cruz. I am glad you take it seriously. My question
here is not focused on groups and 501(c)(4) or (c)(3)
applications. It is individuals.
Commissioner Koskinen. The million audits are going to be
of individuals, and some of them will be Democrats, some will
be Republicans. Some go to church, some do not. None of that
makes any difference.
Chairman Cruz. Will you commit to this Committee to provide
the aggregate percentages of the bundlers on each side in our
follow up correspondence?
Commissioner Koskinen. Again, we do not track people by
whether they are bundlers from one political organization or--
--
Chairman Cruz. We will provide the names, and I am asking,
of these publicly identified names, what percentage was audited
on the Republican side and what percentage on the Democrat
side. If the percentages are roughly equal, that will be
beneficial to the IRS. If they are not, it will naturally raise
subsequent questions. I do not know the answer to this
question----
Commissioner Koskinen. I do not either.
Chairman Cruz. It is within the control of the IRS.
Commissioner Koskinen. The only caveat I will give you is
we have a statutory criminal law that says we cannot give out
individual taxpayer information, so we will have to figure out
if there is a way we can aggregate it so it is not taxpayer
information.
Chairman Cruz. That is why I am asking for aggregate data,
not any individuals, and simply a percentage of each of the
publicly identified list. Thank you. Senator Coons.
Senator Coons. Thank you, Mr. Chairman.
Commissioner, to the analysis requested by the Chairman, if
it seems as you review this aggregate data that more of one
group of bundlers than another has been audited, it would also
be instructive if you would suggest whether there are neutral
IRS-based previously approved auditing principles that might
lead toward one group being more heavily reviewed than the
other.
Commissioner Koskinen. I would be happy to do that. As I
say, GAO has looked at--our audits of individuals are all
selected automatically. They have looked at it and have
determined that while we need to monitor that to make sure we
know what our objectives are and how we are proceeding, they
found no evidence that that system in any way biases the audit
process and the audit selection process.
Senator Coons. Right. Helping ensure that Members of this
Committee and the general public are better informed about that
audit selection process might help, first of all, any
inappropriate conclusions that this is somehow targeted or
politically driven.
Commissioner Koskinen. Right. We will try to work with the
Committee. We will be happy to get you as much data as we can.
Senator Coons. Another Member of the Committee questioned
you rather aggressively previously about the FBI not having
investigated certain people aggressively enough, the Inspector
General, and there not being any indictments so far. Unless I
misunderstand, due to the public statements, the relevant
Inspector General is a self-identified Republican. The relevant
current Director of the FBI if a self-identified Republican.
After 2 years of searching investigations, is it not possible
that there are no indictments because they have found no cause
for criminal convictions?
Commissioner Koskinen. That is a possibility. Obviously,
they are not going to indict people unless they think there has
been a criminal law violation.
Senator Coons. Let me ask you a last question, if I might,
because we have got other Senators eager to question.
If an organization does not qualify under 501(c)(4) due to
its overt political activity, can that organization qualify for
another tax-exempt status that does not burden or limit it in
any way its First Amendment activity?
Commissioner Koskinen. Yes, it can become a 527, which
allows them--in fact, requires them to be primarily a political
organization. So, they have to spend more than half the money
on politics. That requires you to notify us that you are going
to be one of those organizations. What you do not want to do is
end up not as tax-exempt because then you have an obligation to
file a corporate tax return, and not filing a return is a
serious offense.
The statutory program set up by the Congress allows you to
decide you want to spend all of your money or significantly all
of us as a political organization, and you can become a 527 and
still be tax-exempt.
Senator Coons. If you are a Kiwanis Club or a Garden Club
and you are really a social welfare organization, you typically
file under (c)(4). If you are an expressly political advocacy
organization, you typically file under 527. Why would any
organization that is attempting to influence elections choose
501(c)(4)?
Commissioner Koskinen. The major attraction of a (c)(4), if
you are a social welfare organization primarily, is you do not
reveal your donors.
Senator Coons. Thank you very much for your testimony
today, Commissioner.
Chairman Cruz. Senator Lee.
Senator Lee. Thank you, Mr. Chairman.
I wanted to follow up with you on our earlier line of
questioning. Will you commit to me that while you remain on as
the Commissioner of the IRS, as long as you remain there, you
will not, in the absence of a directive by Congress or by the
courts, a subsequent directive and one not in place right now,
that you will not take any action to remove the tax-exempt
status from religious colleges and universities based on their
belief that marriage is between a man and a woman?
Commissioner Koskinen. I can make that commitment.
Senator Lee. Thank you. You can understand why this is a
significant issue. I deeply appreciate your willingness to make
that commitment, and I assume that is a commitment that you are
empowered to make. In other words, if an action like what I
described were to be taken, it would be taken by you rather
than by the White House. Is that correct?
Commissioner Koskinen. It would be a regulation--we would
issue a regulation, which Treasury and the IRS issue jointly.
If we ever did that, we would issue it for public comment.
There would be no surprises. We are not sneaking up on anybody.
Down the road, if the IRS ever moves in that direction because
of public policy changes, it would first issue a draft
regulation for public comment. The public would have plenty of
notice and plenty of opportunity to comment. That is not going
to happen in the next 2\1/2\ years.
Senator Lee. You are committing to me that you will not
issue such a regulation.
Commissioner Koskinen. In the next 2\1/2\ years.
Senator Lee. Thank you.
Chairman Cruz. Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman.
Back to the application forms again, on the 1024
application form, which is the form by which an organization
applies for 501(c)(4) status, there is a question--it is
Question 15--and it asks this, I will quote it: ``Has the
organization spent or does it plan to spend any money
attempting to influence the selection, nomination, election, or
appointment of any person to any Federal, State, or local
public office, or to an office in a political organization?''
You are familiar with that question?
Commissioner Koskinen. Yes.
Senator Whitehouse. There is a Pulitzer Prize-winning
nonprofit investigative group, nonpartisan investigative group,
ProPublica, which back, I want to say, in 2012 investigated
these 501(c)(4) filings. They looked at 104 organizations that
had reported electioneering activity. It reported they had
spent money in elections to the Federal Election Commission.
The Federal Election Commission has a form that you are
required to fill out, and you have to report your activity.
ProPublica cross-checked the organizations who swore to the
Federal Election Commission that they had spent X amount of
dollars in political activity, and then cross-checked them
against the 501(c)(4) filings, this Question 15. It turned out
that 32 of them had told the IRS that they spent no money to
influence elections, i.e., they answered that Question 15,
``No.''
Could you respond to what red flags that might raise about
how you can say to one Federal agency that you spent X dollars
on electioneering and tell another agency that you neither
spent nor planned to spend any money attempting to influence
the selection, nomination, election, or appointment of any
person to any Federal, State, or local public office? It does
not seem to add up.
Commissioner Koskinen. It does not. The definitions the
Federal Election Commission uses and the IRS uses under
(c)(4)'s do not overlap entirely, but if you spent a lot of
money and reported to the FEC and said you were spending no
money and reported to the IRS, that would not seem to be
consistent and not be appropriate.
Senator Whitehouse. Thank you very much.
Chairman Cruz. Senator Tillis.
Senator Tillis. Thank you, Mr. Chair. I know I am not on
this Subcommittee, but I do appreciate the opportunity. I thank
you for holding this important hearing and the opportunity to
ask some questions.
Before I get started with the questions, I wanted to share
an experience I had in the Aging Committee a couple of months
ago where we were talking about IRS scams, or scams, people
pretending to be IRS, and literally over the course of 24 hours
convincing people to take thousands of dollars out of their
bank accounts and use these prepaid cards to pay off what they
thought was their debt.
My observation in that is that the kind of perception that
the average American person has when they get a call from the
IRS, that it would be so believable that somebody would call
up, say, ``You owe us a debt, and you have 24 hours to pay
it,'' suggests to me that we need to continue to work on a
culture where the American people are literally afraid of the
IRS. These are not just, you know, a small business. I have
heard CEOs, I have heard very prominent people, I have heard
good middle-class folks--everybody literally afraid of the IRS.
I think there is a culture there that I hope in the process
of your remaining tenure there that you can work on, because
the IRS, people should not be afraid of them. People should be
prepared to see them as a customer service organization. When
they do have a tax issue, we should be helping them solve it,
not frightening them in the way that I think there are a number
of examples, at least in my State of North Carolina.
Commissioner Koskinen. I could not agree with you more. One
of the things that surprised me when I started was how much
time we spend actually trying to help taxpayers. I think that
message needs to get out there. I am serious when I say if you
have a tax problem and you are trying to be compliant, you do
not have to go, as I said, to late-night TV or get somebody
else. You can talk to us directly. We want to work with you. We
are here to help you.
Senator Tillis. Thank you. For any North Carolinians that
are watching this hearing or hear about it, I hope that they
know the moment they get a call from the IRS that is anything
less than respectful and helpful, I want them to call my
office, because the next call will be a conference call with me
and the taxpayer talking to an IRS person. I think we need to
make sure that we are doing a much better job in terms of
establishing you all as somebody that helps, does not literally
frighten the average citizen.
I have got a quick question really related to this
behavior, and I want to get on to the next panel, so I will try
and be brief. We have a number of examples where we do see that
maybe there was an overzealous agent or person on the other end
of the line representing the IRS. What sort of actions have
been taken when you are able to tie that to a specific person
to fire them?
Commissioner Koskinen. Without going into detail, we have
dismissed on a regular basis--we dismiss over 1,000 people a
year. Sometimes that is for inappropriately accessing taxpayer
information. Sometimes it is for inappropriate behavior with a
taxpayer on the line. We know how to--and the IRS employees
accept that, the union accepts that we have a high standard of
performance. You can also be dismissed for just being
delinquent on your taxes.
I do not know about anybody else, but we are an agency that
knows how to, in fact, remove employees that are creating
problems.
Senator Tillis. I want to go back and just ask you, if you
would, to give me a sense of how well you think you all
responded to the--I believe you received, in February 2014,
were sent subpoena from the House Committee on Oversight and
Government Reform. I believe it was about 18 days after you got
the subpoena that we found out about the 400 or so backup tapes
containing relevant emails had been magnetically erased. We did
not find out about that until June 2014, so 3 or 4 months
later.
Do you consider that to be an appropriate response to our
oversight function here in the Senate and in the House, that
time lag and that process?
Commissioner Koskinen. The time lag, there was an
investigation--I did not know about it until April. What we did
between April and June, the 6 to 8 weeks, was, in fact, to make
sure that we could provide you as much information from that
period as possible. That is when we found the 24,000 Lois
Lerner emails from the time her hard drive crashed.
Senator Tillis. Thank you, Mr. Chair. I am looking forward
to the next panel.
Chairman Cruz. Thank you, Senator.
Senator Tillis. Thank you, Mr. Commissioner.
Commissioner Koskinen. Thank you.
Chairman Cruz. Senator Sessions.
Senator Sessions. Just briefly, to me the question is not
the complexity of the issue. I do not think it is that complex,
but these issues can be debatable on occasion. The question is:
Has there been a targeting of groups based on their political
or philosophical approach to life? That is absolutely
unacceptable. The way I see it is that we should follow the
leads where they go. Ms. Lerner is gone now from the
department, but it is not over as far as I am concerned.
I can remember well John Mitchell, John Dean, Haldeman,
Ehrlichman, and the White House going down because they had
participated, blessed, or approved these kind of activities
that targeted people politically when they had no right to do
so.
Ms. Lerner goes to the White House 35 times, and that
raises a question with me, during a campaign, having groups
that do not agree with the President's policies being targeted
disproportionately. I want to know who all knew about it.
The way I look at these numbers, one total of data of IRS
targeting statistics of files showed that 104 conservative
groups were targeted and 7 progressive; that, of those,
approved, all 7 progressive groups were approved, and only 48
of the 104 of the conservative groups were approved. Ms.
Lerner--and I think every Tea Party group was held up. Ms.
Lerner in 2011 stated, quote, ``The Tea Party is dangerous.''
First, let me ask you this: Will you assure us that you
will utilize every power that you have to ensure that all
evidence relevant to this matter is brought forth?
Commissioner Koskinen. I will, and we have done that. The
Senate Finance Committee has all of that information and all of
those emails, and I think all of us are looking forward to what
their report tells us.
Senator Sessions. If Ms. Lerner discussed any of these
plans to target these groups that politically may not have been
in accord with the President or his policies or his politics,
would that be wrong?
Commissioner Koskinen. That would be wrong. There is no
evidence that anybody outside the IRS had any conversations
with her about that or that she even had directives internally.
It would be wrong.
Senator Sessions. I think it would be wrong, too. Thank
you, Mr. Chairman.
Chairman Cruz. Thank you very much.
This will be my final line of questions, and thank you for
being here for what has been an extended hearing. I want to
briefly say you mentioned there is no evidence that Ms. Lerner
or anyone else had conversations with political operatives.
Commissioner Koskinen. About targeting conservative groups.
Chairman Cruz. At the White House or elsewhere. You would
agree that that would be a serious concern if it occurred, and
that a fair and impartial investigation would include answering
that question.
Commissioner Koskinen. Yes. As I say, all of the
information that the Senator has talked about has been
available, is available. The Senate Finance Committee has been
working on this for 2 years, and they have announced that
sometime in the next couple weeks they are going to put out
their report.
Chairman Cruz. You would expect that any such investigation
would include political operatives at the White House.
Commissioner Koskinen. Yes. We have produced--actually,
there are no emails on this subject out of the IRS to the White
House or the Treasury Department. We produced everything that
we could find. Other investigations are proceeding, but thus
far, we have not seen any external emails or discussions with
that. It would be inappropriate--it is inappropriate and it was
wrong for these groups to be selected just by their names.
Whether somebody was consciously targeting them or not, it was
still the wrong thing to do. It should not have happened.
Chairman Cruz. A serious investigation into the 35 meetings
Lois Lerner had at the White House that Senator Sessions
referenced would naturally begin with the agenda of each of
those 35 meetings, the participants who attended them, and
inquiring what was discussed at those meetings. Would you agree
with that?
Commissioner Koskinen. That sounds like a perfectly
understandable way to go.
Chairman Cruz. Okay. I want to focus on the IRS'
recordkeeping, particularly concerning Lois Lerner. The House
Oversight and Government Reform Committee has produced a
detailed timeline of the IRS' recordkeeping failures, and I
want to, without objection, enter it into the record because it
is too detailed to read in its entirety.
[The information appears as a submission for the record.]
Chairman Cruz. I do want to highlight a couple of
components of it. On June 13, 2011, Lois Lerner reports to IT
that her computer is inoperable, and we are told that the IRS
made unsuccessful attempts to recover the hard drive.
On August 2, 2013, 3 months after Lois Lerner invoked the
Fifth Amendment, House Oversight Committee Chairman Darrell
Issa issued the first subpoena to the Treasury Department for
IRS materials. At that point, August 2, 2013, this created a
legal obligation on the part of the IRS to preserve Lois
Lerner's emails.
On March 4, months after that subpoena issued, IRS
employees at the IRS Data Center in Martinsburg, West Virginia,
magnetically erased 422 backup tapes, destroying information
likely to contain up to 24,000 Lois Lerner emails from 2011
during the mobilization of the IRS' targeting efforts.
My first question is: Do you consider a Congressional
subpoena to create a binding legal obligation on the IRS and on
you as the Commissioner?
Commissioner Koskinen. Yes.
Chairman Cruz. Can you explain why the IRS disregarded the
subpoenas and destroyed Lois Lerner's emails?
Commissioner Koskinen. The Inspector General for Tax
Administration of the Treasury Department spent a year
investigating that subject and concluded that there was no
evidence that anyone in the IRS, including the employees who
did the action, did that in any way to interfere with a
congressional investigation or did it to destroy evidence.
Chairman Cruz. You stated why it was not done. Can you
explain why it was done?
Commissioner Koskinen. It was done because it was a mistake
that should not have happened. Again, there was a clear order.
The IG reviewed that order and talked to everyone about it
throughout the IRS to preserve evidence, including all of the
tapes that existed. That order went out. There was a follow up.
There were two or three follow ups, including from counsel in
my office, to, in fact, make sure that evidence was preserved.
That order, by the time it trickled down through, was
misunderstood to not apply to what--as the IG said, this was
old and viewed as junk, and so the employees, when they got it,
assumed in their normal course that they should, in fact,
prepare it for destruction. That should not have happened. It
was a mistake. The IG said nobody did it purposefully. Nobody
was trying to avoid anything. It still should not have
happened.
Chairman Cruz. After the records were destroyed, you
testified, not once but twice before Congress, that IRS'
records were intact, that nothing had been destroyed, and the
IRS would be turning over all relevant documents. That was once
on March 26, 2014, and a second time on June 20, 2014.
Commissioner Koskinen. That is what I had been advised.
That is what I believed. I testified at that time truthfully to
what I knew.
Chairman Cruz. The first statement was made 22 days after
the IRS had destroyed approximately 24,000 emails. You were
unaware of it at that time.
Commissioner Koskinen. That is right. It was done by two
employees on the midnight shift in Martinsburg, West Virginia.
The first we knew about it was almost a year later.
Chairman Cruz. The second statement was made 7 days after
the IRS formally notified Congress that all of Lois Lerner's
emails between January 2009 and April 2011 had been destroyed.
Were you aware that the IRS had notified Congress of that?
Commissioner Koskinen. We notified the Congress that, in
fact--I am sorry. In 2014, we notified the Congress that her
hard drive had crashed and that it had been unable--in 2011, no
one had been able to retrieve the emails. We had then
discovered and found 24,000 emails from the time her hard drive
collapsed, and we advised the Congress of that.
Chairman Cruz. You notified Congress, the IRS notified
Congress that Lois Lerner's emails had been destroyed.
Commissioner Koskinen. Her hard driven had self-destructed.
We did not destroy it. IRS did not destroy her emails.
Chairman Cruz. Seven days later, you testified to Congress
that all of the records were intact. Was that testimony
truthful?
Commissioner Koskinen. When I testified to that, that was a
testimony about Lois Lerner's hard drive crash, and my
testimony at that point was truthful on the basis of what I
knew.
Chairman Cruz. Let me ask you, if a citizen was being
audited by the IRS and an American citizen responded to the IRS
that his or her records, business records, charitable
contribution records, whatever records, were destroyed because
a hard drive went down, would the IRS accept that from a
citizen and exonerate the citizen from wrongdoing?
Commissioner Koskinen. We would accept it from the citizen
and work with the citizen, which we do in many cases, to
reconstruct records to the best of their ability and ours to,
in fact, be able to conclude with an audit. We do not
automatically penalize them for the fact that their records
have disappeared. We actually will work with them to figure out
what other records are there or are there other ways that we
and they can figure out what they owe as taxes.
Chairman Cruz. How would the IRS respond to a citizen whose
electronic records were destroyed after a subpoena had issued
and the citizen was under a legal obligation to preserve those
records?
Commissioner Koskinen. If the citizen had done that, we
would respond unhappily. If it were a corporation and two
employees in Martinsburg, West Virginia, ignoring the subpoena
had done it, we would do an investigation, as the IG did, to
find out if that was purposeful. In this case, the IG
determined nobody did this to avoid disclosure; nobody did this
to interfere with an investigation.
Chairman Cruz. You have spent time in the private sector.
Commissioner Koskinen. Twenty years.
Chairman Cruz. If you were the CEO of a corporation and the
corporation were subject to a binding subpoena, and an employee
of that corporation destroyed records in violations of the
subpoena, would you expect a CEO to be held accountable for the
corporation's defiance of a subpoena?
Commissioner Koskinen. I would not view it as defiance, but
I would expect to be held accountable. I am accountable as the
head of the IRS.
Chairman Cruz. Thank you. Senator Coons.
Senator Coons. No further questions, Mr. Chairman, although
I believe Senator Whitehouse does.
Chairman Cruz. Senator.
Senator Whitehouse. Thank you, Commissioner. One last
question. The narrative has developed during the course of
today's inquiry that the Obama administration intruded into the
IRS with respect to the conservative political organizations
because it was concerned about the conservative organizations'
efforts to influence the upcoming 2012 election, and that that
would have been contrary to the political interests of the
administration, and that was their motivation for trying to
influence the IRS to pursue this.
If the predicate of that was that these were organizations
whose purpose was to attempt to influence the Presidential
election of 2012, would the truthful answer to the Question 15
form be, ``Yes''?
Commissioner Koskinen. No.
Senator Whitehouse. Why would that not be the case?
Commissioner Koskinen. Because then if the purpose of the
organization was to engage in political activity in the 2012
election, it should be reflected on their application.
Senator Whitehouse. That is what I mean. If Question 15
says, ``Has the organization spent or does it plan to spend any
money attempting to influence the selection, nomination,
election, or appointment of any person to any Federal, State,
or local public office?'' the truthful answer is, ``Yes.''
Correct? If that is what they intended to do.
Commissioner Koskinen. If that is what they intended to do,
and certainly if that is what they did.
Senator Whitehouse. If the Obama administration's purpose
was to try to defeat that, the fundamental predicate of all of
that is that these organizations did, in fact, have that
intention and should have answered, ``Yes,'' to Question 15,
``We do plan to spend--spend or plan to spend to influence the
election.''
Commissioner Koskinen. If that was their intention, that
should have been their answer.
Senator Whitehouse. Correct.
Commissioner Koskinen. I would note there is no evidence
that anyone in the White House or the Treasury indicated or
encouraged the IRS to take any action.
Senator Whitehouse. Yes. I am not here to vindicate that
narrative. I am just pointing out that that element of it would
suggest that the answer to Question 15 must be yes if it is to
be truthful.
Commissioner Koskinen. That is correct.
Senator Whitehouse. Thank you.
Senator Sessions. Mr. Chairman, could I----
Chairman Cruz. Senator Sessions.
Senator Sessions. You know, the Tea Party group in Alabama
was asked to list the names of all their members and all their
donors and the date that they gave. Do you think that is a
proper question? Do you know who is responsible for asking that
question?
Commissioner Koskinen. I do not know who is responsible for
asking that question. In some cases, depending on the
organization, it may be appropriate to find out who, in fact,
on your 990 you list donors, although we are about to try to
change that. As a general matter, who gives to you should not
matter as to what you are about to do.
Senator Sessions. What about lists of members?
Commissioner Koskinen. The list of members should not be an
issue that we are concerned about.
Senator Sessions. It troubles me that Mr. Comey and the FBI
have not bothered to even talk to Ms. Gerritson, head of the
Tea Party in Wetumpka, in Alabama, about these questions. Those
are the kinds of things that they were asked about. I am
concerned about that.
Thank you, Mr. Chairman.
Chairman Cruz. Just to clarify, is the IRS currently asking
applicants either their list of members or their list of
donors?
Commissioner Koskinen. No, not to my knowledge at all.
Chairman Cruz. Would you know if they were?
Commissioner Koskinen. I would know if they were. As I say,
there may be occasions where, depending on your activity, we
would want to know are you getting support from other
charities. If you are going to be a (c)(4) and engage in
politics, are you getting support from other political
organizations in terms of where is your money coming from? We
would at this point have no need to know who your members are,
no need to know a list of all of your donors.
Chairman Cruz. Thank you, Mr. Koskinen. This first panel is
excused. We appreciate your taking the time to participate in
this hearing.
We will take a very brief break to welcome up the second
panel, and we will start momentarily with the second panel.
Commissioner Koskinen. Thank you, Mr. Chairman.
[Whereupon the hearing was recessed and reconvened.]
Chairman Cruz. Welcome, everyone. I would ask you to please
stand and be sworn in. Please raise your right hand. Do you
affirm that the testimony you are about to give before the
Committee will be the truth, the whole truth, and nothing but
the truth, so help you God?
Ms. Mitchell. I do.
Mr. Spaulding. I do.
Mr. Greim. I do.
Mr. Noble. I do.
Ms. Walker. I do.
Ms. Aviv. I do.
Ms. Martin. I do.
Mr. Colvin. I do.
Mr. Sekulow. I do.
[Witnesses are sworn in.]
Chairman Cruz. Thank you very much. Welcome. I am going to
briefly introduce each of our nine witnesses, and then we are
going to get straight to testimony.
Cleta Mitchell is a partner and political law attorney in
the Washington, DC, office of Foley & Lardner, where she
advises nonprofit and issue organizations as well as campaigns
on State and Federal campaign finance and election law. She has
served as legal counsel to the National Republican Senatorial
Committee, counsel to the National Republican Congressional
Committee, and president of the Republican National Lawyers
Association.
Stephen Spaulding is policy counsel at Common Cause where
he focuses his research on campaign finance reform, voting
rights, election administration, and governmental
transportation. Previously, he was a litigation associate at
Goodwin Procter.
Edward Greim is a partner at the law firm of Graves Garrett
in Kansas City, Missouri, where he practices political law.
Previously, he was a litigation associate at Bryan Cave in New
York.
Lawrence Noble is senior counsel to the Campaign Legal
Center and an adjunct professor at the George Washington
University Law School, where he teaches campaign finance law.
Previously, he was president and CEO of Americans for Campaign
Reform, practiced political law at Skadden, Arps, Slate,
Meagher & Flom, and was the executive director and general
counsel of the Center for Responsive Politics. He also served
as General Counsel of the Federal Election Commission from 1987
to 2000.
Toby Marie Walker is the cofounder and president of the
Waco Tea Party. She is a highly decorated grassroots activist.
She has earned Watchdog of the Month and Tea Party Leader of
the Year from AFP Texas and the Sam Adams Alliance has awarded
her ``Rookie of the Year.''
Diana Aviv is president and CEO of Independent Sector, a
national leadership network for America's nonprofits,
foundations, and corporate giving programs. Previously, Ms.
Aviv was associate executive vice chair at the Jewish Council
of Public Affairs and director of programs at the National
Council of Jewish Women. In December 2010, she was appointed by
President Obama to the White House Council for Community
Solutions.
Jenny Beth Martin is the president and cofounder of Tea
Party Patriots, one of the largest national umbrella groups
within the Tea Party Movement. Before founding the Tea Party
Patriots, she had transitioned out of her career as a
technology executive for The Home Depot.
Gregory Colvin is Chairman of the Board of Adler & Colvin,
a San Francisco law firm that specializes in the representation
of nonprofit organizations and their donors. He currently
serves as the chair of the Drafting Committee of Bright Lines
Project sponsored by Public Citizen, which is aimed at
reforming IRS rules defining political campaign activity.
Finally, Jay Sekulow is chief counsel of the American
Center for Law and Justice, a law firm and grassroots
organization with more than one million members. Mr. Sekulow
has argued 12 cases before the U.S. Supreme Court and is widely
recognized as one of the leading litigators defending religious
liberty in the country.
A number of the members of this panel are long-time friends
of mine. We have been side by side in a great many endeavors,
and it is a pleasure to welcome each of you here today.
Ms. Mitchell, we will begin with your testimony.
STATEMENT OF CLETA MITCHELL, PARTNER,
FOLEY & LARDNER LLP, WASHINGTON, DC
Ms. Mitchell. Thank you, Mr. Chairman, Mr. Ranking Member,
and Members of the Subcommittee. Thank you for allowing me to
testify today, and thank you for conducting this hearing about
the IRS and its targeting of hundreds of citizens organizations
and, indeed, thousands of individual citizens based on their
political viewpoints, their involvement with and contributions
to conservative organizations, candidates, and causes.
While the President of the United States joked about and
denied this scandal ever occurred--on a comedy show, no less--I
am here to tell you that I experienced it firsthand on behalf
and with and for my clients and hundreds of others like them
across the Nation, beginning in the fall of 2009, the first
year of the Obama administration. It is not a joke, it is not
funny, and it is not pretend.
Mr. Chairman, you are asking the right questions. Have laws
been broken? What should Congress do about it?
The answer to your first question is yes, laws have been
broken. IRS officials, including former Commissioner Doug
Shulman, Acting Commissioner Steven Miller, Exempt
Organizations Unit Director Lois Lerner, and now IRS
Commissioner John Koskinen have all at one time or another lied
to Congress. Lying to Congress is perjury. 18 U.S.C. Sec. 1001
makes it a felony to lie to Congress, and I was a little bit
surprised that Commissioner Koskinen said today he was
``generally familiar'' with that statute. I do not let any
client talk to any employee, agent of the Federal Government or
Congressional appearance without reminding them of their
obligations under 18 U.S.C. Sec. 1001. 18 U.S.C. Sec. 1621 is
the general perjury statute, and both of these statutes are
applicable to communications to and false testimony to the
Congress of the United States.
IRS agents and employees have violated other Federal laws.
They have illegally released and inspected confidential tax
returns and return information of taxpayers, violating laws
that Congress enacted after Watergate to ensure that that never
happened again to political enemies of a future administration.
The IRS routinely ignores Freedom of Information requests
from the public and other laws that Congress has enacted to
protect taxpayers and citizens from overreaching regulatory
agencies. With the most politicized Department of Justice in
American history, there is no one to enforce the laws when they
are broken by IRS officials. We come to the second question
posed by this Committee for today's hearing: What can and
should Congress do?
I think the most important thing Congress should do is
remove John Koskinen from office. The House should impeach him,
and the Senate should convict him. Commissioner Koskinen has
lied to Congress more than once. There is sufficient evidence
of his false testimony to warrant Articles of Impeachment,
which should be passed by the House, and a trial conducted in
the Senate.
This is stout medicine, I realize, but the integrity of
Congress and its ability to properly investigate and oversee
Federal agencies is at stake. Mr. Koskinen has committed
perjury, and he has willfully disregarded his duties as the
Commissioner of the IRS.
Then I have included in my written testimony seven
statutory changes that would remedy some of the abuses that
have been uncovered and discovered during the House
investigation. I hope that Congress will take those seriously
and deal with those and pass those this year.
Mr. Chairman, the American people are ready for the
Congress to hold the IRS accountable. It is way past time for
something to be done to the people who brought about this
unwarranted, unconstitutional, and illegal abuse of the
American people. Thank you.
[The prepared statement of Ms. Mitchell appears as a
submission for the record.]
Chairman Cruz. Thank you, Ms. Mitchell. Mr. Spaulding.
STATEMENT OF STEPHEN SPAULDING, POLICY
COUNSEL, COMMON CAUSE, WASHINGTON, DC
Mr. Spaulding. Chairman Cruz, Senator Sessions,
distinguished Members of the Committee, thank you for the
opportunity to testify this afternoon. I am Stephen Spaulding,
policy counsel with Common Cause, a nonpartisan, nonprofit
organization of 400,000 members committed to open, honest, and
accountable Government.
Let me be clear: It was wrong for the IRS to subject some
``social welfare'' nonprofit applications to extra scrutiny
based solely on their names and identified interests. We
applaud Commissioner Koskinen's public commitment to continuing
a rulemaking that will prevent this episode from repeating
itself, and we urge the IRS to move forward. The IRS must not
be intimidated by partisan political operatives on the right
and the left who set up phony social welfare groups that pump
hundreds of millions of dollars from secret sources into our
elections. Those groups deprive the American people of the
information they need about who is trying to influence their
votes and to whom their elected officials owe political favors.
The ongoing scandal stems from at least four factors: One,
a lack of bright-line standards about what nonprofit (c)(4)'s
can do.
Two, the willingness of political consultants to manipulate
the rules and operate social welfare groups as de facto
political action committees.
Three, an underresourced agency that has thus far failed to
do its job fully to hold the largest offenders accountable.
Four, champions of gridlock who have blocked Congress from
passing disclosure legislation.
Congress never intended for social welfare groups to be
conduits for secret political spending. Citing public reports
about their political spending operations, some campaign
finance reform advocates have urged the IRS to investigate
groups on the left like Priorities USA and on the right like
the American Action Network. There is no example of this
phenomenon more flagrant than Crossroads GPS, a purported
(c)(4) founded in 2010 by Karl Rove and others, which has spent
significant amounts of money influencing campaigns. It is the
sister organization of the super PAC American Crossroads, which
discloses its donors. Crossroads GPS, however, does not.
American Crossroads' own political director said in 2010,
quote, ``. . . some donors didn't want to be disclosed, and
therefore, a (c)(4) was created,'' end quote. The FEC General
Counsel concluded that Crossroads GPS' major purpose in 2010
was Federal campaign activity and should have registered as a
political committee, but a gridlocked FEC split 3 to 3 on
whether to pursue an enforcement action.
Crossroads then went on to spend $71 million in the 2012
races, making it the top secret money spender of the cycle. Who
funded all of these attack ads? Only Crossroads GPS officials,
the IRS, and perhaps the politicians who benefited from the
spending can answer that. It reported in its public tax returns
one single anonymous donation of $22.5 million, another for $18
million, another for $10 million. In total, 50 donations for $1
million or more, and Americans deserve to know, Senators.
Americans deserve to know who was making investments of this
magnitude in political races.
This trend shows no sign of stopping in 2016. According to
the New York Times, at least eight Republican candidates have
aligned with nonprofit groups, and according to the paper,
Secretary Clinton's supporters are considering setting up a
(c)(4) as well.
Congress has thus far failed to pass comprehensive campaign
finance disclosure reform that could have addressed this
problem. The IRS and Treasury Department took the important
step in 2013 of issuing proposed rules so that the public and
the Government would benefit from clearer definitions of
candidate-related political activity.
The IRS must move ahead in its rulemaking and aggressively
watchdog blatant efforts by partisan front groups to pollute
our elections with unlimited amounts of secret money. The
American people deserve better.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Spaulding appears as a
submission for the record.]
Chairman Cruz. Thank you. Mr. Greim.
STATEMENT OF EDWARD D. GREIM, PARTNER,
GRAVES GARRETT LLC, KANSAS CITY, MISSOURI
Mr. Greim. Chairman Cruz, Ranking Member Coons, and Senator
Sessions, thank you for inviting me here today. As I will
explain in a moment, we can already draw some lessons from some
of the ongoing civil litigation against the IRS. Even though
there is much more for us to learn in civil discovery, it is
not too soon to consider legislation.
Statutes can never state the desire of Federal bureaucrats
to use their offices inappropriately. As our Founders well
knew, that is human nature. It goes with the beast that we have
built in Washington. The reforms I will proposed will ensure
that the next targeting happens involving either party,
taxpayers will be able to protect their rights immediately.
They should not have to wait 2 or 3 years after evidence is
lost and memories blur to learn the truth. As a modest first
step, I propose four legislative fixes.
First, I will briefly explain my background in this area.
My firm is lead counsel for plaintiffs in the class action case
of NorCal v. Internal Revenue Service. It is pending in the
Southern District of Ohio because that is where Cincinnati is,
and that is where the IRS said the targeting was confined to at
first. Our motion for class certification is due in just a
couple of days.
We have had the opportunity in 2015 to conduct class
discovery. We have deposed several IRS employees and executives
in Cincinnati, here in Washington, and in other parts of the
country.
I would like to focus on two points today, one factual and
one legal. First, I want to show that the IRS still remains
ripe for political abuse. Second, I will briefly outline these
legislative fixes.
The first observation is simply this: The IRS' internal
procedures promote uniform treatment of taxpayers. That is a
virtuous goal. Like every virtue, that goal of uniform
treatment can be perverted to accomplish nefarious purposes,
and we think that happened here.
Second, as the IRS' 30(b)(6) deposition confirmed, the
criteria for centralization and special treatment of cases
found in the Internal Revenue Manual are almost endlessly
flexible, and they were used here in this case. In fact,
Citizens United is important in our case because that may well
have been the reason that Lois Lerner decided that she wanted
to focus on the Tea Party movement. That is still viewpoint
discrimination, by the way.
Third, key officials at the IRS had a built-in distrust of
conservative-leaning organizations. In fact, there is an
important email from 2011. Carter Hull, the employee in
Washington who was responsible for working a handful of test
cases, made a telling observation. He explained to a group of
other officials that ``we noted that the list contained
organizations that appeared to be a particular political
ideology.'' No one on the email chain even responded to that
remark.
Finally, vague standards for recognizing group status, the
much maligned facts and circumstances test, become a talking
point, but they are no excuse for the IRS' conduct. When you go
through and read the emails, no one is agonizing over the
vagueness of the test as the reason to hold these groups up.
That was not what was actually going on in this case. My four
legislative fixes are outlined in my written testimony.
I just want to emphasize at the end of the day that I think
it is important to pass laws that let citizens actually take
charge of this matter themselves, that let them file lawsuits
if necessary. I do not think a criminal fix is the only way to
go because that depends on prosecutorial discretion, and so
that is what we have focused on in our four criteria.
This is a step in the direction of restoring an important
virtue for a constitutional, democratic republic--that is,
citizen awareness and self-governance. That is what we stand
for, and I think that is what legislative fixes should focus
on. Thank you.
[The prepared statement of Mr. Greim appears as a
submission for the record.]
Chairman Cruz. Thank you. Professor Noble.
STATEMENT OF LAWRENCE NOBLE, PROFESSOR,
GEORGE WASHINGTON UNIVERSITY LAW SCHOOL,
AND SENIOR COUNSEL, CAMPAIGN LEGAL
CENTER, WASHINGTON, DC
Professor Noble. Thank you. Chairman Cruz, Ranking Member
Coons, and Senator Sessions, I appreciate the opportunity to
address the Subcommittee on the activities of the Internal
Revenue Service and the oversight of political activity of tax-
exempt organizations.
As Justice Kennedy wrote in Citizens United v. FEC, ``The
First Amendment protects political speech; and disclosure
permits citizens and shareholders to react to the speech of
corporate entities in a proper way. This transparency enables
the electorate to make informed decisions and give proper
weight to different speakers and messages.''
However, as has been discussed, the IRS' failure to enforce
the laws governing political activity by 501(c)(4)
organizations, together with the FEC's failure to enforce the
campaign finance laws, has resulted in hundreds of millions of
tax-exempt dollars being used to elect candidates with little
or no transparency as to the sources of these funds.
According to the Center for Responsive Politics, groups
claiming to be exempt from tax under 501(c)(4) reported
spending over $257 million in the 2012 elections and over $118
million in the 2014 elections. Very few of these politically
active groups publicly disclose any of their donors. Even if
they report some of their election-related activity, there is
no real transparency. These figures do not include the spending
of organizations who do not report to the IRS or to the FEC.
Already in the 2016 election cycle, groups set up by
candidates run by people who have worked on behalf of the
candidates and financed through the candidates' fundraising are
using secret money to support their candidates' elections. As
this past Sunday's New York Times reported, it appears that
many Presidential hopefuls have been meeting with donors,
hiring staff, visiting New Hampshire and Iowa since last year,
but have had their travel and other expenses paid for by their
super PACs and their 501(c)(4) organizations.
Some of these groups are now planning to use the same
secret money to finance activity that previously we expected
the campaigns to pay for, such as hiring people for grassroots
outreach, opposition research, and campaign strategy. We can
also expect to see an increase in the funding of 501(c)(4)
organizations that are not directly connected to a specific
candidate, but who are supporting specific candidates.
There is no question that the goal of these organizations
is to affect the outcome of our elections while hiding the true
source of their funds. This means we have no way of knowing
whether the campaign activity of these groups is being funded
by thousands of small donors, several wealthy individuals,
corporations, labor unions, or even foreign nationals, foreign
companies, or foreign governments.
The use of these organizations as conduits for hundreds of
millions of dollars to elect candidates is possible because of
the way the IRS has defined ``political activity.'' As has
already been discussed, the law requires a 501(c)(4) to be
devoted to the promotion of social welfare, which does not
include political activity. The IRS decided that meant
primarily devoted to social welfare, but they did not describe
what that meant. They did not describe what ``primarily'' meant
what a ``political activity'' is beyond a facts and
circumstances test. What that has allowed are these groups and
their lawyers to decide that as long as they spend only up to
49 percent on political activity, they are still primarily
doing social activity, and also define very narrowly what is
political activity.
Well, 49 percent of a $100 million group is a lot of money;
49 percent of a $10 million group is a lot of money.
The problem here is that the IRS now is under a lot of
pressure not to do anything. They started a rulemaking, but
have been criticized by Members of Congress and the public
because of that rulemaking.
With a public rulemaking, we may agree with part of it, we
may disagree with part of it, and that is the whole point of
it, to get comments and to come up with the best rules as to
what are the standards for a 501(c)(4) organization. Instead,
because of the scandal--and I agree that if they targeted
groups for their political ideology, that was wrong--they are
now under pressure not to do anything. We expect to see less
enforcement of the laws, and they are under pressure now not to
do new rules.
This is wrong. This is not what Congress intended. This
defeats transparency, and it ultimately harms our democracy.
Thank you.
[The prepared statement of Mr. Noble appears as a
submission for the record.]
Chairman Cruz. Thank you. Ms. Walker.
STATEMENT OF TOBY MARIE WALKER,
PRESIDENT, WACO TEA PARTY, WACO, TEXAS
Ms. Walker. Thank you, Chairman Cruz, Senator Coons, and
Members of the Committee, for inviting me to share my story
today. I am the president and founder of the Waco Tea Party.
I am an optimistic person, most people can tell you. I can
see the light at the end of the tunnel, and I keep going. In
this situation, the light at the end of the tunnel turned out
to be a train coming at me, and I had been tied to the tracks
by red tape with the IRS.
Dealing with the IRS targeting has been incredibly
difficult on me. It has impacted my health, so much so that my
heart doctor has pulled me aside and explained that stress is a
silent killer. When I laughed at him and said, ``Oh, I will be
fine,'' he said, ``You will not be fine. You need to reduce
your stress.'' He asked me what the problem was, and I
explained this, and it was the first time that I had discussed
it honestly with someone.
The impact the targeting has had on me and others is a very
personal effect on our families, our relationships, our
professions, our reputations, and our lives in general. Nothing
can ever be done to repair it.
The Waco Tea Party is a small organization. Our operating
budget is less than $10,000 a year. We do not have paid staff.
We do not have offices. We do not have consultants. We do it
for love of country. We do not do it for financial gain or for
notoriety.
I have submitted testimony today outlining our ordeal with
the IRS. To sum it up, we believe that the IRS was not looking
for compliance with us. We believe that they were intending to
abuse the tax law to disparage, demoralize, discourage, and
ultimately disallow us participation in the political process.
Why the IRS was so concerned about a tiny organization in
Waco, Texas, is beyond me. Why they targeted us--and make no
mistake, we were targeted. We may never know why the IRS chose
us. We may never know who put us on that list. We do not know
who they are protecting. We do know for certain that there were
Senators encouraging them to target us. We know that those
shameful actions started a domino effect throughout the IRS.
When the ruling class can treat the rest of us as pawns in
their corrupted game, we are no longer a free society. When a
Senator can use the IRS as a weapon against an American citizen
or organization or group of people, they have too much power.
When a letter to the right bureaucrat in the IRS can cause the
trust of the American people to be shattered, it has lasting
effects on a free society.
We won the cold war to stop that kind of oppression from
being thrust upon us by foreign powers. We should not have to
tolerate it now just because it is homegrown tyranny.
Senators, you need us, you need taxpayers. You need our
money, and you need to keep the Government going. You forget
that it is not yours. You did not earn it. You did not build
it. We did. You are not entitled to it. You have no right to
tax our speech. You have no right to tax the way we assemble.
You have no right to force the most powerful agency in the
Federal Government on us because someone did not like a Supreme
Court ruling.
Gentlemen, many people have forgotten that the basic
principle of our Government is supposed to be of the people, by
the people, and for the people, not against the people.
The very Government that I trusted to protect its citizens
engaged in a scheme to harass and intimidate me, my
organization, and many others across the country. The American
people deserve answers. They deserve to be protected from
public servants who would use their power and influence to
destroy lives. If we allow this to pass today, it stands as a
precedent for tomorrow. I do not want my children and my
grandchildren to grow up in a country like this.
I will never stop fighting to keep it from becoming that
way. We need legislation that will protect the taxpayers and
their information, and it will also guarantee that we get our
records from the IRS when they abuse our information.
We must have legislation that prohibits the misuse of
Government office to reward friends and punish enemies from
either side of the aisle. The elected--any elected official or
Government employee who does engage in this should have a
separation of service. All I ask is that Congress acts, that
they do something and not bicker about it. It is time that they
are held responsible.
Thank you.
[The prepared statement of Ms. Walker appears as a
submission for the record.]
Chairman Cruz. Thank you, Ms. Walker. Ms. Aviv.
STATEMENT OF DIANA L. AVIV, PRESIDENT
AND CHIEF EXECUTIVE OFFICER, INDEPENDENT
SECTOR, WASHINGTON, DC
Ms. Aviv. Chairman Cruz, Senator Coons, thank you so much
for the opportunity to share the perspective of Independent
Sector.
Charitable organizations understand that continued support
from Americans who give of their time and their money depends
upon a high level of public trust, and that any erosion of that
trust harms our ability to advance our missions. We are,
therefore, deeply committed to ensuring that the charitable and
philanthropic sector continuously aspires to the highest
standards of ethical conduct and adheres to all rules governing
our organizations.
Problems arise when laws and regulations are unclear,
inconsistent, and create confusion even for the most
responsible charitable organizations. In particular,
Independent Sector is concerned that there is great confusion
regarding the difference between permissible nonpartisan
activities undertaken by charitable organizations to encourage
civic participation and partisan political activities aimed at
influencing the outcome of elections.
The public expects and supports the efforts to educate
policymakers about matters affecting their communities as well
as to ensure our citizens understand these issues and
participate in the electoral process. They draw a line,
however, between this engagement and efforts to ensure that a
particular candidate of political party prevails in an
election.
Unfortunately, there is great confusion about what actually
constitutes partisan political activity which is permissible
for certain tax organizations. The absence of clear and
consistent definitions of partisan political activity, coupled
with vague limits on how much of this activity is permitted,
has left the door open for individuals exclusively interested
in influencing elections to use 501(c)(4) social welfare
organizations as their primary vehicle. The result has been a
massive influx of money to these entities while allowing donors
to hide behind the same privacy protections extended to
contributions that support charitable causes. This has served
to further confuse the public on the role that the charitable
community plays in the political arena.
This lack of clarity about definitions and the ambiguous
so-called facts and circumstances test that the IRS applies in
making determinations about political activity resulted in the
improper handling of applications for exempt status from both
conservative and liberal organizations.
We support the IRS' effort to provide greater clarity on
this issue rather than leaving it up to the broad discretion of
agents examining exempt applications and the annual Form 990
information returns. A clear definition of ``candidate-related
political activity'' and a specific threshold for permissible
political activity applied across all 501(c) organizations will
provide regulators a clear, unambiguous standard by which to
review applications for tax-exempt status and ensure
transparency and consistent application of regulations for tax-
exempt organizations.
The permissible level should be insubstantial relative to
an organization's size and indexed for inflation, and the rules
should require the disclosure of donors whose contributions are
intended to be used to influence the outcome of elections.
Clarifying the rules will help both 501(c)(3) and 501(c)(4)
organizations to better understand what is permissible and
enable IRS agents to make more precise determinations regarding
the granting of tax-exempt status. It will also preserve the
important advocacy role and vital voice of exempt organizations
in civic engagement efforts that benefit and sustain the
communities we serve and strengthen our democratic society.
Thank you.
[The prepared statement of Ms. Aviv appears as a submission
for the record.]
Chairman Cruz. Thank you. Ms. Martin.
STATEMENT OF JENNY BETH MARTIN,
PRESIDENT AND CO-FOUNDER, TEA PARTY
PATRIOTS, INC., WOODSTOCK, GEORGIA
Ms. Martin. Mr. Chairman, Senator Coons, Members of the
Committee, thank you for inviting me to testify.
As Americans, we enjoy rights granted by our Creator,
rights guaranteed by our Constitution. I am exercising at least
two of those rights today: the right to free speech and the
right to petition my Government for redress of grievances.
About those grievances, what we have experienced at Tea
Party Patriots over the last 6 years and what we have learned
over the last 2-plus years leads me to the following.
For years, the most feared, most threatening, most coercive
civil agency of the Federal leviathan--the Internal Revenue
Service--ran roughshod over the fundamental rights of speech
and association enshrined in the First Amendment, and we are
still waiting for someone in a position of authority and
responsibility to actually do something about it.
Last week, on a comedy show, the President of the United
States joked, laughed, and denied that any deliberate targeting
happened. He shrugged off the suggestion that any conspiracy
had taken place--even though documents released just a week
earlier showed Lois Lerner had met with attorneys from the
Justice Department and a representative of the FBI in 2010 to
discuss bringing criminal charges against conservative
nonprofits.
Shame on you, Mr. President. Were we hurt by the decision
to target us? Of course.
Groups and individuals were affected from east to west,
north to south, and everywhere in between. I cannot count the
number of times after I gave a speech when supporters came up
to with tears in their eyes, fear in their voice, and an
envelope from the IRS in their hands, asking me how to work to
this out-of-control agency stop and how to bring about
constitutionally limited Government. Know this: I sit here
today for these Americans.
The targeting forced us at Tea Party Patriots to spend time
and money educating our supporters, educating the press,
researching information needed for various House and Senate
Committees investigating the matter, arranging town hall
meetings, coordinating and paying for travel for our local
coordinators to come to Washington to testify and to talk to
Members of Congress and Committee staff. We filed FOIA
requests, and then we need to pay our smart attorneys to help
us understand the gibberish and the thousands of redacted pages
of paper we got in response. Of course, we had to spend
precious time answering all those crazy questionnaires from the
IRS in the first place.
We estimate we spent at least 5,000 man-hours working on
IRS targeting-related issues. Think about that for a minute:
5,000 man-hours. That is the equivalent of one employee working
2\1/2\ years full-time on this issue alone.
Some have asked us to put a price tag on what the IRS
targeting has cost us. How do you put a price on free speech?
Whether it costs us $1 or $1 million, somewhere in between or
more, it does not matter. Free speech in America should never
be silenced, no matter what the dollar amount.
Were we stopped by this decision? Of course not. None of
these things were going to stop us, and let me tell you, it has
not been easy.
The Tea Party movement has been targeted by the White
House, the IRS, and their allies and maligned by the Republican
establishment. The opposition has done all they can to destroy
us, to crush us. They underestimated one thing: Our love of our
country, our freedom, and our future are more important to us
than any of them.
Tea Party Patriots is doing just fine, Mr. Chairman. We
have 665 active local groups whose local coordinators meet with
every single Sunday night. We have over 600,000 email addresses
and over 2 million people in our data base working every day
for our principles and our mission.
No one--no one--from the President to the IRS Commissioner
or anyone else is going to trample on our rights without a
fight.
We have had everything thrown at us, including the kitchen
sink, but we are still here. We are not going away. We are
living proof that when a few good people are willing to speak
truth to power, we can change things, because we are Americans
and we are just getting started. Thank you.
[The prepared statement of Ms. Martin appears as a
submission for the record.]
Chairman Cruz. Thank you, Ms. Martin. Mr. Colvin.
STATEMENT OF GREGORY L. COLVIN,
PRINCIPAL AND CHAIR OF THE BOARD,
ADLER & COLVIN, AND DRAFTING COMMITTEE
CHAIR, PUBLIC CITIZEN'S BRIGHT LINES
PROJECT, WASHINGTON, DC
Mr. Colvin. Chairman Cruz, Ranking Member Coons, and
distinguished Members of the Subcommittee, I appreciate the
chance to come before you in support of giving the IRS a green
light to move ahead on its historic work to define political
intervention.
My law firm in San Francisco represents a broad range of
nonprofits. For almost 40 years, I have formed tax-exempt
corporations and advised them on their political activities
under IRS rules. I am appearing today on behalf of the Bright
Lines Project, supported by Public Citizen.
Why is the IRS in the business of enforcing political
rules? Because Congress, for more than 60 years, has placed
that duty upon them through the Internal Revenue Code. Unless
Congress were to remove that mandate, the IRS must continue to
exercise its judgment as to what is partisan and what is
nonpartisan election activity.
Why is this? Politics in America involves the raising and
spending of money. Every person, every entity, in the country
has a Federal tax existence. It must pay tax on its income
unless it is exempt. The determination of taxable income
throughout the Code depends on distinguishing deductible from
nondeductible expenses. Donations to charities are tax
deductible only if the organization does not intervene in
political campaigns.
Donations to political groups are not deductible. A for-
profit corporation cannot deduct a political payment as a
business expense. The Code is remarkably consistent on this
score. Politics must be paid for with after-tax income. Thus,
the IRS is not here to tell us what we may or may not say
politically but to determine whether such speech should be
subsidized by a Federal income tax deduction.
The main problem with political tax law enforcement is
this: It is vague, ambiguous, and unpredictable. What is
political intervention? The IRS has insisted on an open-ended
facts and circumstances approach rather than drawing bright
lines between partisan politics and truly nonpartisan forms of
voter education and engagement.
In September 2012, I asked Lois Lerner, then head of Exempt
Organizations, at a meeting of the ABA to reconcile two
different IRS rulings on so-called issue ads. She declined. I
wish I had asked her, ``If you cannot explain to us how you
judge issue advocacy under these rulings, what do you say to
your own staff in Cincinnati?'' I mention her not as a personal
critique, but because the reluctance to fix the political tax
rules has been systemic within the IRS--until now.
In May 2013, the IRS' ability to rule on politically active
(c)(4) applications had collapsed. This created the historic
opportunity for Treasury and the IRS to commence exactly the
kind of new regulations project that we have needed for
decades.
The Drafting Committee of the Bright Lines Project began
work in 2008, 5 years before the IRS crisis erupted. Our goal
was to pressure the IRS in every possible way for better
guidance. Our proposals go right down the middle, between
preventing corruption and promoting free speech.
We all will be better served by clear, neutral, objective
standards that reduce the degree of discretion the IRS may
exercise. The rulemaking must continue. We look forward to open
public hearings where the American people can join that
conversation.
Some, in Congress, want to pull the plug on this IRS
process. Not only would that leave us in the Dark Ages with the
murky facts and circumstances approach, but it would stifle the
voices of thousands who are eager to see the next version.
There must be no turning back this time.
The Commissioner has said that no new IRS rules would be
put in place for the 2016 elections. Fair enough. They could go
into effect in 2017. The process should be completed before the
change in administration while the public is engaged and
momentum for better rules remains alive.
Let me leave you with this thought: We do not want bad
political rules that apply only to (c)(4)'s, but good rules for
everybody. Thank you.
[The prepared statement of Mr. Colvin appears as a
submission for the record.]
Chairman Cruz. Thank you. Mr. Sekulow.
STATEMENT OF JAY ALAN SEKULOW, J.D.,
PH.D., CHIEF COUNSEL, AMERICAN CENTER
FOR LAW AND JUSTICE, WASHINGTON, DC
Mr. Sekulow. Chairman Cruz, Ranking Member Coons, Senator
Sessions, thank you from allowing me to appear on behalf of the
American Center for Law and Justice and 185,000 of our members.
I would like to call the Committee's attention to a
statement that was made by the Commissioner, with due respect.
He made it several times. He said that there is no evidence
whatsoever of outside influence on any of the matters involving
the situation with the Internal Revenue Service.
I call to the Committee's attention an email from Lois
Lerner dated Wednesday, March 27, 2013. ``As I mentioned
yesterday''--and this is a quote, ``there are several groups of
folks from the FEC world that are pushing tax fraud prosecution
for (c)(4)'s who report that they are not conducting political
activity when they are (or these folks think they are). One is
my ex-boss, Larry Noble'', who is testifying today, ``former
General Counsel at the FEC, who is now president of Americans
for Campaign Reform. This is their latest push to shut down
these groups. One IRS prosecution would make an impact, and
they would not feel so comfortable doing this stuff. Do not be
fooled about how this is being articulated. It is all about
501(c)(4)'s orgs and political activity.'' From Lois Lerner.
This idea that there is no outside influence in this is
nonsense. I represent 38 groups that were targeted by the
Internal Revenue Service. That targeting, by the way, has not
resulted in an end of all the cases. I have got two clients,
one of which is waiting now for 6 years for a determination
from the Internal Revenue Service.
Let me also call, if I may--and, by the way, I am not sure
that this is in the record, so I would request of the Committee
that this email be made part of the record.
Chairman Cruz. Without objection.
Mr. Sekulow. Thank you, Mr. Chairman.
[The information appears as a submission for the record.]
Mr. Sekulow. We sent a letter to the Department of Justice
on June 18, 2014, stating that we would no longer participate
in having our clients interviewed by the DOJ for what I
consider to be a faux investigation.
By the way, the President of the United States will go to
television to state that there is not a smidgeon of
corruption--he said that a couple of years ago--or more
recently that there is absolutely no evidence of wrongdoing,
which is interesting because the Federal Bureau of
Investigation is allegedly still investigating this matter and
has not made a determination. I do not know where the President
is not speaking to the Department of Justice, but apparently
that seems to be the situation.
There is another email. This email is dated May 9, 2013. It
is also from Lois Lerner--excuse me, May 8, 2013: ``I got a
call today from Richard Pilger, Director, Elections Crime
Branch at DOJ. I know him from contacts from my days there. He
wanted to know who at IRS, the DOJ folks could talk to about
Senator Whitehouse's idea at the hearing that DOJ could'',
these are her words again, ``piece together false claim cases
about applicants who quote, `lied', end quote, on their 1024s,
saying they were not planning on doing political activity and
then turning around and making large visible political
expenditures. DOJ is feeling like it needs to respond, but
wants to talk to the right folks at IRS to see whether there
are impediments from our side and what, if any, damage this
might do to IRS program. I told him that it sounded like we
need several folks from IRS.''
The response from Nikole Flax was, ``I think we also need
to include CI,'' which, of course, is the Criminal
Investigation Division.
The Department of Justice was part of this from the
beginning. This idea that the Department of Justice is engaged
in this independent inquiry is nonsense. The fact of the matter
is, as the GAO said a few days ago, quote, ``Unfortunately, the
IRS has not taken sufficient steps to prevent targeting
Americans based on their personal beliefs.''
Let me close with this, if I may. During the oral arguments
in the Z Street case, Chief Judge Garland said the following to
the IRS attorneys, in this case, of course, the Z Street case
very similar to a targeting situation as we have here: ``I
think if I were you'', this is what the judge said, ``I would
go back and ask your superiors whether they want us to
represent that the Government's position in this case is that
the Government is free to unconstitutionally discriminate
against its citizens for 270 days. I would be stunned if the
current Attorney General agreed with that. Or the last Attorney
General. Or the one before that, or the one before that. Or
anyone. That cannot be the position. Now, do you want to think
about it again, whether you really want that to be your
position?''
The response from the DOJ lawyer was, ``That is basically
our position.'' They did not move from that at all.
I would just like to say, Senator, I appreciate you holding
these hearings, and I appreciate everyone's participation. This
is a really serious problem. We have been litigating now for a
couple of years, and there are still clients that have not had
redress. Thank you.
[The prepared statement of Mr. Sekulow appears as a
submission for the record.]
Chairman Cruz. I would like to thank each of the witnesses
who has come forth for your powerful testimony and particularly
for those who have been improperly targeted for your political
views. I would like to apologize on behalf of the U.S.
Government. No citizen should ever see the Federal Government
targeting them for expressing their First Amendment rights.
Ms. Mitchell, in your testimony, you called for the
impeachment of Mr. Koskinen. Each of you, I believe, heard his
testimony before this Subcommittee today. I would like to ask
you or anyone else if there was anything in his testimony that
you heard that is demonstrably false or that might reach the
level of perjury.
Ms. Mitchell. Mr. Chairman, obviously I would want to go
back and review the transcript, but IRS Commissioner Koskinen
has an amazing way of deflecting and not answering questions or
misleading the Congress when he responds to questions that are
posed to him by Members of normally the House. Actually, I
think this is only the second hearing that the Senate has had
on the IRS targeting since May 2013, the first hearing. I do
not know of another hearing. I appreciate the fact that you are
having a hearing.
If you--a couple of things come immediately to mind. I do
not recall the TIGTA report concluding that there was no
willful destruction of evidence in terms of the destruction of
the Lois Lerner emails and the backup tapes. I do not recall
that the TIGTA report said that. I am going to have to go back
and look at exactly what they said. He said several times today
that the TIGTA report concluded that the IRS did not willfully
destroy those tapes.
There is a lot--the tapes were destroyed on purpose, and I
know that under legal prosecutions, if you intend to do
something and you do it, that is a willful act. The fact that--
one needs to put this in context in the timeframe. There was
a--there was a preservation order issued in May 2013 for all
records. There was a subpoena in August 2013 from the House
Oversight Committee to preserve all records and documents.
There was another subpoena in February 2014 to preserve all
documents.
Commissioner Koskinen took office I believe in late 2013 or
early 2014. He appeared before the House Oversight Committee in
March 2014, and they pressed him--because now they have issued
two subpoenas, and they had not yet started to receive any of
the Lois Lerner emails, and they pressed him over and over
about producing those emails: ``Will you produce to us all of
Lois Lerner's emails and documents?''
He knew at the time he testified in answer to that
question, he had been told, they knew, that there was a gap,
that emails were missing.
At the same time, during this same timeframe, backup tapes
are destroyed, and yet he comes before the House--both the
House Ways and Means Committee and the House Oversight
Committee in June 2014, and says, ``We have done everything we
can. There is nothing we can do.'' Yet TIGTA reported back to
the Committee that, in fact, they drove to West Virginia, got
the backup tapes, and said nobody had ever asked for them. I
think that this Committee should look very carefully at what
the TIGTA report actually said and compare it to his testimony.
I will ask you to look at one other report. The GAO report
on the auditing that was issued last week that is going to be
officially issued in the next few days did not, as I understand
it, clear the IRS of any political targeting of exempt
organizations. I know it had nothing to do with audits of
individuals. It only addressed audits of exempt organizations.
My understanding, my reading of it, is that it said that they
did not keep proper documentation. They did not ask the
questions about whether there was political involvement in the
targeting, selection of audit targets. What they did say, what
is very clear when you read it, is that they look at things
other than the tax return, which was the third thing that he
said today that I do not think is accurate. Commissioner
Koskinen said today that when you get audited, it is because of
something that is in your tax return or not. Yet in that GAO
report, what I found very disturbing is something I have been
concerned about for some time, which is--which goes to your
question that you asked him, that they look at--that they go
outside the tax returns and they look at publicly available
information. I believe they look at publicly available campaign
finance reports, disclosure reports required by law, as a basis
for selecting targets for IRS audits. All these witnesses that
talk about how we want to have disclosure, we need political
disclosure, I think it is really important to have that
discussion. If we are talking about that information then being
used to audit donors, I think that is horrific. That someone
exercising a protected First Amendment right to make a campaign
contribution or a contribution to an organization would then be
subject to an IRS audit, I think that is pretty terrible, and
we better do something about it.
Chairman Cruz. I think that is a very good question and
certainly one that I intend to ask the Commissioner whether the
IRS is using campaign contributions.
I would like to ask one additional question, Mr. Sekulow.
As I understand it, it is contrary to Federal law for the IRS
to hand over confidential taxpayer information to anyone else.
If it turns out that the Department of Justice was knowingly in
receipt of confidential taxpayer information, would that
implicate them in a violation of the law?
Mr. Sekulow. Absolutely, and I think, Senator, that is the
most significant problem with this idea that the Department of
Justice could create this investigation. The fact is the email
chain establishes that the Department of Justice was involved
in the conversations, including the targeting and possibly even
piecing together criminal cases against individuals.
By the way, ``piecing together criminal cases,'' that is a
pretty serious allegation to be piecing together. My first job
out of law school was actually Chief Counsel's Office in the
Internal Revenue Service. I was a trial lawyer. We took our
criminal referrals cases very seriously before we would do
that.
I think, yes, I think the Department of Justice involvement
here also should have disqualified them from engaging in this
investigation, and it should have been an independent or
special counsel.
Chairman Cruz. If the Department of Justice was involved in
the criminal wrongdoing, it cannot be expected to investigate
itself; and any fair and impartial investigation should occur
by a special prosecutor.
Mr. Sekulow. That is correct, and that is why after
participating in the investigations for a period of time, we
decided and elected on behalf of our clients to no longer
participate in those investigations because of the emails that
came to light where DOJ was involved.
Chairman Cruz. Thank you. Senator Coons.
Senator Coons. Thank you, Mr. Chairman.
If I might just start with Professor Noble. Mr. Sekulow in
his testimony stated there has been inappropriate influence by
outside groups, and then read an email. I would just give you
an opportunity, if I might, to comment on the appropriateness
or inappropriateness of the nonprofit you led seeking
enforcement of the law. I would be interested in your view on
what happened.
Professor Noble. Thank you. I think what I did and what our
organization did, what all these organizations do, is totally
appropriate. It is a great example of how emails--because with
this one, I know what she was talking about being taken out of
context and being used for purposes that they were not
intended. What she was referring to there is that my group,
myself and others--when she talks about the FEC world, that
means the campaign finance world--were saying that the IRS
should become more active and should look at ways to stop these
groups that are using millions of dollars in undisclosed funds
for political activity. One of the ideas that had been talked
about--and it has been talked about in this hearing--has been
the idea that it is tax fraud, it is lying to the Government.
If you say on a (c)(4) application that you are not going to
get involved in political activity and you do, that is lying to
the Government. If you do get involved in political activity,
again, it is tax fraud. We were talking about this publicly,
and that is what she is reporting on.
The other email I also know something about. It refers to
the hearing where Senator Whitehouse asked DOJ about other
activity that could be done, what DOJ's role was. The email
that they are referring to I am amused by because I was General
Counsel to the Federal Election Commission for 13 years. When a
Senator at a hearing asked the agency what it could do about
something, if the agency went back and did not do anything
about getting an answer, not necessarily following up and doing
what the Senator may be suggesting, but getting an answer, I
would have been in a lot of trouble.
What that email seems to reflect--and I have no personal
knowledge of it other than being at the hearing--was she was
going back and saying that DOJ came to the IRS and said they
got this question, and we need to sit down and talk about what
the response is. It does not say they did anything about it. It
does not say that they decided to go along with anything that
was suggested. It was merely a statement.
In terms of her reference to the criticism that the IRS was
taking the email where Ms. Lerner referred to me, she was
absolutely right. We were pushing her. We had no idea of what
they were doing, and, in fact, I was probably as surprised as
anybody when their activity become public because our
understanding was that they were not doing anything.
Senator Coons. Thank you, Professor.
Ms. Aviv, if I might, the inappropriate triage of 501(c)(4)
applications for further processing that took place in
Cincinnati some would argue is a predictable consequence of the
real lack of clarity in the rules. The rules are simply not
reasonably administrable in a way that is consistent, clear,
and fair; and, further, due in part to dozens of congressional
hearings just like this one, the unfortunate result is the IRS
has been cowed into barely enforcing these rules at all.
How does the lack of meaningful enforcement in this area
affect your members, which, if I understand correctly, include
thousands of nonprofits?
Ms. Aviv. I have hundreds of thousands of nonprofits. If
you had to give out our members' affiliates, we are talking
about hundreds of thousands, and the charitable sector itself,
501(c)(3)'s and (c)(4)'s, are well over a million
organizations.
One of the problems is that if you do not have clarity of
what is allowed, and 501(c)(3) organizations are not allowed to
engage in partisan political activity at all, and (c)(4)
organizations can only engage in an insubstantial percentage of
their time, and ``insubstantial'' is not explained and
described what it is, it leaves it up to the discretion of the
IRS officials to decide what that is, but if they do not know
what the activities include, then there is a very good chance
that lots of organizations will not engage in activities that
they are perfectly legally entitled to engage in. That is part
of their civic responsibility. That is part of their right as
citizens of the United States, to petition Government for the
redress of grievances and to participate in the public space.
For some, it means that they have pulled back and they have
cowed themselves, and for others, they may engage in
activities, because they do not know that they can or they
cannot, that is probably improper.
I think that for our organizations, clarity on defining
what is political activity, how much (c)(4) organizations can
engage in, would enable these organizations to do what is
proper and to enable them to fulfill their missions more
effectively.
Senator, one last thing that I just want to make a point
about, because we have been asked often about the difference
between (c)(3) organizations and (c)(4) organizations, and why
do we need (c)(4) organizations if you have got 527s, if people
intend to engage in partisan political activity, just go in
that direction.
There is a great value in having organizations that can do
both. They do not have the benefit of allowing donors to get a
charitable deduction, but at the same time, they have at their
disposal the full range of activities that are involved in
public policy activity all the way up to and including
electoral activity. We think there is still great value in
those organizations.
Senator Coons. Professor Noble, if I might, just looking at
the campaign side of the equation we were just discussing, what
is the consequence of allowing organizations that are
effectively campaign advocacy organizations to shield
themselves under the 501(c)(4) label?
Professor Noble. It has a tremendous effect, and part of
the problem is due to the ineffectiveness of the FEC and now
the IRS. What you have is a campaign finance system that is
based on disclosure, transparency, which the Supreme Court has
said is critical; a system that also has contribution limits
and prohibitions, which cover anything from corporations or
unions giving directly to candidates, to foreign nationals
giving in any election.
If you allow (c)(4) organizations that do not disclose to
get involved in this political activity and they are not held
accountable for disclosure, then you have no way of knowing if
the contribution limits are being followed, if there is any
coordination going on, if foreign nationals are involved in the
process, and you have totally undermined transparency. We do
not know who is supporting the candidates. The Supreme Court
has said over and over again--including in Citizens United and
the recent McCutcheon case, that transparency is critical. The
Supreme Court's decisions assume that what is happening is that
all this money being spent on politics, whether by independent
groups or groups affiliated with candidates, is being
disclosed. If you let the (c)(4)'s do this without disclosing,
whether they are Republican or Democratic, Tea Party groups or
liberal groups, you have undermined the campaign finance laws.
Senator Coons. Thank you. Thank you, Mr. Chairman.
Chairman Cruz. Senator Sessions.
Senator Sessions. Ms. Martin, thank you for your testimony
and the courage that you have taken to advance the base that
you care about. How do you feel about the person in charge of
establishing your tax situation to have stated that the Tea
Party is dangerous?
Ms. Martin. Senator, I cannot describe to you how disgusted
that makes me feel. The people who got involved in this Tea
Party movement are just like Toby Marie Walker. They are people
who love our country, that want to make our country better, and
they want to hold our elected officials accountable. To be
called--or someone to go so far as to say that we are dangerous
or that we are terrorists, when all we are trying to do is work
within the system to hold our Government accountable is one of
the most disgusting aspects of this.
Senator Sessions. That is the person who is delaying your
progress in getting your status. Ms. Walker said it was
designed to demoralize and delay their efforts. Do you agree
with that?
Ms. Martin. I think that they intended to delay our
efforts. They certainly tied us up with a lot of red tape and a
lot of time and energy. We care too much about this country to
let them stop us. They are not going to stop us.
Senator Sessions. You are not going to be demoralized.
Ms. Martin. You know, we have a choice in how we respond to
this and the attitude that we have, and at Tea Party Patriots,
we are taking the attitude that we are happy warriors. We are
going to continue to fight. We are going to remember that this
country is founded on freedom and that that is what we are
standing for, and it is worth every bit of the effort.
Senator Sessions. Mr. Sekulow, is it still true that the
attorney in the Department of Justice who has been given
assignment of this case contributed $6,000 to the President's
reelection?
Mr. Sekulow. It is correct, Senator Sessions, and in our
letter to the IRS--excuse me, to the Department of Justice we
noted that, and we noted that in meetings how inappropriate
that was.
There is another aspect of this, Senator, that I just find
amazing. These rules and the regulations have been around since
the 1960's, and all of a sudden, it took until 2011 for there
to be confusion and problems? What happened the preceding 40 or
50 years?
By the way, this whole idea about transparency is very
interesting, except for one thing everyone tends to forget.
Some organizations, especially (c)(3)'s, do not have to give
their donor lists. You know, they tried that against the NAACP,
and the Supreme Court said you do not get to do that, you do
not get to ask for that.
I think they are conflating the principles here that we
have to be very, very cautious of in making general statements.
I am just--I raise that, just the rules and the reg rulings
have been around for decades. Now, all of a sudden it is a
problem.
Senator Sessions. I understand that Ms. Lois Lerner has
refused to testify before the House. Is that correct?
Mr. Sekulow. Yes. She invoked her Fifth Amendment
privilege.
Senator Sessions. Well----
Mr. Sekulow. Kind of.
Senator Sessions. This is what I wonder: To me--I spent 15
years in the Department of Justice. I do not think any of--I am
not aware of anybody that gave $6,000 to the reelection of any
President that I am aware of. I think that is very unusual,
number one.
Number two, it seems to me that an investigation as it
would normally proceed would be to question whether or not
there was political influence here. The obvious next step would
be to ask who Ms. Lerner talked to in the White House, every
one of them, and then find out from every one of them what they
talked about, and whether they talked about these kind of
issues. Do you agree?
Mr. Sekulow. I do, Senator, and I find----
Senator Sessions. Has anything of that nature to your
knowledge been done?
Mr. Sekulow. No, there has not, and I would like to know
why the Department of Justice, as far as we can tell, and the
testimony that we have heard in other hearings in the House,
why did they not ask who crafted the questions that ask who you
prayed with, who your membership lists are, who is on your
membership list, who your donors are, what Members of a
legislative body have you talked with. Who crafted those
questions? That is something I still--no one has given us an
answer on that. Where did those questions come from? I do not
believe they came from a revenue agent in Cincinnati.
Senator Sessions. I could not agree more.
Ms. Mitchell, don't you think that the appropriate step for
a real investigation would be to find out if there are any
White House staffers or other people in the White House,
however high it goes, whether or not they coordinated with this
idea and sought to punish, demoralize, or delay legitimate
rights of people who did not agree with some of their views?
Ms. Mitchell. Yes, Senator, and I think one of the things
we have to focus on--and this has been written about by
Kimberly Strassel at the Wall Street Journal. The President of
the United States was going around the country demanding that
the IRS take action. There were, excuse me, but Members of this
body who were sending letters demanding that the IRS take
action.
The difference between Watergate and the IRS scandal in the
Obama administration is that during the Watergate scandal, the
IRS refused to act at the political urging of whether the
President--the President of the United States. In this case,
the IRS took very seriously the directives from partisans with
whom I disagree. I do not want the IRS to decide that they are
going to take your view or your view instead of my view. They
should not be taking sides in a political dispute. We have very
real policy differences, and the IRS under Lois Lerner clearly
took sides, and that to me is the most frightening part of
this, that they took sides.
Senator Sessions. Thank you. I share that view, and I think
we have to be eternally vigilant that the persons who can
extract money from American citizens are never using their
power to direct--or to be hostile to one voice or another
voice. Thank you, Mr. Chairman.
Chairman Cruz. Thank you, Senator Sessions. Senator
Whitehouse.
Senator Whitehouse. Thank you, Chairman.
Ms. Mitchell, do you represent an organization called,
``True the Vote''?
Ms. Mitchell. I do.
Senator Whitehouse. Is True the Vote a 501(c)(3) approved
entity?
Ms. Mitchell. After we received the IRS--yes, on the day
the Government was to answer, after 3\1/2\ years, they said,
``Oh, you''--``We are going to grant you your tax-exempt status
today.''
Senator Whitehouse. Is there a district court action in the
District of Columbia that has True the Vote's application to
the IRS in it as a public record?
Ms. Mitchell. Yes, I believe--well, I do not know that--I
think the whole application is in there. I am not sure of that.
I do not remember the exhibit. That case is now on appeal at
the D.C. Circuit.
Senator Whitehouse. You do represent True the Vote, it is a
501(c)(3).
Ms. Mitchell. It is.
Senator Whitehouse. Its application, because of this case,
is a public record. Did----
Ms. Mitchell. Part of it.
Senator Whitehouse. Did True the Vote, in answering Part 8,
Question 1--and let me quote the question: ``Do you support or
oppose candidates in political campaigns in any way? If yes,
explain.'' That is the question. Are you familiar with the
question? Have I read it correctly?
Ms. Mitchell. I do not have it in front of me, but I
presume the answer to that question is no, because they do not
support or oppose candidates in elections.
Senator Whitehouse. In any way?
Ms. Mitchell. In any way.
Senator Whitehouse. The $5,000 that the organization gave
to something called the ``Republican State Leadership
Committee'' was not intended to support or oppose political
candidates in any way?
Ms. Mitchell. That contribution was incorrectly made from
the (c)(3). When the president, Catherine Engelbrecht, learned
about it--it was done by a consultant fundraiser, and when she
learned about it, that was refunded, and a contribution from a
different permissible source was given.
Senator Whitehouse. The reason is because the Republican
State Leadership Committee defines itself, and I quote, ``The
RSLC is the largest caucus of Republican State leaders and the
only national organization whose mission is to elect down-
ballot, State-level Republican office holders.'' Correct?
Ms. Mitchell. That is right, and that is why it was a
mistake, and it was refunded, and that--because once the
president found out and she called me, I said, ``Well, that is
illegal, so you are going to have to get that money back.''
They did.
Senator Whitehouse. True the Vote engaged in the 2012
Wisconsin recall effort on behalf of Governor Scott Walker?
Ms. Mitchell. No. What they did was that they went to
Wisconsin to validate petitions of signers of the recall
petitions against voter lists to make certain that the
integrity of the process was appropriate and had been followed.
That is the mission of True the Vote, to help protect the
integrity of elections. What they volunteered to do was to
provide volunteer assistance to the Government Accountability
Board of Wisconsin to ensure that the petitions were valid and
had--were signed by only those who were registered to vote in
Wisconsin and eligible to sign the petition, so that any
structure ensuing recall election would be properly called.
Senator Whitehouse. Your view is that defending Governor
Scott Walker against the 2012 Wisconsin recall effort was not
supporting or opposing him in political campaigns in any way?
Ms. Mitchell. I believe that supporting the integrity of
elections is something that both Republicans and Democrats
ought to be for, and that supporting things such as voter
identification and other measures that ensure the integrity of
our elections, that those are appropriate activities for a
501(c)(3) organization, yes.
Senator Whitehouse. Did the president of True the Vote
appear at a conservative political action conference in 2012
and state that she absolutely was working to replace the Obama
administration?
Ms. Mitchell. I do not know that she said that. Do you have
a video or a transcript of that?
Senator Whitehouse. I have a quote, and I can get it to
you.
Ms. Mitchell. I would find that hard to believe. I would
find that hard to believe.
Senator Whitehouse. Because----
Ms. Mitchell. I think that it is true----
Senator Whitehouse. Why would you find that hard to
believe?
Ms. Mitchell. Because I think that Catherine knows the
difference between what is appropriate and not appropriate for
appearances in her capacity as president of True the Vote. I
will tell you that if--that I have never seen anyone--and this
is another part of this scandal. Once she established that
501(c)(3) and a companion 501(c)(4), she was suddenly visited
over the course of the next year by the FBI, the IRS, 7 times
from the FBI, 3 times by the IRS, OSHA, the Bureau of Alcohol,
Tobacco, and Firearms. She was subjected to letters from the
White House Counsel and to demands by members--Democratic
Members of Congress to travel to Washington to present herself
and defend herself.
Honestly, I can imagine that she might have said something
along those lines about the Obama administration, because I
think she felt pretty put upon.
Senator Whitehouse. Turning to a 501(c)(4), Ms. Martin, you
represent Tea Party Patriots here?
Ms. Martin. Yes, sir.
Senator Whitehouse. That is a 501(c)(4) organization?
Ms. Martin. Yes. We were notified, our attorneys were
called by the IRS the day before I testified last year before
the House.
Senator Whitehouse. On the 501(c)(4) application, there is
a Question 15: Has the organization spent or does it plan to
spend any money attempting to influence the selection,
nomination, election, or appointment of any person to any
Federal, State, or local public office? If yes, explain in
detail.
Do you know if your organization answered that question yes
or no?
Ms. Martin. I believe that we answered the question no. I
do not have the application in front of me.
Senator Whitehouse. Assuming that you answered the question
no, a column in Forbes Magazine ascribes the following email
language to your organization, and I will quote it: ``I am
being told by my staff that we are probably going to have to
let some leftist like Bruce Braley in Iowa or Kay Hagan in
North Carolina win because we cannot afford to fight back in
every important State. Your gift today will be sent immediately
to the front lines to enable our grassroots volunteers and
staffers to contact these voters and move them to the polls to
fire Harry Reid. If we succeed this year'', oh, where did the
rest of that page go?-, ``we will shock the political world.''
It strikes me that an effort to fight back against Bruce
Braley in Iowa and Kay Hagan in North Carolina, who, for the
record, were candidates on the ballot at the time, and to take
money solicited in response to that email and give it to
grassroots volunteers and staffers to contact voters and move
them to the polls, that does seem a bit like an attempt to
influence the election of any person to a Federal, State, or
local public office, does it not?
Ms. Martin. Senator----
Chairman Cruz. Ms. Martin, you can answer this question,
but I would note the Senator's time has long expired, so keep
your answer brief, please.
Ms. Martin. We also, after the 2012 election, because we
could not even say the word ``Obamacare'' because of the
targeting and our attorneys advised us not even to use the term
``Obamacare'' and to only refer to it as ``the President's
healthcare law,'' we decided that it would be--so that we could
exercise our First Amendment rights, we needed to start a 527
super PAC so that we could actually mention the name of the
President and other elected officials, and we did that. I do
not know what you are referring to precisely from a Forbes
article. I would have to look at the email that was sent. It is
highly likely that the email was sent from the 527 super PAC,
which is Tea Party Patriots Citizens Fund, not the 501(c)(4)
Tea Party Patriots.
Senator Whitehouse. I apologize for going over my time,
Chairman. I thought that had become the tradition in this
particular hearing.
Chairman Cruz. We are endeavoring to be generous, but it
was over 5 minutes over. We are endeavoring to be generous on
both sides of the aisle, with considerable leeway, and then
that will continue to be the standard.
Ms. Mitchell, Senator Whitehouse just a moment ago
suggested that True the Vote's effort to protect the integrity
of the ballot somehow was harmful--beneficial to the political
prospects of Governor Scott Walker. If I am understanding the
argument that the Senator from Rhode Island made, the necessary
premise of that is that voter fraud, fraudulent election
activity, disproportionately benefited the Democratic opponents
of Governor Walker. Is that correct, that that is the necessary
premise of that argument?
Ms. Mitchell. It seems to be. This is an issue which I have
been very involved in, not just as counsel to True the Vote but
in other capacities. I do not understand why voter integrity
and combating voter fraud, which is an actual problem in
America, I do not understand why that is a partisan issue.
Chairman Cruz. The only way it could be is if there was
more fraud on one side of the aisle than the other. If you are
ensuring that voter laws are complied with, that ought to be,
by definition, nonpartisan unless members of this panel know of
some large concentration of voter fraud that benefits one party
or another.
Ms. Mitchell. That would certainly be the inference.
Chairman Cruz. Mr. Sekulow, you mentioned that you
represent Z Street. I would ask you to share with this panel
briefly just the facts of the Z Street matter.
Mr. Sekulow. I did not, and I wanted to clarify. We do not
represent Z Street. It is separate litigation. They have
separate counsel. We have been involved in the process.
Z Street involved an application for a pro-Israel
organization to form as a tax-exempt organization. The agent
that was subject to assign the case for review stated to the
lawyer that was representing Z Street--we actually met with the
original plaintiffs in that case in Jerusalem a couple years
before the litigation started because they were already having
problems and we were at a conference. The end result was that
the agent stated to the lawyer that, in fact, there was a
special Israel unit inside of the Internal Revenue Service that
was reviewing applications, and if the application
information--some of the statements that Senator Whitehouse was
talking about, where they have the general information section
describing your activities, if the position of the organization
was in opposition to the position of the administration
regarding the Middle East or with Israel, it was handled
differently. That case----
Chairman Cruz. By the way, quickly, Mr. Sekulow, are you
aware of any other Nation on the face of the globe that is
somehow targeted or singled out that if an organization defends
that particular nation they get special scrutiny?
Mr. Sekulow. Absolutely not. In fact, the unit was called
the, ``Israel Special Policy Unit.''
Chairman Cruz. It is almost as if the administration has
some particular hostility to any entity that is defending the
Nation of Israel.
Mr. Sekulow. This was precisely--and it is similar in our
cases in the sense that the allegations in Z Street were based
not on the granting of the tax exemption but the process upon
which the application----
Chairman Cruz. I want to be clear. I understand. Is there
an Iran unit?
Mr. Sekulow. No, there is not an Iran unit that I know of.
Chairman Cruz. Is there a North Korea unit?
Mr. Sekulow. Not that I am aware of.
Chairman Cruz. Is there an ISIS unit?
Mr. Sekulow. Not that I am aware of.
Chairman Cruz. Apparently Israel gets more scrutiny than
radical Islamic terrorists who are seeking to murder Americans.
Is that correct?
Mr. Sekulow. That apparently is the position of the
Internal Revenue Service. At least it was until the district
court's opinion. The district court, by the way, denied the
Government's request for a motion to dismiss under 12(b)(6). It
was appealed to the D.C. Circuit. The D.C. Circuit ruled, in
fact, that political viewpoint cannot be the basis upon which
applications are moved forward or not, which is precisely what
we are talking about here today. This type of internal
investigation is problematic from the start. The idea that your
viewpoint is the basis upon which your exemption is either
granted or denied is problematic. That is what the district
court---the court of appeals said as well.
Chairman Cruz. Ms. Walker, as I understand it, you received
a questionnaire and letter from the IRS. Can you give an
example of a question that was difficult or even impossible to
answer?
Ms. Walker. There were several. One of the questions they
wanted was every news article that ever been written about us,
whether we engaged in the interview or not. They wanted a copy
of it. When we googled our name to see how many hits were on
the internet, we came up with over 400,000 at that time. There
was no way that a group of 5 or 6 volunteers was going to be
able to go through 400,000 news articles and ascertain whether
they really were about us, if we were mentioned, print it, then
send it to the IRS, because we were not allowed to do anything
electronically. It had to be printed. It would have taken
hordes of U-Haul trucks just to figure it out. We could not
even pay for that.
They also asked us for every relationship we have ever had
with every candidate or would have. They asked us to give them
transcript--we have an internet radio show, and at that time we
also had one on a local radio. We had anywhere from 4 to 6
hours of programming a week. They wanted transcripts of every
time a candidate was on the air. When we asked what a candidate
was, they could not explain that to us either, because if you
are an incumbent and you are going to run for reelection and
you are talking about policy, are you a candidate? Could not
answer it.
They asked us--they told us those things were subjective,
tell us everybody that we knew and everybody--and what the
relationship was.
Chairman Cruz. Ms. Walker, you are a citizen, a wife, a
mother. How does it feel to be targeted by the Federal
Government for expressing your First Amendment rights?
Ms. Walker. It feels like I do not live in America anymore.
This is something that I grew up--I grew up in the cold war. I
grew up under Reagan. This is what I saw on TV in other
countries, not in the United States, where it is celebrated to
have a diverse opinion. It is okay to have diverse sexual
orientations, but it is not okay to have a diverse political
orientation in this country anymore. If you are conservative,
if you are a Tea Party, you are vilified.
Chairman Cruz. Okay. Let me ask one final question. Ms.
Walker, Ms. Martin, and I will ask this also of Ms. Mitchell
and Mr. Sekulow for your clients, we have been told for some
800-plus days--806 days since this scandal first broke--since
the Treasury Department Inspector General report came out, it
has been 806 days. We have been told that there is an
investigation, albeit led by a major Democratic donor. That
investigation has produced zero indictments despite the fact
that President Obama said the American people should be angry,
and he claimed he was angry--until he started going on comedy
shows making fun of targeting American citizens.
My question to each of you is: In the course of this
ostensible investigation--that I believe at this point has
become more of a coverup--have each of you been interviewed by
the FBI to determine whether and to what extent the IRS
wrongfully targeted you because of your political views?
Ms. Walker. I would like to defer to my attorney to answer
that question.
Ms. Martin. I have not.
Mr. Sekulow. I would be happy to answer because I am Ms.
Walker's attorney. The initial investigation with the FBI, I
did include an interview with Ms. Walker. The problem became--
and it is two-fold, Senator. Once the information about the
head of the Department of Justice or the person that was
assigned to lead the investigation became public, and we had
the email exchange between the IRS and the Department of
Justice about piecing together these criminal cases, and in
light of all of that, we made the determination at that point,
although she had already been interviewed, to no longer
participate in that, and we notified the Department of Justice.
I might add also on the question, just to clarify it for
the sake of my client here, one of the questions asked,
Question 17 of the application or the request that came in from
the IRS, ``Do you have a close relationship with any candidate
for public office or political party? If so, describe fully the
nature of that relationship.'' That was just one of--whatever,
``close relationship'', means. We notified the IRS on behalf of
Ms. Walker and others that much of what the IRS was asking was
outside the scope of legitimate inquiry, and after months and
months and months, they started narrowing down the scope of
their questions. This took a process of years to engage in.
To answer the question about the investigation, Ms. Walker
did speak--was interviewed by the Department of Justice, and
there was never any follow up after that.
Chairman Cruz. Ms. Mitchell? I am now, like Senator
Whitehouse, well over my time, so if you would briefly answer
that.
Ms. Mitchell. I was asked----
Senator Whitehouse. I think you have even topped me here,
Mr. Chairman.
Chairman Cruz. I try every time.
Ms. Mitchell. The day I--I must tell you this story. I was
testifying before the House Oversight Committee in February of
last year, and I filed my testimony in the morning, and in it I
said that the DOJ investigation was a sham. At 2 o'clock that
afternoon, I started getting phone calls from the Department of
Justice saying that they wanted to talk to me, and I talked to
them for the first time on the Friday following my testimony.
They wanted to interview Catherine Engelbrecht. However, our
litigation team, as Senator Whitehouse pointed out, we had
pending litigation against the IRS which was being defended by
the Department of Justice. Our litigation team made a decision
that they would let them talk to me initially since I
represented a number of people who had gone through this
situation. We are still going through it.
I talked with them and described all the different
experiences of all of my clients, including the conversation--
the conference call that was organized by Ms. Walker after all
of those letters went out to groups all over the country. There
were more than 80 people, I think, on that phone call, that
conference call, with accountants and people saying, ``I have
never seen anything like this.'' The only question that Barbara
Bosserman, the head of the Department of Justice investigation,
the only thing she said during the entire 2 hours in which I
was talking to them was she asked were there any progressive
groups on that call, which I thought--I just looked at her in
disbelief.
Following that, they wanted to interview Catherine
Engelbrecht, and Catherine, in addition to having the lawsuit
that True the Vote had filed in the district court, she was
also seeking on behalf of True the Vote to intervene in a voter
ID case in Texas, a Federal voter ID case, which the Department
of Justice has objected to and had made some fairly
unflattering comments about True the Vote. Ms. Engelbrecht made
the decision that--she said, ``I would be happy to interview
with the FBI and with the DOJ as long as I do not have anyone
from the Civil Rights Division present.'' Of course, Ms.
Bosserman was the head of that. They refused to meet with her
because they said that they could not let a witness make
demands. I said, ``She is not a witness. She is a victim.''
Chairman Cruz. Thank you, Ms. Mitchell. Senator Coons.
Senator Coons. Thank you, Mr. Chairman.
Mr. Spaulding, if I might, just to follow up on a question
I asked previously of Professor Noble, he suggested that there
are some consequences to allowing organizations that are
effectively campaign advocacy organizations to shield
themselves under 501(c)(4) labels and cited Supreme Court
cases, I think McCutcheon and Citizens, that highlighted the
value and the importance of disclosure. Is there any evidence
that the consequences that Professor Noble warned about are
actually occurring? Why is this of concern to the roughly
400,000 members of Common Cause?
Mr. Spaulding. Thank you, Senator Coons. It is absolutely
important. In the 2012 elections, over $300 million came from
undisclosed sources. The vast majority of that money went
through 501(c)(4) organizations, and, by the way, I am talking
about 501(c)(4) organizations like Crossroads GPS that spent
$70 million. These are the powerful, politically connected
organizations that are manipulating the rules, and in so doing,
voters are left without much information when they go to the
polls.
Ms. Martin talked about our country being founded on the
values of freedom. I would add equality, and we are getting
more and more perfect in that regard. We have a long way to go.
Freedom and equality frankly do not mean that much if you do
not have an informed electorate, and that is why the Supreme
Court has said repeatedly, emphatically, 8-1, in Citizens
United that disclosure advances First Amendment values so that
voters know who is speaking to them, so that voters can hold
elected officials accountable, and so that our laws can be
enforced.
Even Justice Scalia said, in Doe v. Reed, ``Requiring
people to stand up in public for their political acts fosters
civic courage, without which democracy is doomed.'' That is
what is at stake, Senator Coons.
Senator Coons. Thank you, Mr. Spaulding.
Mr. Colvin, if I might, I just want to commend the work
that you and your colleagues at Bright Lines Project have done
to attempt to bring some clarity to what I think has long been
a murky area here--not in statute but in the regulations and
the rules.
One of the challenges here is bringing clarity to what
qualifies as political activity under the Tax Code. But
defining ``political activity'' is only part of the problem. Do
you believe that 501(c)(3) and (c)(4) organizations ought to be
able to engage in campaign activity? If so, how much? How do
you measure appropriately the level of political activity of an
organization? If you might, in closing, since I am going to
keep mine short this time, what has happened in the past when
the IRS has attempted to enforce its demonstrably unclear rules
against high-profile groups or individuals that violate it?
Mr. Colvin. First of all, with respect to 501(c)(3)
charitable organizations, the rule has been for 60 years that
they are absolutely prohibited from political intervention, and
I think that should continue to be the case. That would be
political intervention of any kind, whether it involved the
expenditure of money or making of statements or other
activities by volunteers, by staff, that might support or
oppose political candidates.
With respect to (c)(4)'s, as we know, 501(c)(4)'s do not
have the benefit of tax-deductible donations, so they have
greater latitude. Certainly they can lobby on legislation
without limit. They also have an allowance for political
campaign activity, which makes sense if you consider groups
like the Sierra Club or the National Rifle Association that
have a need to put out voter guides, let people know where the
candidates stand on issues.
The quantitative limit of less than primary has never been
stated, and should be, in dollars of annual expenditures, by a
percentage. There has been a sort of folk wisdom that the
percentage is 49 percent. The IRS has an expedited process for
(c)(4) organizations to declare they will not spend more than
40 percent of money or staff time on political activity. There
are many who would like to see that be lowered to an
insubstantial level of 5 or 10 percent.
The Bright Lines Project does not take a position on the
exact percentage, but does believe that it should be solely
measured by annual expenditures.
Senator Coons. What would be the benefit of having a
brighter line? What would be the benefit to organizations that
seek to have a predictable path forward, to have clarity that
their First Amendment rights are going to be protected? Why
would that be positive or beneficial?
Mr. Colvin. It would be positive because the 501(c)(3) and
(c)(4) and, for that matter, unions that are (c)(5)'s, trade
associations that are (c)(6)'s, could engage in nonpartisan
voter turnout. We have terribly low voter turnout in the United
States, and we need to use social welfare and charitable and
other organizations to increase that, without being partisan to
do so. That is the positive effect you would look for for
activities that should be encouraged under the IRS line
drawing.
Also, if it is the policy certainly of campaign finance
laws and also of the IRS and its enforcement of Section 527 to
have disclosure of money that is used for influencing political
campaign, then one would hope that a better definition and a
clear limit for 501(c)(4)'s, (5)'s, and (6)'s would push those
who wish to have political activity transpire into the 527
category.
My California license plate says C3C4527.
[Laughter.]
Mr. Colvin. I believe that that is the most effective way
for an organization, whatever its cause, to influence the
Government. The question is: How do you arrange your
expenditures and activities between those three categories?
Senator Coons. Thank you, Mr. Colvin, and I would like to
thank all the members of this panel who, at great personal
investment and effort and difficulty, have come and testified
before us today. This is an important issue, and one I suspect
we will not resolve with just this hearing, but I just want to
express my gratitude to everyone who has testified today. Thank
you.
Thank you, Mr. Chairman.
Chairman Cruz. Thank you. I will note, Mr. Colvin, I hope
that the IRS does not audit you for your expression of free
speech on your license plate. Senator Sessions.
[Laughter.]
Senator Sessions. Thank you. A little jingle I created one
time was, ``Oh, what a tangled web we create/When we first
start to regulate.'' It is just very difficult to close all the
loopholes.
Mr. Sekulow--or let me ask Ms. Mitchell--I asked him, but I
want to pursue this idea that, well, we have an idea about how
this interpretation of the law for exempt organizations should
be handled, and I believe Mr. Spaulding correctly said, however
it is interpreted, it ought to be fair across the board.
Do you feel like it is being fairly applied across the
board? Are there--has the Tax Division targeted individuals
based on their ideas?
Ms. Mitchell. Absolutely, and I think that the evidence
shows that. The Inspector General wrote a letter to the House
Ways and Means Committee in June 2014 in which--excuse me, June
2013, in which he outlined that just the sheer numbers of the
conservative and Tea Party, pro-life, pro-Israel groups, and
how they had been treated compared to groups who had the word
``progressive'' in their name. I compare it to when you go
fishing. It is one thing to catch the fish and put it in the
boat and keep it, which is what happened to the conservative
groups. What happened to the progressive groups, it was catch
and release. They caught it, looked at it a little bit--
Progress Texas, good example. It was on the list in September
2010. That was leaked to USA Today. There were, I think, 80--I
do not even--112 groups on that list. There were a few
progressive groups. One was Progress Texas. One was Tea Party
Patriots. Tea Party Patriots, and the comments out by the side
said, ``Appears to be engaging in anti-Obama propaganda.'' That
is what it said about Tea Party Patriots.
You go back a few pages, there is Progress Texas: ``Appears
to be engaging in anti-Rick Perry propaganda.''
Here is the difference: In September 2011, or 2010,
whenever it was, September of that year, Progress Texas got its
tax-exempt status in just a few months. Tea Party Patriots
waited another several years and had to go through multiple
rounds of IRS quote, ``development letters.''
Senator Sessions. I think this is not over.
Ms. Mitchell. No, it is not.
Senator Sessions. This is not right.
Ms. Mitchell. It is not right.
Senator Sessions. The IRS cannot be used in this fashion,
and I want to get to the bottom of it, and I want to find out
if there was political direction from the White House, because
the people who run the IRS are appointed by the White House.
Let me ask you, Mr. Sekulow, are you aware that today,
apparently today--I was just handed this--Judge Emmet Sullivan
threatened to hold the IRS Commissioner in contempt at a
Judicial Watch----
Mr. Sekulow. For the failure to produce FOIA information.
Senator Sessions. Yes. Are you familiar----
Mr. Sekulow. I know about the case. I did not know that--I
have been here attending the hearing, so I did not know that
the order came out. This has been an--we actually have FOIA
litigation going on as well, and the courts in that particular
case--the IRS has not been forthcoming with the documents, or
if they do supply documents, they are so redacted, you do not
even--it is not even clear what the documents respond to.
I think in that particular case, I think the IRS just made
the determination they were not responding. I do not know the
context of the order.
Senator Sessions. You would say that the administrator who
testified earlier, when he said they are fully cooperating, in
your view as a practicing lawyer with many years of experience
with discovery, in your view they are not fully cooperating?
Mr. Sekulow. Absolutely. Not fully cooperating, and the
fact of the matter is--and the President can have his own
opinion, but he does not get to create his own facts, and that
is just not a fact. The IRS has not been cooperative.
Does it not seem bizarre, just bizarre, that there is a gap
for the years in question in Lois Lerner's emails? I will say
this, Senator, with due respect to the Committee, and I
appreciate the time here. My colleagues in the Office of Chief
Counsel when I served, in 1979, were notified that there was a
breach of Federal personnel records, including personnel
records in our office, and my colleagues from that year, 1979,
a long time ago, were notified that their records may have been
compromised in that. That record was available from 1979. Lois
Lerner's emails from the years in questions vanish.
Senator Sessions. This is what the Judicial Watch statement
today says the judge is saying, quote: ``I will haul into court
the IRS Commissioner to hold him personally in contempt,''
close quote. Then it goes on, quote: ``In a status hearing
today, Judge Sullivan warned that the failure to follow his
order was serious and the IRS and Justice Department's excuses
for not following his July 1 order were, quote `indefensible,
ridiculous, and absurd' '', close quote.
I would say that what I have seen throughout this is a foot
dragging, a lack of full and open cooperation, and what the IRS
should have done from the very beginning was to say, ``We are
going to restore the integrity of the Internal Revenue Service,
and we are going to go to the bottom of it. We are going to
find out every fact, and if anybody did wrong, they are going
to be fired and/or prosecuted. If anybody at a higher level
directed them politically to target people that they did not
like, we are going to investigate them; and if they violate the
law, they go to jail.''
That is what should be done here. I sense no commitment of
this kind on behalf of the Obama administration, and I think it
has placed at jeopardy the integrity of the IRS, and I am very
disappointed about it.
Chairman Cruz. Thank you, Senator Sessions. Senator
Whitehouse.
Senator Whitehouse. Mr. Chairman, just two things for the
record.
One, with respect to your exchange with Ms. Mitchell, the
matter in question was a recall petition. It was not an
election. Every signature that could be struck was necessarily
to the benefit of Governor Walker. Your point that this in some
way might reflect on the disproportionately Democratic nature
of voter fraud is simply not germane in a circumstance in
which--there was no accompanying petition not to recall. This
was a petition to recall. I wanted to make sure that point was
clear.
The second is, with respect to Ms. Martin, I owe her the
courtesy of giving her the source, which was a Forbes Magazine
column, November 3, 2014, written by a man named Peter Reilly.
To be precise about quoting it, ``On September 1, I got an
email from Jenny Beth Martin''--and here is what he says--``in
her capacity as cofounder and National Coordinator of TPP Inc,
open paren (the social welfare organization) close paren that
indicated quote: `Your gift today will be sent immediately to
the front lines to enable our grassroots volunteers and
staffers to contact these voters','' et cetera. At least it was
Mr. Reilly's belief that he received this email in Ms. Martin's
capacity as cofounder and national coordinator of TPP Inc., the
social welfare organization, which was the one that answered
the question, ``Do you plan to spend any money attempting to
influence the selection, nomination, election, or appointment
of any person?'' ``No.''
Thank you.
Chairman Cruz. Thank you, and I would like to thank each of
the witnesses, a number of whom traveled a long distance to be
here. Thank you for your time. This has been an extended
hearing, but I think a very important one, and I appreciate the
diligence with which you have provided your testimony.
We will keep the hearing record open for an additional 5
business days, which means the record will be closed at the end
of the business day on Wednesday, August 5, 2015.
With that, this hearing is now adjourned.
[Whereupon, at 5:38 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows.]
A P P E N D I X
Miscellaneous submissions:
Cause of Action, Statement....................................... 290
Foley & Lardner LLP, letter...................................... 276
Permanent Subcommittee on Investigations, September 5, 2014...... 346
Public Citizen, testimony........................................ 295
Shafer, John, various emails..................................... 279
Tea Party Patriots, letter....................................... 301
Treasury Inspector General for Tax Administration, May 14, 2013.. 574
Various Senators, letter......................................... 342
Z Street......................................................... 345
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