Senate Report 114-119 - THE INTERNAL REVENUE SERVICE'S PROCESSING OF 501(c)(3) AND 501(c)(4) APPLICATIONS FOR TAX- EXEMPT STATUS SUBMITTED BY ``POLITICAL ADVOCACY'' ORGANIZATIONS FROM 2010-2013

[Senate Report 114-119]
[From the U.S. Government Publishing Office]

114th Congress } { Report
SENATE
1st Session } { 114-119

_______________________________________________________________________

THE INTERNAL REVENUE SERVICE'S PROCESSING OF 501(c)(3) AND 501(c)(4)
APPLICATIONS FOR TAX-
EXEMPT STATUS SUBMITTED BY ``POLITICAL ADVOCACY'' ORGANIZATIONS FROM
2010-2013

_____________

COMMITTEE ON FINANCE
UNITED STATES SENATE

BIPARTISAN INVESTIGATIVE REPORT AS SUBMITTED BY CHAIRMAN HATCH AND
RANKING MEMBER WYDEN

PART 1 OF 4

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

August 5, 2015.--Ordered to be printed

________________

U.S. GOVERNMENT PUBLISHING OFFICE

95-784 PDF WASHINGTON : 2015

August 5, 2015.--Ordered to be printed
UNITED STATES SENATE COMMITTEE OF FINANCE--MEMBERS

ORRIN G. HATCH (UT), Chairman
RON WYDEN (OR), Ranking Member

REPUBLICAN MEMBERS DEMOCRATIC MEMBERS
CHUCK GRASSLEY (IA) CHARLES E. SCHUMER (NY)
MIKE CRAPO (ID) DEBBIE STABENOW (MI)
PAT ROBERTS (KS) MARIA CANTWELL (WA)
MICHAEL B. ENZI (WY) BILL NELSON (FL)
JOHN CORNYN (TX) ROBERT MENENDEZ (NJ)
JOHN THUNE (SD) THOMAS R. CARPER (DE)
RICHARD BURR (NC) BENJAMIN L. CARDIN (MD)
JOHNNY ISAKSON (GA) SHERROD BROWN (OH)
ROB PORTMAN (OH) MICHAEL F. BENNET (CO)
PATRICK J. TOOMEY (PA) ROBERT P. CASEY, JR. (PA)
DAN COATS (IN) MARK R. WARNER (VA)
DEAN HELLER (NV)
TIM SCOTT (SC)
FOREWORD

----------

Since the inception of our Nation, the United States
Committee on Finance (Committee) has conducted vigilant
oversight of the Executive Branch agencies and departments
under its jurisdiction. Given the significance of tax policy
and its administration, the Committee has historically focused
a large portion of its time and resources overseeing the
activities of the Internal Revenue Service (IRS), the Executive
Branch agency charged with tax matters. Two years and two
months ago, the Committee became aware of allegations regarding
the potential targeting by the IRS of certain tax-exempt
organizations, based on the names and political views of those
organizations. Serious allegations such as these strike at the
very heart of the principal that the Nation's tax laws are to
be administered fairly and without regard to politics of any
kind. Accordingly, these allegations warranted swift Committee
response in the form of an investigation--an activity the
Committee is uniquely positioned to carry out as a result of
its oversight authorities and responsibilities with respect to
the IRS.

Despite the partisan political nature of these allegations,
the Committee proceeded in true bipartisan spirit and initiated
a joint investigation on May 21, 2013, under the direction of
former Chairman Baucus and then-Ranking Member Hatch. When
Senator Wyden assumed the Chairmanship of the Committee in
February 2014, he agreed to continue the bipartisan work begun
by Chairman Baucus. This bipartisan cooperation has continued
unabated since I became Chairman in January 2015. Accordingly,
despite several changes in the chairmanship, the Committee has
continued its tradition of a bipartisan investigative effort.

While much has been reported about the alleged political
targeting over the last two years, it is important to stress
that this Committee has conducted the only bipartisan
investigation into the matter. Consequently, this report will
perhaps serve as the definitive account of events transpiring
at the IRS and the management failures and other causes that
were at the root of the IRS's actions. Hopefully, this report
will provide a roadmap for how Congress and the public can act
to make sure this type of conduct does not happen again.

We want to acknowledge the hard work and countless hours of
time spent by Committee staff who conducted over 30 exhaustive
interviews, reviewed more than 1.5 million pages of
documentation, drafted numerous versions of this report, and
performed countless other tasks necessary to bring this
investigation to closure. The Committee staff whose diligence
and devotion to duty made this investigation and report
possible include the following: John Angell, Kimberly Brandt,
John Carlo, Justin Coon, Michael Evans, Daniel Goshorn,
Christopher Law, Jim Lyons, Todd Metcalf, Harrison Moore, Mark
Prater and Tiffany Smith.

Orrin G. Hatch.
Ron Wyden.

C O N T E N T S

__________
Page
Bipartisan Investigative Report as Submitted by Chairman Hatch
And Ranking Member Wyden....................................... 1
Additional Views of Senator Hatch Prepared by Republican Staff... 127
Additional Views of Senator Wyden Prepared by Democratic Staff... 241
Timeline of Significant Events................................... 284
Appendices....................................................... 375

114th Congress } { Report
SENATE
1st Session } { 114-119

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

THE INTERNAL REVENUE SERVICE'S PROCESSING OF 501(C)(3) AND 501(C)(4)
APPLICATIONS FOR TAX-EXEMPT STATUS SUBMITTED BY ``POLITICAL ADVOCACY''
ORGANIZATIONS FROM 2010-2013

_______

August 5, 2015.--Ordered to be printed

_______

Mr. Hatch, from the Committee on Finance,
submitted the following

R E P O R T

Bipartisan Investigative Report as Submitted by Chairman Hatch and
Ranking Member Wyden

CONTENTS

Page
I. EXECUTIVE SUMMARY AND RECOMMENDATIONS............................5
II. BACKGROUND ON BIPARTISAN INVESTIGATION BY THE SENATE FINANCE
COMMITTEE.......................................................11
A. Scope of the Investigation and This Report.......... 11
B. The Committee's Access to Taxpayer Information
Protected by Section 6103 of the Internal Revenue
Code, and Use of Taxpayer Information in This
Report............................................. 12
C. Limitation on the Committee's Access to Relevant
Information........................................ 14
1. Summary of Information That Forms a Basis for
this Report.................................... 15
2. The IRS Loss of Data, Failure to Notify Congress
in a Timely Manner, and Results of TIGTA
Investigation.................................. 15
3. Actions Taken by Committee Investigators to
Mitigate the Information Gap................... 28
D. Legal Background of 501(c)(3) and 501(c)(4)
Organizations...................................... 29
E. Structure of The IRS Exempt Organizations Division
and General IRS Procedures for Reviewing
Applications for Tax-Exempt Status................. 30
III. FINDINGS OF THE SENATE FINANCE COMMITTEE AND SUMMARY OF SUPPORTING
FACTS...........................................................34
A. IRS Management Lacked an Appreciation for the
Sensitivity and Volatility of Political Advocacy
Applications....................................... 34
B. IRS Management Allowed Employees to Use
Inappropriate Screening Criteria That Focused on
Applicants' Names and Policy Positions............. 37
C. IRS Management Failed to Develop an Effective Plan
for Processing Applications for Political Advocacy
Groups............................................. 39
1. IRS Management Placed Exclusive Reliance on Test
Cases for Too Long............................. 39
2. Lois Lerner's July 2011 Solution to Resolve the
Political Advocacy Applications was Flawed and
Ineffective.................................... 40
3. The 2011 Triage of Political Advocacy
Applications Was Not Properly Supported by EO
Management and Predictably Failed.............. 41
4. Lack of EO Management Oversight of the Political
Advocacy Applications Allowed Development of
the Guidesheet to Simply Stop in November 2011. 42
5. EO Management Allowed the Advocacy Team to
Process Political Advocacy Applications Without
Proper Training and Support, and Failed to
Adequately Manage Its Activities............... 43
6. Although the ``Bucketing'' Exercise of 2012
Resolved Many Pending Political Advocacy
Applications, the IRS Has Not Yet Issued
Determinations for Some Applications........... 44
D. The IRS Placement of Left-Leaning Applicants on the
BOLO List Resulted in Heightened Scrutiny, Delay
and Inappropriate and Burdensome Information
Requests........................................... 44
1. The IRS Instructed Employees to Flag
``Progressive,'' ``Emerge,'' and ACORN
Successor Applications at Training Workshops... 45
2. The IRS Placed the Terms ``Progressive,''
``ACORN,'' and ``Occupy'' on the BOLO List..... 45
3. IRS Scrutiny of Left-Wing Applicants Resulted in
Years-Long Delays and Burdensome Information
Requests....................................... 45
E. The Culture in EO Contributed to a Lack of
Efficiency in its Operations....................... 45
1. EO Management Lacked a Sense of Customer Service 46
2. Remote Management and Workplace Flexibilities
Affected the Efficiency of EO Determinations... 48
3. Antagonism Existed Between EO Senior Executive
Level Management and EO Determinations Managers
and EO Line Employees.......................... 51
4. The IRS Failed to Ensure That All EO Employees
Received Technical Training.................... 52
F. Lois Lerner Oversaw the Handling of Tea Party
Applications and Provided Limited Information to
Upper-Level Management............................. 53
1. Lois Lerner Was Informed About the Tea Party
Applications in April 2010 and Received Updates
About Them..................................... 53
2. Lois Lerner Failed to Inform IRS Upper
Management About the Tea Party Applications.... 55
3. Lerner Did Not Consult With IRS Chief Counsel
William Wilkins About the Tea Party
Applications................................... 57
G. Even During the Committee's Investigation, Some IRS
Employees Continued to Screen Tea Party
Applications Based on the Organization's Names..... 58
H. For a Three-Year Period, the IRS Did Not Perform Any
Audits of Tax-Exempt Organizations That Were
Alleged to Have Engaged in Improper Political
Campaign Intervention.............................. 59
IV. FOLLOWING THE CITIZENS UNITED CASE, THE IRS FACED EXTERNAL
PRESSURE TO MONITOR AND CURTAIL POLITICAL SPENDING OF TAX-EXEMPT
ORGANIZATIONS...................................................60
A. Employees Throughout the IRS Exempt Organizations
Division Were Aware of the Citizens United Decision 60
B. There was Extensive Press Coverage of Political
Spending by Tax-Exempt Organizations Following
Citizens United.................................... 62
C. Many Members of Congress Expressed Their Interest in
Political Spending by Tax-Exempt Organizations..... 63
D. Practitioners and Interest Groups Requested IRS
Action on Political Spending by Tax-Exempt
Organizations...................................... 64
E. In Response to External Scrutiny and Increased
Political Spending by Tax-Exempt Organizations, the
IRS Tracked Political Spending and Proposed
Regulatory Changes................................. 65
V. THE IRS IMPLEMENTED A SPECIAL PROCESS FOR HANDLING CERTAIN TYPES
OF APPLICATIONS.................................................67
A. The Touch and Go (TAG) Spreadsheet Was Developed to
Assist EO Determination Agents..................... 67
B. The TAG Spreadsheet Evolved Into the Joint TAG/
Emerging Issues Spreadsheet........................ 69
C. EO Determinations Agents Were Trained in the Use of
the New Spreadsheet at a June/July 2010 CPE
Training........................................... 70
D. The New Spreadsheet Was Renamed the ``BOLO''
Spreadsheet........................................ 71
E. EO Determinations Developed a Process to Update the
BOLO Spreadsheet................................... 72
VI. APPLICATIONS SUBMITTED BY TEA PARTY ORGANIZATIONS WERE
SYSTEMATICALLY IDENTIFIED, CENTRALIZED AND SUBJECTED TO HEIGHTENED
SCRUTINY BY THE IRS.............................................73
A. After the IRS Received and Approved the First Few
``Tea Party'' Applications, it Prepared Sensitive
Case Reports and Added an Entry to the BOLO
Spreadsheet........................................ 73
1. Tea Party Applications Began to Draw Attention
in EO Determinations........................... 73
2. EO Technical Had Early Awareness of the Tea
Party Applications............................. 74
3. EO Technical Assumed Responsibility for Working
Two Tea Party Applications as ``Test Cases''... 74
4. EO Technical Prepared the First SCR for the Tea
Party Applications............................. 74
5. Placing the Tea Party Applications on the SCRs
Caused Delays in Their Processing.............. 75
6. Identification of the Tea Party Applications as
an Emerging Issue on the BOLO Spreadsheet
Resulted in Centralization and Full Development
of those Applications.......................... 76
B. EO Determinations Periodically Updated the Emerging
Issues Tab of the BOLO Spreadsheet................. 77
1. Until July 2011, the Emerging Issues Tab of the
BOLO Spreadsheet Specifically Referenced the
Tea Party Movement............................. 77
2. In July 2011, Lois Lerner Directed that the
References to ``Tea Party'' be Removed From the
Emerging Issues Tab of the BOLO Spreadsheet.... 78
3. Cindy Thomas Removed References to the ``Tea
Party'' From the Emerging Issues Tab of the
BOLO Spreadsheet............................... 79
4. After July 11, 2011, Cindy Thomas and John
Shafer Made No Changes to the Screening
Criteria Used by Screeners to Identify
Applications Received from Tea Party Groups.... 79
5. Steve Bowling and Cindy Thomas Changed the BOLO
Spreadsheet in January 2012.................... 82
6. Holly Paz and Lois Lerner Were Informed That EO
Determinations Revised the July 2011 Emerging
Issues Tab..................................... 83
7. After Steve Miller Became Aware of the BOLO
Criteria, Holly Paz Revised the Process for
Making Changes to the BOLO Spreadsheet and a
New BOLO Spreadsheet Was Issued................ 84
VII. THE PROCESSES USED BY THE IRS TO WORK THE TEA PARTY APPLICATIONS
WERE INEFFICIENT, CUMBERSOME, INVOLVED MULTIPLE LEVELS OF REVIEW,
AND WERE PLAGUED BY DELAY.......................................85
A. The Initial Process Used to Review the Tea Party
Applications in 2010 Was Laborious and Time
Consuming.......................................... 85
B. Because of Miscommunications Between EO
Determinations Management and Staff, No Tea Party
Applications Were Processed by EO Determinations
for More than One Year (October 2010 to November
2011).............................................. 87
C. Preparation and Review of EO Technical's ``Test
Cases'' from 2010 to 2012 Added Substantial Delay
to the Processing of the Tea Party Applications.... 89
D. The Initiative to Develop a Guidesheet for EO
Determinations Was a Failure That Further
Contributed to Processing Delays in 2011 and 2012.. 92
E. The Initial ``Triage'' of Tea Party and Other
Political Advocacy Cases in 2011 Represented Yet
Another Unsuccessful Attempt by EO Technical to
Assist EO Determinations........................... 95
F. The Advocacy Team Failed to Approve or Deny any
Applications Received From Tea Party or Other
Political Advocacy Organizations From its Formation
in December 2011 to June 2012...................... 98
G. The Multi-Step Review Procedure Established by EO
Technical in 2012 for Political Advocacy
Applications Reflected a Lack of Concern by IRS
Management for the Need to Process the Applications
Expeditiously...................................... 101
H. The May 2012 ``Bucketing'' Initiative Resulted in EO
Determinations Issuing the First Approvals of Tea
Party and Other Political Advocacy Applications
After Nearly Two and a Half Years.................. 103
VIII.THE IRS SELECTED LEFT-LEANING APPLICANTS FOR REVIEW AND SUBJECTED
THEM TO HEIGHTENED SCRUTINY AND DELAYS.........................106
A. EO Determinations Flagged Left-leaning Applicants
with the Names ``Progressive,'' ``ACORN,'' and
``Occupy''......................................... 106
1. PowerPoint Presentation Directs Employees to
Flag ``Progressive'' and ``Emerge'' Applicants. 106
2. BOLO Spreadsheets Include the Phrase
``Progressive''................................ 107
3. IRS Determinations Manager Instructed Employees
to Be Alert for ``Emerge'' Groups.............. 107
4. Employees Were Instructed to Give ``Special
Handling'' to Groups Related to ACORN.......... 107
5. Groups Using ``Occupy'' in Their Name Were
Flagged Using the BOLO Watch List Tab.......... 109
B. Liberal and Progressive Organizations Experienced
Delayed Processing................................. 110
C. Organizations Deemed to be ACORN Successors
Experienced Delays................................. 111
D. Inappropriate and Burdensome Information Requests... 112
IX. ADDITIONAL FINDINGS NOT RELATED TO THE DETERMINATIONS PROCESS..113
A. The IRS Struggled to Decide How to Review
Allegations of Improper Political Campaign
Intervention by Tax-Exempt Organizations, Including
Tea Party Groups................................... 113
1. General Processes for Audits of Tax-Exempt
Organizations.................................. 113
2. The Changing Process for Handling Allegations of
Improper Political Campaign Intervention....... 115
3. EO Determinations Employees Recommended that the
ROO Review the Activities of Some Tea Party
Organizations, and a Smaller Number of
Progressive Organizations, for Improper
Political Campaign Intervention................ 116
B. The IRS Failed to Produce Responsive Documents to a
FOIA Request in 2010 Seeking Information About its
Handling of Tea Party Applications................. 118
C. TIGTA Reviewed Several Allegations of Improper
Disclosures of Taxpayer Information by the White
House and IRS...................................... 121
1. Koch Industries, Inc............................ 121
2. National Organization for Marriage.............. 122
3. Disclosure of Tax-Exempt Applications to
ProPublica..................................... 124
4. Republican Governors Public Policy Committee.... 125
X. CONCLUSION.....................................................125

I. EXECUTIVE SUMMARY AND RECOMMENDATIONS

This bipartisan investigation of the Senate Finance
Committee examined the Internal Revenue Service's (IRS)
handling of applications for tax-exempt status submitted by
political advocacy organizations, following allegations that
the IRS discriminated against some of these organizations based
on their political views.
Our investigation found that from 2010 to 2013, IRS
management was delinquent in its responsibility to provide
effective control, guidance, and direction over the processing
of applications for tax-exempt status filed by Tea Party and
other political advocacy organizations. IRS managers either
failed in their responsibility to keep informed about the very
existence of the applications, or failed to recognize the
sensitivity of these applications. In the case of the former,
IRS managers forfeited the opportunity to shape the IRS's
response to the influx of political advocacy applications by
simply failing to read reports informing them of the existence
of those applications. In the case of the latter, IRS managers
did not take appropriate steps to ensure that the applications
were processed expeditiously and accurately.
Our investigation focused particularly on the Exempt
Organizations (EO) Division of the IRS, which is responsible
for administering the tax code provisions related to tax-exempt
organizations, including processing and deciding applications
submitted by organizations seeking tax-exempt status. Lois
Lerner served as the Director of the EO Division from January
2006 to May 2013. Lerner first became aware that the IRS
received applications from Tea Party groups in April or May
2010. For the next two years, Lerner failed to adequately
manage the EO employees who processed these applications.
Moreover, Lerner failed to inform upper-level IRS management of
the serious delays in processing applications for tax-exempt
status from Tea Party and other politically sensitive groups.
Consequently, it was a year before the IRS Office of Chief
Counsel became involved, and nearly two years before Lerner's
superiors in the IRS management chain were aware of the gross
mismanagement of Tea Party and other sensitive advocacy
applications.
While under the leadership of Lois Lerner, the EO Division
undertook a number of initiatives aimed at finding a way to
process the Tea Party and other political advocacy
applications. Each of these initiatives was flawed in design
and/or mismanaged. In one example, EO management sanctioned the
use of the Be On the Lookout (BOLO) list, which improperly
identified the Tea Party and other organizations by name and
policy position. The IRS used the BOLO list to subject
applications received from Tea Party groups to heightened
scrutiny, even when that scrutiny was unwarranted because the
applications gave no indication that the organizations would
engage in political campaign intervention. Other initiatives to
process political advocacy applications sanctioned by EO
management were under-planned, under-staffed and under-
executed. In each case, these poorly formed initiatives ended
in predictable failure and each failure resulted in applicant
organizations enduring inexcusably long delays in receiving
decisions on their applications. Those delays often proved to
be harmful or fatal to the organizations by undermining the
very purposes for which they were formed.
The workplace ``culture'' prevalent in the EO Division was
one in which little emphasis was placed on providing good
customer service, a fact inconsistent with the IRS's promise to
provide ``top quality service.'' Indeed, the EO Division
operated without sufficient regard for the consequences of its
actions for the applicant organizations. Not only did those
organizations have to withstand delays measured in years, but
many also were forced to bear a withering barrage of burdensome
and inappropriate ``development letters'' aimed at extracting
information the IRS wrongly concluded was necessary to properly
process the applications.
Factors further contributing to the dysfunctional
``culture'' of the EO Division included the office structure of
the Determinations Unit that placed managers in offices located
in geographic locales far from the employees they supervised,
and employees and managers who frequently teleworked, in some
cases up to four days a week. The confluence of remote
management and a dispersed workforce undoubtedly impaired
coordination and communication within the Determinations Unit.
Moreover, acrimony typified the relationship between various
organizations within the EO Division and served to further
embitter the workplace ``culture.''
In the wake of the Citizens United decision in 2010, the
IRS received an increasing number of allegations that tax-
exempt organizations were engaged in political campaign
intervention inconsistent with their exempt status. Recognizing
the importance of having a process to evaluate these
allegations, IRS management, including the Commissioner and
Acting Commissioner, focused their efforts on devising a
workable process that would allow the IRS to evaluate and
investigate these allegations. Management's efforts proved
fruitless, and as a consequence, the IRS performed no
examinations of 501(c)(4) organizations related to political
campaign intervention from 2010 until 2014.
The Committee's investigation included a review of more
than 1,500,000 pages of documents and interviews of 32 current
and former IRS and Treasury employees. Issuance of this report
was delayed for more than a year when the IRS belatedly
informed the Committee that it had not been able to recover a
large number of potentially responsive documents that were lost
when Lois Lerner's hard drive crashed in 2011.
At the Committee's request, the Treasury Inspector General
for Tax Administration (TIGTA) investigated the circumstances
behind the loss of data and other related issues, and was
ultimately able to recover 1,330 emails that had not been
produced to Congress. TIGTA's findings are described below in
Section II(C). Overall, the IRS's less than complete response
to these circumstances cast doubt about the thoroughness of
their efforts to recover all relevant records related to the
investigation, as well as their candor to this and other
Congressional committees.
Although it was not possible to completely produce the
records that were lost, the Committee exhausted all available
measures to mitigate the amount of missing information by
collecting additional information from the IRS, other executive
agencies, and outside sources. This report accurately
summarizes the facts known to the Committee, and we believe
that our conclusions are supported by the record.
Committee staff have agreed on numerous bipartisan
investigative findings. Some of these findings are highlighted
below, along with corresponding recommendations to address the
underlying problem. Greater discussion of these and other
findings related to the determination process are contained in
Section III, and ancillary findings are in Section IX.\1\
---------------------------------------------------------------------------
\1\In addition to the recommendations enumerated below, Committee
staff also considered whether the IRS should improve its employee
training program and whether it should modify the expedited review
process. We have omitted these recommendations because they were
included in TIGTA's recent report, Status of Actions Taken to Improve
the Processing of Tax-Exempt Applications Involving Political Campaign
Intervention, TIGTA Audit Report 2015-10-025 (Mar. 27, 2015) at 2. We
encourage the IRS to follow the recommendations outlined in TIGTA's
report.
---------------------------------------------------------------------------
Finding #1: The IRS's handling of applications from
advocacy organizations may affect public confidence in the IRS.
To avoid any concerns that may exist that IRS decisions about
particular taxpayers are influenced by politics, the following
recommendations are made.
Related Recommendation #1: Publish in the
instructions to all relevant application forms
objective criteria that may trigger additional review
of applications for tax-exempt status and the
procedures IRS specialists use to process applications
involving political campaign activity. Prohibit the IRS
from requesting individual donor identities at the
application stage, although generalized donor questions
should continue to be allowed, as well as requests for
representations that, e.g., there will be no private
inurement.
Related Recommendation #2: Revise the Hatch Act to
designate all IRS, Treasury and Chief Counsel employees
who handle exempt organization matters as ``further
restricted.'' ``Further restricted'' employees are held
to stricter rules than most government employees and
are precluded from active participation in political
management or partisan campaigns, even while off-duty.
By designating those employees as ``further
restricted,'' the public can be assured that any
impermissible political activity by an IRS employee
that is detected will result in serious penalties,
including removal from federal employment.
Related Recommendation #3: Create a position within
the Taxpayer Advocate Service dedicated solely to
assisting organizations applying for non-profit tax-
exempt status.
Finding #2: The IRS systematically screened incoming
applications for tax-exempt status from more than 500
organizations and implemented procedures that resulted in
lengthy delays. Until early 2012, certain top-level management
was unaware that these applications were being processed in
this manner. (See Section III(A).)
Related Recommendation #1: The Exempt Organizations
division should track the age and cycle time of all of
its cases, including those referred to EO Technical, so
that it can detect backlogs early in the process and
conduct periodic reviews of over-aged cases to identify
the cause of the delays. A list of over-aged cases
should be sent to the Commissioner of the Internal
Revenue Service quarterly.
Related Recommendation #2: The Exempt Organizations
division should track requests for guidance or
assistance from the EO Technical Unit so that
management can assess the timeliness and quality of the
guidance and assistance it provides to both
Determinations Unit employees and the public.
Related Recommendation #3: The Exempt Organizations
division should track requests for guidance or
assistance from the Office of Chief Counsel so that
management can assess the timeliness and quality of the
guidance and assistance it provides to both the
Determinations Unit employees and the public. Any
requests for guidance or assistance from the Office of
Chief Counsel that have not been responded to on a
timely basis should be promptly reported to the
Commissioner of the Internal Revenue Service.
Finding #3: The IRS took as long as five years to come to a
decision on applications for tax-exempts status submitted by
Tea Party and other applicants potentially involved in
political advocacy. The IRS lacked an adequate sense of
customer service and displayed very little concern for
resolving these cases. (See Section III(E)(1).)
Related Recommendation #1: The Internal Revenue
Manual contains standards for timely processing of
cases. Enforce these existing standards and discipline
employees who fail to follow them. Managers should also
be held accountable if their subordinates fail to
follow these standards.
Related Recommendation #2: For all types of tax-
exempt applicants, IRS guidelines should direct
employees to come to a decision on whether or not it
will approve an application for tax-exempt status
within 270 days of when an application is filed.
Finding #4: Important issues were not elevated within the
IRS. Some Sensitive Case Reports containing information about
Tea Party applications were sent to top IRS managers in 2010,
but the managers did not read them. (See Section III(A).)
Related Recommendation: Revise the Sensitive Case
Report process or develop a more effective way to
elevate important issues within the organization other
than the Sensitive Case Reports system. Require the
senior recipient of each Sensitive Case Report within
the Division (a member of the Senior Executive Service)
to memorialize specific actions taken in relation to
each issue raised in the report, and require such
report to be forwarded to the IRS Commissioner for
review.
Finding #5: A contributing factor to the IRS's management
problems was the decentralization of its employees, including
some who worked from home as often as 4 days per week, and
managers who remotely supervised employees 2,000 miles away.
(See Section III(E)(2).)
Related Recommendation: Evaluate whether current
organizational structures and workplace locations are
inhibiting performance. Make appropriate adjustments to
improve communication between employees and their
managers.
Finding #6: Some managers within the EO Division were not
trained in the substantive tax areas that they managed,
including one who did not complete any technical training
during the 10 years that she served in a managerial EO
position. (See Section III(E)(4).)
Related Recommendation: Set minimum training
standards for all managers within the EO Division to
ensure that they have adequate technical ability to
perform their jobs.
Finding #7: The IRS did not perform any audits of groups
alleged to have engaged in improper political activity from
2010 through April 2014. During that time, the IRS tried to
implement new processes to select cases for examination, but a
memo from Judy Kindell, Sharon Light and Tom Miller stated that
this approach ``arguably [gave] the impression that somehow the
political leanings of [the organizations] mentioned were
considered in making the ultimate decision.'' The IRS recently
discontinued use of the Dual Track process and now uses
generalized procedures when deciding whether to open an
examination of an exempt organization's political activities.
(See Section IX(A).)
Related Recommendation #1: Review the recently-
enacted procedures to determine if: (1) the process
enables the IRS to impartially evaluate allegations of
impermissible political activity; (2) any of the
referrals have resulted in the IRS opening an
examination related to political activity, and if so,
whether such an examination was warranted; and (3) if
necessary, the IRS should make further modifications to
ensure that it carries out the enforcement function in
a fair and impartial manner.
Related Recommendation #2: The IRS should fully
implement all recommendations of the Government
Accountability Office in their July 2015 report titled
``IRS Examination Selection: Internal Controls for
Exempt Organization Selection Should be Strengthened,''
GAO-15-514.
Related Recommendation #3: No later than July 1,
2017, we request that TIGTA conduct a review of the
three points noted above in Recommendation #1 related
to the revised EO Exam procedures.
Finding #8: On multiple occasions, the IRS improperly
disclosed sensitive taxpayer information when responding to
Freedom of Information Act (FOIA) requests. Employees who were
responsible for these disclosures received minimal or no
discipline. (See Section IX(C).)
Related Recommendation: Require all outgoing FOIA
responses to be reviewed by a second employee to ensure
that taxpayer information is not improperly disclosed.
Finding #9: In 2010, the IRS received a FOIA request from a
freelance journalist seeking information about how the agency
was processing requests for tax-exempt status submitted by Tea
Party groups. After 7 months, the IRS erroneously informed the
journalist that they did not possess any documents that were
responsive to her request. (See Section IX(B).)
Related Recommendation #1: Ensure that IRS procedures
specify which organizational units within the agency
should be searched when the IRS receives an incoming
FOIA request on a particular topic. For example, when
the IRS receives a FOIA request for records related to
tax-exempt applications, the agency should search the
records of all components within the Exempt
Organizations division.
Related Recommendation #2: To be consistent with the
intent of FOIA, employees handling FOIA requests should
construe the requests broadly and contact the requestor
to clarify the scope of the request whenever necessary.
However, the IRS should also take appropriate measures
to safeguard taxpayer information and avoid improper
disclosure.
Finding #10: The IRS has made Office Communicator Server
(OCS) instant messaging software available to its employees.
Under the collective bargaining agreement with the National
Treasury Employees' Union, the IRS agreed that it would not
automatically save messages sent to and from employees. As a
result, messages can only be recovered if an employee elected
to save them. TIGTA opined that this policy does not
necessarily violate federal recordkeeping laws, but noted that
``[w]hether OCS is being used according to NARA's guidance
depends on how OCS end-users are utilizing the system.'' (See
Section II(C)(2)).
Related Recommendation: The IRS should review how
employees use OCS. If the program is not used for IRS
business, the agency should evaluate whether it is
appropriate and necessary. If OCS is used for official
IRS purposes, the IRS should take measures to ensure
such use complies with federal recordkeeping laws.
While the above findings and others detailed more fully on
the succeeding pages have been jointly agreed to by the
Majority and Minority, those Staffs were unable to reach
agreement on three areas as set forth below:
The extent, if any, to which political bias
of IRS employees, including Lois Lerner, affected the
IRS's processing of applications for tax-exempt status.
Whether the IRS used improper methods to
screen and process applications for tax-exempt status
submitted by progressive and left-leaning
organizations.
The involvement, if any, of Treasury
Department and White House employees, including
President Obama, in directing or approving the actions
of the IRS.
The Majority and Minority have rendered their own
conclusions on these and other topics which are set forth more
fully in the sections of this report entitled Additional Views
of Senator Hatch Prepared by Republican Staff and Additional
Views of Senator Wyden Prepared by Democratic Staff.

II. BACKGROUND ON BIPARTISAN INVESTIGATION BY THE SENATE FINANCE
COMMITTEE

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section describes the scope of the Senate Committee on Finance
investigation;
the Committee's access to taxpayer information and its use in this
report; the
Committee's access to information relevant to this investigation;the
IRS's loss of
records potentially relevent to this investigation; the legal background
of tax-exempt
organizations involved in the investigation; and, the way that the IRS
processed
applications for tax-exempt status.
------------------------------------------------------------------------

A. Scope of the Investigation and This Report

The United States Senate Committee on Finance (the
Committee) has exclusive legislative jurisdiction and primary
oversight authority over the IRS.
On May 10, 2013, Lois Lerner, IRS Director of EO, disclosed
at a panel for the Exempt Organizations Committee of the Tax
Section of the American Bar Association that IRS employees had
selected certain 501(c)(4) tax-exempt applications that
contained the words ``Tea Party'' and ``Patriots'' for further
review simply because the applications had those terms in the
title.\2\
---------------------------------------------------------------------------
\2\American Bar Association, Transcript of The Exempt Organization
Tax Review (May 10, 2013) ABA Tax Section's Exempt Organizations
Committee Meeting, Vol. 72, No. 2 pp. 126-127.
---------------------------------------------------------------------------
On May 14, 2013, TIGTA released a report finding that the
IRS ``used inappropriate criteria that identified for review
Tea Party and other organizations applying for tax-exempt
status based upon their names or policy positions instead of
indications of potential political campaign intervention.''\3\
---------------------------------------------------------------------------
\3\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review (May 14, 2013) TIGTA Audit Report #2013-10-053.
---------------------------------------------------------------------------
At the time of the IRS and TIGTA disclosures that groups
with the words ``Tea Party,'' ``9/12'' or ``Patriot'' in the
name were selected for additional scrutiny, there was
speculation and concern expressed that the singling out of
conservative organizations by name may have been a consequence
of political bias or motivation on the part of IRS employees.
There was further speculation concerning the role of political
appointees at the IRS, Treasury Department or the White House
in the selection of these conservative organizations for
heightened scrutiny.
On May 20, 2013, the Committee sent a detailed letter to
the IRS requesting that the IRS answer questions and turn over
internal documents relating to the targeting controversy.\4\
Simultaneously, the Committee began an in-depth bipartisan
investigation to determine the facts surrounding the
controversy. This investigation was prompted by the serious
nature of allegations that political considerations may have
driven the IRS's heightened scrutiny of conservative-leaning
organizations applying for tax-exempt status.
---------------------------------------------------------------------------
\4\Letter from Chairman Baucus and Ranking Member Hatch to the
Acting Commissioner Steven Miller (May 20, 2013).
---------------------------------------------------------------------------
The Committee held a hearing to publicly explore these
issues on May 21, 2013, with Steven Miller, then Acting
Commissioner, Internal Revenue Service; Douglas Shulman, Former
Commissioner, Internal Revenue Service; and J. Russell George,
Treasury Inspector General for Tax Administration, United
States Department of the Treasury. The primary purpose of this
report is to examine the IRS's handling of applications for
tax-exempt status from 2010 through 2013, but it also covers
other topics related to the IRS's oversight of tax-exempt
organizations. Committee staff did not investigate the IRS's
administration and enforcement of other parts of the Internal
Revenue Code, including individual taxpayers and corporate for-
profit entities; nor did it investigate the potential
imposition of the gift tax for contributions made to tax-exempt
organizations. Accordingly, these and other divergent topics
are not covered by this report.

B. The Committee's Access to Taxpayer Information Protected by Section
6103 of the Internal Revenue Code, and Use of Taxpayer Information in
This Report

When taxpayers submit information to the IRS, they expect
it to be treated confidentially. Accordingly, section 6103 of
the Internal Revenue Code prohibits the IRS from disclosing any
``returns'' or ``return information,'' and these terms are
defined broadly.\5\ Violating section 6103 is a felony,
punishable by imprisonment and fines and also subject to civil
lawsuits for damages.\6\ Section 6103, which was substantially
tightened in 1976 in the wake of the controversy surrounding
the Nixon Administration's attempt to review the tax returns of
political enemies, is an essential safeguard.\7\ It protects
taxpayer privacy and prevents the IRS or anyone else from using
taxpayer information for political or otherwise inappropriate
purposes.
---------------------------------------------------------------------------
\5\26 U.S.C. 6103 (2013).
\6\Section 7213 states that criminal violations of section 6103
must be knowing, while under section 7431, civil violations must be
knowing or negligent. Under section 7431(b), someone who discloses
section 6103 information through a good-faith, non-negligent mistake is
not liable.
\7\This practice did not begin with the Nixon Administration. At a
1976 hearing by a subcommittee of the Senate Finance Committee, a
witness included in the record a report by the Center for National
Security Studies, which said, ``[t]he IRS has from time to time used
its power to conduct audits of groups and individuals whose political
views and activities were of concern to others. Special groups were
established to conduct such audits under the Kennedy, Johnson, and
Nixon Administrations. On at least one occasion an audit was conducted
at the request of a congressional committee.'' Hearing. Subcommittee of
the Senate Finance Committee on Administration of the Internal Revenue
Code, Federal Tax Return Privacy (Jan. 23, 1976) p. 10.
---------------------------------------------------------------------------
Section 6103 contains a set of narrow exceptions, which
allow the IRS to disclose taxpayer information in certain
limited circumstances and with appropriate safeguards. For
example, there are exceptions for disclosure to federal or
state law enforcement officials in certain circumstances and
for disclosure to various federal agencies for the purpose of
compiling government statistics.
One of the exceptions, in section 6103(f), requires the IRS
to provide taxpayer-specific information requested by the
Congressional tax committees (Senate Committee on Finance,
House Committee on Ways and Means, and the Joint Committee on
Taxation),\8\ and it authorizes the chairmen of the tax
committees to designate staff members to ``inspect returns and
return information at such time and in such manner as may be
determined by [the] chairman.'' This allows the committees to
have access to taxpayer-specific information for the purposes
of undertaking policy analyses or investigations.
---------------------------------------------------------------------------
\8\Section 6103(f) also allows other (i.e., non-tax) congressional
committees to receive taxpayer-specific information, but only pursuant
to a Senate or House resolution. Further, section 6103 contains a
series of other exceptions, including allowing release of taxpayer-
specific information to certain tax administrators, release of
taxpayer-specific information of Presidential appointees, and release
of taxpayer-specific information to criminal investigators pursuant to
a court order.
---------------------------------------------------------------------------
As a general matter, staff who are designated by the
chairman to review taxpayer-specific information are themselves
subject to the confidentiality requirements of section 6103. In
other words, they are required to keep the information
confidential, subject to criminal and civil penalties. However,
section 6103(f)(4)(A) goes on to provide that ``[a]ny return or
return information obtained by or on behalf of such committee .
. . may be submitted by the committee to the Senate or the
House of Representatives, or to both.'' Thus, taxpayer-specific
information reviewed by the Finance Committee under section
6103(f) may be disclosed to the full Senate in open session,
and, hence, to the public,\9\ but only through the formal and
careful process of a Committee vote to make a submission to the
Senate.
---------------------------------------------------------------------------
\9\Contrast section 6103(f)(4)(A) with section 6103(f)(4)(B), which
provides that information obtained by a committee other than the
Finance, Ways and Means, or Joint Committee on Taxation may be
submitted to the Senate or the House ``only when sitting in closed
executive session'' (unless the taxpayer consents). In the case of a
submission to the House or Senate by one of the tax committees, in
contrast, there is no equivalent requirement that the submission occur
in closed session.
---------------------------------------------------------------------------
In the course of this investigation, the Finance Committee
has received extensive information under section 6103(f). For
example, Committee staff examined, in detail, how specific
applications for 501(c)(4) status were reviewed, to understand
the decision-making process that the IRS applied. It also was
important to consider whether particular applications were from
``conservative'' or ``progressive'' organizations, in order to
determine whether the IRS was taking an even-handed approach.
In preparing this report of the investigation, the Finance
Committee has decided, after careful consideration and after
consultation with the Senate Legal Counsel's office, to include
limited taxpayer information available to the Senate and the
public, by making a formal submission to the Senate under
section 6103(f)(4)(A). We have decided to do so for several
reasons.
First, this approach is clearly permissible under section
6103. Although the principal purpose of section 6103 is to
protect taxpayer-specific information, section 6103 also
clearly contemplates the need for the public disclosure in
compelling circumstances, and it establishes a formal and
carefully considered process for a release: a submission by one
of the tax committees to the House or Senate.
Second, the disclosure of limited taxpayer information
facilitates a fully informative report. There has been a great
deal of speculation about exactly what happened during the IRS
review of 501(c)(4) organizations, and this has important
implications for our governmental and political institutions.
Under Supreme Court and IRS interpretations of section 6103, it
would be difficult to provide a comprehensive review of the
facts without making a formal submission to the Senate and
thereby allowing disclosure notwithstanding section 6103.\10\
In light of this, we have included some of the names of
specific organizations, both conservative and progressive, who
submitted section 501(c)(4) applications during this period,
along with details about the handling of the applications which
are essential to understanding the underlying facts.
---------------------------------------------------------------------------
\10\Section 6103 broadly prohibits public disclosure of ``return
information'' in order to protect taxpayer privacy. Section 6103(2)(b)
defines ``return information'' as information that can be identified
with a particular taxpayer, but allows for disclosure of aggregate data
for statistical analysis as long as that data doesn't directly or
indirectly identify a taxpayer. Therefore, a report that does not
contain return information protected under 6103 would necessarily be
based on aggregated data, making a comprehensive review of the entity
specific facts at issue difficult.
---------------------------------------------------------------------------
Third, we have limited the disclosure to the minimum
necessary to provide an informative report. We have omitted
material, redacted material, and summarized wherever
appropriate, and we have disclosed no personal names, financial
information, or other details that are not necessary to
understanding the essential facts. We have also, wherever
possible, relied on information that already is in the public
record.
Accordingly, the Committee has decided, on a bipartisan
basis, to submit this report, including limited material
covered by section 6103, to the full Senate in open session. We
expect that, in the future, the Committee will only disclose
section 6103 material in similarly compelling circumstances and
with similar safeguards.

C. Limitation on the Committee's Access to Relevant Information

To fully investigate this matter, the Committee sought all
information that could have some bearing on how the IRS
processed applications for tax-exempt status from 2010 through
2013. The Committee considered a vast amount of information--
receiving approximately 1,500,000 pages of documents and
conducting interviews of 32 individuals--that enabled
investigators to conduct a thorough review and reach the
conclusions set forth in this report. Unfortunately, the IRS
failed to retain information that may have been relevant to
this investigation, which was lost when Lois Lerner's computer
crashed and the IRS errantly disposed of backup data. This loss
of information was compounded by the IRS's lack of candor in
notifying this and other Congressional committees about the
missing documents. The Committee attempted to fill in the
information gap with records of other employees at the IRS and
outside agencies; however, as described below, a large number
of Lerner's records were never recovered. As a result, the full
extent of the IRS's failings in this matter may never be known.
In spite of these limitations, the large volume of
information we have reviewed gives us a high degree of
confidence in the accuracy of the conclusions reached during
our investigation, as described in this report.

1. Summary of Information That Forms a Basis for This Report

To complete this investigation, Committee staff interviewed
32 current and former IRS and Treasury Department employees.
The interviewees included: (1) employees charged with reviewing
and deciding tax-exempt applications; (2) managers who oversaw
those employees, including former Acting Commissioner Steven
Miller; (3) legal experts who were consulted on tax-exempt
issues; (4) IRS executives and political appointees, including
former Commissioner Douglas Shulman and Chief Counsel William
Wilkins; and (5) two former senior Treasury officials, Deputy
Secretary Neal Wolin and former Chief of Staff Mark Patterson,
and current Treasury attorney Hannah Stott-Bumsted. Committee
investigators also interviewed numerous individuals who
submitted applications on behalf of nonprofit organizations or
were otherwise involved in the application process for
501(c)(3) and 501(c)(4) entities. The Committee sought to
interview Lois Lerner, but she declined the Committee's
request.
In the course of this investigation, Committee staff
reviewed approximately 1,500,000 pages of documents, the
majority of which were produced by the IRS and TIGTA:
In response to the Committee's May 20, 2013,
document request letter and subsequent requests, the
IRS provided the Committee with approximately 1,300,000
pages of documents.
TIGTA provided the Committee with work
papers and related documentation that were used in the
compilation of the audit report they released on May
14, 2013. TIGTA also produced other materials requested
by the Committee.
In response to requests of the Committee Chairman and/or
Ranking Member, the Federal Election Commission (FEC), the
Department of the Treasury, and the Department of Justice (DOJ)
provided records to the Committee. The White House also
provided a production of the limited number of documents that
were sent to or from Lerner. Additionally, a number of
nonprofit organizations provided information to the Committee
about their interactions with the IRS.
The Committee has asked the IRS and TIGTA to notify the
Committee if they locate additional documents that are relevant
to this investigation. We will supplement the findings of this
report if necessary.

2. The IRS Loss of Data, Failure to Notify Congress in a Timely Manner,
and Results of TIGTA Investigation

At 2:00 PM on Friday, June 13, 2014, the IRS first informed
the Committee that, due to a hard drive crash of Lerner's
computer in 2011, the IRS had not produced all documents
relevant to this investigation.\11\ As described below, this
disclosure came as a surprise to the Chairman and Ranking
Member, who were prepared to start the formal process of
issuing this report on Monday, June 16, 2014. Many of the 41
document requests in the Committee's May 20, 2013 letter to the
IRS initiating this investigation involved records maintained
by Lerner. Moreover, this Committee, as well as House
committees, requested that the IRS produce all emails sent and
received by Lerner from 2010 through May 2013. Thus, the IRS's
unexpected announcement about Lerner's hard drive crash cast
doubt on the completeness of the record upon which the
Committee's draft report was based.
---------------------------------------------------------------------------
\11\Letter from Leonard Oursler to Senator Wyden and Senator Hatch
(June 13, 2014).
---------------------------------------------------------------------------
In its June 13 letter, the IRS stated that ``Ms. Lerner's
computer crashed in mid-2011'' and despite ``multiple processes
to recover information . . . the data stored on her computer's
hard drive was determined at the time to be `unrecoverable' by
the IT professionals.''\12\ As a result, the IRS concluded that
``[a]ny of Ms. Lerner's email that was only stored on that
computer's hard drive would have been lost when the hard drive
crashed and could not be recovered.''\13\ The IRS further
explained that IRS employees, including Lerner, had limited
storage space on the network drive and therefore had to save
messages on their personal computers. Thus, the IRS's
revelation about Lerner's hard drive meant that an unknown
quantity of emails sent and received by Lerner had not been
retained by the IRS or produced to the Committee. These emails
were particularly significant since they included messages
transmitted during 2010 and the first half of 2011--the period
when many of the most critical events in this matter occurred.
---------------------------------------------------------------------------
\12\Id., Enclosure 3 p. 5.
\13\Id.
---------------------------------------------------------------------------
Based on the IRS's June 13 letter and subsequent meetings
with Commissioner Koskinen, Senators Hatch and Wyden quickly
determined that the full extent of data loss was not known.
Accordingly, by letter dated June 23, 2014, then-Chairman Wyden
and then-Ranking Member Hatch asked Inspector General George to
investigate six issues, enumerated in the letter and reproduced
below.\14\ The Committee suspended release of this report until
TIGTA completed its work.
---------------------------------------------------------------------------
\14\Letter from Chairman Wyden and Ranking Member Hatch to J.
Russell George (June 23, 2014).
---------------------------------------------------------------------------
In response to the Committee's request, TIGTA commenced a
thorough investigation that included interviews of 118
witnesses and processing and reviewing more than 20 terabytes
of data. On June 30, 2015, TIGTA issued its final report of
investigation. TIGTA's principal findings are as follows, and
its full report of investigation is attached as an exhibit to
this report.\15\
---------------------------------------------------------------------------
\15\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014).
---------------------------------------------------------------------------
Committee Request #1 to TIGTA: Whether Lerner, and
six other employees identified by the IRS as possibly
suffering a loss of data,\16\ did, in fact, lose data.
---------------------------------------------------------------------------
\16\The other six employees are Nikole Flax, former Chief of Staff
to former Acting Commissioner Steven Miller; Michelle Eldridge,
Supervisory Public Affairs Specialist; Kimberly Kitchens, Revenue
Agent; Julie Chen, Revenue Agent; Tyler Chumney, Supervisory Revenue
Agent; and Nancy Heagney, Revenue Agent.
---------------------------------------------------------------------------
TIGTA concluded that four of the seven employees identified
in the Committee's letter experienced hard drive crashes but
did not lose any data. TIGTA found that the other three
employees experienced computer problems that resulted in a data
loss: Lerner, Julie Chen, and Nancy Heagney. The circumstances
of each loss are discussed below in turn.
a. Lois Lerner
TIGTA confirmed that Lerner's hard drive crash resulted in
a loss of data. TIGTA determined that Lerner's hard drive
likely crashed between 5 and 7 P.M. on Saturday, June 11, 2011,
based on the computer's failure to respond to a network query
at 7 P.M.\17\ TIGTA attempted to determine if anyone entered
Lerner's office on the day of the crash; however, the building
security vendor no longer maintained logs for this period, so
TIGTA was unable to reach a conclusion on that issue.\18\
Lerner ``described coming into office in the morning [of
Monday, June 13, 2011] and seeing `the blue screen.'''\19\
Later that morning, a work ticket ``was entered indicating
Lerner's computer screen is black and won't allow [the]
employee to log in.''\20\
---------------------------------------------------------------------------
\17\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 8. TIGTA noted that Lerner's computer
received a software update on the afternoon of June 11, 2011; however,
TIGTA concluded that ``[t]here is no indication software [update] would
have caused Lerner's hard drive to crash.'' Id. p. 9.
\18\Id. p. 9.
\19\Id. p. 10.
\20\Id. pp. 5-6.
---------------------------------------------------------------------------
At that point, an IRS IT Specialist was assigned to respond
to Lerner's work ticket. He told TIGTA that ``he was unable to
recover any data from the hard drive, and following normal
protocol, he replaced the hard drive in Lerner's computer with
a new hard drive.''\21\ The IT Specialist ``did not observe any
indications of tampering or physical damage to Lerner's
laptop.''\22\ After replacing the hard drive, the IT Specialist
noted that Lerner's computer also ``needed a new fan system and
possibly a heatsink due to overheating.''\23\
---------------------------------------------------------------------------
\21\Id. p. 5.
\22\Id. p. 6.
\23\Id. pp. 5-6.
---------------------------------------------------------------------------
The IRS requested technical support from Hewlett-Packard. A
Hewlett-Packard employee then ``worked on Lerner's laptop to
replace the keyboard, trackpad, heat sink, and fan due to an
overheating issue[.]''\24\ When interviewed by TIGTA, the
Hewlett-Packard employee did not specifically recall working on
Lerner's computer and ``did not recall, or note in his records,
any damage to the laptop.''\25\ When asked for his opinion
about the failure, he stated many different things, including
the environment, can cause damage to a computer, and opined
that ``it was unusual for so many components to fail at the
same time.''\26\ He also stated that ``there are many causes
for hard drive failures, although overheating causing a hard
drive failure'' is uncommon.\27\ The Hewlett-Packard employee
further told TIGTA that ``[i]f there was severe impact to a
computer or hard drive, it could internally damage the
mechanical components of the hard drive making it
unusable.''\28\
---------------------------------------------------------------------------
\24\Id. p. 6.
\25\TIGTA Memorandum of Interview or Activity, Personal Interview
of Mauricio Terrazas (Aug. 28, 2014) p. 2; TIGTA, Exempt Organizations
Data Loss, Report of Investigation 54-1406-008-I (June 30, 2014) p. 6.
\26\TIGTA Memorandum of Interview or Activity, Personal Interview
of Mauricio Terrazas (Aug. 28, 2014) p. 3; TIGTA, Exempt Organizations
Data Loss, Report of Investigation 54-1406-008-I (June 30, 2014) p. 6.
\27\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 6.
\28\Id.
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An IRS Criminal Investigation Division technician later
examined the hard drive in an attempt to recover data. He
``noted concentric scoring of the hard drive platters, opining
that the drive had failed because the drive heads had impacted
the platters while in operation[.]''\29\ When TIGTA asked
Hewlett-Packard employee ``what scenario could have caused hard
drive heads to impact the platter of the disk, [he] opined an
impact to the laptop or hard drive was the most likely
cause.''\30\
---------------------------------------------------------------------------
\29\Id. p. 7.
\30\Id. p. 6.
---------------------------------------------------------------------------
During her interview with TIGTA, Lerner ``denied hitting or
damaging the hard drive intentionally'' and ``did not recall
any incidents that could have damaged her laptop.'' Moreover,
Lerner ``was not aware of anyone who might want to destroy the
data on her computer.''\31\
---------------------------------------------------------------------------
\31\TIGTA Memorandum of Interview or Activity, Personal Interview
of Lois Lerner (July 9, 2014).
---------------------------------------------------------------------------
Ultimately, TIGTA did not reach a conclusion about the
cause of Lerner's hard drive crash.
Regardless of the cause, Lerner's hard drive crash erased
data relevant to Lerner's job. Lerner told TIGTA that she
regularly received a large volume of email that exceeded the
amount of network storage. To keep her email functioning,
Lerner and her assistants, Dawn Marx and Diane Letourneau,
regularly moved messages to folders on her hard drive that were
organized by subject.\32\ Lerner said that her June 2011
computer crash ``resulted in a significant amount of data being
lost'' and told TIGTA that it ``cost her `a lot of time'
because so much of her current work was lost.''\33\
---------------------------------------------------------------------------
\32\Id.
\33\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 10.
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Neither TIGTA nor the IRS could determine the exact number
of records that were lost, and not subsequently recovered, when
Lerner's hard drive crashed. Using an email transaction log
maintained by the Treasury Department, TIGTA calculated that
``as many as 23,000 to 24,000 email messages may not have been
provided to Congress,'' although TIGTA noted that this estimate
``could be high'' because TIGTA was unable to compare these
logs to documents that the IRS was able to recover from other
custodians and produced to Congress.\34\ The IRS's efforts to
recover Lerner's emails through alternate means as described
below likely yielded some, but not all, of these emails.
---------------------------------------------------------------------------
\34\Id. pp.2-3.
---------------------------------------------------------------------------
b. Julie Chen
Chen is a revenue agent in the Cincinnati EO Determinations
office. The hard drive on Chen's computer crashed on June 12,
2012. IRS IT was unable to recover data from her failed hard
drive. Chen told TIGTA that she saved case documents to her
hard drive but did not save emails--when her inbox was full,
she would delete old emails instead of archiving them on her
hard drive.\35\ As a result, Chen's hard drive crash did not
result in the loss of any emails potentially responsive to the
Committee's investigation. The IRS technician who worked on
Chen's crashed computer stated that she did not recall any
damage to the computer and did not determine a cause of the
crash; nor was there any indication of intentional data
loss.\36\
---------------------------------------------------------------------------
\35\TIGTA Memorandum of Interview of Activity, Personal Interview
of Julie Chen (Aug. 28, 2014).
\36\TIGTA Memorandum of Interview or Activity, Personal Interview
of Pamela Merritt (Sep. 15, 2014).
---------------------------------------------------------------------------
c. Nancy Heagney
Like Chen, Heagney is a revenue agent in the Cincinnati EO
Determinations office. The hard drive on Heagney's computer
crashed on November 6, 2012. Heagney routinely saved letters to
taxpayers and emails on her hard drive. After the crash,
Heagney was able to recover some, but not all of the emails
archived to her hard drive.\37\ The IRS technician who worked
on Heagney's crashed computer did not know if the computer was
damaged and did not determine a cause for the hard drive
failure.\38\ The technician did not see any indication of
intentional data loss.
---------------------------------------------------------------------------
\37\TIGTA Memorandum of Interview or Activity, Personal Interview
of Nancy Heagney (Aug. 28, 2014).
\38\TIGTA Memorandum of Interview or Activity, Personal Interview
of Marilyn Florence (Sep. 15, 2014).
---------------------------------------------------------------------------
Committee Request #2 to TIGTA: Whether, in addition
to those seven employees, any of the 112 other IRS
employees identified as custodians of potentially
relevant records suffered a data loss.
Based on a review of IT helpdesk tickets, TIGTA determined
that 31 of the 119 employees (including the 7 employees
identified above in request #1) experienced ``apparent hard
drive failures since 2009.''\39\ Based on interviews of these
employees and a review of records, TIGTA determined that seven
of them lost data: Judith Kindell, Tax Law Specialist; Justin
Palmer, Revenue Agent; Ronald Shoemaker, Supervisory Tax Law
Specialist; Sonya Adigun, Supervisory Tax Examining Technician;
Kenneth Drexler, Attorney Advisor; Chen; and Heagney. The IRS
asserted that the failure rate of these employees' equipment
``is consistent with the industry standard new equipment
failure rate of 5 to 6% over a three-year period.''\40\
---------------------------------------------------------------------------
\39\TIGTA Memorandum of Interview or Activity, Records Review of
IRS Custodians and Hard Drive Failures (Sep. 4, 2014).
\40\Letter from Leonard Oursler to Chairman Camp (Sep. 5, 2014).
---------------------------------------------------------------------------
TIGTA correctly noted that for three of these employees
(Adigun, Drexler and Palmer), the IRS did not produce
responsive emails or documents to Congress.\41\ Based on the
Committee's review of IRS records, it appears that their
involvement with this matter was minimal, at most.
---------------------------------------------------------------------------
\41\TIGTA Memorandum of Interview or Activity, Records Review of
IRS Custodians and Hard Drive Failures (Sep. 4, 2014).
---------------------------------------------------------------------------
Kindell's hard drive crashed on August 11, 2010, which
resulted in a loss of ``all of her archived email and work
documents.''\42\ Kindell recovered some of the lost emails by
asking coworkers to resend them to her; she was unable to
recover other electronic documents.\43\ The IT Specialist who
worked on Kindell's computer told TIGTA that he could not
remember the circumstances of Kindell's crash, the cause, or if
there were any indications that it may have been
intentional.\44\
---------------------------------------------------------------------------
\42\TIGTA Memorandum of Interview or Activity, Personal Interview
of Judith Kindell (Aug. 6, 2014).
\43\Id.
\44\TIGTA Memorandum of Interview or Activity, Personal Interview
of Frank Dematteis (Oct. 3, 2014).
---------------------------------------------------------------------------
On March 4, 2011, Shoemaker's hard drive crashed, resulting
in the loss of ``all of his archived emails and saved files for
the years 1994 through 2010,'' including Shoemaker's
``managerial files[.]''\45\ IRS IT was unable to recover the
lost documents. When interviewed by TIGTA, the IT Specialist
who worked on Shoemaker's computer stated that he was not sure
if he had ``ever determined what caused Shoemaker's hard drive
to fail.''\46\
---------------------------------------------------------------------------
\45\TIGTA Memorandum of Interview or Activity, Personal Interview
of Ronald Shoemaker (Aug. 4, 2014).
\46\TIGTA Memorandum of Interview or Activity, Personal Interview
of Aaron Signor (Sep. 5, 2014) (attachment omitted).
---------------------------------------------------------------------------
Committee Request #3 to TIGTA: What steps, if any,
the IRS took to attempt to recover data for each
employee who lost data.
The measures taken by the IRS to attempt to recover data
immediately following the hard drive crashes of Chen, Heagney,
Kindell, and Shoemaker are described above.
Efforts to recover data from Lerner's computer were more
substantial than for the other employees identified above.
After the IT Specialist who initially responded was unable to
recover data, Lerner contacted former IRS Associate Chief
Information Officer Carl Froehlich to say that ``some documents
in the files that [were lost] are irreplaceable'' and asked him
to take further efforts to recover the files.\47\ Additional
efforts to recover data by the IRS IT support and several
Hewlett-Packard technicians were unsuccessful, so the hard
drive was then sent to IRS Criminal Investigation Division's
forensic lab. The IRS Criminal Investigation Division was
unable to recover any data from the hard drive.\48\
---------------------------------------------------------------------------
\47\Email chain between Lois Lerner, Carl Froehlich, Lillie Wilburn
and others (July 19--Aug. 6, 2011) IRS0000651488-50.
\48\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 7.
---------------------------------------------------------------------------
The IRS Criminal Investigation Division returned the hard
drive to the IRS's IT depot in Washington, D.C. The IRS CI
technician believed that ``data could still potentially be
recovered using a third party donor hard drive or [by] hiring
an outside vendor.''\49\ The IRS IT manager ``confirmed data
may have been recoverable by an outside vendor, but . . .
decided the expense was not justified due to financial
constraints[.]''\50\ At this point, the IRS ceased attempts to
recover data from Lerner's hard drive. Lerner told TIGTA that
she ``was `surprised' that IRS IT could not do more to recover
her email[.]''\51\
---------------------------------------------------------------------------
\49\Id.
\50\Id. TIGTA noted that the IRS IT manager believed that ``Lerner
had categorized the data present on the hard drive as being personal in
nature.'' This point is contradicted by Lerner's own testimony about
the contents of her hard drive, as discussed above.
\51\TIGTA Memorandum of Interview or Activity, Personal Interview
of Lois Lerner (July 9, 2104).
---------------------------------------------------------------------------
After the IRS Office of Chief Counsel became aware of
Lerner's hard drive failure in February 2014, the IRS took
additional measures to recover and produce Lerner documents to
this Committee, other Congressional committees and the
Department of Justice. The IRS summarized these steps in its
June 13, 2013 letter to the Committee:
``Retraced the collection process for Ms.
Lerner's computer to determine that all materials
available in May 2013 were collected;''
``Located, processed, and included in [the
IRS] production email from an earlier 2011 data
collection of Ms. Lerner's email;''
``Confirmed that back-up tapes from 2011 no
longer exist because they have been recycled (which not
uncommon [sic] for large organizations in both the
private and public sectors);''
``Searched email from other custodians for
material on which Ms. Lerner appears as an author or
recipient, then produced such email.''\52\
---------------------------------------------------------------------------
\52\Letter from Leonard Oursler to Senator Wyden and Senator Hatch
(June 13, 2014) Enclosure 3, p. 7.
---------------------------------------------------------------------------
The IRS calculated that these efforts yielded
``approximately 24,000 Lerner-related emails between January 1,
2009 and April 2011,'' which were produced to this and other
Committees.\53\ On September 5, 2014, the IRS informed the
Committee of similar efforts that it took to recover and
produce emails sent and received by Chen, Heagney, Kindell, and
Shoemaker.\54\ After TIGTA opened its investigation of the lost
documents in June 2014, the IRS largely ceased efforts to
recover additional Lerner emails to avoid interfering with
TIGTA's investigation, although it continued to produce
documents to the Committee through January 2015.
---------------------------------------------------------------------------
\53\Id.
\54\Letter from Leonard Oursler to Chairman Camp (Sep. 5, 2014).
---------------------------------------------------------------------------
Committee Request #4 to TIGTA: Whether any additional
measures could reasonably be taken to attempt to
recover lost data; and if so, TIGTA should perform its
own analysis of whether any data can be salvaged and
produced to the Committee.
An initial question was whether TIGTA could recover data
from Lerner's crashed hard drive, as well as hard drives of
other custodians who lost data (Chen, Heagney, Kindell, and
Shoemaker). TIGTA did not recover data from any of the hard
drives:
After the IRS ended its 2011 efforts to
recover data from Lerner's hard drive, the IRS grouped
it with other failed hard drives and gave the failed
hard drives to the IRS's vendor in charge of disposing
of electronic media. TIGTA determined that Lerner's
hard drive was ``more than likely destroyed'' at a
shredding facility in Marianna, Florida on April 16,
2012.\55\
---------------------------------------------------------------------------
\55\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) pp. 7-8. TIGTA noted that under IRS
procedures and terms of the vendor's contract with the IRS, the serial
numbers of electronic media were not tracked throughout the disposal
process, so TIGTA could not confirm with certainty that Lerner's hard
drive was, in fact, destroyed. Nonetheless, after interviewing the
vendor employees who processed IRS media and visiting the Marianna
shredding facility, TIGTA found no evidence that Lerner's hard drive
had not been destroyed. We have no reason to doubt TIGTA's conclusion
that Lerner's hard drive was ``more than likely destroyed.''
---------------------------------------------------------------------------
``TIGTA was able to locate and take
possession of Heagney's failed hard drive, but was
unable to recover any information from the drive using
standard forensic tools.''\56\ TIGTA will see if an
outside vendor can recover any information.\57\
---------------------------------------------------------------------------
\56\Id. p. 12.
\57\Id.
---------------------------------------------------------------------------
Chen's failed hard drive was sent to an IRS
facility in Covington, Kentucky in 2012.\58\
---------------------------------------------------------------------------
\58\TIGTA Memorandum of Interview or Activity, Personal Interview
of Pamela Merritt (Sep. 15, 2014).
---------------------------------------------------------------------------
It is unclear if TIGTA determined the
ultimate disposition of Kindell and Shoemaker's failed
hard drives. It does not appear that TIGTA located
either of them.
Next, TIGTA turned to other sources to attempt to recover
lost data:
Backup (disaster recovery) tapes from the
IRS's email server;
Decommissioned exchange server hard drives
and associated backup tapes;
Lerner's Blackberrys and the Blackberry
network server;
Loaner laptops used by employees while
waiting for resolution of IT problems; and
Network transaction logs.
TIGTA's efforts, which constituted an enormous amount of
work over the course of a year, are described in more detail on
pages 12-20 of its report. In particular, TIGTA activated 744
disaster recovery backup tapes containing a backup of IRS email
traffic from approximately November 2012. From the sources
identified above, TIGTA produced approximately 6,400 documents
to the Committee in April, May and June 2015. TIGTA
subsequently determined that the IRS had not produced
approximately 1,330 of these document to this Committee, other
Congressional committees, DOJ, or TIGTA.\59\
---------------------------------------------------------------------------
\59\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 3.
---------------------------------------------------------------------------
Finally, TIGTA examined the IRS's instant messaging system
(called the Office Communicator Server (OCS)) to see if they
could recover records related to the Committee's investigation.
These messages were of particular interest to the Committee, as
Lerner had asked an IT employee in April 2013 if OCS
conversations were searchable and could be produced to
Congress:

I had a question today about OCS. I was cautioning
folks about email and how we have had several occasions
where Congress has asked for emails and there has been
an electronic search for responsive emails--so we need
to be cautious for what we say in emails. Someone asked
if OCS conversations were also searchable--I don't
know, but told them I would get back to them. Do you
know?\60\
---------------------------------------------------------------------------
\60\Email chain between Lois Lerner, Maria Hooke, and others (Apr.
9, 2013) IRS0000726247-48.

TIGTA determined that under the terms of the IRS's
collective bargaining agreement, the IRS agreed that it would
not automatically save OCS messages. The only way that messages
would be saved is if an individual employee copied the text
into an email or other electronic document. TIGTA found that
this retention policy was not necessarily a violation of
National Archives and Records Administration (NARA) guidance,
noting that ``[w]hether OCS is being used according to NARA's
guidance depends on how OCS end-users are utilizing the
program.''\61\ TIGTA was not able to recover the substance of
any OCS sessions between Lerner and other employees.\62\
---------------------------------------------------------------------------
\61\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 22.
\62\Id. p. 21.
---------------------------------------------------------------------------
Committee Request #5 to TIGTA: For each employee who
lost data, the date when the IRS first became aware
that it had lost information potentially relevant to
the Committee's investigation.
The Committee asked this question because it did not learn
of any loss of potentially relevant data until June 2014.
TIGTA's report contains the following information about when
the IRS first learned that it may have been missing data from
Chen, Heagney, Kindell, and Shoemaker:
In her interview with TIGTA, Chen noted that
she disclosed the hard drive crash at the time when she
received an IRS litigation hold in May or June 2013. It
is unclear what, if anything, the IRS did in
response.\63\
---------------------------------------------------------------------------
\63\TIGTA Memorandum of Interview or Activity, Personal Interview
of Julie Chen (Aug. 28, 2014).
---------------------------------------------------------------------------
In his interview with TIGTA, Shoemaker said
that during at least one interview with a Congressional
committee, DOJ, or TIGTA, he mentioned that his hard
drive had crashed. (He did not disclose this issue
during his interview with the Finance Committee.) It is
unclear if the IRS was aware of this disclosure and
what, if anything, the IRS did in response.\64\
---------------------------------------------------------------------------
\64\TIGTA Memorandum of Interview or Activity, Personal Interview
of Ronald Shoemaker (Aug. 4, 2014).
---------------------------------------------------------------------------
TIGTA's report did not include information
about when the IRS first learned that Kindell and
Heagney lost data potentially relevant to this
investigation.
TIGTA's report and interviews establish the following
timeline of the IRS's knowledge of Lerner's hard drive crash,
and whether it resulted in data loss:
February 2 or 3, 2014--While the IRS was
preparing a production of Lerner emails, former
Counselor to the IRS Commissioner Catherine Duval
``noted a gap'' in the number of Lerner emails sent
before July 2011. Duval brought the gap to the
attention of Thomas Kane, Deputy Associate Chief
Counsel for Procedure & Administration.\65\
---------------------------------------------------------------------------
\65\TIGTA Memorandum of Interview or Activity, Personal Interview
of Thomas Kane (Oct. 22, 2014).
---------------------------------------------------------------------------
February 3, 2014--Duval and Kane mentioned
the gap in Lerner emails at an internal meeting with
Christopher Sterner, Deputy Chief Counsel for
Operations, and Stephen Manning, Deputy Chief
Information Officer. The group decided to further
investigate.\66\
---------------------------------------------------------------------------
\66\Id.
---------------------------------------------------------------------------
February 4, 2014--After investigation by
attorneys under Kane's supervision, ``it was determined
that Lerner experienced a hard drive failure in June
2011.''\67\
---------------------------------------------------------------------------
\67\Id.
---------------------------------------------------------------------------
February 5 or 6, 2014--Kane, Sterner, Duval
and Manning met again to discuss the issue. Kane noted
that IRS Chief Counsel William Wilkins ``was included
in the discussion at some point.'' According to Kane,
the discussion ``included whether to notify Congress or
whether more information was needed. The discussion
also included how much of Lerner's emails could be
located elsewhere.'' In his interview with TIGTA, Kane
noted that ``one or two Congressional committees'' were
planning to release reports around that time, including
the Senate Committee on Finance. Kane told TIGTA that
it was decided to ``not to report half or part of the
story as Lerner emails were expected to be produced for
some time in the future.''\68\
---------------------------------------------------------------------------
\68\Id.
---------------------------------------------------------------------------
March and April 2014--The IRS searched
electronic records of other IRS employees for emails to
and from Lerner. The IRS located a total of 24,000
emails.\69\
---------------------------------------------------------------------------
\69\Id.
---------------------------------------------------------------------------
April 2014--Koskinen told TIGTA that he was
``first told about Lerner's hard drive failure in April
2014 by Duval, but was advised that a hard drive
failure did not necessarily mean a loss of data.''
Koskinen explained to TIGTA that at this point, ``Duval
was leading an effort to validate that email were
actually missing; and, not that the gap in email was
attributable to something like an error in the backup
system'' or some other error. Koskinen noted that this
error checking ``was completed in April 2014.''\70\
---------------------------------------------------------------------------
\70\TIGTA Memorandum of Interview or Activity, Personal Interview
of John Koskinen (June 19, 2015).
---------------------------------------------------------------------------
Mid-April 2014--Duval informed Treasury
attorney Hannah Stott-Bumsted that ``there was an issue
they (the IRS Office of Chief Counsel) were looking
into regarding Lerner's emails.''\71\
---------------------------------------------------------------------------
\71\TIGTA Memorandum of Interview or Activity, Personal Interview
of Catherine Duval (July 1, 2014).
---------------------------------------------------------------------------
April, May, and June 2014--Led by Duval, the
IRS prepared a ``white paper'' that would be used to
``notify Congress of the problem identified regarding
the Lerner emails, how it was discovered and what steps
were taken to fill in the apparent gap in her
emails.''\72\ Koskinen told TIGTA that he ``wanted to
secure as many emails that the IRS could locate . . .
in order to provide a more complete reporting to
Congress. . . .''\73\
---------------------------------------------------------------------------
\72\TIGTA Memorandum of Interview or Activity, Personal Interview
of Thomas Kane (Oct. 22, 2014).
\73\TIGTA Memorandum of Interview or Activity, Personal Interview
of John Koskinen (June 19, 2015).
---------------------------------------------------------------------------
In summary, in early February 2014, the IRS first became
aware that it may have lost Lerner documents potentially
relevant to this investigation. By the end of April 2014 at the
latest, the IRS had confirmed that relevant emails had been
lost.
Committee Request #6 to TIGTA: Whether there is any
evidence of a deliberate effort to withhold information
from the Committee.
As described above, TIGTA could not come to a conclusion
about the cause of Lerner's hard drive crash. TIGTA did not
suggest that the hard drive failures of the other four
employees was deliberate or intended to withhold information
from Congress, DOJ, or TIGTA. Overall, TIGTA stated that ``[n]o
evidence was uncovered that any IRS employees had been directed
to destroy or hide information from Congress, the DOJ, or
TIGTA.''\74\ The National Archives and Records Administration
told the Committee that they do not believe the IRS violated
federal recordkeeping laws\75\ and Paul Wester, Chief Records
Officer at NARA told TIGTA that IRS ``did nothing wrong as far
as safeguarding records.''\76\
---------------------------------------------------------------------------
\74\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 18.
\75\Letter from David Ferriero to Senator Wyden and Senator Hatch
(July 10, 2014) (some enclosures omitted).
\76\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) pp. 21-22.
---------------------------------------------------------------------------
However, several of TIGTA's other findings cast doubt on
the thoroughness of the IRS's efforts to recover all relevant
records related to this investigation, as well as its candor to
this and other Congressional committees.
First, less than two weeks into its investigation, TIGTA
identified 744 backup server tapes that were likely to contain
Lerner documents.\77\ The IRS did not attempt to recover data
from these tapes, errantly determining that they had already
been recycled, or believed that they did not contain relevant
data. Indeed, until May 22, 2013, the IRS practice was to reuse
and recycle old backup tapes every six months as a cost-saving
measure.\78\ Thus, with this practice in place, prior to the
beginning of Congressional investigations the IRS should have
already recycled any backup tapes containing Lerner emails lost
when her hard drive crashed in June 2011. This would prove to
be incorrect, and TIGTA was able to recover approximately 1,007
emails that had not been previously provided by the IRS to the
Committee, although most of those messages were sent after
Lerner's June 2011 hard drive crash.\79\
---------------------------------------------------------------------------
\77\Id. p. 13.
\78\Id. On May 22, 2013, the IRS CTO changed the backup tape policy
to an indefinite retention in order to respond to ongoing
investigations.
\79\Id. p. 15.
---------------------------------------------------------------------------
A second troubling finding is that in 2014, the IRS may
have unwittingly destroyed a separate batch of relevant backup
tapes. TIGTA discovered that in March of 2014--after top IRS
officials learned that Lerner's hard drive had crashed--IRS
employees at a storage facility in West Virginia ``magnetically
erased 422 backup tapes that are believed to have contained
Lerner's emails that were responsive to Congressional demands
and subpoenas.''\80\
---------------------------------------------------------------------------
\80\Id. p. 3.
---------------------------------------------------------------------------
The email server housing these backup tapes was located in
New Carrollton, Maryland, and around May 2011, the IRS migrated
to a new location in order to consolidate data centers.\81\ The
New Carrollton server was then decommissioned and disassembled,
and in April 2012, the majority, but not all, of the equipment
was destroyed.\82\ Several hard drives and backup tapes from
the decommissioned server continued to be stored in New
Carrollton until December 2013, when the IRS had them removed
in order to renovate the space.\83\ These components, server
hard drives and backup tapes, were shipped to a storage
facility in West Virginia.\84\ According to TIGTA, the
employees ``did not degauss the server hard drives that were
shipped with the backup tapes because their interpretation of
the CTO's May 22, 2013, e-mail directive was that it was meant
to preserve hard drives only.''\85\ However, the IRS employees
did degauss the server backup tapes. Ultimately, TIGTA
identified an additional 422 backup tapes which were used to
back up Lerner's email between January 1, 2008 and December 31,
2011, but were errantly erased on March 4, 2014.\86\
---------------------------------------------------------------------------
\81\Id.
\82\Id.
\83\Id.
\84\Id.
\85\Id.
\86\Id. pp. 3-4.
---------------------------------------------------------------------------
Although it took TIGTA extensive time and resources to
locate, identify, and process these tapes and produce relevant
records, this type of effort was justified given the extent of
data lost and the interest in this matter by Congress, the DOJ
and the public. The IRS should have exhausted this possibility
before it informed the Committee that ``back-up tapes from 2011
no longer exist,'' which proved to be wholly incorrect.\87\
---------------------------------------------------------------------------
\87\Letter from Leonard Oursler to Senator Wyden and Senator Hatch
(June 13, 2014) Enclosure 3, p. 7.
---------------------------------------------------------------------------
TIGTA noted that it ``did not uncover evidence that the IRS
and its employees purposely erased the tapes in order to
conceal responsive e-mails from the Congress, the DOJ and
TIGTA.''\88\ Instead, the decision to erase these tapes
appeared to be the result of employees being unaware of, or
misinterpreting, several IRS directives to preserve documents:
---------------------------------------------------------------------------
\88\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 3.
---------------------------------------------------------------------------
The IRS issued litigation holds in May and
June 2013 for records related to this matter.
In May 2013, IRS Chief Technology Officer
Terence Milholland ``sent an e-mail to his senior
managers responsible for destroying media and asked
them to preserve media that might contain e-mail or
data related to `investigations' that were
occurring.''\89\
---------------------------------------------------------------------------
\89\TIGTA Memorandum of Interview or Activity, Personal Interview
of Terence Milholland (June 11, 2015).
---------------------------------------------------------------------------
On February 3, 2014, Duval sent a message to
Deputy CIO Manning confirming a previous conversation
with him about an ``apparent lack of Lois Lerner email
from before May 9, 2011.'' Per their earlier
discussion, Duval asked Manning to take several steps,
including to ``ensure that the earliest possible
network back-up tapes are available for review'' and
``[c]onfirm that no back-up tapes have been recycled
since the hold on recycling was instituted last
spring[.]''\90\
---------------------------------------------------------------------------
\90\Email from Catherine Duval to Stephen Manning, and others (Feb.
3, 2014).
---------------------------------------------------------------------------
Milholland told TIGTA that he was ``blown away'' to learn
that the 422 backup tapes had been destroyed and opined that it
``was more significant than the loss of Lerner's hard
drive.''\91\ We agree that these tapes should not have been
destroyed and are disappointed that IRS senior management did
not adequately secure them.
---------------------------------------------------------------------------
\91\TIGTA Memorandum of Interview or Activity, Personal Interview
of Terence Milholland (June 11, 2015).
---------------------------------------------------------------------------
Finally, TIGTA's report shines light on the IRS's failure
to notify Congress of the missing documents in a timely
fashion. It is understandable that the IRS would take some
amount of time to assess the information gap and possible
solutions before contacting Congress. But the IRS's decision to
wait more than four months is inexcusable, particularly in view
of the following:
Duval and other senior employees believed
the information gap to be significant enough to raise
with Chief Counsel Wilkins in early February 2014, and
with Commissioner Koskinen no later than April 2014.
Based on testimony from Kane, it appears
that the IRS was unconcerned with the possibility that
this Committee or any other Congressional committee may
have issued a report before the IRS disclosed the
problem.
Duval informed the Treasury Department about
this issue in April 2014, which in turn informed the
White House shortly thereafter.\92\
---------------------------------------------------------------------------
\92\Letter from Neil Eggleston to Chairman Camp and Chairman Wyden
(June 18, 2014).
---------------------------------------------------------------------------
During the period when the IRS knew about
the data loss but did not tell the Committee, Committee
staff were routinely in contact with the IRS--including
Duval and other employees who had direct knowledge of
the data loss--about issues related to production of
documents. During these conversations, Committee staff
informed Duval that the Committee would require
Commissioner Koskinen to sign a statement attesting to
the completeness of the IRS's productions. Committee
staff first raised this issue to Duval on March 27,
2014, and raised it repeatedly in April, May and early
June. Neither Duval nor any other IRS employee gave any
indication that the IRS had lost documents, a fact that
would materially affect the IRS's ability to provide
the required statement.
The IRS disclosed the data loss only when
Committee staff informed Duval that release of the
report was imminent, and placed a deadline on receipt
of Commissioner Koskinen's signed statement of Friday,
June 13, 2014--the date when the IRS finally informed
the Committee of the data loss.
Even after the IRS disclosed Lerner's hard
drive crash, it failed to provide a full account of
what it knew to the Committee. When IRS senior staff
briefed Committee staff on June 16, they informed the
Committee only of Lerner's hard drive crash. Just hours
later, the IRS told staff of a House committee that the
IRS may have lost records of several other IRS
employees who were relevant to this investigation. As a
result, the Chairman and Ranking Member did not get a
complete account of what the IRS knew until later that
week.
Instead of proactively informing the Committee about the
information gap, the IRS took the opposite approach. In a March
19, 2014 letter to Senator Wyden, Commissioner Koskinen said:

We are transmitting today additional information that
we believe completes our production to your committee
and the House Ways and Means committee of documents we
have identified as related to the processing and review
of applications for tax-exempt status as described in
the May 2013 TIGTA report. . . .
In light of these productions, I hope that the
investigations can be concluded in the very near
future.\93\
---------------------------------------------------------------------------
\93\Letter from John Koskinen to Senator Wyden (Mar. 19, 2014)
(emphasis added).

Even if Commissioner Koskinen was not personally aware of
the information gap at the time of this letter, the statements
contained in this letter--which were surely made with the
knowledge of senior IRS employees aware of the efforts underway
to recover missing Lerner emails--were deeply misleading. These
statements stood uncorrected for nearly three months, even
after the Commissioner learned that his staff was still
attempting to recover Lerner documents. Indeed, if the
Committee had released its report as hoped for in the letter
from Commissioner Koskinen, it would have been based on an
incomplete record.
By failing to locate and preserve records, making
inaccurate assertions about the existence of backup data, and
failing to disclose to Congress the fact that records were
missing, the IRS impeded the Committee's investigation. These
actions had the effect of denying the Committee access to
records that may have been relevant and, ultimately, delayed
the investigation's conclusion by more than one year. Without
the IRS's candor, this Committee cannot fulfill its charge of
overseeing the administration of the tax code.

3. Actions Taken by Committee Investigators To Mitigate the Information
Gap

After the IRS notified the Committee of the loss of data,
the Committee took several actions to mitigate the information
gap:
As described above, the Committee asked
TIGTA to search for and recover documents, which
resulted in the discovery and production of 1,330
records that had not been previously produced to the
Committee.
The IRS took remedial steps to recover and
produce emails for Lerner, Chen, Heagney, Kindell, and
Shoemaker, as described in the letter of September 5,
2014.\94\ On July 1, 2015, Commissioner Koskinen signed
a declaration attesting to the completeness of the
IRS's productions, and promising that the IRS will
promptly produce any additional relevant records if
they are discovered.\95\
---------------------------------------------------------------------------
\94\Letter from Leonard Oursler to Chairman Camp (Sep. 5, 2014).
\95\Declaration of John Andrew Koskinen (July 1, 2015).
---------------------------------------------------------------------------
After a review of Lerner's communications,
Committee staff determined that Lerner had sent and/or
received emails from employees of the Treasury
Department, the DOJ, and the FEC during the relevant
period. Senator Hatch requested that these agencies
search for communications between their employees and
Lerner. In response, each agency produced documents to
the Committee.
On June 18, 2014, the White House produced
emails between its employees and Lerner.\96\
---------------------------------------------------------------------------
\96\Letter from Neil Eggleston to Chairman Camp and Chairman Wyden
(June 18, 2014).
---------------------------------------------------------------------------
Based on a review of Lerner's
communications, Committee staff determined that Lerner
frequently sent and received messages from a friend who
used his corporate email address. Some of these
messages were relevant to the Committee's
investigation. Senator Hatch requested that the
employer produce all messages between this employee and
Lerner, and the company complied.
Even with the benefit of information from these sources, an
information gap remains. The full number of records that were
lost and not recovered will never be known. Nor is it possible
to know if these records would alter any of the findings in
this report.
Although it was not possible to completely reproduce the
records lost by the IRS, the Committee exhausted every
possibility for obtaining copies of relevant records. We are
satisfied that these efforts have enabled the Committee to
issue as comprehensive of a report as possible under the
circumstances, and we believe that our conclusions are
supported by the record.

D. Legal Background of 501(c)(3) and 501(c)(4) Organizations

The Committee's investigation chiefly concerns
organizations applying for tax-exempt status under sections
501(c)(3) and 501(c)(4) of the Internal Revenue Code.
An organization may qualify for exemption under section
501(c)(3) of the Internal Revenue Code if it is organized and
operated for religious, charitable, educational and certain
other specified purposes.\97\ These organizations may not
directly or indirectly ``participate in, or intervene in
(including the publishing or distributing of statements), any
political campaign on behalf of (or in opposition to) any
candidate for public office.''\98\ This prohibition is
absolute.\99\ Thus, if a 501(c)(3) organization engages in any
amount of prohibited campaign intervention, the IRS may revoke
its tax-exempt status and impose an excise tax.\100\
---------------------------------------------------------------------------
\97\26 U.S.C. Sec. 501(c)(3) (2014).
\98\Id.
\99\IRS, The Restriction of Political Campaign Intervention by
Section 501(c)(3) Tax-Exempt Organizations.
\100\Id.
---------------------------------------------------------------------------
Section 501(c)(4) provides tax-exempt status for
organizations operated ``exclusively for the promotion of
social welfare.''\101\ In 1959, the Treasury promulgated
regulations that interpreted ``operated exclusively'' to mean
``primarily engaged'' in social welfare activities.\102\ As a
result, the IRS considers an organization to qualify for tax-
exemption under section 501(c)(4) if its primary activity is
``promoting in some way the common good and general welfare of
the people of the community.''\103\ The regulations provide
that political campaign intervention is not a social welfare
activity,\104\ but a group recognized as tax-exempt under
section 501(c)(4) may engage in unlimited issue advocacy
related to its exempt purpose and some political campaign
intervention, as long as the group is primarily engaged in
social welfare.\105\
---------------------------------------------------------------------------
\101\26 U.S.C. Sec. 501(c)(4) (2014).
\102\26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(i) (1990). The IRS did not
create this definition out of whole cloth. The term ``exclusively''
appears in section 501(c)(3) as well as 501(c)(4), and in 1945 the U.S.
Supreme Court ruled that a ``substantial'' nonexempt purpose will
destroy exemption under section 501(c)(3). Better Business Bureau v.
United States, 326 U.S. 279 (1945). But the Court did not interpret
``exclusively'' literally and forbid all non-exempt purposes. See
Comment Letter on 501(c)(4) Exempt Organizations from the American Bar
Association to Commissioner Koskinen dated May 7, 2014, at text
accompanying footnotes 22-24. The 1959 regulations incorporated this
interpretation, clarifying that ``exclusively'' means ``primarily'' for
both section 501(c)(3) and section 501(c)(4) organizations. Congress
also has demonstrated that the term ``exclusively'' cannot be
interpreted literally. Organizations that operate exclusively to
promote social welfare have had tax-exempt status since 1913. But in
1950, following revelations that some tax-exempt organizations also
were operating businesses tax-free, Congress amended the law to add the
unrelated business income tax (UBIT) regime. Under UBIT rules,
nonprofits are allowed to engage in unrelated nonexempt activity as
long as they pay taxes on the ``unrelated business taxable income''
generated as a result. See 26 U.S.C. Sec. Sec. 511-513. According to
one tax-exempt organizations expert, ``exclusively'' could not mean
``exclusively'' because ``later law acknowledged these organizations
could engage in other activities'' if you tax them. See Alan Fram,
Inside Washington: Conflicting Laws, IRS Confusion, Associated Press,
June 5, 2013, quoting Tax Professor Ellen Aprill, an expert on tax-
exempt organizations at Loyola Law School in Los Angeles, CA. Because
of the statutory conflict in provisions allowing nonprofits to operate
unrelated businesses, and the provision requiring section 501(c)(4)
organizations to be operated exclusively for the promotion of social
welfare, some suggest that the 1959 Treasury regulation interpreting
``exclusively'' to mean ``primarily'' was necessary to resolve this
statutory conflict. Id. Thus, both the Better Business Bureau case and
the UBIT regime support the argument that ``exclusively'' is not to be
read literally.
\103\26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(i) (1990); IRS, Social
Welfare Organizations.
\104\26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(i) (1990).
\105\IRS, Social Welfare Organizations.
---------------------------------------------------------------------------
Section 501(c)(3) organizations must apply to the IRS to be
recognized for tax-exempt status.\106\ Although the tax law
allows section 501(c)(4) organizations to operate as tax-exempt
without applying for IRS recognition of their status, most
organizations apply for an IRS determination.\107\ Another
important distinction is that donors to 501(c)(3) organizations
may generally take a tax deduction for the amount of their
donation, while donations to 501(c)(4) organizations are not
tax-deductible.\108\
---------------------------------------------------------------------------
\106\26 U.S.C. Sec. 508(a) (2006).
\107\Notes of Steven Miller (undated) IRS0000505538-42.
\108\26 U.S.C. Sec. 170 (2014).
---------------------------------------------------------------------------
Generally, the tax laws do not require 501(c)(3) public
charities or 501(c)(4) organizations to publicly disclose the
identity of their donors.\109\ By contrast, the identity of
donors to section 527 political organizations are made public,
as well as periodic reports of contributions and expenditures
filed by such organizations.\110\
---------------------------------------------------------------------------
\109\26 U.S.C. Sec. 6104(b), (d)(3)(A) (2014). 501(c) entities are
required to submit to the IRS a list of persons who have donated $5,000
or more on an annual basis. This information generally is not made
public, except that the information is made public for private
foundations only.
\110\26 U.S.C. Sec. 527(k) (2014).
---------------------------------------------------------------------------

E. Structure of the IRS Exempt Organizations Division and General IRS
Procedures for Reviewing Applications for Tax-Exempt Status

The IRS used the general processes described in this
section during all times relevant to the Committee's
investigation from 2009 through May 2013.\111\
---------------------------------------------------------------------------
\111\Information in this section relies on Notes of Steven Miller
(undated) IRS0000505538-42; IRM Sec. Sec. 1.54.1 (Jan. 1, 2006) and
7.29.3 (July 14, 2008).
---------------------------------------------------------------------------
The EO Division within the IRS reviewed all applications
for tax-exempt status. As described below, revenue agents in
the Cincinnati EO Determinations office resolved approximately
85% of incoming applications after reviewing the initial
application with little or no additional follow-up. On some
occasions, EO Technical or the Office of Chief Counsel, which
are both located in Washington, D.C., reviewed applications.
The IRS routinely elevated ``sensitive'' issues within the EO
Division and to higher-level IRS management, sometimes up to
the Office of the Commissioner.
At all times relevant to the Committee's investigation, the
EO Division had the following basic structure and management:
TR119.001

All applications for tax-exempt status were initially
routed to the IRS's EO Determinations office in Cincinnati,
Ohio. The EO Determinations office was comprised of 13
``Groups'' that processed applications for tax exemption. One
group was responsible for performing an initial screening of
applications. Employees in this group, referred to as
``screeners,'' typically spent about 15-30 minutes reviewing an
incoming application and completed 20-30 applications per day.
Screeners had four options available for each application:
1. Recommend approval of applications that raised no
issues (approximately 35% of applications). The
screening group manager would then conduct a final
review of the draft approval letter to the applicant.
2. Refer the case to other EO determinations agents
for minor development (approximately 50% of
applications). These applicants appeared to meet the
requirements for tax-exempt status but lacked some
required information, such as the articles of
incorporation.
3. Refer the case to other EO determinations agents
for full development (approximately 13% of
applications). Applications in this category left open
questions as to the adequacy and scope of their exempt
purposes, the inurement of a private benefit, or the
presence of activities inconsistent with exempt status.
4. Return a grossly incomplete application to the
organization (approximately 2% of applications). If an
application was missing pages or submitted on the wrong
form, the screener could return the application and
require re-submission.\112\
---------------------------------------------------------------------------
\112\SFC Interview of John Shafer (Sep. 17, 2013) pp. 7-9.
---------------------------------------------------------------------------
Applications in the second and third categories were sent
from the screener to revenue agents in the EO Determinations
office, who would then follow up with the applicant to develop
the case. While many of these revenue agents worked in
Cincinnati, some were located in other IRS offices around the
country. The development process varied from case to case but
typically included telephone calls and written correspondence
(development letters) between the IRS and the applicant's point
of contact. Revenue agents had a fair amount of discretion
about which issues needed to be developed and how much
information was necessary.
Most applications for tax-exempt status that were received
by EO Determinations were processed to completion by EO
Determinations employees without outside assistance. Certain
applications, such as those that raised complex or novel
questions or that contained sensitive or high-profile issues,
were sent to EO Technical. Typically, applications that were
received in EO Technical were assigned to a highly-graded Tax
Law Specialist in one of the four EO Technical Groups. The Tax
Law Specialist could either assume full control of the
application or continue to work on the application in
conjunction with an EO Determinations revenue agent. The Tax
Law Specialist was responsible for developing the facts of the
application, applying the law to those facts, reaching a
conclusion, and preparing a proposed determination on the
application for tax exemption. The Tax Law Specialist then
submitted the proposed determination to a ``reviewer'' within
the Tax Law Specialist's Group. The Group Manager could also
decide to review the proposed determination at this time, or
could allow the Tax Law Specialist and the reviewer to make the
final determination. A final determination was made on a
majority of applications at the Group level.
The Internal Revenue Manual (IRM) also specified certain
issues that should be elevated within the IRS organization,
including ``sensitive'' issues, issues that impact a large
number of individuals, issues involving significant dollar
amounts, issues that were or could become newsworthy, and
issues requiring coordination with the Office of Chief Counsel
or Treasury. The primary way of elevating these issues was
through a Sensitive Case Report (SCR), which was usually
prepared by the manager in charge of the issue. The SCR
contained a summary of the facts, why the issue was important,
and the proposed resolution.\113\ SCRs about tax-exempt issues
were periodically distributed to EO management, including
Lerner and her advisors, and certain reports were also sent to
top-level IRS management, including the Office of the IRS
Commissioner. As discussed in greater detail below, the
Committee determined that SCRs had little practical value as a
tool for guiding difficult issues to resolution, as they were
routinely ignored--and sometimes not even read--by top
management.
---------------------------------------------------------------------------
\113\Section 7.29.3.2(C) of the IRM (July 14, 2008) provides that
the Group Manager will determine whether an SCR should be prepared to
alert ``upper management'' that a case: (i) is likely to attract media
or Congressional attention; (ii) presents unique or novel issues; (iii)
affects large numbers of taxpayers; (iv) potentially involves large
dollar amounts; or (v) has another issue that warrants attention.
---------------------------------------------------------------------------
Once EO Technical placed an application on an SCR,
additional procedures were followed before a final
determination could be made. A proposed determination made at
the Group level could not be effectuated without first
providing the Manager of EO Technical with an opportunity to
review the proposal. After the Manager of EO Technical
completed his/her review, then the proposed determination was
sent to the Director of Rulings and Agreements for additional
review. Accordingly, including an application or other matter
on an SCR meant that at a minimum, the proposed determination
would undergo two additional levels of review (EO Technical
Manager, Director, Rulings and Agreements). These additional
levels of review invariably required more time to complete,
thereby delaying the ultimate disposition of the application.
In limited circumstances, pending applications were
referred to the Office of Chief Counsel in Washington, D.C. The
only cases that required mandatory review by the Office of
Chief Counsel were proposed denials of tax-exempt status under
section 501(c)(3).\114\ All other applications could be sent to
the Office of Chief Counsel for discretionary reasons specified
in the IRM, including applications that presented novel issues
of law or the possibility of litigation.\115\
---------------------------------------------------------------------------
\114\IRM Sec. 7.29.3.7(5) (July 14, 2008).
\115\IRM Sec. 1.54.7.2 (Jan. 1, 2006).
III. FINDINGS OF THE SENATE FINANCE COMMITTEE AND SUMMARY OF SUPPORTING
FACTS

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section sets forth the bipartisan findings of the investigation and
summarizes
the supporting facts, some of which are described in greater detail
later in
this report.
------------------------------------------------------------------------

The bipartisan investigation conducted by Committee Staff
identified a pattern of mismanagement commencing in 2010 by IRS
management officials in their direction, or lack thereof, of
the processing of applications for tax exemption submitted by
Tea Party and other political advocacy organizations. This
pattern of mismanagement consisted of both an underestimation
of the political sensitivity of these applications and an
overestimation of the effectiveness of a number of management
initiatives aimed at processing these legally and factually
complex applications. Most of these initiatives ended in
failure. As a result, Tea Party and other political advocacy
groups experienced long delays in the resolution of their
applications, extending in many instances for two, three or
even four years.

A. IRS Management Lacked an Appreciation for the Sensitivity and
Volatility of Political Advocacy Applications

One of the first Tea Party applications received by the IRS
was flagged as a possible ``high profile'' case by Jack
Koester, a screener in EO Determinations. (See Section VI(A).)
Koester believed that the application was ``high profile''
because it had been submitted by an organization identifying
itself as part of the Tea Party movement, a movement that was
receiving substantial media coverage at the time. In addition
to the potential for media interest in the application, Koester
took note that the Tea Party organization indicated in its
application that it was seeking to engage in political
discourse, an issue that could affect its status as a tax-
exempt entity.
Koester's immediate managers, up to and including Cindy
Thomas, EO Determinations Program Manager, agreed with
Koester's assessment that the application was ``high profile.''
Thomas elevated the application to EO Technical in Washington
D.C. Shortly thereafter, Steve Grodnitzky, Acting Manager for
EO Technical, concluded that the application, as well as all
other applications received from Tea Party groups, met the
criteria for the preparation of a SCR. The purpose of an SCR is
to apprise upper management of applications that warrant their
attention because they present a significant issue or raise a
notable concern.\116\ In the case of the Tea Party
applications, the issue was that the applications could attract
significant media and Congressional attention. Carter Hull, a
Tax Law Specialist in EO Technical, was assigned the Tea Party
cases and prepared the first SCR on them in April 2010.
Thereafter, either Hull or Hilary Goehausen, another Tax Law
Specialist in EO Technical, prepared an SCR on these
applications every month until 2013.
---------------------------------------------------------------------------
\116\IRM 7.29.3.2 (July 14, 2008).
---------------------------------------------------------------------------
During the summer of 2010, Tax Exempt and Government
Entities (TE/GE) Division Executive Assistant Richard Daly sent
monthly emails to senior IRS management that contained SCRs
about important pending issues within the TE/GE divisions. The
SCRs transmitted by Daly were a subset of all SCRs that had
been prepared by divisions within TE/GE, and included only the
issues that were deemed most necessary for elevation to upper
management.\117\ Included in Daly's messages were the SCRs
about the Tea Party applications prepared by Hull on May 24,
2010, June 22, 2010, and July 26, 2010.\118\ These SCRs
identified three Tea Party organizations by name; discussed the
legal issue as ``whether these organizations are involved in
campaign intervention''; enumerated how many similar
applications had been received; and explained how employees in
Cincinnati and Washington were processing the
applications.\119\
---------------------------------------------------------------------------
\117\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) pp. 44-45.
\118\Email from Richard Daly to Jennifer Vozne and others (June 6,
2010) IRS0000163997-4013 (email attachments containing taxpayer
information omitted by Committee staff); Email from Richard Daly to
Jennifer Vozne, Nikole Flax and others (July 1, 2010) IRS0000164020-43;
Email from Richard Daly to Sarah Ingram and others (Aug. 5-6, 2010)
IRS0000164044-72 (email attachments containing taxpayer information
omitted by Committee staff).
\119\Id.
---------------------------------------------------------------------------
Although the Tea Party SCR was sent multiple times directly
to IRS upper management in 2010, the SCR went unnoticed:
Division Commissioner of TE/GE, Sarah Hall
Ingram, received all three of Daly's messages
containing the Tea Party SCR in 2010. Ingram had no
memory of reviewing any of the Tea Party SCRs sent to
her, asserting that ``I did not read these [Tea Party
SCRs].''\120\ She explained that this was not out of
the ordinary; Ingram routinely disregarded SCRs as she
did ``not personally [find] them particularly useful
documents.''\121\ Instead of reading the SCRs herself,
Ingram ``relied on [the TE/GE] directors to bring me
the ones they thought they were worried about.''\122\
---------------------------------------------------------------------------
\120\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 42.
\121\Id. p. 44.
\122\Id. p. 42.
---------------------------------------------------------------------------
Deputy Commissioner of TE/GE, Joseph Grant,
also received all three of Daly's messages containing
the Tea Party SCR in 2010. Grant viewed SCRs as ``a
heads up or an awareness of something that was going
on,'' but, like Ingram, Grant did not routinely read
them.\123\ Although he received three Tea Party SCRs in
2010, Grant claimed that he was not aware of the Tea
Party applications in 2010.\124\
---------------------------------------------------------------------------
\123\SFC Interview of Joseph Grant (Sep. 20, 2013) pp. 13-14.
\124\Id. p. 11.
---------------------------------------------------------------------------
Assistant Deputy Commissioner for Services &
Enforcement (S&E), Nikole Flax, received two of Daly's
messages containing the Tea Party SCR. One of Flax's
duties was to review incoming SCRs and inform the
Deputy Commissioner for S&E, Steven Miller, of the most
significant issues.\125\ Flax had no recollection of
reviewing either of the Tea Party SCRs sent to her in
summer 2010 or discussing them with Miller.\126\ Miller
also had no memory of reviewing these SCRs in 2010 or
discussing them with Flax.\127\ Flax noted that she
never met with Miller to discuss SCRs.\128\
---------------------------------------------------------------------------
\125\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 37-39.
\126\SFC Interview of Nikole Flax (Nov. 1, 2013) p. 30.
\127\SFC Interview of Steven Miller (Dec. 12, 2013) p. 39.
\128\SFC Interview of Nikole Flax (Nov. 1, 2013) p. 34.
---------------------------------------------------------------------------
These IRS upper-level managers, by virtue of the positions
they held, had the authority and the responsibility to ensure
that the applications for exemption filed by Tea Party and
other political advocacy groups did not languish in a
bureaucratic morass. They were uniquely positioned to shape and
direct the IRS's response to the influx of applications for
exemption by Tea Party and other political advocacy groups
first seen in 2010. Since they either did not bother to read
the SCRs sent to them in 2010 or had no recollection of having
read them, they forfeited the opportunity to exert their
management influence to ensure that the applications were being
properly processed. Each of these managers also told Committee
Staff that they did not learn about the delays and other
processing issues that Tea Party and other political advocacy
groups had encountered until 2012, when media reports and
Congressional inquiries regarding those processing issues began
to appear. By that time, they were essentially managing a
crisis.
Other managers like Lois Lerner, Rob Choi, Director of
Rulings and Agreements, and Holly Paz, EO Technical Manager and
later Director of Rulings and Agreements, all were aware of the
Tea Party SCRs early in 2010.\129\ Yet they simply failed to
recognize the sensitivity of the applications and the potential
for adverse media and Congressional reaction if those
applications were not resolved in a reasonable period of time.
Perhaps this failure to appreciate the sensitivity of the
political advocacy applications was best summarized by Nikole
Flax, who was asked by Committee Staff if the IRS was looking
at the issue of political campaign intervention by 501(c)(4)
organizations in 2010. Flax responded that ``I wasn't aware
that this was, like, a big issue at the time; that that was a
bigger issue than all of the other sensitive issues that EO was
dealing with.''\130\
---------------------------------------------------------------------------
\129\Holly Paz experienced a rapid climb through the management
ranks in EO. She was hired by the IRS in 2007 and thereafter promoted
or assigned to the following management positions within EO: Manager of
EO Guidance Group 2 in July 2008; Acting Manager of EO Technical in
September 2009; Manager of EO Technical in September 2010; Acting
Director of Rulings and Agreements in January 2011; and Director of
Rulings and Agreements in May 2012.
\130\SFC Interview of Nikole Flax (Nov. 21, 2013) p. 33.
---------------------------------------------------------------------------
The volatility of these applications appears to have been
better understood by staff-level employees than by their
managers. For example, Elizabeth Hofacre, an EO Determinations
agent, stated to Committee Staff that ``because of the nature
of these cases, the high profile characteristics, that it could
really have, you know, imploded.''\131\ Hofacre likened working
with the Tea Party cases during the period in 2010 when no
determinations were being made on the applications to
``[w]alking through a mine field.''\132\
---------------------------------------------------------------------------
\131\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 69.
\132\Id.
---------------------------------------------------------------------------
In the context of the Tea Party and other political
advocacy applications, the identification of applications as
``sensitive'' or ``high profile'' and the preparation of SCRs
proved to be no more than a paper exercise. The managers who
had the responsibility and the authority to oversee the
processing of the applications and who were the intended
recipients of the information in the SCRs, either elected to
ignore the SCRs and thus missed the opportunity to ensure that
the IRS properly managed this workload, or failed to recognize
the sensitivity of the applications and take steps early in the
process to develop a plan to address their resolution.
Moreover, placing the Tea Party and other political
advocacy applications on the SCR subjected those applications
to further delays by requiring that they undergo additional
levels of review. (See Section VI(A)(5).) The managers--who
either did not recognize the sensitivity of the applications or
who did not make the effort to keep informed of issues that
could adversely impact taxpayers or the IRS--effectively
nullified the salutary effects of the SCR process, while
leaving in place those parts of the SCR process that could
delay resolution of the applications.

B. IRS Management Allowed Employees To Use Inappropriate Screening
Criteria That Focused on Applicants' Names and Policy Positions

Since the early 2000s, the IRS used various methods to
alert EO employees of important issues that could arise when
reviewing incoming applications for tax-exempt status. (See
Section V.) In 2010, EO Determinations managers consolidated
several lists of current and past issues into a single
document, called the BOLO list or spreadsheet, an acronym for
Be On the Lookout. From August 2010 until May 2013, the BOLO
spreadsheet was distributed to all EO Determinations employees,
who used it as a reference tool when screening and reviewing
applications for tax-exempt status. The BOLO spreadsheet was
comprised of five ``tabs'':\133\
---------------------------------------------------------------------------
\133\Heightened Awareness Issues (undated) IRS0000557291-308.

------------------------------------------------------------------------
Tab characteristics /
Tab name purpose
------------------------------------------------------------------------
Emerging Issues........................... Groups of
applications for which
there is no established
case law or precedent.
Issues arising from
significant current events
(excluding disaster relief
organizations).
Issues arising from
changes to tax law or other
significant world events.
Watch List................................ Applications have
not yet been received.
Issues were the
result of significant
changes in tax law or world
events and would require
``special handling'' by the
IRS when received.
TAG (also referred to as Potential Abusive tax
Abusive). avoidance transactions
including abusive promoters
and fake determination
letters.
Activities that
were fraudulent in nature
including: applications
that materially
misrepresented operations
or finances, activities
conducted contrary to tax
law (e.g. Foreign
Conduits).
Applicants with
potential terrorist
connections.
TAG Historical (also referred to as TAG issues that
Potential Abusive Historical). were no longer encountered,
but that were of historical
significance.
Coordinated Processing.................... Multiple
applications grouped
together to ensure uniform
processing.
Existing precedent
or guidance does not exist.
------------------------------------------------------------------------

The BOLO spreadsheet itself was not problematic; on the
contrary, if used properly, it could have been an effective way
for management to communicate important directives to
employees.
A managerial failure occurred when the initial BOLO
spreadsheet was distributed in August 2010 containing a ``Tea
Party'' entry that TIGTA found to be ``inappropriate,'' because
the mere use of the words ``Tea Party'' should not have been
enough to trigger review. At that time, EO Determinations
managers up to, and including, Cindy Thomas were aware of the
``Tea Party'' entry.\134\ The problematic ``Tea Party'' entry
under the Emerging Issues tab of the spreadsheet read as
follows: ``[t]hese cases involve various local organizations in
the Tea Party movement [that] are applying for exemption under
501(c)(3) or 501(c)(4).''\135\ The BOLO spreadsheet directed
agents to send Tea Party applications to Group 7822 and
specified that Elizabeth Hofacre was the coordinator. A similar
``Tea Party'' entry remained on every subsequent version of the
BOLO spreadsheet until July 2011.
---------------------------------------------------------------------------
\134\SFC Interview of Cindy Thomas (July 25, 2013) p. 67.
\135\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 21, 2012) IRS0000352978-84.
---------------------------------------------------------------------------
During that time, EO Determinations employees also screened
incoming applications using words related to the Tea Party,
such as ``Patriots'' and ``9/12.'' As a result of these
practices, every incoming application from a Tea Party or
related conservative organization was sent to Group 7822 for
further review--whether or not it reflected potential political
campaign intervention--which ultimately resulted in heightened
scrutiny and extended delays.
The versions of the BOLO spreadsheet that were circulated
in 2010 and 2011 also contained entries describing
``Progressive'' applicants on the TAG Historical tab of the
spreadsheet, as well as ``ACORN Successors'' on the Watch List
tab of the spreadsheet. (See Section V(C).)
Paz and Lerner, who comprised upper-level EO management in
Washington, D.C., claimed that they were unaware of the ``Tea
Party'' BOLO spreadsheet entry until July 2011. As managers who
were ultimately responsible for how the approximately 300
employees in EO Determinations reviewed incoming applications,
this represents another significant management failing. Lerner,
in particular, demonstrated a lack of understanding about how
EO Determinations employees performed their day-to-day jobs,
which hampered her ability to effectively manage EO.\136\
---------------------------------------------------------------------------
\136\IRS management above Lerner uniformly claimed that they were
unaware of the BOLO or any criteria on the document until May 2012 at
the earliest. It is less obvious whether these managers should have
taken a more active role in supervising how EO handled incoming
applications for tax-exempt status; arguably, upper-level managers in
TE/GE should have also been involved in decisions affecting large
numbers of taxpayers.
---------------------------------------------------------------------------
Following a meeting in July 2011, Lerner directed that the
``Tea Party'' BOLO criteria be changed to neutral language that
identified activities of applicants, instead of policy
positions or names of specific organizations. Although this
successfully removed the inappropriate criteria that had been
on the BOLO spreadsheet for almost a year, as discussed below,
this ultimately resulted in a broader class of applicants
across the political spectrum being flagged, delayed, and
scrutinized.
The neutral criteria did not last for long. In January
2012, EO Determinations Group Manager Steve Bowling modified
the BOLO spreadsheet to include policy terms intended to
capture incoming applications from Tea Party organizations, and
organizations affiliated with the Occupy Wall Street movement.
Thomas approved these changes, as they did not identify any
organizations by name. However, TIGTA determined--and we
agree--that the January 2012 BOLO spreadsheet entry was also
inappropriate.\137\
---------------------------------------------------------------------------
\137\In January 2012, Bowling also added a separate BOLO entry for
```Occupy' Organizations'' on the Watch List tab of the BOLO. TIGTA's
report did not discuss whether this entry was inappropriate.
---------------------------------------------------------------------------
Lerner and Paz again claimed that they were not aware of
the problematic change on the BOLO spreadsheet until several
months later. At that point, Lerner and Paz corrected the
criteria and implemented new procedures that required all BOLO
spreadsheet changes to be approved by Thomas. These events
illustrate yet another failing of management: neglecting to
oversee a process that they knew was wrought with problems, and
only implementing controls after more damage had been done.

C. IRS Management Failed To Develop an Effective Plan for Processing
Applications for Political Advocacy Groups

Despite a number of attempts over a three-year period, EO
management was never able to develop a cohesive, effective
approach for the processing of the Tea Party and other
political advocacy applications. Instead, the period from 2010
to 2013 was marked by a series of under-planned, under-
supported and under-executed initiatives that individually and
collectively proved inadequate to bring the applications to
resolution.

1. IRS Management Placed Exclusive Reliance on Test Cases for Too Long

The initial plan developed by Cindy Thomas in conjunction
with Holly Paz in February 2010 was for EO Technical to develop
two Tea Party ``test cases.'' (See Section VI(A)(3).) EO
Technical staff would then use its experience working these
cases to provide guidance to EO Determinations agents so that
those agents could process the balance of the then-pending Tea
Party applications. That plan proved to be inadequate.
Carter Hull developed the two test cases, but took eight
months to draft memos containing his findings. Those findings
were then subjected to a variety of reviews from Elizabeth
Kastenberg, a Tax Law Specialist in EO Technical, in January
2011, Judith Kindell, a Senior Technical Advisor to the EO
Director, in April 2011, and eventually staff of the Office of
the Chief Counsel in August 2011. By the time Kindell reviewed
Hull's recommendations in April 2011, the initiative to work
the two test cases was already more than one year old. Kindell
expressed neither agreement nor disagreement with Hull's views,
but simply recommended an additional round of review by the
Office of the Chief Counsel. The Office of the Chief Counsel,
in turn, recommended further factual development of the
organizations' activities. Consequently, the IRS was not much
closer to reaching resolution on the two test cases in August
2011 than it had been in April 2010.
It appears that only Cindy Thomas recognized that reliance
on development of the two ``test cases'' alone was misplaced
and that a more comprehensive plan was needed to move the
applications that were forming a backlog in EO Determinations.
Thomas told Paz in October 2010 that ``we are just `sitting' on
these applications'' and that ``we need to coordinate these
cases as a group . . .''\138\ Thomas asked Paz to meet with her
``to discuss the approach that is being used and come up with a
process so we can get these cases moving. . . .''\139\ Instead,
Paz assured her that the test cases would be resolved soon,
since Kindell would review Hull's recommendations.\140\
---------------------------------------------------------------------------
\138\Email from Cindy Thomas to Holly Paz (Oct. 26, 2010)
IRS0000435238-39.
\139\Id.
\140\Id.
---------------------------------------------------------------------------
Thomas's concerns, coupled with a lack of results from
Hull's efforts to resolve the test cases, and the mounting
backlog of undecided applications, should have prompted Paz, at
some point in the continuum between April 2010 and August 2011,
to look for another solution for developing the guidance
required by EO Determinations to resolve the political advocacy
applications. Instead of heeding the call sounded by Thomas in
October 2010, Paz simply elected to press on with development
of the test cases. As an added measure, Paz enlisted the
assistance of yet another reviewer, Kindell, who was generally
regarded as a slow worker. Indeed Paz herself told the
Committee that Kindell ``had a reputation of having difficulty
with deadlines and taking a lengthy period of time on
cases.''\141\ Paz's decision to continue with the test cases
and involve Kindell caused months of additional delays and
never yielded any useful guidance that could be passed on to EO
Determinations.
---------------------------------------------------------------------------
\141\SFC Interview of Holly Paz (July 26, 2013) p. 166.
---------------------------------------------------------------------------

2. Lois Lerner's July 2011 Solution To Resolve the Political Advocacy
Applications Was Flawed and Ineffective

In a July 2011 meeting, Lerner was apprised of the extent
of the backlog of Tea Party applications--which had grown to
nearly 100--and of the criteria being used by the screeners to
identify Tea Party applications. (See Section VI(B)(2).) At
that time she was also aware that many of these applications
dated back to late 2009 and early 2010, since Steve Grodnitzky
had informed her as early as April 2010 of the existence of the
Tea Party applications. Grodnitzky also informed Lerner in
April 2010 that there were 15 Tea Party applications then
pending resolution.
At the time of the July 2011 meeting, many of the Tea Party
applications were nearly a year-and-a-half old. Furthermore,
the two test cases were nowhere near completion after 15 months
of effort by Hull, Kastenberg and Kindell. Amid this backdrop,
Lerner concluded, and Paz concurred, that the IRS should
continue with the plan to develop the test cases. Lerner also
concurred with Kindell that the recommendations on the test
cases should be reviewed by the Office of the Chief Counsel, an
organization known for taking substantial periods of time to
respond to requests for assistance.\142\
---------------------------------------------------------------------------
\142\SFC Interview of Steve Grodnitzky (Sep. 25, 2013) p. 145.
---------------------------------------------------------------------------
Additionally, Lerner agreed with her staff's recommendation
that EO Technical prepare a guidesheet containing information
and directions that would help EO Determinations agents process
the potential political advocacy applications. Lerner also
directed that the name ``Tea Party'' be removed from the BOLO
list, a move that did nothing to help get the political
advocacy applications resolved. In fact, the Lerner-directed
name change in the BOLO from ``Tea Party'' to ``Advocacy
Orgs.'' only exacerbated the backlog by enlarging the universe
of applications being systematically selected and placed on
hold in the advocacy inventory from just Tea Party applications
to organizations of every political (and in some cases non-
political) stripe.
Lerner's decisions belie a lack of concern over the
mounting numbers of political advocacy applications and their
increasing age. Her decision to proceed with a guidesheet was,
at best, a band-aid solution for the escalating number of
unresolved political advocacy applications.
Committee staff found little evidence of further active
involvement by Lerner in the matter of the political advocacy
applications until February 2012. This may have reflected
Lerner's belief that her July 2011 management directives were
sufficient to resolve the mounting backlog and alleviate the
long delays endured by many groups. In February 2012, the media
started reporting on Tea Party and other political advocacy
groups that received burdensome development letters. Spurred by
these media reports and by complaints from constituents,
Congressional interest in the IRS's handling of Tea Party and
political advocacy applications also began to collect momentum.
(See section IV(C).)
Both Lerner and Paz were caught unaware by these media
reports and Congressional inquiries. Paz told Committee staff
that ``[e]veryone I think sort of became aware of it at the
same time because of the press coverage. We all saw the letters
through the press coverage.''\143\ The fact that Lerner and Paz
were made aware by media reports that EO Determination
employees were sending inappropriate and sometimes intrusive
development letters to Tea Party and other political advocacy
groups demonstrates their lack of management oversight
regarding the processing of these applications, a serious
abdication of their responsibilities as the senior managers
within EO.
---------------------------------------------------------------------------
\143\SFC Interview of Holly Paz (July 26, 2013) p. 144.
---------------------------------------------------------------------------

3. The 2011 Triage of Political Advocacy Applications Was Not Properly
Supported by EO Management and Predictably Failed

In September 2011, Cindy Thomas proposed to Holly Paz the
idea of having EO Technical perform a ``triage'' on the
political advocacy applications then pending in EO
Determinations. (See Section VII(E).) This initiative appears
to have resulted from Thomas's concern with EO Technical's
inability to provide the guidance necessary to resolve the Tea
Party and other political advocacy applications, guidance that
she had first requested from Paz in February 2010. Thomas asked
that Paz assign someone knowledgeable to triage the nearly 160
backlogged political advocacy applications then awaiting
development and decision in EO Determinations. While the idea
to perform a triage of the applications was a precursor to the
2012 ``bucketing'' exercise that actually resulted in the
resolution of a number of applications, unlike that later
effort, this one was seriously under-supported by EO
management.
Paz determined that Hillary Goehausen would perform the
triage with assistance from Justin Lowe, a Tax Law Specialist
in EO Guidance, and would review the applications in an
electronic repository referred to as ``TEDS'' (Tax Exempt
Determination System). At the time of this determination,
Hillary Goehausen was relatively new to the IRS, having been
hired as a Tax Law Specialist in EO Technical in April of that
year. Accordingly, Paz assigned a relatively junior employee to
undertake this important review. Unfortunately, the entire
application package with supporting documents was not in TEDS
so, for many of the applications, Goehausen reviewed an
incomplete record. While Goehausen appears to have done a
credible job with the limited information that she had to work
with, her recommendations on the applications did not carry the
level of certainty that Thomas required to actually begin
rendering decisions. Paz described Goehausen's recommendation
to Committee Staff as follows: ``[s]o I believe her advice was
caveated that before Determinations . . . issued a letter they
should look and see if there was anything that had come in
subsequently that . . . could perhaps change that
answer.''\144\ Accordingly, Thomas found the recommendations to
be of little or no use.
---------------------------------------------------------------------------
\144\Id. p. 135.
---------------------------------------------------------------------------
Had this triage been properly supported with additional
staff to assist Goehausen, and had she reviewed the entire
record instead of just a part, the recommendations for each
application would have been more useful to Thomas. The triage
presented Paz with a prime opportunity to bring some of these
applications to resolution months, and in some cases years,
before they were ultimately decided. Instead, Paz allowed the
opportunity to slip away by inadequately staffing the
initiative and further limiting the review to an incomplete set
of records. Failure of this initiative contributed to the
growing backlog of political advocacy applications and the
mounting delays experienced by applicants.

4. Lack of EO Management Oversight of the Political Advocacy
Applications Allowed Development of the Guidesheet to Simply Stop in
November 2011

Goehausen and Lowe were tasked by Michael Seto, Manager of
EO Technical, with developing a ``guidesheet'' in July 2011.
(See Section VII(D).) The guidesheet was intended to contain
information and directions that would assist EO Determinations
agents process political advocacy applications. Goehausen and
Lowe completed a draft of the guidesheet in September 2011 and
circulated it to certain staff and managers for comment. Having
received comments from only Hull, Goehausen sent the guidesheet
out for comment again in early November. Several days later,
David Fish, then Acting Director of Rulings and Agreements,
decried the guidesheet as unworkable in its current form and
``too lawyerly.''\145\ At that point in time, it appears that
further work by EO Technical to refine the guidesheet simply
ceased.
---------------------------------------------------------------------------
\145\Id. pp. 132-33.
---------------------------------------------------------------------------
It does not appear that management made any attempt to
resume the process of completing the guidesheet again until
February 2012. At that time, Lerner was called to Capitol Hill
to explain to Congressional staff concerns about inappropriate
and sometimes intrusive development letters received by
constituents of a Congressman. During her meeting with
Congressional staff, Lerner offered that EO had developed a
guidesheet. Congressional staff requested a copy. Since
development of the guidesheet had effectively ceased in
November 2011, Lerner sought to expedite its completion so that
she could comply with the request by Congressional staff.
However, the guidesheet was never completed, as it was
eventually superseded by a decision to instead train EO
Determinations staff in May 2012 on processing political
advocacy applications. Allowing development efforts on the
guidesheet to simply stop in November 2011 represented yet
another serious lapse in oversight by EO management.
Development of the guidesheet itself was an abject failure
and again demonstrated the seeming indifference of EO
management to finding a processing solution that would bring
the political advocacy applications to resolution. As noted
above, development of the guidesheet commenced in July 2011 and
was terminated in May 2012. Over that period of time, and
despite numerous attempts, staff of EO Technical with
assistance from staff of the Office of Chief Counsel was unable
to deliver a written guide on processing political advocacy
applications that could be used by non-attorney EO
Determination agents. EO management's inability to harness its
resources to produce a solitary deliverable on a subject for
which EO is a source of authority further demonstrated its lack
of competence.

5. EO Management Allowed the Advocacy Team To Process Political
Advocacy Applications Without Proper Training and Support, and Failed
To Adequately Manage Its Activities

In December 2011, EO formed an ``Advocacy Team'' to develop
and decide the political advocacy applications. This project
resulted in yet another failed attempt to reduce the backlog of
applications. (See Section VII(F).) Like the triage of 2011,
the Advocacy Team appears to have been a Thomas-inspired
initiative. Thomas appears to be the only manager within EO who
expressed concern with the time that the applications were
pending resolution and who translated that concern into
palpable action.
While Thomas's idea to form the Advocacy Team was well-
intentioned, unfortunately, she failed to properly manage its
activities. Instead, she entrusted that responsibility to Steve
Bowling, a first-line manager, and Stephen Seok, an EO
Determinations employee, who both proved wholly inadequate for
the task. Under the direction of Bowling and Seok, the Advocacy
Team failed to bring a single case to resolution until the
``bucketing'' exercise of May 2012. However, the Advocacy Team
will be most remembered for its attempts to extract extraneous
information from applicants through incredibly burdensome and
onerous development letters. A share of the blame for the
failure of the Advocacy Team must also go to EO Technical,
which was responsible for providing technical guidance to the
Advocacy Team. It is unclear to what extent, if any, EO
Technical actually provided guidance to the Advocacy Team. What
is clear is that EO management exercised little or no
coordination and oversight over the activities of the Advocacy
Team, thereby allowing it to issue oppressive development
letters until that practice was halted in February 2012 by Lois
Lerner.

6. Although the ``Bucketing'' Exercise of 2012 Resolved Many Pending
Political Advocacy Applications, the IRS Has Not Yet Issued
Determinations for Some Applications

One positive development that can be attributed to the
Advocacy Team's inappropriate and sometimes intrusive
development letters was that they created intense media and
Congressional interest in the complaints voiced by Tea Party
and other political advocacy groups who were receiving these
letters. This attention, in turn, sounded the ``wake-up'' call
for upper IRS management, like Steve Miller. Once Miller became
aware of the problem regarding the development letters, he
ordered Nancy Marks, a Senior Technical Advisor, to conduct an
internal investigation aimed at finding out what was going on
in EO Determinations. (See Section VII(H).)
Upon getting a report back from Marks, Miller approved her
suggestion to perform a ``bucketing'' exercise where a team of
EO Technical Tax Law Specialists and EO Determinations agents
scrutinized each application and its supporting documents to
identify the applications that could be readily approved, those
that required minor development before approval, and those that
required further development. As a consequence of the bucketing
exercise, a significant number of the Tea Party and other
political advocacy applications were finally decided.
While the bucketing exercise was the first successful
attempt to process some of the political advocacy applications,
it came too late for many groups that had waited years and
eventually ceased operating because they lacked approved tax-
exempt status from the IRS. Moreover, the ``bucketing''
exercise did not resolve all backlogged political advocacy
applications, as the IRS informed Committee Staff that 14
percent of the 298 political advocacy cases identified by TIGTA
remained unresolved in March 2014. As of April 2015, 10 of
these applications were still pending resolution. A number of
those applications date back to 2010. Indeed, the Albuquerque
Tea Party, one of the original test cases assigned to Carter
Hull in April 2010, was still awaiting a determination as of
April 2015. Accordingly, while substantial progress has been
made since 2010 to reduce the backlog of political advocacy
applications, IRS management has not yet been able to bring all
of these applications to closure.

D. The IRS Placement of Left-Leaning Applicants on the BOLO List
Resulted in Heightened Scrutiny, Delay and Inappropriate and Burdensome
Information Requests

While most of the potentially political applications that
the IRS set aside for heightened scrutiny were Tea Party and
conservative groups, the IRS also flagged some left-leaning
tax-exempt applicants for processing. In order to centralize
these cases for review and processing, names and descriptions
of several left-leaning groups were placed on the BOLO
spreadsheet. Moreover, IRS employees were instructed in a
training workshop to set aside applications received from
several left-leaning organizations and to subject them to
secondary screening. Some left-leaning applicants experienced
lengthy processing delays and inappropriate and burdensome
requests for information. (See Section VIII.)

1. The IRS Instructed Employees To Flag ``Progressive,'' ``Emerge,''
and ACORN Successor Applications at Training Workshops.

In the summer of 2010, the IRS EO Determinations office
held training workshops where IRS employees were instructed to
screen a wide range of potentially political applications. In
addition to instructing screeners to flag applicants with names
like ``Tea Party,'' ``Patriots,'' and ``9/12 Project,'' the
screeners were also instructed to look for the names
``Progressive,'' and ``Emerge,'' and to be on the lookout for
successors to disbanded Association of Community Organizations
for Reform Now (ACORN) organizations.

2. The IRS Placed the Terms ``Progressive,'' ``ACORN,'' and ``Occupy''
on the BOLO List

Numerous iterations of the BOLO spreadsheet included the
terms ``Progressive,'' ``ACORN,'' and ``Occupy,'' from August
2010 through July 2012. The term ``Progressive'' appeared on
the BOLO spreadsheet tab titled TAG Historical or Potentially
Abuse Historical, indicating that IRS employees no longer
encountered applications with this term, but that the term
still had historical significance. ``ACORN Successors''
appeared on the Watch List tab of the BOLO spreadsheet after an
internal IRS research report concluded that ACORN may have
engaged in activities inconsistent with its tax-exempt status.
``Occupy'' was placed on the BOLO spreadsheet under the Watch
List tab after IRS Determinations employees noticed a news
article that reported organizations affiliated with the Occupy
movement were seeking tax-exempt status.

3. IRS Scrutiny of Left-Wing Applicants Resulted in Years-Long Delays
and Burdensome Information Requests

The Committee found several examples of ACORN-affiliated
and Emerge applicants that were delayed for over three years.
The press also reported examples of delayed processing for
left-leaning groups such as Alliance for a Better Utah and
Progress Texas. Of the 27 organizations that the IRS
inappropriately requested information concerning their donors,
at least three of those groups were left-leaning.

E. The Culture in EO Contributed to a Lack of Efficiency in Its
Operations

EO Management tolerated and even fostered a culture that
was not conducive to efficient and effective operations.
Lacking a sense of customer service, EO Management operated
without regard to the effect of its actions on applicant
organizations. Remote management and telework in EO
Determinations may have impeded communications and coordination
between its employees. Further, a pervasive atmosphere of
antipathy existed between the Cincinnati and Washington D.C.
offices of EO, fueled largely by the words and actions of Lois
Lerner. Lastly, the culture within EO permitted a manager with
no technical training in the subject matter area over which she
exerted supervisory authority to remain in her job for nearly a
decade.

1. EO Management Lacked a Sense of Customer Service

The IRS mission statement reads as follows:
Provide America's taxpayers top quality service by
helping them understand and meet their tax
responsibilities and enforce the law with integrity and
fairness to all.
While the mission statement pledges taxpayers much in
regard to customer service, the IRS's recent record of
processing political advocacy applications would suggest that
many taxpayers received far less than promised.
Indeed, Committee Staff found little to suggest that EO
management was concerned with the concept of customer service.
Rather, EO management's focus was steadily centered on taking
whatever actions it felt necessary to develop applications with
the goal of obtaining sufficient information to support
decisions (a goal that it has yet to achieve for some
applications), even if that goal took years to achieve. While
no one can fault EO management's desire to ``get it right,''
the difficulty was that EO management struggled to find a
method of doing so, even with multiple rounds of detailed
development letters spanning over a number of years. Moreover,
other than Cindy Thomas, EO management did not appear to be
concerned with how its processing of applications might
adversely affect the operations of the organizations awaiting
the IRS's determination.
The IRS's treatment of the two test cases illustrates its
customer service failings. The application for American Junto
was closed in 2012 for failure to respond to a development
letter. More accurately, the IRS sent American Junto three sets
of development letters over a two-year period which caused its
founders to give up on the notion of securing tax-exempt status
and dissolve the organization. In an interview with a news
agency, one of the founders of the group stated that ``[w]e
never got it off the ground . . . and the IRS is a large reason
for that.''\146\ As of April 2015, the second test case,
Albuquerque Tea Party, was still awaiting a decision from the
IRS on its application which it first filed in December 2009.
---------------------------------------------------------------------------
\146\USA Today, Short-lived Ohio Group was early test case for IRS
(Sep. 23, 2013).
---------------------------------------------------------------------------
EO Technical Group Manager Steven Grodnitzky told Committee
Staff the following:
Q. . . . [D]id you ever hear anybody at the IRS
express any concern about the effect of this processing
of these cases on these organizations? Did anybody say
anything about it?
A. Not--to my personal recollection.

* * * * * * *

Q. . . . Were you at all concerned about the fact
that these cases, these organizations were--were either
dissolving or not responding to the requests for
development? Did that give you any sense for maybe
there was not good customer service here to these
organizations?
A. If an organization decided not to respond for
whatever reason, that's their prerogative. And our
policy and rules are if they don't respond to a
particular letter, we close it out FTE. . . .\147\
---------------------------------------------------------------------------
\147\SFC Interview of Steven Grodnitzky (Sep. 25, 2013) pp. 135-37.
``FTE'' stands for ``Failure to Establish,'' which refers to applicants
that stop responding to IRS communications and are deemed to have
constructively withdrawn from the application process.
---------------------------------------------------------------------------
Recognizing the impact that an organization's ``process''
may have on its customers and then tailoring that process to
minimize potential adverse effects would seem like a necessary
and reasonable way to provide good customer service. It is
abundantly clear from Grodnitzky's statements that EO
management was not concerned at all with the adverse impact
that organizations could experience if the IRS took years to
process and decide their applications.
Cindy Thomas told Committee Staff that the work plan goal
for closing applications for exemption under 501(c)(4) was 158
days, or approximately 5 months.\148\ Holly Paz was asked if
three or four years between receipt of an application and
decision was normal. Paz stated to Committee Staff that
``[i]t's not the norm.''\149\ However, Paz also told Committee
Staff that she was aware of instances in which applicants
waited four or five years for a decision on their applications
for tax-exempt status.\150\
---------------------------------------------------------------------------
\148\SFC Interview of Cindy Thomas (July 25, 2013) pp. 186-87.
\149\SFC interview of Holly Paz (July 26, 2013) p. 11.
\150\Id.
---------------------------------------------------------------------------
EO managers and employees routinely ignored the established
IRM guidelines, which specify deadlines at various stages
throughout the application process. For example, when an EO
Determination employee decides that more information is needed
about an application, the IRM allows five workdays to prepare
and mail a development letter to the applicant.\151\ Numerous
Tea Party and political advocacy organizations heard nothing
from the IRS for a year or more while their applications were
pending, and then received a lengthy development letter seeking
more information. This is but one example of EO employees
failing to follow established deadlines and managers failing to
enforce them.
---------------------------------------------------------------------------
\151\IRM Sec. 7.20.2.4.2 (Nov. 1, 2004).
---------------------------------------------------------------------------
When asked about the long delays experienced by Tea Party
and other political advocacy groups seeking tax exemption,
Nikole Flax stated her views as follows:

``And I agree that was a problem. I mean, yes. And
those are the problems that we were focused on, is all
the organizations that ended up in the centralization,
where they sat too long. I mean, I'm not defending any
of that. That, in my mind, is the biggest offensive
thing, is like, cases should not sit for 2 or 3 years
or whatever they did. I mean, there is no excuse for
that.''\152\
---------------------------------------------------------------------------
\152\SFC Interview of Nikole Flax (Nov. 21, 2013) p. 135.

While Flax's statements are an encouraging sign that
someone at the IRS recognizes that EO owes taxpayers seeking
exemption better customer service than they have recently
received, the facts appear to suggest that her views are not
universally shared within EO. Indeed, as of March 2014, nearly
a year after TIGTA released its report on the IRS's use of
inappropriate criteria to identify tax-exempt applications for
review, more than 20 percent of the political advocacy
applications that were centralized between the years 2010 and
2013 were still awaiting a decision from the IRS. As indicated
in the chart below, by April 2015, the IRS still had not
rendered a decision on 10 of those political advocacy
organizations.\153\
---------------------------------------------------------------------------
\153\Based on data provided to the SFC by the IRS (Apr. 8, 2015).

DISPOSITION OF CENTRALIZED POLITICAL ADVOCACY APPLICATIONS
----------------------------------------------------------------------------------------------------------------
Total Apps
Date Centralized Open/Pending Resolved
----------------------------------------------------------------------------------------------------------------
Dec. 31, 2010...................................................... 89 88 1
Dec. 31, 2011...................................................... 290 288 2
Dec. 31, 2012...................................................... 487 319 168
Dec. 31, 2013...................................................... 542 158 384
Dec. 31, 2014...................................................... 547 17 530
Apr. 1, 2015....................................................... 547 10 537
----------------------------------------------------------------------------------------------------------------

2. Remote Management and Workplace Flexibilities Affected the
Efficiency of EO Determinations

From 2010 to 2013, EO Determinations in Cincinnati
consisted of 13 Groups, each led by a Group Manager. Each Group
consisted of approximately 12 EO Determinations agents. While
many of EO Determinations' personnel were located in
Cincinnati, there were a number of EO Determinations Groups
situated in other locations across the United States, such as
El Monte, California, Sacramento, California, Laguna Niguel,
California, and Baltimore, Maryland. Agents in these Groups
performed the same tasks as the agents located in Cincinnati,
which included reviewing, developing and making recommendations
on the disposition of applications for tax-exempt status.
While the EO Determinations offices were geographically
dispersed, so was the management chain. For example, Sharon
Camarillo, an EO Determinations Area Manager from 2002 to 2010,
had responsibility in 2010 for eight Groups, five of which were
located in Cincinnati, two of which were located in El Monte,
California, and one of which was located in Sacramento,
California. For a portion of the time Camarillo was an Area
Manager, she was located in Los Angeles. In 2010, she was
located in El Monte, California, together with two of the eight
Groups that she supervised. Camarillo reported to Cindy Thomas,
Program Manager of EO Determinations, who was located in
Cincinnati. In 2010, Camarillo oversaw Group 7822 located in
Cincinnati--the Emerging Issues Group managed by Steve Bowling,
which was responsible for the processing of Tea Party and other
political advocacy applications.
In addition to the dispersal of offices, staff and managers
located throughout the country and time zone variances between
offices, communications and coordination within EO
Determinations may also have been affected by telework. For
example, Gary Muthert, a screener in the Screening Group headed
by John Shafer, told Committee Staff that he worked from home
four days a week. Shafer, his manager, also worked from home
two days a week. Steve Bowling, another Group Manager told
Committee Staff that he worked from home 2 to 3 days a week.
Shafer indicated that every one of the 13 screeners who worked
in the screening Group worked from home up to a maximum of four
days per week, in accordance with the terms of a collective
bargaining agreement. Regarding all other employees in EO
Determinations, Shafer told Committee Staff the following:
Q. And the other employees that were in the EO
Determinations group in Cincinnati outside the
screening group, the rest of them, were they also
covered by that union agreement?
A. Yes they were. Bargaining unit folks. Not, again,
the managers.
Q. So they could have worked at home up to 4 days a
week?
A. Yes.\154\
---------------------------------------------------------------------------
\154\SFC Interview of John Shafer (Sep. 17, 2013) p. 96.
---------------------------------------------------------------------------
The following chart illustrates the difficulties that
remote workplaces and telework placed on EO Determinations.
TR119.002

This dispersal of staff and management undoubtedly
complicated communication and coordination within EO
Determinations. For example, the first Tea Party application
identified as a ``high profile'' case by Jack Koester, a
screener in EO Determinations, was sent by Koester to his
manager, John Shafer, who was located in Cincinnati. Shafer
then alerted Camarillo in California that the application had
been received. Camarillo, in turn, apprised Thomas in
Cincinnati of the development and sought guidance on how to
handle the application. Camarillo not only contended with the
geographic challenges of managing employees spread across the
country and communicating with her superior who was in another
locale, but also had to surmount the differences in time zones
between her office and that of many of her employees and her
supervisor. The circuitous path that information between staff
and the various levels of management travelled surely hindered
communications in EO Determinations.
Telework unquestionably serves a legitimate purpose.
However, the pervasiveness of it in an office as fractionated
as EO Determinations could only impede communications and
coordination among the staff and managers.

3. Antagonism Existed Between EO Senior Executive Level Management and
EO Determinations Managers and EO Line Employees

Another symptom of the problematic culture within the EO
Division is the clear divide that existed between EO senior
executive level management in Washington, D.C. and the mid-
level managers and line employees in EO Determinations. Cindy
Thomas explained her views of Lois Lerner as follows:

. . . I don't think that she valued what employees were
doing . . . she didn't really listen to what others had
to say. She would cut you off and didn't allow people
to express what was going on . . . it was like it
didn't matter if other people had questions, so to
speak. So I don't think she was a very good
leader.\155\
---------------------------------------------------------------------------
\155\SFC Interview of Cindy Thomas (July 25, 2013) pp. 116-17.

Regarding Lerner's opinion of the line employees in EO
Determinations, Thomas related the following to Committee
Staff:
Q. . . . Going back, you had said that Ms. Lerner had
referred to the Cincinnati office, which does the kind
of day-to-day work, as backwater?
A. Right.
Q. As low-level. Did employees in Cincinnati know
that?
A. Oh, yes.
Q. Was there, a reaction--but I mean, did Lois
realize that her words actually went back to employees,
or did she perhaps just not?
A. I know that when she referred to employees as
backwater at one point in time, that . . . employees
were talking about it, you know, in Cincinnati . . . As
far as ``low-level,'' she did [say] that on May the
10th. . . .\156\
---------------------------------------------------------------------------
\156\Id. p. 122.
---------------------------------------------------------------------------
Thomas also felt that Lerner did not value EO
Determinations because the employees were not attorneys. She
expressed her views as follows:

. . . Everybody has different levels of experience and
different ideas and things, and we all have things to
bring to the table. And just because a person is a
lawyer doesn't make them any more important than
anybody else . . . But I think that it was almost like
a feeling like we're superior--I'm superior because I'm
in the Washington Office, and you people in
Determinations, you're all not lawyers and you're,
like, backwater.\157\
---------------------------------------------------------------------------
\157\Id. pp. 117-18.

Lois Lerner's polarizing words and actions had a
demoralizing effect on both EO Determinations management and
line employees. Those words and actions clearly exacerbated the
atmosphere of antagonism that existed between the Cincinnati
and Washington, D.C. EO offices.

4. The IRS Failed To Ensure That All EO Employees Received Technical
Training

EO employees administer a complex and nuanced area of the
Internal Revenue Code, which includes statutes, regulations,
revenue rulings, and other guidance issued by the Treasury
Department. Although the IRS offered technical training to EO
employees, it did not ensure that all employees received
proper--or in some cases, any--technical training.
Sharon Camarillo was an area manager in EO Determinations
for 8 years before she retired in December 2010. In that role,
Camarillo oversaw several Groups of EO employees who evaluated
applications for tax-exempt status that were submitted to the
IRS, including the Technical Screening Unit, which was
responsible for making the initial assessment of incoming
applications. Yet Camarillo told Committee Staff that she ``had
no technical training in the area of Exempt Organizations, so I
was not able to address technical issues.''\158\
---------------------------------------------------------------------------
\158\SFC Interview of Sharon Camarillo (Sep. 26, 2013) p. 7.
Camarillo explained that she was scheduled to attend a 6-week training
session at one time during her tenure in EO, but she was removed from
the session after one day by Thomas. Id. p. 25.
---------------------------------------------------------------------------
As a result of her lack of technical training, Camarillo
was unable to provide feedback on substantive issues and
instead deferred to other managers within EO. An example of
Camarillo's deference occurred in February 2010, when the
manager of the Technical Screening Unit, John Shafer, brought
the first Tea Party application to her attention. Camarillo
explained that she ``simply reiterated what John had said and
forwarded it on'' to her manager, Thomas, ``[b]ecause I was so
untechnical, I did not have the EO background.''\159\
---------------------------------------------------------------------------
\159\Id. p. 16.
---------------------------------------------------------------------------
In the culture of the IRS organization, it was not only
acceptable for an employee who had no technical knowledge to be
elevated to a managerial position, it was also acceptable for
an employee to remain in that position for nearly a decade
without completing any meaningful technical training.

F. Lois Lerner Oversaw the Handling of Tea Party Applications and
Provided Limited Information to Upper-Level Management

As the Director of EO who was well-versed in the tax law of
exempt organizations, Lerner was given a great amount of
autonomy to manage the work of her division. The most senior
official in EO, Lerner was responsible for keeping upper IRS
management informed about significant issues within the
organization that she oversaw. As she explained to one of her
subordinates:

[W]e ensure that all of our [senior] managers are
aware of all highly visible hot button issues. Our job
is to report up to our bosses on anything that might
end up on the front page of the NY Times.\160\
---------------------------------------------------------------------------
\160\Email chain between Lois Lerner, Nanette Downing and others
(May 10-11, 2011) IRS0000014917-20.

Lerner first became aware that the IRS received
applications from Tea Party groups in April or May 2010.
Although Lerner became personally involved with the handling of
these applications, upper-level IRS management remained largely
unaware that the IRS had received applications from Tea Party
groups. As a result, Lerner was left to oversee the processing
of these applications with negligible oversight or
accountability.

1. Lois Lerner Was Informed About the Tea Party Applications in April
2010 and Received Updates About Them

The Tea Party applications were first brought to Lerner's
attention soon after Jack Koester in Cincinnati flagged them.
On April 28, 2010, the Acting Manager of EO Technical, Steven
Grodnitzky, sent Lerner a chart summarizing the SCRs. The first
entry on the chart was the Tea Party applications. Grodnitzky
drew Lerner's attention to this entry in his cover email, where
he stated:

Of note, we added one new SCR concerning 2 Tea Party
cases that are being worked here in DC. Currently,
there are 13 Tea Party cases out in EO Determinations
and we are coordinating with them to provide direction
as to how to consistently develop those cases based on
our development of the ones in DC.\161\
---------------------------------------------------------------------------
\161\Email from Steven Grodnitzky to Lois Lerner, Robert Choi and
others (Apr. 28, 2010) IRS0000141809-11.

On May 13, 2010, Grodnitzky updated Lerner on the status of
the Tea Party applications and other SCRs prepared by EO
Technical.\162\ Lerner responded by asking about the Tea Party
applications, and specifically, the basis of their exemption
requests. Lerner instructed Grodnitzky that ``[a]ll cases on
your list should not go out without a heads up to me please.''
Grodnitzky then provided more information about the status of
the cases (emphasis added):
---------------------------------------------------------------------------
\162\Email chain between Steven Grodnitzky, Lois Lerner, Robert
Choi and others (May 13-16, 2010) IRS0000167872-73.

We have tea party cases here in EOT and in Cincy. In
[EO Technical], there is a (c)(3) application and a
(c)(4) application. In Cincy, there are 10 (c)(4)s and
a couple of (c)(3)s. The organizations are arguing
education, but the big issue for us is whether they are
engaged in political campaign activity. We are in the
development process at this point here in DC, and I
have asked the [Tax Law Specialist] and front line
manager to coordinate with Cincy as to how to develop
their cases, but not resolve anything until we get
clearance from you and Rob.
The tea party cases, like the others on the list, are
the subject of an SCR, and I customarily give Rob a
heads up, but of course can let you know as well before
anything happens.\163\
---------------------------------------------------------------------------
\163\Id.

Lerner continued to receive updates about the status of the
Tea Party applications throughout 2010, including revised SCRs
that she received at the end of May 2010, in July 2010, in
September 2010, and in November 2010.\164\
---------------------------------------------------------------------------
\164\Email from Steven Grodnitzky to Lois Lerner, Robert Choi and
others (May 27, 2010) IRS0000141812-14; Email chain between Theodore
Lieber, Lois Lerner and others (July 27-30, 2010) IRS0000807076-115
(email attachments containing taxpayer information omitted by Committee
staff); Email from Steven Grodnitzky to Lois Lerner, Robert Choi and
others (Sep. 30, 2010) IRS0000156433-36; Email from Holly Paz to Lois
Lerner, Robert Choi and others (Nov. 3, 2010) IRS0000156478-81.
---------------------------------------------------------------------------
Lerner grew more concerned about the Tea Party applications
in early 2011. On February 1, 2011, Michael Seto, the Acting
Manager of EO Technical, sent an updated SCR table to Lerner.
She responded, ``Tea Party Matter very dangerous--This could be
the vehicle to go to court on the issue of whether Citizen's
United overturning the ban on corporate spending applies to tax
exempt rules.'' Lerner indicated that Chief Counsel and Judy
Kindell needed to be involved with these applications and that
they should not be handled by Cincinnati.\165\
---------------------------------------------------------------------------
\165\Email chain between Holly Paz, Lois Lerner and Michael Seto
(Feb. 1-2, 2011) IRS0000159431-33.
---------------------------------------------------------------------------
The following day, Paz advised Lerner that Carter Hull was
supervising the applications handled by Cincinnati at every
step and that no decision would be made until EO Technical
completed the review of the 501(c)(3) and 501(c)(4)
applications. Lerner noted that ``even if we go with a 4 on the
Tea Party cases, they may want to argue they should be 3s, so
it would be great if we can get there without saying the only
reason they don't get a 3 is political activity.''\166\
---------------------------------------------------------------------------
\166\Id.
---------------------------------------------------------------------------
A few months later, Lerner convened a meeting to further
discuss the Tea Party and other advocacy applications. In
preparation for the meeting, Justin Lowe developed a briefing
paper for Lerner.\167\ The paper indicated that EO
Determinations Screening identified as an ``emerging issue'' a
number of 501(c)(3) and (c)(4) applications by organizations
``advocating on issues related to government spending, taxes
and related matters.'' These applications were being sent to a
specific group if they met any of the following criteria:
---------------------------------------------------------------------------
\167\SFC Interview of Holly Paz (July 26, 2013) p. 86. The meeting
was originally scheduled for June 29, 2011, but was rescheduled for
July 5, 2011.
---------------------------------------------------------------------------
``Tea Party,'' ``Patriots,'' or ``9/12
Project'' is referenced in the case file.
Issues include Government spending,
Government debt, or taxes.
Education of the public via advocacy/
lobbying to ``make America a better place to live.''
Statements in the case file criticize how
the country is being run.
The briefing paper also noted that:
More than 100 cases that meet these criteria
have been identified so far, but only two 501(c)(4)
organizations have been approved.
EO Technical is assisting EO Determinations
by reviewing files and editing development letters; and
EO Determinations requests guidance on how
to process the cases to ensure uniformity.\168\
---------------------------------------------------------------------------
\168\Email from Justin Lowe to Holly Paz and others (June, 27,
2011) IRS0000431165-66.
---------------------------------------------------------------------------
On July 5, 2011, Lerner discussed the Tea Party
applications, including the BOLO entry and screening criteria,
with Thomas, Paz, Kindell and others.\169\ Lerner directed
changes, as described herein in Section VI(B)(2), although her
management was largely passive until the media and Congress
became involved in 2012.
---------------------------------------------------------------------------
\169\SFC Interview of Holly Paz (July 26, 2013) pp. 86-89; SFC
Interview of Cindy Thomas (July 25, 2013) pp. 53-55.
---------------------------------------------------------------------------

2. Lois Lerner Failed To Inform IRS Upper Management About the Tea
Party Applications

Lerner's first line of management was the TE/GE Division
Commissioner, a position that was held at relevant times first
by Ingram and then by Grant.\170\ While Ingram was Division
Commissioner of TE/GE, she had little face-to-face contact with
Lerner--their chief interactions were at quarterly meetings and
reviews--although they did regularly exchange emails.\171\
Ingram did not learn that the IRS had received Tea Party
applications until late 2011 or early 2012, when she read
newspaper articles about problems the groups were encountering
with the IRS.\172\ The first time that she learned of
allegations that the IRS was treating certain applications
inappropriately was during a staff meeting in 2012, when Grant
or Flax presented information about congressional inquiries
related to these organizations.\173\
---------------------------------------------------------------------------
\170\Ingram served in that role from May 2009 to December 2010,
when she became the Acting Director of the newly-created Services and
Enforcement Affordable Care Act Office. Until the spring of 2013,
Ingram also continued to serve as the Commissioner of TE/GE, providing
high-level direction while Joseph Grant performed most of the duties as
the Acting Director of TE/GE. Grant's position as Division Commissioner
of TE/GE became permanent in May 2013, shortly before he retired from
the IRS on June 3, 2013. SFC Interview of Sarah Hall Ingram (Dec 16,
2013) pp. 10, 19-20; SFC Interview of Joseph Grant (Sep. 20, 2013) pp.
5-6.
\171\SFC Interview of Sarah Hall Ingram (Dec 16, 2013) p. 18.
\172\Id. pp. 42-43.
\173\Id. pp. 64-68.
---------------------------------------------------------------------------
Although Grant directly supervised Lerner from December
2010 through May 2013, they had ``relatively minimal
interaction'' with each other.\174\ Grant first became aware of
the allegations that the IRS was treating Tea Party
applications differently than other applicants in February or
March of 2012, when the IRS began receiving letters from
Congress.\175\ He also asserted that Lerner did not tell him
about the July 5, 2011 meeting about Tea Party applications
until April of the following year.\176\
---------------------------------------------------------------------------
\174\SFC Interview of Joseph Grant (Sep. 20, 2013) p. 63.
\175\Id. p. 9.
\176\Id. pp. 14-15.
---------------------------------------------------------------------------
Lerner's second level of management was the Deputy
Commissioner for Services & Enforcement, a position held by
Steven Miller from late 2009 through November 2012, when he
became Acting Commissioner of the IRS. As Deputy Commissioner
for Services & Enforcement, Miller oversaw the IRS's four
primary operating divisions, including the TE/GE Division, and
reported directly to the IRS Commissioner.\177\ Lerner worked
closely with Steven Miller on issues related to exempt
organizations, sometimes bypassing Ingram and Grant, as Miller
had previous experience in that area and had served as the
Director of EO in the early 2000s.\178\
---------------------------------------------------------------------------
\177\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 16-17.
\178\SFC Interview of Joseph Grant (Sep. 20, 2013) pp. 53-55; SFC
Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 12.
---------------------------------------------------------------------------
Miller generally found that Lerner was ``pretty good about
elevating'' important issues to him.\179\ But he claims that he
did not become aware of how the IRS was handling Tea Party
applications until early 2012, when he saw accounts in the
press of the IRS asking overly burdensome questions of these
applicants, including requests for donor information.\180\
Miller discussed these issues with Commissioner Shulman while
Shulman was preparing to testify before Congress in March 2012.
Around that time was also the first point when Shulman became
aware of the pending Tea Party applications.\181\
---------------------------------------------------------------------------
\179\SFC Interview of Steven Miller (Dec. 12, 2013) p. 242.
\180\Id. pp. 123-128.
\181\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 32-35.
---------------------------------------------------------------------------
Miller became increasingly concerned with how the
applications were being handled and, as Ingram explained,
during a meeting with senior staff ``express[ed] great
frustration, and I'm putting that mildly, that . . . he wasn't
. . . getting a complete description of what was going
on[.]''\182\ Based on the information he received from Lerner,
Miller ``was not comfortable responding to the congressional
[requests] that he had at that point.''\183\ To alleviate these
concerns, in April 2012 Miller ordered Nancy Marks to visit
Cincinnati and find out what was going on, then report to him
directly. Lerner was notably absent from the group of employees
sent to Cincinnati. Around that time, Miller informed Shulman
of Marks' planned visit and also told Shulman that TIGTA was
starting a review.\184\
---------------------------------------------------------------------------
\182\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 77.
\183\Id. p. 79.
\184\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 35-37.
---------------------------------------------------------------------------
On May 3, 2012, Marks briefed Miller on the key findings
from her trip to Cincinnati, which included:
The use of inappropriate and sometimes
intrusive development questions resulted from a lack of
guidance and training by EO Technical to EO
Determinations;
There were 250-300 political advocacy cases
in the queue;
EO Determinations agents used a ``BOLO''
list with ``Tea Party'' and ``9/12'' on it as screening
criteria but that the problem with using such criteria
had been ``fixed'' earlier;
Among the political advocacy cases in the
queue were cases on both sides of the political
spectrum;
TIGTA was reviewing EO's treatment of the
cases; and
Marks found no evidence of political
bias.\185\
---------------------------------------------------------------------------
\185\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 133-141.
---------------------------------------------------------------------------
Soon after being briefed by Marks, Miller conveyed to
Shulman the salient points of Marks' findings, including the
existence of the BOLO list and its criteria, one of which was
``Tea Party.'' Shulman was concerned that ``Tea Party'' was on
the BOLO, but he didn't follow up because Miller told him that
the issue was resolved and TIGTA was investigating.\186\ On May
30, 2012, Inspector General George briefed Miller and Shulman
about TIGTA's audit, and specifically discussed his concern
about screening criteria including the Tea Party, Patriots, 9/
12 and other policy issues.\187\
---------------------------------------------------------------------------
\186\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 37-44.
\187\TIGTA Summary of Briefings to IRS and Treasury Leadership,
Provided to SFC on May 19, 2014.
---------------------------------------------------------------------------
After May 2012, Miller asked for periodic updates about the
status of political advocacy applications and monitored their
processing, keeping track of the number of applications that
were still open. Miller ``periodically'' gave Shulman updates
about the political advocacy applications, telling Shulman,
``[W]e've got people on it, we're moving cases, we're putting
determinations out; and [giving] the impression that, you know,
the lag issue of approval was being worked on.''\188\
---------------------------------------------------------------------------
\188\SFC Interview of Douglas Shulman (Dec. 3, 2013) p. 80.
---------------------------------------------------------------------------
Upon reflection, Miller believes that Lerner ``under-
managed'' the political advocacy applications and should have
made him aware of them sooner: ``Certainly, before May [2012] I
should've been aware that she found [problems with the handling
of political advocacy applications].''\189\
---------------------------------------------------------------------------
\189\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 184, 240-
41.
---------------------------------------------------------------------------

3. Lerner Did Not Consult With IRS Chief Counsel William Wilkins About
the Tea Party Applications

It does not appear that Lerner directly contacted IRS Chief
Counsel William Wilkins to discuss the pending applications
submitted by Tea Party and other political advocacy
organizations. Like many senior officials within the IRS,
Wilkins first learned that the IRS was reviewing applications
from political advocacy groups in March of 2012.
The issue first rose to Wilkins when the Office of Chief
Counsel was asked to review a guidesheet that was initially
prepared by EO Technical.\190\ Wilkins skimmed the guidesheet
but never provided substantive comments or edits. He understood
that EO Determinations employees would use the guidesheet to
decide if applicants were engaging in political campaign
intervention, but he did not know that the guidesheet was
spurred by uncertainty over how to handle the Tea Party
applications.\191\ By that point, other attorneys in the Office
of Chief Counsel had been assisting with political advocacy
applications for nearly a year--but no one had informed Wilkins
of their work.\192\
---------------------------------------------------------------------------
\190\SFC Interview of William Wilkins (Nov. 7, 2013) p. 24; Email
from Michael Blumenfeld to William Wilkins and others (Mar. 13, 2012)
IRS0000061498-505.
\191\SFC Interview of William Wilkins (Nov. 7, 2013) p. 24.
\192\Id. pp. 38-39.
---------------------------------------------------------------------------
As the most senior attorney available to IRS management,
Wilkins could have perhaps assisted with the legal questions
posed by the political advocacy applicants if Lerner--or any
other manager within the TE/GE chain--sought his help. Instead,
Wilkins first learned that Tea Party organizations had applied
for tax-exempt status, and that the IRS had screened
organizations for full development based on their names, when
he read the draft TIGTA report in April 2013.\193\
---------------------------------------------------------------------------
\193\Id. pp. 24, 35.
---------------------------------------------------------------------------

G. Even During the Committee's Investigation, Some IRS Employees
Continued To Screen Tea Party Applications Based on the Organization's
Names

On June 20, 2013, the IRS suspended use of the BOLO list
and instructed EO employees to follow generally-applicable
procedures when reviewing applications for tax-exempt
status.\194\ Committee staff interviewed a number of EO
Employees in the months following this directive. From these
interviews, it is clear that the suspension of the BOLO left a
procedural void and that at least some EO Determinations
employees continued to screen cases by looking for ``Tea
Party'' and other inappropriate terms in the organization name.
---------------------------------------------------------------------------
\194\Memorandum from Karen Schiller, Interim Guidance on the
Suspension of BOLO List Usage (June 20, 2013). The memorandum
instructed employees to immediately stop using the BOLO spreadsheet,
including the Emerging Issues tab and the Watch List tab. However,
employees were permitted to continue using other lists to identify and
prevent waste, fraud and abuse.
---------------------------------------------------------------------------
Cindy Thomas, who oversaw EO Determinations, explained that
some types of applications were still sent to particular groups
of employees for processing, even in the absence of a formal
BOLO:

I have asked the question about what are we supposed
to do with like health care cases? We have a group that
coordinates the cases when they come in and we have the
advocacy cases. Are we, what are we supposed to do? And
what I was told is that we can still have cases go to a
designated group for consistency purposes, that maybe
the BOLO was really more of a routing document to
instruct specialists or screeners where to route cases
more than anything. And we are still having cases to be
routed to the group that worked health care cases, they
still get cases routed to them, and the group that was
coordinating advocacy cases they still are going to
that group that was coordinating those cases.

One employee who screened incoming applications, Gary
Muthert, opined that the absence of the BOLO ``will lead to
more inconsistent processing of applications.''\195\ Muthert
also expressed confusion about how he should handle incoming
applications from Tea Party organizations:
---------------------------------------------------------------------------
\195\SFC Interview of Gary Muthert (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------
Q. Let me ask you if currently, if you get two
applications, one is for the Tea Party of Arkansas or
whatever, the other is for Americans for Apple Pie, or
something else, are the cases treated the same or is
there still concern over how to consistently treat Tea
Party cases?
A. In my opinion there's still concern because no
one's resolved the issue. I mean, for me, it's like
what am I supposed to do with this thing?\196\
---------------------------------------------------------------------------
\196\Id.
---------------------------------------------------------------------------
Another screener, Jack Koester, stated that screeners
``really don't have any direction or we haven't had any'' since
the BOLO was suspended.\197\ On August 1, 2013, Koester
explained that if he was assigned to review an incoming
application with the words ``Tea Party'' in its name, he would
ask another IRS employee to also review the application, even
if there was no evidence of political activity:
---------------------------------------------------------------------------
\197\SFC Interview of Jack Koester (Aug. 1, 2013) p. 29.
---------------------------------------------------------------------------
Q. If you saw--I am asking this currently, if today
if a Tea Party case, a group--a case from a Tea Party
group came in to your desk, you reviewed the file and
there was no evidence of political activity, would you
potentially approve that case? Is that something you
would do?
A. At this point I would send it to secondary
screening, political advocacy.
Q. So you would treat a Tea Party group as a
political advocacy case even if there was no evidence
of political activity on the application. Is that
right?
A. Based on my current manager's direction, uh
huh.\198\
---------------------------------------------------------------------------
\198\Id. pp. 39-40. As Koester and other EO Determinations
employees explained, the secondary screening process entailed a second
review by an employee who was familiar with a particular type of
applications. This same process was first used to screen incoming
applicants from Tea Party organizations in 2010. Id. p. 35; SFC
Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 27-28, 44-45.
---------------------------------------------------------------------------
Based on this testimony, it appears that several months
after TIGTA released their report, employees lacked appropriate
instructions from management and possibly continued to pull out
applications containing the words ``Tea Party'' for separate
processing, despite the suspension of the BOLO and other
assurances that the IRS had stopped these practices.\199\
---------------------------------------------------------------------------
\199\Since the Committee conducted the interviews referenced in
this section, the IRS has issued additional guidance to employees
implementing new procedures for reviewing tax-exempt applications. See,
e.g., Memorandum from Kenneth Corbin, Expansion of Optional Expedited
Process for Certain Exemption Applications Under Section 501(c)(4)
(Dec. 23, 2013); Memorandum from Stephen Martin, Streamlined Processing
Guidelines for All Cases (Feb. 28, 2014). We have no knowledge of
whether the IRS's recent guidance has affected the screening procedures
applied to incoming applications for tax-exempt status.
---------------------------------------------------------------------------

H. For a Three-Year Period, The IRS Did Not Perform Any Audits of Tax-
Exempt Organizations That Were Alleged to Have Engaged in Improper
Political Campaign Intervention

After the Supreme Court's Citizens United decision in
January 2010, the IRS became increasingly concerned with the
amount of money spent to influence elections by tax-exempt
organizations. (See Section IV.) . . . The IRS received an
increasing number of allegations after Citizens United that
tax-exempt organizations were engaging in an impermissible
level of political campaign intervention. Under existing
procedures, these allegations would be reviewed by EO
Examinations employees who had discretion to open an audit. EO
Examinations Director Nanette Downing, Lerner and other
managers believed that the IRS needed new procedures and better
employee training to effectively process these allegations. By
the end of 2010, Downing suspended all examinations of
501(c)(4) organizations that were alleged to have engaged in
improper political campaign intervention. (See Section IX(A).)
High-level IRS managers, including Miller, Lerner and
Downing, spent the next three years attempting to devise a new
approach that would enable the IRS to effectively evaluate
allegations related to political campaign intervention of tax-
exempt organizations. Although these managers understood the
importance of the issue and devoted significant time and
resources to the project, they failed to put a new approach in
place. As a result, from the end of 2010 until April 2014, the
IRS did not perform any examinations of 501(c)(4) organizations
related to impermissible political campaign intervention.
Sections IV through VIII provide further detail about the
facts that support the Committee's findings related to the
Determinations process.

IV. FOLLOWING THE CITIZENS UNITED CASE, THE IRS FACED EXTERNAL PRESSURE
TO MONITOR AND CURTAIL POLITICAL SPENDING OF TAX-EXEMPT ORGANIZATIONS

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section describes the environment within which the IRS EO Division
operated
from 2010-2013 in the wake of the Citizens United case.
------------------------------------------------------------------------

The IRS has long been concerned with political spending by
tax-exempt organizations. As Sarah Hall Ingram, former
Commissioner of TE/GE and an employee of the IRS for more than
30 years, explained:

For decades, the issue of what activities are on
which side of the line and what's permitted, and the
factual issues around who's crossed the lines and who
hasn't, that is a very old question.\200\
---------------------------------------------------------------------------
\200\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 33.

Ingram further observed that the focus on political
spending tended to intensify at the close of election
cycles.\201\ Although the issue was not a novel one for the
IRS, the level of external scrutiny on the agency increased
dramatically after the Supreme Court issued its decision in
Citizens United v. Federal Election Commission, 130 S. Ct. 876
(2010).
---------------------------------------------------------------------------
\201\Id. p. 32.
---------------------------------------------------------------------------

A. Employees Throughout the IRS Exempt Organizations Division Were
Aware of the Citizens United Decision

On January 21, 2010, the Supreme Court issued its decision
in Citizens United, striking down parts of the Bipartisan
Campaign Reform Act of 2002 (McCain-Feingold Act). The chief
holding was that ``[p]olitical spending is a form of protected
speech under the First Amendment, and the government may not
keep corporations or unions from spending money to support or
denounce individual candidates in elections.''\202\ Although
Citizens United directly addressed laws administered by the
FEC, observers quickly predicted that the case might also have
implications for the Internal Revenue Code and IRS regulations.
On the day after the decision was announced, Lerner brought the
case to the attention of upper-level TE/GE management and the
Chief Counsel's office. Lerner believed that the case would
probably not change IRS rules regarding tax exemption, but she
recommended that the IRS prepare itself for inquiries regarding
campaign spending by 501(c)(3) and 501(c)(4)
organizations.\203\ Ingram agreed that the agency should
prepare Q&As as she thought that the case might result in a
``test of the tax-exemption issue'' in the courts.\204\
---------------------------------------------------------------------------
\202\Citizens United v. Federal Election Commission, SCOTUSblog.
\203\Email chain between Sarah Ingram, Lois Lerner, Steve Miller
and others (Jan. 22-24, 2010) IRS0000444375-77.
\204\Id.
---------------------------------------------------------------------------
Lerner and others then prepared a few draft Q&As that could
be posted to the IRS website to explain the effect of the
holding on the IRS's enforcement of its regulations.\205\ The
Q&As restated established law regarding the activities of tax-
exempt organizations and explained that Citizens United did not
address the requirements that Congress imposed on organizations
as a condition of being tax-exempt.\206\ Ultimately, the IRS
decided not to post any guidance about the case on its website
though, as Ingram believed ``it was sort of hard to explain why
the IRS would be commenting on the FEC case in an affirmative
way and also because all the other answers [in the Q&As] were
already up on the Web in one format or another.''\207\ Lerner
also observed that ``[t]his is the danger zone no matter what
we say.''\208\ The Q&As were provided to Commissioner Shulman
and Steve Miller, so they could be prepared if the issue came
up at a public event.\209\
---------------------------------------------------------------------------
\205\Email chain between Nikole Flax, Sarah Hall Ingram, Cathy
Livingston and others (Jan. 24-25, 2010) IRS0000442110-12.
\206\Id.
\207\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 40.
\208\Email chain between Nikole Flax, Sarah Hall Ingram, Cathy
Livingston and others (Jan. 24-25, 2010) IRS0000575821-24.
\209\Id.
---------------------------------------------------------------------------
Line employees in the EO Division were also aware of the
Citizens United decision, independent of any notification by
management. On the day after the decision was issued, an EO
employee in Cincinnati forwarded Politico's analysis of the
case to several of his colleagues, noting that it ``[l]ooks
like yesterday's Supreme Court ruling is going to result in
more (c)(4)s engaging in political activities and the death of
527s.''\210\
---------------------------------------------------------------------------
\210\Email from Michael Tierny to Faye Ng and others (Jan. 22,
2010) IRS0000639344-48.
---------------------------------------------------------------------------
Two EO Determinations employees in Cincinnati assessed the
potential impact of Citizens United on incoming applications
for tax-exempt status. In August 2010, a screener in EO
Determinations noted that an incoming application ``appears to
be using a recently decided Supreme Court case, `Citizens
United v Federal Election Commission' which loosened some of
the limits on for profit and nonprofit organizations with
regard to political activities and expenditures.''\211\ The
screener then recommended forwarding the case to upper
management based on ``the current political climate and
possible sensitivity of the application''.\212\ The following
month, an EO Determinations employee alerted a colleague about
political contributions made by a potential applicant for tax-
exempt status, which the employee believed were possible
because of the Citizens United ruling.\213\
---------------------------------------------------------------------------
\211\Email chain between Jack Koester, John Shafer and Gary Muthert
(Aug. 3-4, 2010) IRS0000487033-35.
\212\Id.
\213\Email from Michael Condon to Gary Muthert (Sep. 28, 2010)
IRS0000487036.
---------------------------------------------------------------------------
The impact of the Citizens United ruling on the IRS would
remain a topic of discussion throughout the agency during the
next several years, as noted below.

B. There Was Extensive Press Coverage of Political Spending by Tax-
Exempt Organizations Following Citizens United

Political spending was a topic of continued interest in the
press during the 2010 election year and beyond. The IRS had an
active role in media coverage, and sometimes made senior
employees available for interviews with reporters or offered
comments on behalf of the agency. Some senior managers and
employees in EO monitored the news and shared relevant articles
about political spending by tax-exempt organizations with
colleagues. These articles were often critical of the IRS and
encouraged the agency to do more to rein in political spending.
At times, the IRS helped reporters understand the tax law
and agency processes. The following examples occurred during
the height of the 2010 election cycle:
In August 2010, The Washington Post reporter
Tim Farnam had contacted the IRS about campaign-related
activity by 501(c)(4) and 527 organizations.\214\ An
employee in the media relations branch notified Ingram,
Miller and Jonathan Davis, Commissioner Shulman's Chief
of Staff, that employees in TE/GE provided existing
data to Tim Farnam.\215\ The Washington Post published
Mr. Farnam's story a few days later, which discussed
how Citizens United ``has indirectly thrust the
Internal Revenue Service into the more prominent role
of overseeing [campaign] expenditures.''\216\ The
published article was circulated among IRS managers,
including Lerner and Ingram.\217\
---------------------------------------------------------------------------
\214\Email from Michelle Eldridge to Steve Miller, Sarah Ingram,
Lois Lerner and others (Aug. 6, 2010) IRS0000452184.
\215\Id.
\216\Email chain between Lois Lerner, Joe Urban and others (Aug.
22, 2010) IRS0000210591-93.
\217\Id.
---------------------------------------------------------------------------
In September 2010, a reporter from the New
York Times contacted the IRS about the operations of
501(c)(4) organizations after the Citizens United
decision, and specifically, Crossroads GPS.\218\ IRS
press staff alerted Commissioner Shulman, Miller,
Ingram, Lerner, and others about the expected story,
noting, ``One area raised as a concern are those groups
that set up and function for a short period of time,
and we are not aware of them until they file their
return, well after their potential lobbying efforts and
other activities are complete.''\219\ Ingram, Lerner
and senior EO employee Judy Kindell spoke with the
reporter on background, and Ingram provided a statement
on the record that was drafted by Miller, Lerner,
Ingram, and others.\220\ The reporter subsequently
published an article focusing on political spending by
501(c)(4) organizations in the 2010 election, focusing
on Crossroads GPS.\221\ Ingram stated that the article
``came out pretty well'' and she opined that ``the
`secret donor' theme will continue.''\222\
---------------------------------------------------------------------------
\218\Email chain between Steve Pyrek, Terry Lemons, Sarah Ingram
and others (Sep. 21, 2010) IRS0000508974-76.
\219\Email chain between Michelle Eldridge, Steve Miller and others
(Sep. 20, 2010) IRS0000211382.
\220\Id.; Email chain between Nikole Flax, Steve Miller, Ron Shultz
and others (Sep. 20, 2010) IRS0000219086-91.
\221\Email chain between Steve Pyrek, Terry Lemons, Sarah Hall
Ingram and others (Sep. 21, 2010) IRS0000508974-76.
\222\Id.
---------------------------------------------------------------------------
The press continued to run articles on political advocacy
spending by tax-exempt organizations throughout 2011 and 2012.
These articles were routinely distributed among EO managers,
TE/GE management, and the Commissioner's office.\223\
---------------------------------------------------------------------------
\223\IRS Urged to Investigate Charity for Possible Political
Activity, Tax Analysts (Apr. 1, 2010) IRS0000230462-77; As Campaign
Money Pours In So Do Complaints, The Washington Post (Oct. 13, 2010)
IRS0000071305-06; 3 Groups Denied Break by I.R.S. Are Named, New York
Times (July 21, 2011) IRS0000012346-47; The I.R.S. Does Its Job, New
York Times (Mar. 8, 2012) IRS0000212452-53; How Dark-Money Groups Sneak
by the Taxman, Mother Jones (June 13, 2012) IRS0000177467-75; How
Nonprofits Spend Millions on Elections and Call it Public Welfare,
ProPublica (Aug 20, 2012) IRS0000180278-304; The IRS's Feeble Grip on
Big Political Cash, Politico (Oct. 15, 2012) IRS0000180729-30.
---------------------------------------------------------------------------
Employees outside of IRS management also followed the
media's coverage of this topic. Indeed, some staff-level
employees in EO Determinations monitored the news and shared
among themselves many of the same articles noticed by upper
managers--particularly the EO Tax Journal, which often compiled
relevant stories from other media sources.\224\ A number of the
EO Determinations employees who shared articles were
responsible for reviewing and deciding incoming applications
for tax-exempt status. Thus, employees at every level of the
IRS were aware of the media's coverage of spending by tax-
exempt organizations in the wake of the Citizens United ruling.
---------------------------------------------------------------------------
\224\Is 501(c)(4) Status Being Abused?, EO Tax Journal (Sep. 14,
2010) IRS0000512236-40; New York Times Primer on EO Tax Law, EO Tax
Journal (Oct. 18, 2010) IRS0000385201-06; If You Can't Beat Them, Join
Them, EO Tax Journal (Apr. 14, 2011) IRS0000645590; 3 Groups Denied
Break by I.R.S. Are Named, New York Times (July 21, 2011)
IRS0000531334-39; Groups Challenge Legality of IRS Regs as Failing to
Properly Limit Campaign Activity by 501(c)(4) Organizations, EO Tax
Journal (July 28, 2011) IRS0000385238-50; Seven Democratic Senators Ask
Whether IRS Investigating Political (c)(4)s, EO Tax Journal (Feb. 17,
2012) IRS0000529987-93.
---------------------------------------------------------------------------

C. Many Members of Congress Expressed Their Interest in Political
Spending by Tax-Exempt Organizations

In recent years, Congress has become increasingly engaged
in the issue of political spending by tax-exempt organizations.
Members of both houses of Congress--and from both major
political parties--frequently encouraged IRS action through
speeches and direct requests to the IRS.
From the end of 2008 through early 2013, the IRS received
35 formal Congressional requests about tax-exempt
organizations.\225\ These requests covered a wide range of
issues, including political spending by tax-exempt
organizations; imposition of the gift tax on donors to tax-
exempt organizations; questions about the status of a
particular organization; and suggested changes to IRS
regulations.\226\ Incoming Congressional requests were
forwarded to senior IRS management and the typical clearance
process for requests related to tax-exempt issues involved
getting feedback from high-level management in TE/GE, the
Legislative Affairs office, and often the Commissioner's
office. Beginning in July 2012, all Congressional responses
involving 501(c)(4) organizations were vetted by Steve Miller's
Chief of Staff, Nikole Flax, before being finalized.\227\
---------------------------------------------------------------------------
\225\Email from Jorge Castro to Nikole Flax (Jan. 28, 2013)
IRS0000292300-09. During that time, the IRS also received numerous
informal requests from members of Congress and staff that are not
captured in this exhibit.
\226\Id.
\227\Email from Lois Lerner to Holly Paz and others (July 24, 2012)
IRS0000179669.
---------------------------------------------------------------------------
In addition to these 35 formal requests, members of
Congress also spoke about political spending in floor
speeches\228\ and made informal requests to the IRS, sometimes
through staff.\229\ The continued interest by Congress ensured
that the IRS--and particularly its top managers--stayed focused
on these issues.
---------------------------------------------------------------------------
\228\E.g., Email from Lois Lerner to Holly Paz and others (Apr. 17,
2012) IRS0000325929-30.
\229\E.g., Email from Holly Paz to Lois Lerner (May 2, 2013)
IRS0000409884.
---------------------------------------------------------------------------

D. Practitioners and Interest Groups Requested IRS Action on Political
Spending by Tax-Exempt Organizations

As an agency charged with serving the public, IRS employees
had frequent interaction with tax practitioners and other
interested parties about political spending by tax-exempt
organizations. Many supported specific reforms to the IRS
regulations; but others focused on the actions of particular
organizations applying for, or holding, tax-exempt status. A
few examples that are generally representative of IRS
interactions with the public are described below:
In February 2011, Citizens for
Responsibility and Ethics in Washington wrote to
Commissioner Shulman asking the IRS to revoke the tax-
exempt status of American Future Fund, Inc. The request
was circulated among EO managers.\230\
---------------------------------------------------------------------------
\230\Email from Joseph Urban to Holly Paz and others (Feb. 2, 2011)
IRS0000350193-97.
---------------------------------------------------------------------------
In March 2011 and September 2012, Lerner,
Kindell and Treasury employee Ruth Madrigal
corresponded directly with attorneys from the law firm
of Adler & Colvin about proposed changes to the
regulations for 501(c)(4) organizations. Lerner
considered the possibility of meeting with the outside
firm to discuss their proposals.\231\
---------------------------------------------------------------------------
\231\Email chain between Lois Lerner, Ruth Madrigal, Holly Paz and
others (Mar. 2, 2011) IRS0000634267-69; Email chain between Gregory
Colvin, Lois Lerner and Judith Kindell (Aug. 24-27, 2012)
IRS0000572618-19.
---------------------------------------------------------------------------
In September 2011, Democracy 21 and the
Campaign Legal Center wrote to Lerner to request an IRS
investigation of the tax-exempt status of four
organizations, including Crossroads GPS, alleging that
the groups conducted impermissible amounts of political
campaign intervention. Lerner forwarded the request to
EO Exam and instructed that it be treated as a referral
for examination. Lerner also informed the TE/GE Acting
Commissioner, Joseph Grant, and Nikole Flax about the
request and noted that it ``also went to the
Commissioner.''\232\
---------------------------------------------------------------------------
\232\Email from Lois Lerner to David Fish (Sep. 30, 2011)
IRS0000511994-2018.
---------------------------------------------------------------------------
In February 2012, a tax practitioner
contacted a local IRS office about an article titled
``Is the IRS Attempting to Intimidate Local Tea
Parties?'' The request was flagged as practitioner
``noise'' and forwarded to management for their
awareness, and was ultimately sent to Miller.\233\
---------------------------------------------------------------------------
\233\Email chain between Steven Miller, Faris Fink and others (Feb.
29, 2012) IRS0000341677-80.
---------------------------------------------------------------------------
In December 2012, Democracy 21 and the
Campaign Legal Center requested to meet with the IRS
about its petition for rulemaking on candidate election
activities by 501(c)(4) organizations. On January 4,
2013, the groups met with Lerner, Victoria Judson from
the Office of Chief Counsel and Treasury employee Ruth
Madrigal to discuss the proposal.\234\
---------------------------------------------------------------------------
\234\Email chain between Lois Lerner, Ruth Madrigal and others
(Dec. 14-19, 2012) IRS0000446771-75; SFC Interview of Victoria Judson
(Sep. 11, 2013) pp. 40-43.
---------------------------------------------------------------------------
These continual discussions with outside groups ensured
that the IRS stayed focused on the issue of political spending
by tax-exempt organizations.

E. In Response to External Scrutiny and Increased Political Spending by
Tax-Exempt Organizations, the IRS Tracked Political Spending and
Proposed Regulatory Changes

Lois Lerner described what she may have believed was
pressure on the IRS to address political advocacy activities,
especially within the TE/GE office, in a speech at Duke
University's Sanford School of Public Policy in October 2010:

The Supreme Court dealt it a huge blow [in Citizens
United], overturning a 100-year old precedent that said
basically corporations could give directly in political
campaigns, and everyone is up in arms because they
don't like it. The Federal Election Commission can't do
anything about it. They want the IRS to fix the
problem. The IRS laws are not set up to fix the
problem. . . . So everybody is screaming at us right
now, ``Fix it now before the election, can't you see
how much these people are spending?'' I won't know
until I look at their 990s next year whether they have
done more than their primary activity as a political or
not. So I can't do anything right now.\235\
---------------------------------------------------------------------------
\235\SFC Transcription of Video Available on Youtube.com, Lois
Lerner Discusses Political Pressure on IRS in 2010 (Oct. 19, 2010)
.

After the 2010 election, the IRS became increasingly
concerned with the amount and frequency of money spent to
influence elections by tax-exempt organizations. Writing in
2012, Steve Miller observed that after the decision, there was
a ``rise of super PACS.''\236\ Miller noted that the decision
contributed to an increase in 501(c)(4) organizations that can
engage in ``unlimited issue advocacy'' but ``limited political
campaign activity.''\237\ Miller also noted an increase in
political spending by 501(c)(4) organizations at the Senate
Finance Committee hearing on May 21, 2013:
---------------------------------------------------------------------------
\236\Steve Miller notes (March 14, 2012) IRS0000506870-71.
\237\Id.

There is no doubt that since 2010 when Citizens
United sort of released this wave of cash that some of
that cash headed towards (c)(4) organizations. This is
proven out by FEC data and IRS data. That does put
pressure on us to take a look.\238\
---------------------------------------------------------------------------
\238\Senate Finance Committee Hearing, A Review of Criteria Used by
the IRS to Identify 501(c)(4) Applications for Greater Scrutiny (May
21, 2013).

Near the end of 2012, employees in the EO division began
considering whether it was possible to quantify the effect that
Citizens United had on political campaign intervention by tax-
exempt organizations. In December 2012, TE/GE employee
Cristopher Giosa sent Lerner his preliminary analysis on
sources of data that might be available.\239\ Giosa suggested
that EO consider enlisting the Office of Compliance Analytics
to help with this project.\240\
---------------------------------------------------------------------------
\239\Email from Christopher Giosa to Lois Lerner and others (Dec.
6, 2012) IRS0000185323-27.
\240\Id.
---------------------------------------------------------------------------
By April 2013, EO and the Office of Compliance Analytics
had prepared a detailed presentation on political spending in
501(c)(4) organizations.\241\ As background information for the
report, the authors noted:
---------------------------------------------------------------------------
\241\Email from Justin Abold to Lois Lerner, Holly Paz and others
(Apr. 12, 2013) IRS0000195666-90.

Since Citizens United (2010) removed the limits on
political spending by corporations and unions, concern
has arisen in the public sphere and on Capitol Hill
about the potential misuse of 501(c)(4)s for political
campaign activity due to their tax exempt status and
the anonymity they can provide to donors.\242\
---------------------------------------------------------------------------
\242\Id.

The authors then provided a ``problem statement,'' which
stated that ``[t]he public purpose of 501(c)(4)s may be diluted
by political campaign activities as an unintended consequence
of Citizens United.''\243\
---------------------------------------------------------------------------
\243\Id.
---------------------------------------------------------------------------
In May 2013, EO and the Office of Compliance Analytics
revised the presentation in advance of a May 7 briefing for
then-Acting Commissioner Miller.\244\ The revised presentation,
which was sent to Miller's office, made the following findings:
---------------------------------------------------------------------------
\244\Miller's calendar shows that he organized a meeting on May 7,
2013 to discuss ``EO Data Matters'' with Nikole Flax, Dean Silverman,
Eric Schweikert and Joseph Grant (May 7, 2013) IRS0000456399.
---------------------------------------------------------------------------
The number of 501(c)(4)s reporting political
campaign activities almost doubled from tax year 2008
through tax year 2010; and
The amount of political campaign activities
for large filers (defined as organizations with total
revenue of more than $10 million) almost tripled from
tax year 2008 through tax year 2010.\245\
---------------------------------------------------------------------------
\245\Email chain between Justin Lowe, Justin Abold and others (May
6, 2013) IRS0000494805-29.
---------------------------------------------------------------------------
The report identified two events that occurred
contemporaneously with the drastic rise in the number of
501(c)(4) organizations that reported political campaign
activities: the Citizens United decision and Congress's
consideration of the Affordable Care Act.\246\ Although the
report did not conclude that those events caused a rise in
political spending, by singling them out, it is clear that the
IRS viewed them as significant, relevant factors.
---------------------------------------------------------------------------
\246\Id.
---------------------------------------------------------------------------
The IRS took a step to address concerns about political
campaign intervention by tax-exempt organizations on November
29, 2013, when it proposed regulations that would provide
guidance to 501(c)(4) organizations on the types of political
activities that would not be considered social welfare. After
receiving more than 150,000 comments on the proposed
regulations, on May 22, 2014, the IRS withdrew the regulations
and stated that it planned to re-propose them after a thorough
review of the submitted comments.\247\
---------------------------------------------------------------------------
\247\IRS, Update on the Proposed New Regulation on 501(c)(4)
Organizations (May 22, 2014).
---------------------------------------------------------------------------
As of the issuance of this report, the IRS has not proposed
additional regulations or issued further guidance on this
topic. However, the statements of Lerner and Miller, as well as
the analytical work performed in 2013, make clear that the IRS
has been working since 2010 to determine an appropriate
response to external pressure following the Citizens United
ruling.

V. THE IRS IMPLEMENTED A SPECIAL PROCESS FOR HANDLING CERTAIN TYPES OF
APPLICATIONS

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section describes the special procedures that the IRS put in place
to process
applications that involved political advocacy, which were enabled by the
creation
of the BOLO spreadsheet.
------------------------------------------------------------------------

The general process that the IRS followed for processing
applications for tax-exempt status is described above in
Section II(E). Over time, the IRS developed special procedures
for handling certain types of applications, particularly those
that posed difficult issues.

A. The Touch and Go (TAG) Spreadsheet Was Developed To Assist EO
Determination Agents

Each of the Groups within EO Determinations had specialty
areas and processed applications that fell within those
areas.\248\ Cindy Thomas believed that having one Group work
applications with similar issues promoted consistency in
results, fostered greater efficiency, and improved customer
satisfaction, as well as employee and manager satisfaction,
since no agent was required to be an expert in all issues.\249\
---------------------------------------------------------------------------
\248\Email from Cindy Thomas to Holly Paz (Mar. 16, 2011)
IRS0000008593-602.
\249\Id.
---------------------------------------------------------------------------
The ``Touch and Go'' or ``TAG'' Group (Group 7830) worked
on applications that involved:
1. Abusive tax avoidance transactions:
a. abusive promoters;
b. fake determination letters;
2. Activities that were fraudulent in nature:
a. applications that materially
misrepresented operations or finances;
b. activities conducted contrary to tax law
(e.g. Foreign Conduits); and
3. Applicants with potential terrorist
connections.\250\
---------------------------------------------------------------------------
\250\Heightened Awareness Issues (undated) IRS0000557291-308.
---------------------------------------------------------------------------
If an agent in the screening group determined that an
application met the TAG criteria, he/she sent the application
to Group 7830, the group assigned to work TAG
applications.\251\ In Group 7830, another agent performed a
``secondary screening'' of the application to ensure that the
application, in fact, met the TAG criteria. If it did, the
application was retained in Group 7830 and worked to
completion.\252\
---------------------------------------------------------------------------
\251\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 31-32.
\252\Id.
---------------------------------------------------------------------------
Over the course of time, the IRS identified many
applications that met the TAG criteria. In an effort to catalog
those applications so that screening agents could properly
identify them, around 2002 or 2003, EO Determinations developed
a TAG spreadsheet.\253\ The TAG spreadsheet identified the
various TAG applications, explained the tax law issue presented
in each application and provided further processing guidance to
the EO Determinations agents.\254\ The TAG spreadsheet
eventually was expanded to include a second tab that referenced
TAG issues that were no longer encountered, but were of
historical significance.\255\ When new entries were made to the
spreadsheet, a ``TAG alert'' email was sent to EO
Determinations agents. Starting in April 2007, copies of TAG
alert emails were also sent to Thomas, EO Quality Assurance
Manager Donna Abner and Washington D.C. EO attorney Ted Lieber,
who was, ``responsible for disseminating the information to
others in D.C. should he deem it necessary.''\256\
---------------------------------------------------------------------------
\253\Id.; SFC Interview of Cindy Thomas (July 25, 2013) p. 66.
\254\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 31-32.
\255\Id. pp. 135-136.
\256\Email from Cindy Thomas to Jon Waddell (Apr. 18, 2007)
IRS0000008413-14.
---------------------------------------------------------------------------
The TAG spreadsheet was used not only by the screeners but
also by all EO Determinations agents.\257\ On occasion, an
application presenting a TAG issue might slip through screening
and not be identified as a TAG application.\258\ Ultimately,
the application would be assigned to an EO Determinations agent
who, in developing the facts surrounding the applicant's
activities, would determine that those facts involved a
potential fraudulent transaction, or a tax avoidance scheme, or
that the applicant might have terrorist connections.\259\ In
identifying the application as a TAG application, the agent
would be guided by the descriptive information contained in the
TAG spreadsheet. The agent would then send such an application
to the TAG Group for work-up. Accordingly, it was considered
important for all agents, not just the screeners, to have
access to the TAG spreadsheet.\260\
---------------------------------------------------------------------------
\257\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 30-33.
\258\Id.
\259\Id.
\260\Id.
---------------------------------------------------------------------------

B. The TAG Spreadsheet Evolved Into the Joint TAG/Emerging Issues
Spreadsheet

Applications often presented new issues that were not
related to TAG matters, and for which there was little
established precedent. These issues also needed to be
identified and described for EO Determinations agents so that
the applications could be sent to a specific Group where they
could be processed and determinations could be made in a
consistent fashion.\261\ Screeners identified most of these
issues through the initial screening process.\262\ Applications
containing these issues were initially referred to as
``consistency cases.''\263\ EO Determinations agents and
managers were apprised of these ``consistency cases'' by email
and provided direction on how to treat them.\264\ However, at
some point, agents had difficulty keeping track of all the
emails they were receiving on the ``consistency cases.''\265\
Accordingly, a decision was made to consolidate the
``consistency case'' information sent by email into the
existing TAG spreadsheet so that EO Determinations agents could
easily access all of the information that they required in one
convenient document.\266\
---------------------------------------------------------------------------
\261\Email from Cindy Thomas to Holly Paz (Mar. 16, 2011)
IRS0000008593-602.
\262\Id.
\263\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 17-18.
\264\Id. pp. 94-95.
\265\Id.
\266\Email from Jon Waddell to Sharon Camarillo and Brenda Melahn
(Apr. 6, 2010) IRS0000629335-48.
---------------------------------------------------------------------------
Accordingly, Jon Waddell and Joseph Herr, Group Managers in
EO Determinations (Groups 7830 and 7825 respectively), began
creating a ``Joint TAG/Emerging Issues Spreadsheet.''\267\ The
spreadsheet contained a tab for TAG applications encountered
over the past 2-3 years, as well as tabs for Emerging Issues
and a Watch List.\268\ Emerging Issues were defined as follows:
---------------------------------------------------------------------------
\267\Id.
\268\Id. Waddell noted that ``the previous tabs for Archived and
Removed TAG Issues have been taken out of the spreadsheet. Since the
spreadsheet is now a joint one between TAG and Emerging Issues, we felt
it would be too cumbersome to include additional tabs of 100's [of]
former TAG issues.''
---------------------------------------------------------------------------
Groups of applications for which there is no
established case law or precedent
Issues arising from significant current
events (not disaster relief); and
Issues arising from changes to tax law or
other significant world events.\269\
---------------------------------------------------------------------------
\269\Heightened Awareness Issues IRS0000557291-308.
---------------------------------------------------------------------------
The Watch List contained a list of issues that the IRS had
not yet received, but that it might receive in the future.
These issues were the result of significant changes in tax law
or world events and would require ``special handling'' by the
IRS when received.\270\ Issues on the Watch List tab were
generally identified by EO Technical staff and brought to the
attention of the EO Determinations Program Manager.\271\
---------------------------------------------------------------------------
\270\Id.
\271\Email Chain between Holly Paz, Lois Lerner and Cindy Thomas
(Feb. 18--Mar. 16, 2011) IRS0000008593-602.
---------------------------------------------------------------------------
In April 2010, Thomas determined that the joint issues
spreadsheet then under development should also contain a tab
for ``consistency cases,'' which she described as applications
``where we want to ensure consistent treatment . . . (these
cases are not TAG or Emerging Issues). For example, a group
ruling disbands and subordinates decide to apply for individual
exemption--we need to make sure they are worked/treated the
same.''\272\ She also decided that EO Determinations agents and
managers would be informed about the new spreadsheet during the
June/July 2010 Continuing Professional Education (CPE) training
sessions that they would be attending, and asked that the draft
spreadsheet be completed and presented to her for review by the
end of April 2010.\273\ Thomas suggested that the name of the
spreadsheet be changed since it no longer was limited to just
TAG issues, but she offered no suggestions for a new name.\274\
---------------------------------------------------------------------------
\272\Email chain between Cindy Thomas, Sharon Camarillo and Joseph
Herr (Apr. 6-13, 2010) IRS0000629335-48.
\273\Id.
\274\Id.
---------------------------------------------------------------------------
In accordance with Thomas's direction, Jon Waddell revised
the ``Joint Spreadsheet'' to include tabs for TAG cases,
Emerging Issues, Coordinated Cases, and a Watch List.\275\
Subsequently, on May 6, 2010, Elizabeth Hofacre, Emerging
Issues Coordinator for Group 7825, sent a copy of the ``joint
issues'' spreadsheet to her manager, Joseph Herr. The draft
spreadsheet referred to ``Tea Parties'' as a sample entry under
the Emerging Issues tab and directed agents to ``[c]oordinate
with group 7825.''\276\
---------------------------------------------------------------------------
\275\Email from Jon Waddell to Sharon Camarillo and Brenda Melahn
(Apr. 27, 2010) IRS0000629455-57.
\276\Email from Elizabeth Hofacre to Joseph Herr (May 6, 2010)
IRS0000542119-24.
---------------------------------------------------------------------------

C. EO Determinations Agents Were Trained in the Use of the New
Spreadsheet at a June/July 2010 CPE Training

In June and July of 2010, EO Determinations provided CPE
training to its specialists.\277\ During the course of the
training, the specialists were advised that they would soon be
provided with a ``Combined Issues Workbook'' that contained
tabs for TAG, TAG Historical, Emerging Issues, Coordinated
Processing Issues, and a Watch List.\278\ The specialists were
shown a PowerPoint presentation that advised them that a
designated coordinator would maintain the workbook and
disseminate alerts in one standard email.\279\ During the
course of the training, the specialists were instructed that
``Tea Party Cases'' were an Emerging Issue because they
involved:
---------------------------------------------------------------------------
\277\SFC Interview of Cindy Thomas (July 25, 2013) p. 43.
\278\Email chain between Cindy Thomas and Holly Paz (May 9-10,
2012) IRS0000004755-62.
\279\Heightened Awareness Issues (undated) IRS0000557291-308.
---------------------------------------------------------------------------
1. High Profile Applicants
2. Relevant Subject in Today's Media
3. Inconsistent Requests for 501(c)(3) and 501(c)(4)
4. Potential for Political/Legislative Activity
5. Rulings Could be Impactful\280\
---------------------------------------------------------------------------
\280\Id.
---------------------------------------------------------------------------
EO Determinations also told its specialists that
``Successors to Acorn'' was an example of a Watch List issue.
The PowerPoint presentation instructed employees that Watch
List Issues had the following characteristics:
Typically Applications Not Yet Received
Issues are the Result of Significant Changes
in Tax Law
Issues are the Result of Significant World
Events
Special Handling is Required when
Applications are Received.\281\
---------------------------------------------------------------------------
\281\Id.
---------------------------------------------------------------------------
Following up on this training, on July 27, 2010, Elizabeth
Hofacre prepared a ``Combined Issue Spreadsheet'' and
distributed it to managers in EO Determinations.\282\ The
Emerging Issues tab of the spreadsheet informed the agents
about Tea Party applications. The spreadsheet indicated that
``[t]hese cases involve various local organizations in the Tea
Party movement [that] are applying for exemption under
501(c)(3) or 501(c)(4).'' The entry in the spreadsheet further
directed that ``[a]ny cases should be sent to Group 7825. Liz
Hofacre is coordinating. These cases are currently being
coordinated with EOT.'' Hofacre was provided the language for
this spreadsheet entry by Jon Waddell.\283\
---------------------------------------------------------------------------
\282\Email from Elizabeth Hofacre to Steve Bowling, John Shafer and
others (July 27, 2010) IRS0000008609-24.
\283\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 109.
---------------------------------------------------------------------------
The spreadsheet distributed by Hofacre also contained an
entry for ``Progressive'' on the Tag Historical tab with the
issue listed as ``political activities.'' Further, the entry
stated that the ``[c]ommon thread is the word `progressive.'
Activities appear to lean toward a new political party.
Activities are partisan and appear as anti-Republican. You see
references to `blue.'''\284\
---------------------------------------------------------------------------
\284\Email from Liz Hofacre to IRS Staff (July 27, 2010)
IRS0000008609-24.
---------------------------------------------------------------------------
In addition, the spreadsheet included a reference to
``Acorn Successors'' on the Watch List tab. The description
stated that ``[f]ollowing the breakup of ACORN, local chapters
have been reforming under new names and resubmitting
applications.''\285\ Screeners were instructed to send these
cases ``to the TAG Group.''\286\
---------------------------------------------------------------------------
\285\Id.
\286\Id.
---------------------------------------------------------------------------

D. The New Spreadsheet Was Renamed the ``BOLO'' Spreadsheet

From the outset of the development of the Joint TAG/
Emerging Issues spreadsheet in April 2010, there was some
question about what to call the new consolidated spreadsheet.
While in development, various iterations of the spreadsheet had
been called ``Joint Spreadsheet,'' ``Combined Issues Workbook''
and ``Combined Issue Spreadsheet.'' Cindy Thomas stated that

. . . no one really could think of a name for calling
it so everyone would know what we are talking about, we
decided to have--when we introduced this we said we
will have a contest to see if anyone can name it and we
will give--whoever came up with a name we would give
them 59 minutes of administrative time. So Liz Hofacre
was actually the one who came up with a name and we
gave her 59 minutes of admin. And she came up with ``Be
on the Look Out,'' and that was in August 2010.\287\
---------------------------------------------------------------------------
\287\SFC Interview of Cindy Thomas (July 25, 2013) p. 43.

Elizabeth Hofacre indicated that Joseph Herr had suggested
the name ``Be on the Look Out'' or ``BOLO'' but gave credit for
the suggestion to her, because he did not feel that it was
appropriate to accept the award himself, since he had been a
manager.\288\
---------------------------------------------------------------------------
\288\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 127-
128.
---------------------------------------------------------------------------
On August 12, 2010, Hofacre distributed the first ``BOLO''
spreadsheet to EO Determinations agents in her capacity as
Emerging Issues Coordinator. ``Tea Party'' applications were
specifically identified under the Emerging Issues tab of the
spreadsheet as follows: ``[t]hese cases involve various local
organizations in the Tea Party movement [that] are applying for
exemption under 501(c)(3) or 501(c)(4).'' The BOLO directed
agents to send Tea Party applications to Group 7822 and advised
that Hofacre was the coordinator.\289\ Jon Waddell provided
Hofacre with the language for the Tea Party entry on the
Emerging Issues tab.\290\
---------------------------------------------------------------------------
\289\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 21, 2012) IRS0000352978-84.
\290\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 129-
131.
---------------------------------------------------------------------------
The BOLO spreadsheet distributed by Hofacre also contained
an entry for ``Progressive'' on the Tag Historical tab with the
issue listed as ``political activities.'' Further, the entry
stated that the ``[c]ommon thread is the word `progressive.'
Activities appear to lean toward a new political party.
Activities are partisan and appear as anti-Republican. You see
references to `blue.'''\291\
---------------------------------------------------------------------------
\291\Combined Spreadsheet TAG 8 12 10 (Aug. 10, 2010).
---------------------------------------------------------------------------

E. EO Determinations Developed a Process To Update the BOLO Spreadsheet

Along with the introduction of the BOLO spreadsheet, EO
determinations developed a process for making changes, from
time to time, to the spreadsheet. Prior to May 17, 2012, for
TAG issues, Coordinated Processing applications, and Watch List
applications, a group manager would send an email requesting a
revision to the manager of Group 7822.\292\ If the Manager of
Group 7822 agreed with the suggested revision, then the change
was made and the Emerging Issues Coordinator sent out a BOLO
alert to all EO Determinations agents and managers. If there
was disagreement, then the manager of Group 7822 elevated the
issue to Cindy Thomas for resolution. In addition, if the EO
Technical Manager contacted Thomas to advise her to ``watch
for'' certain types of applications, she would direct the
Manager of Group 7822 to add the issue to the Watch List.
---------------------------------------------------------------------------
\292\Email chain between Cindy Thomas and Holly Paz (May 9-10,
2012) IRS0000004755-62.
---------------------------------------------------------------------------
For changes to the Emerging Issues tab, prior to May 17,
2012, suggestions were sent to the Emerging Issues Coordinator
in Group 7822, who researched the matter and reported his/her
conclusions to the Manager of Group 7822. The Manager of Group
7822 then consulted with the Area Manager and/or the EO
Determinations Program Manager for a final decision. The
Emerging Issues Coordinator then emailed changes to EO
Determinations agents and managers.\293\
---------------------------------------------------------------------------
\293\Id.
---------------------------------------------------------------------------
Subsequent to May 17, 2012, this process changed. On that
date, Holly Paz, Director of Rulings and Agreements, issued a
memorandum requiring that all changes to the BOLO spreadsheet
tabs (Abusive Transaction and Fraud Applications (TAG),
Emerging Issues, Coordinated Processing applications and Watch
List applications) receive the approval of the Group Manager of
the Emerging Issues Group, the EO Determinations Program
Manager, and the Director of Rulings and Agreements.\294\
---------------------------------------------------------------------------
\294\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 17, 2012) IRS0000437639-41.
---------------------------------------------------------------------------

VI. APPLICATIONS SUBMITTED BY TEA PARTY ORGANIZATIONS WERE
SYSTEMATICALLY IDENTIFIED, CENTRALIZED AND SUBJECTED TO HEIGHTENED
SCRUTINY BY THE IRS

------------------------------------------------------------------------

---------------------------------------------------------------------------
This section explains how the IRS used the BOLO spreadsheet
to systemically
identify incoming applications submitted by Tea Party
organizations, and how
being placed on the BOLO spreadsheet affected the processing
of those
applications.
------------------------------------------------------------------------

A. After the IRS Received and Approved the First Few ``Tea Party''
Applications, it Prepared Sensitive Case Reports and Added an Entry to
the BOLO Spreadsheet

The first applications for tax exemption filed by Tea Party
organizations were received by EO Determinations prior to March
2010.\295\ EO Determinations processed the initial applications
it received and in doing so, it approved two Tea Party
organizations that had applied for exemption under 501(c)(4),
and one Tea Party organization that had submitted an
application for exemption under 501(c)(3).\296\ It would be
more than 18 months before the IRS approved another application
from a Tea Party organization.\297\
---------------------------------------------------------------------------
\295\Email chain between Cindy Thomas, Steven Grodnitzky and others
(Mar. 31-Apr. 12, 2010) IRS0000165413-14.
\296\Id.
\297\Based on data provided to the SFC by the IRS (Mar. 26, 2014).
---------------------------------------------------------------------------

1. Tea Party Applications Began To Draw Attention in EO Determinations

In early 2010, an application filed by the Albuquerque Tea
Party was assigned to Jack Koester, a screener in Group 7838,
EO Determinations.\298\ Koester had heard about the Tea Party
in news reports.\299\ Upon receiving the application from the
Albuquerque Tea Party, Koester concluded that it was ``high
profile'' because of the possibility that it would attract
media attention, so he informed his Group Manager, John Shafer.
It was standard practice for screeners to bring ``high
profile'' applications to the attention of their manager.\300\
Subsequently, Koester sent Shafer an email in which he noted
that ``recent media attention to this type of organization
indicates to me that this is a high profile case.''\301\
Koester also indicated that the organization stated in its Form
1024 that it may engage in ``possible future political
activities.''\302\
---------------------------------------------------------------------------
\298\SFC Interview of Jack Koester (Aug. 1, 2013) p. 8.
\299\Id. p. 23.
\300\Id. pp.12-3.
\301\Email chain between Jack Koester, John Shafer, Sharon
Camarillo, Cindy Thomas and others (Feb. 25-Mar. 17, 2010)
IRS0000180869-73.
\302\Id.
---------------------------------------------------------------------------
Shafer, in turn, forwarded Koester's email to Sharon
Camarillo, his Area Manager, who sent it to Cindy Thomas,
asking that Thomas ``let `Washington' know about this
potentially politically embarrassing case involving a `Tea
Party' organization.''\303\
---------------------------------------------------------------------------
\303\Id.
---------------------------------------------------------------------------

2. EO Technical Had Early Awareness of the Tea Party Applications

Upon receiving Camarillo's February 25, 2010 email, Thomas
contacted Holly Paz, then the Acting Manager of EO Technical.
Thomas told Paz that ``[w]e have a Form 1024 for: Albuquerque
Tea Party Inc. We're wondering if EO Technical wants the case
because of recent media attention.''\304\ Paz, in reply, stated
to Thomas, ``I think sending it up here is a good idea given
the potential for media interest.''\305\
---------------------------------------------------------------------------
\304\Id.
\305\Id.
---------------------------------------------------------------------------

3. EO Technical Assumed Responsibility for Working Two Tea Party
Applications as ``Test Cases''

In early March 2010, Shafer asked Gary Muthert, a screener
in his Group, to conduct a search of the case and inventory
management systems used by TE/GE to determine if any other Tea
Party organizations had filed applications for tax
exemption.\306\ Muthert found that there were seven
applications pending from Tea Party organizations, and that
three additional applications had already been approved for
tax-exempt status.\307\ When Thomas was made aware of the
existence of these 10 applications, she apprised Paz, asking
Paz whether she wanted ``all of them or do you only want a few
and then give us advice as to what to do with the
remaining?''\308\ Paz acknowledged receipt of the ``one Tea
Party case up here--that was sent up from [EO Determinations]
just a few weeks ago . . . .'' Paz then stated that she was
unaware that there were more, and said ``I think we should take
a few more cases (I'd say 2) and would ask that you hold the
rest until we get a sense of what the issues may be. Then we
will work with [EO Determinations] in working the other
cases.''\309\
---------------------------------------------------------------------------
\306\SFC Interview of Gary Muthert (July 30, 2013) (not
transcribed).
\307\Id.
\308\Email chain between Cindy Thomas, Holly Paz and others (Feb.
25-Mar. 17, 2010) IRS0000180869-73.
\309\Id.
---------------------------------------------------------------------------

4. EO Technical Prepared the First SCR for the Tea Party Applications

On or around March 18, 2010, Steve Grodnitzky, Manager of
EO Technical Group 1, became Acting Manager of EO
Technical.\310\ Several weeks later, Grodnitzky inquired of
Donna Elliot-Moore, a Tax Law Specialist in EO Technical, about
the specific activities of the two Tea Party organizations
whose applications were then pending in EO Technical. One of
those applications was for exemption under 501(c)(4) from the
Albuquerque Tea Party, and the other was for exemption under
501(c)(3) from the Prescott Tea Party. Elliot-Moore advised
Grodnitzky on April 1, 2010 that with regard to the activities
of both organizations, ``I looked briefly and it looks more
educational but with a republican slant obviously.''\311\
Grodnitzky responded ``[t]hese are high profile cases as they
deal with the Tea Party so there may be media attention. May
need to do an SCR on them.''\312\ Elliot Moore noted in
response that ``[t]he Tea Party movement is covered in the Post
almost daily. I expect to see more applications.'' Grodnitzky
then contacted Cindy Thomas on April 2, 2010, and advised her
that ``I think there needs to be an SCR on the Tea Party cases,
due to the high media attention. Actually, you can't turn on
the television news without hearing about the movement.''\313\
Thomas concurred in Grodnitzky's assessment.
---------------------------------------------------------------------------
\310\SFC Interview of Holly Paz (July 26, 2013) p. 16.
\311\Email chain between Donna Elliot-Moore, Steve Grodnitzky and
others (Mar. 31-Apr. 2, 2010) IRS0000165413-14.
\312\Id.
\313\Id.
---------------------------------------------------------------------------
Grodnitzky assigned the two Tea Party applications to EO
Technical Group 2, managed by Ronald Shoemaker.\314\ Shoemaker,
in turn, assigned the two applications to Carter (Chip) Hull, a
Tax Law Specialist in Group 2. Hull, a veteran of the IRS since
1965, was considered to be a subject-matter expert on 501(c)(4)
organizations.\315\ Grodnitzky directed Shoemaker to prepare an
SCR on the Tea Party applications.\316\ The Tea Party cases met
the criteria for preparation of an SCR because the applications
were likely to attract media attention. Accordingly, Hull
prepared the first SCR on the Tea Party applications which is
dated April 19, 2010. In the SCR, Hull noted that the
applications from the Albuquerque Tea Party and the Prescott
Tea Party were ``[l]ikely to attract media or Congressional
attention.'' Hull further indicated that ``[t]he various `tea
party' organizations are separately organized but appear to be
part of a national politically conservative movement that may
be involved in political activities. The `tea party'
organizations are being followed closely in national newspapers
(such as the Washington Post) almost on a daily basis.''\317\
---------------------------------------------------------------------------
\314\Email chain between Steve Grodnitzky, Ronald Shoemaker and
others (Mar. 31-Apr. 5, 2010) IRS0000166266-67.
\315\SFC Interview of Ronald Shoemaker (July 31, 2013) (not
transcribed); SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\316\Email chain between Steve Grodnitzky, Ronald Shoemaker and
others (Mar. 31-Apr. 5, 2010) IRS0000166266-67.
\317\TE/GE Division Sensitive Case Report (Apr. 19, 2010)
IRS0000164074-75.
---------------------------------------------------------------------------

5. Placing the Tea Party Applications on the SCRs Caused Delays in
Their Processing

Grodnitzky's decision to place Tea Party applications on
the SCR effectively meant that proposed determinations for
those applications now required at least two additional levels
of review before they could be released. Since the applications
on the SCR were the ``test cases,'' those needed to first be
resolved before all other Tea Party applications pending in EO
Determinations could also be brought to closure. Any delay in
the disposition of the applications on the SCR would result in
a corresponding delay in the disposition of all other Tea Party
applications pending in EO Determinations. As explained in
greater detail in Section VII(C), there were substantial delays
in the processing of the ``test cases'' and those delays, in
turn, contributed to delays in the processing of the Tea Party
applications awaiting action in EO Determinations.

6. Identification of the Tea Party Applications as an Emerging Issue on
the BOLO Spreadsheet Resulted in Centralization and Full Development of
those Applications

As described more fully above, EO Determinations developed
the new ``Joint Tag Emerging Issues Spreadsheet'' (subsequently
refined and renamed ``BOLO Spreadsheet'') in early 2010,
coincidentally with the identification of the first Tea Party
applications and their placement on the SCR.\318\ Joseph Herr
and Elizabeth Hofacre added applications received from Tea
Party organizations to a draft version of the spreadsheet as
early as May 6, 2010, because these applications met the
criteria for an ``emerging issue'' (absence of established
precedent, issues arising from significant events, etc.).\319\
Ultimately, the spreadsheet was renamed the ``BOLO''
spreadsheet and distributed to EO Determinations agents on
August 12, 2010.\320\
---------------------------------------------------------------------------
\318\Email chain between Jon Waddell, Sharon Camarillo, Brenda
Melahn and others (Apr. 6-13, 2010) IRS0000629335-48.
\319\Email chain between Elizabeth Hofacre, Joseph Herr and others
(May 6-7, 2010) IRS0000542119-24.
\320\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 21, 2012) IRS0000352978-84.
---------------------------------------------------------------------------
Inclusion of the Tea Party reference in the Emerging Issues
tab of the BOLO spreadsheet shaped the manner in which the Tea
Party applications were processed by EO Determinations over the
next few years. Specifically, applications identified as
originating from Tea Party groups were then ``centralized'' by
sending them to the Emerging Issues Group (7822). There they
were subjected to full development for possible political
advocacy.\321\
---------------------------------------------------------------------------
\321\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 47.
---------------------------------------------------------------------------
In order to identify what was, in fact, a ``Tea Party''
application, the screening agents and secondary screeners in EO
Determinations developed screening criteria. If an application
met the screening criteria, it was sent to Group 7822 for
centralized handling as a Tea Party application. John Shafer
summarized the criteria as follows:

The following are issues that could indicate a case
to be considered a potential ``tea party'' case and
sent to Group 7822 for secondary screening.
1. ``Tea Party,'' ``Patriots'' or ``9/12 Project'' is
referenced in the case file.
2. Issues include government spending, government
debt and taxes.
3. Educate the public through advocacy/legislative
activities to make America a better place to live.
4. Statements in the case file that are critical of
how the country is being run.\322\
---------------------------------------------------------------------------
\322\Email chain between Holly Paz, John Shafer, Cindy Thomas and
others (June 1-10, 2011) IRS0000066837-40.

Applications that merely contained the words ``Tea Party,''
``9/12,'' ``Patriots,'' and other like terms, but did not
otherwise evidence political campaign intervention, were
nevertheless centralized in Group 7822 as ``Tea Party''
applications and there received full development.\323\
Similarly, applications that referenced activities such as
advocating for smaller government and balanced budgets, that
criticized how the country was being run, or that suggested
ways to make America a better place to live, but that did not
contain words like ``Tea Party'' or ``9/12'' or ``Patriots,''
were also considered to be ``Tea Party'' applications.
Accordingly, they were centralized in Group 7822 where they
were fully developed.\324\
---------------------------------------------------------------------------
\323\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 118.
\324\Id. pp. 50-52; Email chain between Holly Paz, John Shafer,
Cindy Thomas and others (June 1-10, 2011) IRS0000066837-40.
---------------------------------------------------------------------------
During Elizabeth Hofacre's tenure as Emerging Issues
Coordinator in Group 7822 (May 2010 to October 2010), screeners
sometimes sent to Group 7822 applications received from
organizations on the left of the political spectrum that
involved possible political campaign intervention.\325\ Hofacre
returned these applications to the screeners or placed them in
general inventory and they were subsequently assigned to any EO
Determinations agent, since they did not meet the criteria for
a Tea Party application.\326\ Similarly, Hofacre returned to
the screeners or to general inventory applications received
from groups on the right of the political spectrum that did not
meet the Tea Party criteria.\327\ Applications so returned were
assigned, processed and determinations were made on them.\328\
In contrast, and as described more fully in succeeding
sections, applications identified as ``Tea Party'' applications
by EO Determinations and centralized in Group 7822 were
subjected to long delays, multiple reviews, and unnecessarily
burdensome development.
---------------------------------------------------------------------------
\325\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 45-52.
\326\Id.
\327\Id.
\328\Id.
---------------------------------------------------------------------------

B. EO Determinations Periodically Updated the Emerging Issues Tab of
the BOLO Spreadsheet

The Emerging Issues tab of the BOLO spreadsheet underwent
several major revisions between 2010 and 2012. Until May 2012,
most of these changes had little practical effect in the way
that EO Determinations employees screened and processed
incoming applications from Tea Party organizations.

1. Until July 2011, the Emerging Issues Tab of the BOLO Spreadsheet
Specifically Referenced the Tea Party Movement

From its earliest iteration in May 2010 until the July 2011
revision, the BOLO specifically referenced the Tea Party
movement.\329\ For example, in October 2010, when Elizabeth
Hofacre relinquished her position as the Emerging Issues
Coordinator to Ronald Bell, the Emerging Issue tab read as
follows:
---------------------------------------------------------------------------
\329\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 21, 2012) IRS0000352978-84.

Issue Name: Tea Party
Issue Description: These cases involve various local
organizations in the Tea Party movement that are
applying for exemption under 501(c)(3) or 501(c)(4).
Disposition of Emerging Issue: Any cases should be
sent to Group 7822. Liz Hofacre is coordinating. These
cases are currently being coordinated with EOT.\330\
---------------------------------------------------------------------------
\330\Id.

In February 2011, the language was revised slightly as
---------------------------------------------------------------------------
follows:

Issue Name: Tea Party
Issue Description: Organizations involved with the
Tea Party movement applying for exemption under
501(c)(3) or 501(c)(4).
Disposition of Emerging Issue: Forward case to Group
7822. Ron Bell (coordinator). Cases are being
coordinated with EO Tech--Chip Hull.\331\
---------------------------------------------------------------------------
\331\Id.

The references to the ``Tea Party movement'' in the
Emerging Issues tab of the BOLO spreadsheet were meant to
describe organizations that were part of the actual Tea Party
movement.\332\
---------------------------------------------------------------------------
\332\SFC Interview of Joseph Herr (June 18, 2013) (not
transcribed); SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------

2. In July 2011, Lois Lerner Directed that the References to ``Tea
Party'' be Removed From the Emerging Issues Tab of the BOLO Spreadsheet

On July 5, 2011, Lois Lerner convened a meeting with
various members of her staff including Holly Paz, Cindy Thomas
and others, to discuss the Tea Party applications and options
for processing those applications.\333\ In preparation for the
meeting, Lerner's staff assembled a briefing paper that stated
the criteria that the screeners in EO Determinations were using
to identify applications as ``Tea Party'' applications.\334\
The criteria were then discussed by the participants.\335\
During the course of the meeting, Lerner directed that ``Tea
Party'' organizations should no longer be referred to as such,
but instead should be called ``advocacy organizations.''\336\
Lerner was apparently concerned that referring to the
organizations by their name would create the impression of
bias.\337\ On July 5, 2011, Cindy Thomas described to her staff
Lerner's motivation for the name change as follows:
---------------------------------------------------------------------------
\333\Email chain between Cindy Thomas, Ronald Bell and others (July
5, 2011) IRS0000620735-40.
\334\Email from Justin Lowe to Holly Paz (June 27, 2011)
IRS0000431165-66.
\335\Email chain between Cindy Thomas, Steve Bowling, John Shafer
and others (July 5, 2011) IRS0000620735-40.
\336\Id.
\337\SFC Interview of Holly Paz (July 26, 2013) p. 87.

Lois expressed concern with the ``label'' we assigned
to these cases. Her concern was centered around the
fact that these type things [sic] can get us in trouble
down the road when outsiders request information and
accuse us of ``picking on'' certain types of
organizations even though we all know that isn't what
is taking place.\338\
---------------------------------------------------------------------------
\338\Email chain between Cindy Thomas, Steve Bowling, John Shafer
and others (July 5, 2011) IRS0000620735-40.

During the meeting, Lerner and those present worked out new
language to replace the ``Tea Party'' reference in the Emerging
Issues tab of the BOLO spreadsheet with a more general
reference to advocacy organizations.\339\
---------------------------------------------------------------------------
\339\Id.
---------------------------------------------------------------------------

3. Cindy Thomas Removed References to the ``Tea Party'' From the
Emerging Issues Tab of the BOLO Spreadsheet

Immediately after the meeting, Thomas made the agreed-to
changes to the Emerging Issues tab.\340\ The entry now read as
follows:
---------------------------------------------------------------------------
\340\Id.

Issue: Advocacy Orgs
Issue Description: Organizations involved with
political, lobbying or advocacy for exemption under
501(c)(3) or 501(c)(4).
Disposition of Emerging Issue: Forward case to Group
7822. Ron Bell is coordinating cases with EO Tech--Chip
Hull.\341\
---------------------------------------------------------------------------
\341\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 21, 2012) IRS0000352978-84.

Thomas informed Steve Bowling and John Shafer that she had
made the above-described change to the Emerging Issues
tab.\342\ She also advised Bowling and Shafer that ``Lois did
want everyone to know that we are handling the cases as we
should, i.e., the Screening Group starts seeing a pattern of
cases and is elevating the issue.''\343\
---------------------------------------------------------------------------
\342\Email chain between Cindy Thomas, Steve Bowling, John Shafer
and others (July 5, 2011) IRS0000620735-40.
\343\Id.
---------------------------------------------------------------------------
On July 11, 2011, Ronald Bell sent the revised BOLO
spreadsheet to EO Determinations employees in accordance with
his responsibilities as the Emerging Issues Coordinator.\344\
While Bell informed recipients of the BOLO Alert email to be on
the lookout for applications for exemption under 501(c)(3) for
``green'' energy, his cover email failed to apprise recipients
of the changes made to the Emerging Issues tab.\345\
---------------------------------------------------------------------------
\344\Email from Ronald Bell to EO Determinations employees (July
11, 2011) IRS0000618365-70.
\345\Id.
---------------------------------------------------------------------------

4. After July 11, 2011, Cindy Thomas and John Shafer Made No Changes to
the Screening Criteria Used by Screeners To Identify Applications
Received From Tea Party Groups

After Bell transmitted the revised July 11, 2011, BOLO
spreadsheet to EO Determinations staff, John Shafer, the
Screening Group Manager, made no changes to the use of the
criteria by the screeners to identify Tea Party
applications.\346\ The following colloquy occurred during
Shafer's interview by the Committee:
---------------------------------------------------------------------------
\346\SFC Interview of John Shafer (Sep. 17, 2013) pp. 120-122.
---------------------------------------------------------------------------
Q. Okay. Okay. So Exhibit 8, whatever you want to
call it, the numbers 1 through 4 that are in your
Exhibit 8 [applicant's name included ``Tea Party,''
``Patriots,'' or ``9/12,'' or statements existed in the
application about government spending/debt, making
America a better place to live, or that were critical
of the way the country was being run], that's how the
cases were being screened at that time in June of 2011?
A. Yes, it was.
Q. And then after this meeting with Lois Lerner in
July of 2011, you did not direct your screeners to make
any changes in how they were screening cases?
A. Not to my knowledge . . . .\347\
---------------------------------------------------------------------------
\347\Id. p. 121 and Interview Exhibit 8.
---------------------------------------------------------------------------
Shafer made no changes because he interpreted Thomas's
email in which she advised that ``Lois did want everyone to
know that we are handling the cases as we should . . .'' as
confirmation that his screening Group was handling the Tea
Party cases correctly.\348\ Therefore, after July 11, 2011, the
screeners received no direction to change the way that they had
been processing Tea Party applications.
---------------------------------------------------------------------------
\348\SFC Interview of John Shafer (Sep. 17, 2013) p. 120.
---------------------------------------------------------------------------
Similarly, Cindy Thomas understood the July 11, 2011 change
directed by Lerner from ``Tea Party'' to ``advocacy org.'' in
the Emerging Issues tab to be no more than a name change.\349\
She did not feel that the name change necessitated any
revisions to the way EO Determinations was processing cases
that involved political advocacy issues. Thomas told the
Committee:
---------------------------------------------------------------------------
\349\SFC Interview of Cindy Thomas (July 25, 2013) p. 91.

Again, I believe that all along that we were
including all cases with political activity. So why
would I believe that something needed to be changed
when I believed that we were treating all cases the
same and putting them all in the bucket.\350\
---------------------------------------------------------------------------
\350\Id.

The Committee found no evidence to suggest that Lois Lerner
followed up with Thomas or any other manager to ensure that EO
Determinations was properly screening applications in
accordance with the revised ``Advocacy orgs.'' entry of the
July 2011 Emerging Issues tab of the BOLO spreadsheet.
a. How Screeners Processed Applications Received From Tea
Party and Affiliated Groups After the July 2011
BOLO Change
The screeners appear to have continued to apply the Tea
Party screening criteria to identify cases as ``Advocacy
orgs.'' after the July 2011 change to the Emerging Issues tab
of the BOLO spreadsheet.\351\ During the Committee's interview
of Gary Muthert, a screener in John Shafer's Group, Muthert was
shown a copy of the July 27, 2011 Emerging Issues tab of the
BOLO spreadsheet and was asked the following:
---------------------------------------------------------------------------
\351\SFC interview of Gary Muthert (July 30, 2013) (not
transcribed). Muthert stated that after the July 2011 change to the
Emerging Issues tab of the BOLO spreadsheet, he continued to send
applications that contained the words ``Tea Party,'' to Group 7822 for
full development.
---------------------------------------------------------------------------
Q. But if I'm understanding what you said just a
couple of minutes ago, you continued to look for
organizations that were affiliated with the Tea Party,
you flagged them as advocacy organizations, and you
sent them to the BOLO group, is that right?
A. Yes.
Q. Okay. And that continued when this was, this
document, Exhibit 6 [July 27, 2011 Emerging Issues
tab], was out?
A. Yes.\352\
---------------------------------------------------------------------------
\352\Id.
---------------------------------------------------------------------------
It is probable that the screeners' continued use of the Tea
Party criteria after the issuance of the July 11, 2011 Emerging
Issues tab was a consequence of Thomas and Shafer's
understanding that the screeners were ``handling the cases as
[they] should.'' Moreover, continued use of the Tea Party
screening criteria was not necessarily inconsistent with the
July 2011 revised description now found in the Emerging Issues
tab, since cases that met the Tea Party criteria may also have
met the description of ``Advocacy orgs.''\353\
---------------------------------------------------------------------------
\353\This is consistent with TIGTA's finding that all applications
received by EO from organizations with ``Tea Party,'' ``Patriots,'' or
``9/12'' in their names were forwarded to Group 7822 for full
development. TIGTA, Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review, TIGTA Audit Report 2013-10-053 (May 14,
2013) p. 6.
---------------------------------------------------------------------------
Thomas herself believed that all Tea Party applications
involved political activity and required full development. She
stated to the Committee as follows:
Q. Did you think that all Tea Party cases involved
political activity?
A. There was actually a case that had, from my
understanding, there was a case that had Tea Party in
the name and it was not a political case at all, that
it was like Little Suzie's Tea Party, a little kid's
group.
Q. But other than those that involved children's tea
parties, all of the ones that are associated with the
Tea Party movement, did you think they were all
involving political activity?
A. Yes, those as well as all cases that involved any
political activity.\354\
---------------------------------------------------------------------------
\354\SFC Interview of Cindy Thomas (July 25, 2013) p. 91.
---------------------------------------------------------------------------
Accordingly, even after the July 2011 change to the
Emerging Issues tab of the BOLO spreadsheet, EO Determinations
management and EO Determinations screeners continued to treat
applications received from Tea Party organizations much the
same as they had before the July change.
b. How Screeners Processed Applications Received From
Organizations That Did Not Engage in Political
Campaign Intervention After the July 2011 BOLO
Change
In September 2011, Paz grew concerned about the growing
number of political advocacy cases pending in EO
Determinations. She told David Fish that there were now over
100 political advocacy cases on hold in EO Determinations. She
went on to state that ``[i]n meeting with Cindy in Cincy last
week and looking at some of the cases, it is clear to me that
we cast the net too wide and have held up cases that have
nothing to do with lobbying or campaign intervention (e.g., org
distributing educational material on the national debt).''\355\
Thomas shared Paz's concern. In her view, the description of
``Advocacy orgs.'' in the Emerging Issues tab was ``way too
broad,'' and resulted in sending to Group 7822 for full
development applications that did not contain political
advocacy issues, but rather presented lobbying issues.\356\
Thomas stated that the July 2011 description of ``Advocacy
orgs.'' ``caused confusion among the groups in Cincinnati and
the employees because they then started believing it included
many, many more types of cases than just political advocacy-
type cases.''\357\
---------------------------------------------------------------------------
\355\Email from Holly Paz to David Fish and Andy Megosh (Sep. 21,
2011) IRS0000010131.
\356\SFC Interview of Cindy Thomas (July 25, 2013) p. 80.
\357\Id. p. 82.
---------------------------------------------------------------------------

5. Steve Bowling and Cindy Thomas Changed the BOLO Spreadsheet in
January 2012

In January 2012, Steve Bowling discussed with several of
the revenue agents in Group 7822, including Ronald Bell, the
Emerging Issues Coordinator, ways to revise the Emerging Issue
tab so as to narrow its focus to avoid selecting applications
that did not include political advocacy issues.\358\ At the
same time, Cindy Thomas told Steve Bowling that an entry for
Occupy organizations needed to be included on the Watch List or
BOLO because of press reports that Occupy organizations may
apply for tax-exempt status.\359\ Initially, Bowling emailed
Thomas two options for updating the BOLO criteria as follows:
---------------------------------------------------------------------------
\358\Id. p. 93; SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\359\SFC Interview of Cindy Thomas (July 25, 2013) pp. 93-94; Email
chain between Mary Sheer and Peggy Combs (Jan. 9-20, 2012)
IRS0000013412.

1st scenario = 1 BOLO
Current Political Issues: Political action type
organizations involved in limiting/expanding
government, educating on the constitution and bill of
rights, $ocial economic reform / movement.
Note: typical advocacy type issues that are currently
listed on the Case Assignment Guide (CAG) do not meet
these criteria unless they are also involved in
activities described above.
2nd scenario = 2 BOLOs
Tea Parties: Typically involved in the tea party
movement, further the principles of the constitution
and bill of rights, promote voter registration, may
refer to governmental reform, and/or 912 projects.
``Occupy'' orgs: Involve organizations occupying
public space protesting in various cities, call people
to assemble (people's assemblies) claiming social
injustices due to ``big-money'' influence, claim the
democratic process is controlled by wall street/banks/
multinational corporations, could be linked globally.
Claim to represent the 99% of the public that are
interested in separating money from politics and
improving the infrastructure to fix everything from
healthcare to the economy.\360\
---------------------------------------------------------------------------
\360\Email chain between Cindy Thomas and Steven Bowling (Jan. 20-
24, 2012) IRS0000621814-17.

Thomas vetoed the second suggestion based on her
understanding of Lerner's concerns about how the reference to
``Tea Party'' would create the appearance of bias.\361\ As a
compromise, Thomas suggested that Bowling use the first
scenario for the Emerging Issues tab while adding Occupy to the
Watch List tab.\362\ Bowling accepted Thomas's suggestion and
revised the Emerging Issue and Watch List tabs of the BOLO
spreadsheet accordingly.\363\
---------------------------------------------------------------------------
\361\Id.; SFC Interview of Cindy Thomas (July 25, 2013) pp. 93-95.
\362\Id.
\363\SFC Interview of Cindy Thomas (July 25, 2013) pp. 93-95; Email
chain between Holly Paz, Lois Lerner and Nikole Flax (May 21, 2012)
IRS0000352978-84. When asked by Committee Staff who was responsible for
the January 25, 2012 revisions to the BOLO spreadsheet, Bowling stated
as follows:
---------------------------------------------------------------------------
Q. Can you tell me who the change came from, the language
here under ``issue description'' that's different?
A. No, I don't know where the change came from.
* * * * * * *
Q. So you're not sure who instructed you to make this
change but it was somebody above you in the command chain?
A. Yes, that's the way it would be.
* * * * * * *
Q. Do you know if this change ... was directed by Ms.
Esrig, Ms. Thomas or was it somebody in Washington who
directed it?
A. I don't know who directed it.
---------------------------------------------------------------------------
SFC Interview of Steve Bowling (June 13, 2013) (excerpt above
transcribed by SFC staff). These statements by Bowling to Committee
staff were not only inconsistent with the documentary evidence that the
Committee received from the IRS subsequent to Bowling's interview on
June 13, 2013, but also with Thomas's statements to Committee staff.
---------------------------------------------------------------------------
The references to ``political action type organizations
involved in limiting'' government and ``educating on the
constitution and bill of rights'' were attempts to describe the
agenda of the Tea Party without using the term ``Tea
Party.''\364\ The reference to ``$ocial economic reform/
movement'' was ``code'' for the Occupy organizations.\365\ Bell
queried Bowling why it was necessary to include the ``$ocial
economic'' reference in the Emerging Issues tab as well, but
Bowling responded that organizations other than the Occupy
groups were advocating a similar position.\366\
---------------------------------------------------------------------------
\364\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\365\Email chain between Ronald Bell and Steve Bowling (Jan. 25,
2012) IRS0000013187.
\366\Id. In response to a written questionnaire from the Committee,
Bowling alleged that he did ``not understand the difference between
liberal organizations, Tea Party groups, or any other political
groups.'' See IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013). He also made similar assertions to the
Committee staff during an interview on June 13, 2013. Bowling's
statements to the Committee are at odds with his apparent understanding
of the political viewpoints espoused by both Tea Party and Occupy
organizations, as evidenced by the language he developed and proposed
to Thomas for inclusion in the BOLO spreadsheet.
---------------------------------------------------------------------------

6. Holly Paz and Lois Lerner Were Informed That EO Determinations
Revised the July 2011 Emerging Issues Tab

On February 22, 2012, Paz asked Thomas to provide some
information regarding the number of political advocacy cases
that were then pending, whether cases that met the BOLO
description received full development, and ``how do we
currently have this described on the bolo?''\367\ Thomas
replied to Paz on that same day that there were 208 pending
political advocacy cases, that ``[a]ll cases meeting BOLO
criteria are supposed to go to full development,'' and she
attached a copy of the then-current BOLO spreadsheet.\368\ The
Emerging Issues tab of the attached spreadsheet reflected the
changes that Bowling had made, and Thomas had approved, on
January 25, 2012.
---------------------------------------------------------------------------
\367\Email chain between Holly Paz, Cindy Thomas, Roberta Zarin,
Lois Lerner and others (Feb. 22, 2012) IRS0000013739-48.
\368\Id.
---------------------------------------------------------------------------
Subsequently, on May 15, 2012, Thomas sent Paz and Lerner
another copy of the BOLO spreadsheet, including the Emerging
Issues tab that reflected the changes made on January 25,
2012.\369\
---------------------------------------------------------------------------
\369\Email chain between Lois Lerner, Holly Paz and Cindy Thomas
(May 15, 2012) IRS0000013776-82.
---------------------------------------------------------------------------

7. After Steve Miller Became Aware of the BOLO Criteria, Holly Paz
Revised the Process for Making Changes to the BOLO Spreadsheet and a
New BOLO Spreadsheet Was Issued

On May 3, 2012, Steve Miller was briefed by Nancy Marks on
the existence of the BOLO entry for ``Tea Party'' and the
criteria used to identify applications as Tea Party
applications.\370\ Miller told the Committee that when he first
heard of the criteria, he thought that it ``was stupid and
inappropriate.''\371\ When Lerner found out that the July 2011
description of ``Advocacy orgs.'' in the Emerging Issues tab
had been subsequently changed, she ``put her head on the table
and said, `I thought I had fixed it.'''\372\ Miller then
directed Holly Paz to look into the process by which changes
were made to the BOLO spreadsheet and to make adjustments to
the process.\373\ It is possible that Miller was concerned
about how the Emerging Issue tab had been changed without
Lerner or Paz's knowledge or consent.
---------------------------------------------------------------------------
\370\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 133-141.
\371\Id. p. 139.
\372\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 107.
\373\Email chain between Holly Paz and Cindy Thomas (May 9-10,
2012) IRS0000004755-62.
---------------------------------------------------------------------------
On May 10, 2012, Paz asked Thomas to explain the process by
which the Emerging Issues tab was amended.\374\ Thomas informed
Paz that suggestions for additions were sent to the Emerging
Issues Coordinator who then consulted with the Area Manager
and/or the Program Manager to determine if the matter would be
added to the Emerging Issue tab.\375\
---------------------------------------------------------------------------
\374\Id.
\375\Id.
---------------------------------------------------------------------------
On May 17, 2012, Paz issued a Memorandum to Thomas advising
that any changes to the Emerging Issue tab would now require
the approval of the Emerging Issues Group Manager, the EO
Determinations Program Manager, and the Director of Rulings and
Agreements.\376\
---------------------------------------------------------------------------
\376\Email chain between Holly Paz, Lois Lerner and Nikole Flax
(May 17, 2012) IRS0000437639-41.
---------------------------------------------------------------------------
In June 2012, the BOLO Spreadsheet was revised.\377\ The
Emerging Issues tab stated as follows:
---------------------------------------------------------------------------
\377\Email chain between Holly Paz, Nancy Marks and Sharon Light
(May 14, 2013) IRS0000195830-31.

Issue: Current Political Issues
Issue Description: 501(c)(3), 501(c)(4), 501(c)(5)
and 501(c)(6) organizations with indicators of
significant amounts of political campaign intervention
(raising questions as to exempt purpose and/or excess
private benefit). Note: advocacy action type issue
(e.g., lobbying) that are currently listed on the Case
Assignment Guide (CAG) do not meet this criteria.
Disposition of Emerging Issue: Forward case to Group
7822.

Paz also directed Thomas to remove references to ACORN and
Occupy from the Watch List tab of the spreadsheet, since ``the
issues we are concerned about in those cases should be
captured'' by the revised language in the Emerging Issues
tab.\378\
---------------------------------------------------------------------------
\378\Email from Holly Paz to Cindy Thomas (June 1, 2012)
IRS0000013799.
---------------------------------------------------------------------------
This description remained in the Emerging Issues tab until
April 2013 when the ``Disposition of Emerging Issue'' entry was
changed to reflect that the cases should be sent to Group
7823.\379\ Shortly thereafter, on June 20, 2013, the IRS
suspended the use of the BOLO spreadsheet.\380\
---------------------------------------------------------------------------
\379\BOLO Spreadsheet (Apr. 19, 2013) IRS0000002718-30.
\380\Memorandum from Karen Schiller, Interim Guidance on the
Suspension of BOLO List Usage (June 20, 2013).
---------------------------------------------------------------------------

VII. THE PROCESSES USED BY THE IRS TO WORK THE TEA PARTY APPLICATIONS
WERE INEFFICIENT, CUMBERSOME, INVOLVED MULTIPLE LEVELS OF REVIEW, AND
WERE PLAGUED BY DELAY

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section identifies various measures taken by the IRS that harmed
Tea Party
applicants.
------------------------------------------------------------------------

No solitary event can be said to have caused the lengthy
delays experienced by the Tea Party and other political
advocacy organizations in the processing of their applications
from 2010 to 2013. Rather, a confluence of events, some inter-
related and most involving poor management decisions or the
absence of management oversight, effectively resulted in the
IRS taking years to make decisions on these applications.

A. The Initial Process Used To Review the Tea Party Applications in
2010 Was Laborious and Time Consuming

In early April 2010, Carter (Chip) Hull, Tax Law
Specialist, EO Technical Group 2, began working on two of the
first applications received from Tea Party groups (i.e.,
Albuquerque Tea Party and Prescott Tea Party).\381\ Hull had
been assigned to process these two ``test cases'' so that his
experiences could then be shared with EO Determinations, the
entity with primary responsibility for processing the Tea Party
applications.\382\ Hull commenced his work by reviewing the
case files and preparing development letters aimed at eliciting
information from the organizations about their planned
activities.\383\ This information was necessary for Hull to
determine whether the planned activities of these organizations
were consistent with the tax-exempt status they were
seeking.\384\
---------------------------------------------------------------------------
\381\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\382\SFC Interview of Ronald Shoemaker (July 31, 2013) (not
transcribed).
\383\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\384\Id.
---------------------------------------------------------------------------
All other applications received from Tea Party
organizations remained in EO Determinations and in late April
2010, were assigned to Elizabeth Hofacre, the Emerging Issues
Coordinator in EO Determinations, Group 7822.\385\ In mid-May
2010, Steve Grodnitzky, Acting Manager of EO Technical,
directed Hull to share with Hofacre the development letters
Hull had prepared for the Albuquerque and Prescott Tea Party
applications.\386\ Grodnitzky told Hull to explain to Hofacre
how the questions had been tailored to the facts of each
application, lest Hofacre simply copy the development letters.
In carrying out this directive, Hull advised Hofacre to send
each of her draft development letters to him, together with
copies of the applications and supporting documents.\387\ Under
the process imposed by Hull, Hofacre could not release the
development letters to the applicants without Hull's
concurrence.\388\ When Hofacre began to receive responses to
some of the development letters, Hull instructed Hofacre to
send those responses to him, as well.\389\
---------------------------------------------------------------------------
\385\Email chain between Cindy Thomas, Steve Grodnitzky, Ron
Shoemaker and others (Apr. 23-26, 2010) IRS0000181051-52.
\386\Email chain between Steve Grodnitzky and Carter Hull (May 17,
2010) IRS0000631583-84.
\387\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 52-70.
\388\Id.
\389\Id.
---------------------------------------------------------------------------
Hofacre described this process as highly unusual.\390\ In
Hofacre's experience, EO Determinations agents would sometimes
contact EO Technical specialists, with prior management
approval, to pose a question or two.\391\ Typically, EO
Determinations agents had broad discretion in processing
applications and could make recommendations regarding the
ultimate disposition of an application, or whether additional
information was required of the applicant.\392\ This was not
the case for the Tea Party applications.\393\ With regard to
those applications, Hofacre was not permitted by Hull to
exercise any discretion regarding the applications.\394\
Hofacre felt that for several of the Tea Party applications,
she had sufficient information in her possession to make a
recommendation to either approve or deny the application, or to
request additional information.\395\ However, she was unable to
do so, as Hull effectively controlled all the decisions
regarding how the Tea Party applications were handled.\396\
---------------------------------------------------------------------------
\390\Id.
\391\Id.
\392\Id.
\393\Id.
\394\Id.
\395\Id.
\396\Id.
---------------------------------------------------------------------------
In October 2010, Cindy Thomas grew concerned with the
efficacy of this process under which Hull reviewed each
determination letter and informed Holly Paz, then Manager of EO
Technical, as follows:

I have a concern with the approach being used to
develop the tea party cases we have here in Cincinnati.
Apparently, an additional information letter is
prepared for each case and the letter is faxed to Chip
Hull for him to review. After he reviews, we send out
the letter. In some instances, the organizations have
responded and we are just ``sitting'' on these cases.
Personally, I don't know why Chip needs to look at each
and every additional information letter . . . we need
to coordinate these cases as a group and not try to
work them one by one.\397\
---------------------------------------------------------------------------
\397\Email chain between Cindy Thomas, Holly Paz, Sharon Camarillo,
Steve Bowling and others (Oct. 26, 2010-Jan. 28, 2011) IRS0000435238-39
(emphasis added).

Sometime in August 2010 and continuing unabated through to
October 2010, Hull ceased communicating with Hofacre for
reasons unknown to Hofacre.\398\ She continued to draft
development letters and to send them to Hull along with copies
of the applications and supporting documents, but Hull never
responded to her.\399\ Without Hull's concurrence, Hofacre was
unable to send any further development letters to applicant
organizations.\400\ When organizations called Hofacre to
inquire about the status of their applications, Steve Bowling,
her Group Manager instructed her to tell the callers that their
applications were ``under review.''\401\ Hofacre grew
increasingly frustrated with this process.\402\ She likened it
to ``working in lost luggage'' and she ``dreaded when the phone
rang.''\403\ While she elevated the matter of Hull's non-
responsiveness to Bowling, Bowling merely instructed Hofacre to
continue to prepare development letters and to send them to the
silent Hull.\404\
---------------------------------------------------------------------------
\398\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 58-70.
\399\Id.
\400\Id.
\401\Id.
\402\Id.
\403\Id.
\404\Id.
---------------------------------------------------------------------------
In October 2010, Hofacre left EO Determinations, in large
part due to her frustration over a lack of ``autonomy'' in the
processing of the Tea Party applications and because of her
concern that these were ``high-profile'' applications that
could have ``imploded'' at any time.\405\ When Hofacre left EO
Determinations, only a few development letters had been sent
out on the 40 Tea Party applications then pending in EO
Determinations.\406\ A substantial number of the applications
either remained unworked, or had been reviewed by Hofacre and
draft development letters had been prepared, but not
released.\407\ This was due in large measure to the requirement
that Hull review each application, development letter, and
response, a process that was necessarily laborious and which
was delayed, for unexplained reasons, in August 2010 when Hull
ceased communicating with Hofacre.
---------------------------------------------------------------------------
\405\Id.
\406\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\407\Id.
---------------------------------------------------------------------------

B. Because of Miscommunications Between EO Determinations Management
and Staff, No Tea Party Applications Were Processed by EO
Determinations for More Than One Year (October 2010 to November 2011)

With Hofacre's departure from EO Determinations in October
2010, Ronald Bell assumed responsibility as the Emerging Issues
Coordinator in Group 7822.\408\ Before her departure, Hofacre
briefed Bell on his new duties, told him that Chip Hull was the
EO Technical contact for the Tea Party applications, and
forwarded to Bell some draft development letters that she had
prepared.\409\
---------------------------------------------------------------------------
\408\Id.
\409\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 150-
152.
---------------------------------------------------------------------------
Upon the assumption of his new duties, Bell was also
apprised by Steve Bowling, his Manager, that EO Technical was
preparing guidance for EO Determinations to use to process the
Tea Party applications.\410\ Bell interpreted this to mean that
he should perform no work on the Tea Party applications until
receiving that guidance from EO Technical.\411\ Thus, in lieu
of reviewing Tea Party applications and preparing draft
development letters as Hofacre had done, Bell worked on auto-
revocation cases.\412\
---------------------------------------------------------------------------
\410\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\411\Id. Bell told the Committee that Bowling did not directly
instruct him not to work the Tea Party applications. Rather, Bell
stated that Bowling knew that Bell was working on the auto-revocation
cases, and therefore must have known that he was not working on the Tea
Party applications. Bell also told the Committee that Bowling prepared
Bell's performance appraisal for this time period, an act that would
have necessarily required Bowling to know what work Bell had performed
during the performance assessment period.
\412\Id. Section 6033(j) of the Internal Revenue Code (2010)
requires the automatic revocation of exempt status for any organization
that fails to file a required return for three consecutive years.
---------------------------------------------------------------------------
In November 2010, Hull's three-month period of
inaccessibility appears to have come to an end when he
contacted Bell and requested that Bell send him draft
development letters for his review.\413\ Bell informed Bowling
of Hull's request and Bowling, in turn, informed Sharon
Camarillo, the Area Manager.\414\ Bowling told Camarillo that
``Ron is getting phone calls on these cases and his typical
answer is `the case is under review.'''\415\ Camarillo sent
Bowling's email to Thomas who advised that she would follow up
with Holly Paz for a status report.\416\
---------------------------------------------------------------------------
\413\Email chain between Steve Bowling, Sharon Camarillo and Cindy
Thomas (Nov. 16-17, 2010) IRS0000163029-30.
\414\Id.
\415\Id.
\416\Id.
---------------------------------------------------------------------------
Thomas called Paz and discussed with her EO Technical's
plan for dealing with the Tea Party applications.\417\ Paz told
Thomas that EO Technical was writing a briefing paper on the
two applications under its review and would soon raise the
issues in these applications with Judith Kindell, Senior
Technical Advisor to Lois Lerner.\418\ After her conversation
with Paz, Thomas advised Bowling and Camarillo as follows:
---------------------------------------------------------------------------
\417\Email chain between Cindy Thomas, Sharon Camarillo, Steve
Bowling, Holly Paz and others (Oct. 26, 2010-Jan. 28, 2011)
IRS0000435238-39.
\418\Id.

If Judy does not believe they have a basis for denial
for the egregious situations, then they will most
likely recommend all cases be approved. In the
meantime, the specialist(s) need to continue working
the applications as they have and will need to advise
applicants that the cases are still under review.\419\
---------------------------------------------------------------------------
\419\Id.

Bowling apparently failed to communicate to Bell the clear
directive of Thomas that the Tea Party applications needed to
be worked, and/or failed to take any action to ensure that Bell
was, in fact, working the applications. As a result, Bell sent
no development letters to Hull and continued to work auto-
revocation cases.\420\
---------------------------------------------------------------------------
\420\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).

In March 2011, Thomas requested of Michael Seto that EO
Technical develop an ``action plan'' for processing the Tea
Party applications.\421\ In reply, Seto provided Thomas with an
update on the two ``test cases'' being worked by Hull.\422\
Thomas passed this information to Bowling, stating:
---------------------------------------------------------------------------
\421\Email chain between Cindy Thomas, Michael Seto, Holly Paz and
others (Mar. 29-Apr. 13, 2011) IRS0000576953-55 (Email attachments
containing taxpayer information omitted by SFC staff).
\422\Id.

We still need to continue to work cases to the extent
we can and then wait to issue the approval or denial
letter. EOT needs to meet with Judy Kindell, senior
technical advisor to EO Director, and then Lois Lerner
before they can finalize the guidance for us. I would
not expect to receive anything until sometime in May
2011.\423\
---------------------------------------------------------------------------
\423\Id.

For reasons that are unclear to the Committee staff,
Bowling once again failed to follow through with Thomas's
directive and ensure that Bell understood that he should be
working on the Tea Party applications, or was, in fact,
actually working on the applications.
Steve Bowling's failure to communicate Thomas's directives
of November 2010 and March 2011 to Bell regarding the
processing of the Tea Party applications, and his neglect to
take any measures to ensure that Bell was actually working
those applications, resulted in Bell focusing almost exclusive
attention on auto-revocation cases from October 2010 to
November 2011.\424\ A factor further contributing to Bell's
disregard of the Tea Party applications was that he received no
guidance from EO Technical on what to do with those
applications during his tenure as Emerging Issues Coordinator.
When the screening group sent Bell an application from a Tea
Party group during this period of time, he performed secondary
screening on the application to ensure that it was, in fact, a
Tea Party application.\425\ If it was, he placed the
application in a file cabinet and returned to his work on auto-
revocation cases.\426\ Aside from performing the secondary
screening function, Bell did not review the Tea Party
applications and did not prepare any development letters from
October 2010, when he assumed responsibility as Emerging Issues
Coordinator, until November 2011, when Stephen Seok replaced
Bell as Emerging Issues Coordinator.\427\ Instead, the
applications simply sat in a file cabinet during this period of
time.\428\
---------------------------------------------------------------------------
\424\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\425\Id.
\426\Id.
\427\Id.
\428\Id.
---------------------------------------------------------------------------
Accordingly, miscommunications at the first level of
management in EO Determinations between Bowling and Bell,
coupled with a failure of EO Technical to provide guidance on
how to develop the Tea Party applications, caused those
applications to remain unworked in Cincinnati for over a year.

C. Preparation and Review of EO Technical's ``Test Cases'' from 2010 to
2012 Added Substantial Delay to the Processing of the Tea Party
Applications

In February 2010, Holly Paz, the then-Acting Manager of EO
Technical, advised Cindy Thomas that EO Technical would work
two Tea Party applications to completion and then, based on the
lessons learned in doing so, would provide EO Determinations
with guidance on how to process the remaining Tea Party
applications.\429\ The IRS's inability to resolve the ``test
cases'' over a several year period directly impeded its ability
to develop the guidance required by EO Determinations to
process the Tea Party and other political advocacy applications
then pending.
---------------------------------------------------------------------------
\429\Email chain between Holly Paz, Cindy Thomas and others (Feb.
25-Mar. 17, 2010) IRS0000180869-73.
---------------------------------------------------------------------------
Hull's case notes for one of the two ``test cases''
assigned to him, the Albuquerque Tea Party, show that he
completed development of the application on July 8, 2010 when
he received the Albuquerque Tea Party's articles of
incorporation.\430\ Hull's next entry in the case history is
dated January 10, 2011, some six months later.\431\ On that
date, Hull noted that he had completed a memorandum for the
file (memo).\432\ In the two-page memo, Hull concluded that the
Albuquerque Tea Party should be granted tax-exempt status.\433\
It is unclear why it took Hull six months to prepare the two
page memorandum.
---------------------------------------------------------------------------
\430\Technical Case History for Albuquerque Tea Party,
IRS0000001323-24.
\431\Id.
\432\Id.
\433\Email chain between Michael Seto, Cindy Thomas, Holly Paz and
others (Mar. 29-Apr. 13, 2011) IRS0000622735-53.
---------------------------------------------------------------------------
On the following day, January 11, 2011, Hull submitted the
memo to his reviewer, Elizabeth Kastenberg, a Tax Law
Specialist in EO Technical, Group 2.\434\ Kastenberg reviewed
the memo and recommended that it be sent to Judith Kindell,
Senior Technical Advisor to Lois Lerner, for her
consideration.\435\ Kindell regarded herself as the ``go to''
person for issues relating to political campaign intervention
by tax-exempt entities.\436\
---------------------------------------------------------------------------
\434\Technical Case History for Albuquerque Tea Party,
IRS0000001323-24.
\435\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\436\SFC Interview of Judith Kindell (July 18, 2013) p. 12.
---------------------------------------------------------------------------
In accordance with Kastenberg's recommendation, on March
24, 2011, Hull forwarded the memo to Kindell.\437\ Around this
time, Hull completed a draft denial of the other ``test case''
assigned to him, an application for 501(c)(3) status from a
conservative organization called American Junto.\438\
---------------------------------------------------------------------------
\437\Technical Case History for Albuquerque Tea Party,
IRS0000001323-24.
\438\Email chain between Michael Seto, Cindy Thomas, Holly Paz and
others (Mar. 29-Apr. 13, 2011) IRS0000622735-53. Hull had been assigned
an application for exemption under 501(c)(3) from the Prescott Tea
Party but had closed the application in May 2010 for ``failure to
establish'' when the Prescott Tea Party did not respond to a
development letter. On June 30, 2010, Hull was assigned the application
for exemption under 501(c)(3) submitted by American Junto as a
replacement ``test case.''
---------------------------------------------------------------------------
Hull and Kastenberg met with Kindell on April 6, 2011,
nearly three months after Kastenberg initially recommended
consulting with Kindell, to discuss both the memo and the draft
denial letter.\439\ During the meeting, Kindell raised a
question whether American Junto was organized primarily for
private benefit rather than for a tax-exempt purpose.\440\
Consequently, Kindell recommended that the issue of private
benefit be developed and that the memo and draft denial letter
be sent to the Office of the Chief Counsel so as to secure its
views.\441\ Hull followed up on Kindell's recommendation and
sent a development letter to American Junto on April 27,
2011.\442\ Subsequently, he sent his draft approval memo for
the Albuquerque Tea Party to the Chief Counsel's Office on May
25, 2011,\443\ followed on July 19, 2011 by his draft denial
letter for American Junto.\444\
---------------------------------------------------------------------------
\439\Technical Case History for Albuquerque Tea Party,
IRS0000001323-24.
\440\Email chain between Judith Kindell, Lois Lerner, Holly Paz and
others (Apr. 7, 2011) IRS0000634444.
\441\Id.
\442\Email chain between Hillary Goehausen, Michael Seto, Carter
Hull and others (Feb. 28, 2012) IRS0000058356-61.
\443\Technical Case History for Albuquerque Tea Party,
IRS0000001323-24.
\444\Sensitive Case Report (Oct. 19, 2011) IRS0000644656-57.
---------------------------------------------------------------------------
Hull and Kastenberg next met with Don Spellman, Senior
Counsel, and several other representatives from the Office of
the Chief Counsel on August 10, 2011, to discuss the two ``test
cases.''\445\ Four months had now lapsed since Kindell first
recommended that the Office of Chief Counsel review the memo
and draft letter. During the course of the meeting, Spellman
recommended that EO Technical further develop the activities of
both organizations during election year 2010.\446\ Spellman
offered to review the development letters aimed at eliciting
this information, but EO Technical never sought further
involvement of the Chief Counsel's Office in either of the
applications.\447\
---------------------------------------------------------------------------
\445\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\446\SFC Interview of Donald Spellman (July 10, 2013) pp. 23-36.
\447\Id.
---------------------------------------------------------------------------
In November 2011, Michael Seto transferred the ``test
cases'' to Hillary Goehausen, a Tax Law Specialist in EO
Technical, Group 1.\448\ In that same month, Goehausen prepared
and sent out a development letter (the third) for American
Junto and a development letter (the second) for the Albuquerque
Tea Party.\449\ In December 2011, a representative of American
Junto informed Goehausen that it would not respond to the third
IRS development letter and that the organization had been
dissolved.\450\ Goehausen closed the American Junto application
for ``failure to establish,'' thus leaving only one remaining
``test case,'' the Albuquerque Tea Party.\451\ Goehausen
received the Albuquerque Tea Party's response to the
development letter in January 2012, and commenced drafting a
letter denying that group tax exemption.\452\ Goehausen's draft
letter reversed the conclusion that Hull had previously reached
in his January 2011 memo in which he concluded that the
application should be approved.
---------------------------------------------------------------------------
\448\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\449\Email chain between Hilary Goehausen, Michael Seto, Carter
Hull and others (Feb. 28, 2012) IRS0000058356-61.
\450\Id.
\451\Id.
\452\Id.
---------------------------------------------------------------------------
In April of 2012, Nancy Marks visited Cincinnati at the
direction of Steve Miller, then Deputy Commissioner for
Services and Enforcement, because of Miller's concerns over how
EO Determinations was processing political advocacy
applications.\453\ Among other things, Marks found that there
were between 250-300 political advocacy applications awaiting
determination, so she recommended to Miller that EO Technical
staff provide direct assistance to EO Determinations by
reviewing each political advocacy application through a
``bucketing'' exercise.\454\ The object of this endeavor would
be to separate applications that could be quickly decided from
those that either required varying degrees of development or
that were likely denials, and to place them in respective
``buckets'' where they could be worked to completion.\455\
Miller concurred in the recommendation and the ``bucketing''
exercise began in mid-May 2012 and extended into early June
2012.\456\
---------------------------------------------------------------------------
\453\SFC Interview of Steve Miller (Dec. 12, 2013) pp. 128-145.
\454\Id.
\455\Id.
\456\Email chain between Cindy Thomas, Bonnie Esrig, Peggy Combs
and others (May 8-9, 2012) IRS0000596252; SFC Interview of Holly Paz
(July 26, 2013) pp. 153-162.
---------------------------------------------------------------------------
The decision to assist EO Determinations by ``bucketing''
the applications in this fashion effectively superseded the
plan to develop guidance for EO Determinations by working the
``test cases.'' In May of 2012, when the IRS decided to pursue
the ``bucketing'' exercise and to no longer rely on the ``test
cases'' for the development of guidance, two out of three of
the ``test cases'' had been closed for ``failure to establish''
and the third was still in the development/drafting stage. The
two year period during which the ``test cases'' had been worked
resulted in the development of little or no guidance that could
be used by EO Determinations to reach decisions on the growing
backlog of Tea Party and other political advocacy applications.
Moreover, much of the two year period that EO Technical, Judith
Kindell and the Office of the Chief Counsel spent focusing on
the ``test cases'' was marked with protracted delays,
unexplained intervals of inactivity, and a lack of any sense of
urgency.
Inability to resolve the ``test cases'' and to develop the
guidance that EO Determinations had first asked for in February
2010 contributed substantially to the delays experienced by the
Tea Party and other advocacy organizations in securing
decisions on their applications for tax exemption.

D. The Initiative To Develop a Guidesheet for EO Determinations Was a
Failure That Further Contributed to Processing Delays in 2011 and 2012

On July 5, 2011, Lois Lerner convened a meeting with Holly
Paz, Nancy Marks, Cindy Thomas, and staff from EO Guidance and
EO Technical, including Justin Lowe and Hillary Goehausen.\457\
The purpose of the meeting was to discuss the Tea Party
applications then pending in EO Determinations, which at that
time, numbered in excess of 100, and to decide how to best
process those applications.\458\ After being brought up to date
on the Tea Party screening criteria and the efforts of EO
Technical to assist EO Determinations, Lerner made three
decisions regarding the processing of these applications.
First, Lerner directed that the groups no longer be referred to
as Tea Party organizations, but rather be called ``advocacy
organizations.''\459\ Second, Lerner determined that EO
Technical should proceed to secure review of the two test cases
by the Office of the Chief Counsel.\460\ Third, Lerner approved
the suggestion contained in the briefing paper prepared by
staff for the meeting that a ``guidesheet'' be prepared by EO
Technical for use by EO Determinations.\461\ As Paz explained
to the Committee,
---------------------------------------------------------------------------
\457\SFC Interview of Holly Paz (July 26, 2013) pp. 86-96.
\458\Id.; Email from Justin Lowe to Holly Paz (June 27, 2011)
IRS0000431165-66.
\459\SFC Interview of Holly Paz (July 26, 2013) pp. 86-96.
\460\Id.
\461\Id. The suggestion contained in the briefing paper used for
the meeting stated that ``EOT composes a list of issues or political/
lobbying indicators to look for when investigating potential political
intervention and excessive lobbying, such as reviewing website content,
getting copies of educational and fundraising materials, and close
scrutiny of expenditures.'' Email from Justin Lowe to Holly Paz (June
27, 2011) IRS0000431165-66.

[t]he idea is that the guide sheet would help the
Determinations Unit in developing the cases and then
also analyzing what they got in response to the
development letter, in figuring out, for example,
whether certain pieces of information indicated
campaign intervention or did not indicate campaign
intervention.\462\
---------------------------------------------------------------------------
\462\SFC Interview of Holly Paz (July 26, 2013) p. 96.

Later in July 2011, Michael Seto directed Hillary Goehausen
to draft the guidesheet and Justin Lowe, a Tax Law Specialist
in EO Guidance, to review Goehausen's draft.\463\ Goehausen had
commenced her career at the IRS in April 2011.\464\ She
prepared a draft that was reviewed by Lowe and sent it out to
Judith Kindell, Chip Hull, David Fish, Elizabeth Kastenberg and
others for comment on September 21, 2011.\465\ Only Hull
provided comments to Goehausen, so Goehausen sent a slightly
revised version to the same recipients on November 3, 2011,
again requesting comments.\466\ Regarding the four months that
it required to move from Lerner's decision in early July 2011
to prepare a guidesheet to the circulation of a draft for
comment in early November 2011, Paz told the Committee the
following:
---------------------------------------------------------------------------
\463\Email chain between Michael Seto, Hillary Goehausen and others
(July 23-24, 2011) IRS0000644018.
\464\SFC Interview of Hilary Goehausen (July 11, 2013) (not
transcribed).
\465\Email from Hilary Goehausen to Judith Kindell and others (Sep.
21, 2011) IRS0000636285-97.
\466\Email chain between Hillary Goehausen, Judith Kindell and
others (Sep. 21-Nov. 3, 2011) IRS0000057352-65.
---------------------------------------------------------------------------
Q. Did you feel that the 4 months to get to this
stage was a suitable or an appropriate period of time
to develop a document like this?
A. I thought it could have been done faster.\467\
---------------------------------------------------------------------------
\467\SFC Interview of Holly Paz (July 26, 2013) p. 125.
---------------------------------------------------------------------------
On November 6, 2011, David Fish, then-Acting Director of
Rulings and Agreements,\468\ opined with regard to the
guidesheet that ``the document won't work in its present form.
I think we need to work with [EO Determinations] to make it a
usable document.''\469\ Fish apparently felt that the
guidesheet was ``too lawyerly'' to be of assistance to the
agents in EO Determinations.\470\ Paz stated to the Committee
as follows:
---------------------------------------------------------------------------
\468\Id. p. 18. Paz was on maternity leave from October 24, 2011 to
February 6, 2012. During that time, David Fish, Manager of EO Guidance,
served as Acting Director of Rulings and Agreements.
\469\Email chain between David Fish, Michael Seto, Cindy Thomas and
others (Oct. 24-Nov. 6, 2011) IRS0000520827-41; SFC Interview of Holly
Paz (July 26, 2013) pp. 133-134.
\470\SFC Interview of Holly Paz (July 26, 2013) p. 133.
---------------------------------------------------------------------------
Q. Okay. So November 6th Mr. Fish, who is the Acting
Director of Rulings and Agreements, concludes that the
guidesheet . . . won't work in its present form. So now
that means that all the effort that has been expended
since what, July 5, or since whenever Ms. Goehausen
began working on that, to November 6, which is a period
of about four months, is pretty much gone. Right? That
effort hasn't resulted in anything useful at this
point.
A. That's correct.\471\
---------------------------------------------------------------------------
\471\Id. p. 134.
---------------------------------------------------------------------------
Subsequently, on February 24, 2012, Paz transmitted a copy
of the November 2011 iteration of the guidesheet to Don
Spellman, Senior Counsel in the Office of the Chief Counsel,
for his review.\472\ Because Paz sent Spellman a version of the
guidesheet from November 2011, it appears that further work by
EO Technical on the guidesheet was essentially suspended in
November 2011, possibly because of the determination made by
David Fish that the guidesheet would not be helpful to EO
Determinations agents. Spellman reviewed the guidesheet shortly
after receiving it from Paz and sent an email to Janine Cook
letting her know that:
---------------------------------------------------------------------------
\472\Email chain between Holly Paz, Don Spellman and others (Nov.
21, 2011-Feb. 24, 2012) IRS0000056937-50.

[i]t's nowhere near ready for prime time. It's a good
start, but needs corrections, additions, changes all
over. The law in particular needs fixing. The
development questions are good, but not complete.\473\
---------------------------------------------------------------------------
\473\Id.

On that same day, Lerner emailed Spellman and his
supervisor Janine Cook and asked that they let Lerner know
their concerns with the guidesheet as soon as possible, as
Lerner intended to provide the guidesheet to Congressional
staff and to post it on the IRS website.\474\
---------------------------------------------------------------------------
\474\Email chain between Lois Lerner, Don Spellman, Janine Cook and
others (Feb. 24-March 1, 2012) IRS0000594977-80.
---------------------------------------------------------------------------
Spellman provided comments to Lerner on the guidesheet
during the week of March 5, 2012.\475\ However, Lerner did not
feel that the revisions made by Spellman would be helpful to EO
Determinations agents working the applications and requested
further changes in the format.\476\ Spellman provided yet
another version of the guidesheet to Lerner on April 25,
2012.\477\ On April 27, 2012, Nikole Flax, the Assistant Deputy
Commissioner for Services and Enforcement, sent the April 25,
2012 version of the guidesheet prepared by Counsel to Cathy
Livingston, Health Care Counsel in the Office of Chief Counsel,
and asked Livingston to provide a ``gut reaction.''\478\
Livingston reviewed the guidesheet and concluded as follows:
---------------------------------------------------------------------------
\475\Email chain between Don Spellman, Lois Lerner and others (Mar.
5, 2012) IRS0000057789-90.
\476\Email chain between Janine Cook, Lois Lerner, Victoria Judson
and others (Mar. 19-21, 2012) IRS0000056992-7043.
\477\Email from Don Spellman to Lois Lerner and others (Apr. 25,
2012) IRS0000512392-446.
\478\Email chain between Nikole Flax, Cathy Livingston and others
(Apr. 26-May 1, 2012) IRS0000063118-21.

I am concerned about this document that Counsel has
sent forward, both for its practical utility in
Cincinnati and also for what it doesn't make clear and
what it may be perceived as implying about existing
guidance. The product reflects, to me, the best efforts
of a team that has not had the requisite experience
working with the cases and issues.\479\
---------------------------------------------------------------------------
\479\Id.

Paz expressed the following to the Committee:
Q. Okay. But I guess my point is, though, that this
effort that had been undertaken to prepare a guidesheet
had commenced sometime after July 5th, and here we are
now April of the following year and we are still
talking about a draft document where people are
commenting on. Is that correct?
A. Yes.
Q. And in all that intervening period of time the
guidesheet hasn't been able to be used by anyone in EOD
in kind of the way it was intended to be used. Is that
correct?
A. That's correct.\480\
---------------------------------------------------------------------------
\480\SFC Interview of Holly Paz (July 26, 2013) p. 153.
---------------------------------------------------------------------------
In May 2012, Steve Miller approved a recommendation to send
a team of employees from EO in Washington D.C. to Cincinnati to
provide a training workshop to the EO Determinations agents on
how to process applications involving potential political
advocacy issues.\481\ The training took place on May 14-15,
2012.\482\ Paz told the Committee that
---------------------------------------------------------------------------
\481\SFC Interview of Steve Miller (Dec.12, 2013) pp. 121-122.
\482\Email chain between Cindy Thomas, Bonnie Esrig and others (May
8-9, 2012) IRS0000596252.

. . . the workshop was an alternative to the
guidesheet. We were never able to get Counsel to sign
off on the guidesheet and give a final blessing to it.
So we, at that point, had abandoned the
guidesheet.\483\
---------------------------------------------------------------------------
\483\SFC Interview of Holly Paz (July 26, 2013) p. 163.

Nearly 10 months after Lerner had first decided to develop
a guidesheet, and after substantial investment of time and
labor by staff from EO Technical, EO Guidance and the Office of
the Chief Counsel, the IRS abandoned further efforts to
complete the guidesheet. Together with the ``test cases,'' the
guidesheet was intended to serve as part of the guidance that
EO Technical was responsible for providing to EO Determinations
to assist it in processing the Tea Party and other political
advocacy applications. As with the ``test cases,'' EO Technical
was never able to deliver to EO Determinations a useful
product. EO Technical's inability to produce a set of written
instructions in the form of a guidesheet for processing
political advocacy applications after nearly 10 months of
effort further delayed EO Determinations processing of Tea
Party and other political advocacy applications. It cannot be
disputed that the initiative to develop the guidesheet was an
unmitigated failure. Miller best summed it up as follows:
Q. . . . Was [the guidesheet] the tool that EOD
really needed to get the cases moving along?
A. Clearly it wasn't, because it didn't work.\484\
---------------------------------------------------------------------------
\484\SFC Interview of Steve Miller (Dec. 12, 2013) p. 122.
---------------------------------------------------------------------------

E. The Initial ``Triage'' of Tea Party and Other Political Advocacy
Cases in 2011 Represented Yet Another Unsuccessful Attempt by EO
Technical to Assist EO Determinations

In September 2011, Holly Paz and Sharon Light, Senior
Technical Advisor to Lois Lerner, visited EO Determinations in
Cincinnati.\485\ During this visit, Paz and Light met with
Cindy Thomas and during the course of a discussion on the
advocacy applications, Thomas showed an advocacy application to
Light.\486\ In one sitting, Light reviewed the application and
did internet research on the organization and concluded that
the application should be approved.\487\ Thomas then suggested
to Paz and Light that perhaps other political advocacy
applications could also be quickly approved, if EO Technical
staff knowledgeable about political advocacy issues could
review those applications.\488\ Thomas suggested providing EO
Technical with a list of all the political advocacy
applications then pending in EO Determinations so that Tax Law
Specialists in EO Technical could ``triage'' the
applications.\489\ The ``triage'' would consist of reviewing
the applications in TEDS, the electronic data base that served
as a repository for those records, and identifying applications
that could be approved as well as those that could not.\490\
Paz stated to the Committee as follows:
---------------------------------------------------------------------------
\485\SFC Interview of Cindy Thomas (July 25, 2013) pp. 143-148.
\486\Id.
\487\Id.
\488\Id.
\489\Id.
\490\Email chain between Cindy Thomas, Holly Paz and others (Sep.
15-Nov. 15, 2011) IRS0000057399-426; IRM Sec. 7.15.6 (June 12, 2013).
---------------------------------------------------------------------------
Q. What was the overall goal of the triage?
A. It was to find some cases that could be approved
based on the information that we had so that we could
close some of the cases, the taxpayers wouldn't have to
wait any longer.\491\
---------------------------------------------------------------------------
\491\SFC Interview of Holly Paz (July 26, 2013) p. 131.
---------------------------------------------------------------------------
Paz agreed with Thomas's suggestion to perform a ``triage''
on the pending applications and indicated that Hillary
Goehausen and Justin Lowe would perform triage
responsibilities.\492\ Shortly thereafter, on September 15,
2011, Thomas sent to Paz a list of all advocacy applications
then pending in EO Determinations together with their EINs and
other information.\493\ Goehausen and Lowe commenced reviewing
PDF copies of the applications in TEDS and on October 24, 2011,
a spreadsheet containing the results of their review of 162 Tea
Party and other political advocacy applications was sent to
Thomas.\494\ Goehausen and Lowe made notations on the
spreadsheet for each application, such as ``general advocacy,''
``lobbying,'' ``website has substantial inflammatory
rhetoric,'' ``political campaign activity,'' etc.\495\ On
October 25, 2011, Thomas wrote to Michael Seto regarding these
notations and stated the following:
---------------------------------------------------------------------------
\492\SFC Interview of Cindy Thomas (July 25, 2013) pp. 145-146.
\493\Email chain between Cindy Thomas, Holly Paz and others (Sep.
15-Nov. 15, 2011) IRS0000057399-426.
\494\Id.
\495\Id.

[n]ot sure where this leaves us and I'm unclear as to
what action is being suggested for some of these cases.
Specifically, if the comment indicates ``general
advocacy,'' what does that mean--additional development
or what?\496\
---------------------------------------------------------------------------
\496\Id.

Goehausen attempted to explain the notations to Thomas on
October 26, 2011.\497\ Thomas wrote to Seto on October 30,
2011, again expressing confusion over the notations and stating
her expectation that the ``triage'' would specifically identify
applications that could be approved, or that required more
development, or that should be denied.\498\ Seto followed up
with Thomas on November 6, 2011, promising that Goehausen would
revise the spreadsheet to comply with Thomas's
expectation.\499\ Thomas explained her concerns with
Goehausen's notations as follows:
---------------------------------------------------------------------------
\497\Id.
\498\Id.
\499\Id.

. . . when I reviewed some of the comments, I didn't
find it very helpful, because what I was looking to get
is just tell us whether this case can be approved or
not, similar to what Sharon Light did when she reviewed
that one case. But there were comments on the
spreadsheet and I didn't know whether that meant
approve the case, don't approve the case, or what. So I
sent it back to Mike and this process happened, I
believe, three times that the spreadsheet was sent back
and that the review took place like about three
times.\500\
---------------------------------------------------------------------------
\500\SFC Interview of Cindy Thomas (July 25, 2013) p. 146.

On November 22, 2011, Seto sent Thomas a revised
spreadsheet and informed Thomas that of the 162 applications
Goehausen reviewed, 12 might qualify for exemption, 15 were
possible denials, and that the remainder (135) required further
development.\501\ Goehausen's recommendations were based only
on a review of the organizations' applications, and not on any
supporting documentation that the organizations may have
submitted after filing their applications.\502\ Since
Goehausen's review was limited to examining applications, her
recommendations were offered with the caveat that EO
Determinations needed to perform further development before
approving or denying any applications.\503\
---------------------------------------------------------------------------
\501\Email chain between Michael Seto, Cindy Thomas and others
(Nov. 22-Dec. 12, 2011) IRS0000439824-26.
\502\SFC Interview of Holly Paz (July 26, 2013) p. 135.
\503\Id.
---------------------------------------------------------------------------
In view of the tentative nature of Goehausen's
recommendations, Thomas was unable to direct her staff to
approve or deny any application.\504\ She explained her actions
to the Committee as follows:
---------------------------------------------------------------------------
\504\SFC Interview of Cindy Thomas (July 25, 2013) p. 147.

. . . I just wanted them to tell us this case is okay
to approve or not approve . . . . I didn't give this
[spreadsheet] to anybody that worked for me because I
wanted it perfected in D.C. so that I could take this
spreadsheet and give it out and say here, follow this
direction. But I didn't do that because it was unclear
to me. It was unclear to me what was being recommended
by the Washington office.\505\
---------------------------------------------------------------------------
\505\Id.

The effort expended in performing the ``triage'' of Tea
Party and political advocacy applications from September 15,
2011 to November 22, 2011, failed to achieve its goal of
providing EO Determinations with the information and direction
necessary for it to approve or deny any of the pending
applications.
Paz summarized the utility of the triage effort as a whole
in the following terms:
Q. . . . Was EOD able to take the results of that
triage effort and actually implement them?
A. From what I understand, they did not . . . .
Q. Okay. So would it be fair to say that the entire
triage effort, the triage effort, at least this first
triage effort in 2011 then resulted in nothing useful?
A. That's correct.\506\
---------------------------------------------------------------------------
\506\SFC Interview of Holly Paz (July 26, 2013) p. 135.
---------------------------------------------------------------------------

F. The Advocacy Team Failed to Approve or Deny any Applications
Received From Tea Party or Other Political Advocacy Organizations From
its Formation in December 2011 to June 2012

Throughout 2010 and 2011, Cindy Thomas had repeatedly asked
EO Technical for the guidance to process the Tea Party
applications that she had first been promised by Holly Paz in
February 2010.\507\ Thomas did not receive the promised
guidance in 2010 or 2011. In late 2011, Michael Seto provided
Thomas with a copy of the draft guidesheet, but Thomas was told
that EO Determinations agents may not find it useful.\508\
Thomas, now armed with the draft guidesheet and the tentative
results produced by the ``triage'' of applications performed by
Hillary Goehausen and Justin Lowe, decided to try to move the
political advocacy applications.\509\ Accordingly, on Steve
Bowling's recommendation, Thomas replaced Ronald Bell as
coordinator for the political advocacy applications with
Stephen Seok, an EO Determinations agent in Group 7822.\510\
Concurrent with that change, Thomas formed the ``Advocacy
Team'' to process the Tea Party and political advocacy
applications.\511\ The team consisted of 12 GS-13 agents, one
from each of the Groups within EO Determinations.\512\ These
agents were among the highest graded agents in each Group.
---------------------------------------------------------------------------
\507\Email chain between Holly Paz, Cindy Thomas and others (Feb.
25-Mar. 17, 2010) IRS0000180869-73; Email chain between Cindy Thomas,
Holly Paz and others (Oct. 26, 2010-Jan. 28, 2011) IRS0000435238-39;
Email chain between Cindy Thomas, Holly Paz and others (Oct. 26, 2010-
Mar. 2, 2011) IRS0000620724-26; Email chain between Cindy Thomas,
Michael Seto and others (Mar. 29-Apr. 13, 2011) IRS0000576953-55; Email
chain between Cindy Thomas, Holly Paz and others (Sep. 15-Nov. 15,
2011) IRS0000057399-426; Email chain between Cindy Thomas, Lois Lerner
and others (Nov. 3, 2011) IRS0000162845-46 (Email attachment containing
taxpayer information omitted by Committee staff); Email chain between
Michael Seto, Cindy Thomas and others (Nov. 22-Dec. 12, 2011)
IRS0000439824-26.
\508\SFC Interview of Cindy Thomas (July 25, 2013) p. 147.
\509\Id. pp. 147-48.
\510\Id.
\511\Email chain between Michael Seto, Cindy Thomas and others
(Nov. 22-Dec. 12, 2011) IRS0000439824-26.
\512\Id.; Email chain between Cindy Thomas, Nancy Marks and others
(Apr. 17-23, 2012) IRS0000013058-61.
---------------------------------------------------------------------------
To assist in processing the applications, Seok was provided
a copy of the guidesheet and the results of the
``triage.''\513\ He provided the team members with a copy of
the draft guidesheet\514\ and shortly thereafter convened the
first meeting of the Advocacy Team on December 16, 2011.\515\
At this point, the Office of the Chief Counsel had not reviewed
the guidesheet nor had it been approved for use by management.
During the December 16, 2011 meeting, the members discussed the
history of the advocacy applications, the purpose of the team,
and how they would process the political advocacy applications
through the use of ``template'' development letters.\516\ At
the time of the meeting, Seok identified approximately 172
political advocacy applications awaiting decision.\517\ While
Seok served as Coordinator for the team, he reported to Steve
Bowling and provided Bowling with periodic updates on the
team's activities.\518\
---------------------------------------------------------------------------
\513\SFC Interview of Cindy Thomas (July 25, 2013) pp. 147-48.
\514\Email from Stephen Seok to Ronald Bell and others (Dec. 12,
2011) IRS0000059316-28.
\515\Email chain between Cindy Thomas, Nancy Marks and others (Apr.
17-23, 2012) IRS0000013058-61.
\516\Id.
\517\Id. Text discussing the 172 pending cases notes ``37 c3 125
c4;'' ``[m]ostly advocacy with strong or some political activities, at
least implied;'' ``[a]bout 155 cases reviewed by EO Tech: Favorable 13,
Denial 13, All others: Development Needed;'' ``30 Something TEA party,
Several 912, Repeal PPACT (Patient Protection and Affordable Care Act),
Enact Universal Single-Payer Health Case [sic] System, etc.''
\518\Email chain between Stephen Seok, Steve Bowling, Holly Paz and
others (Jan. 8-Aug. 7, 2012) IRS0000434203-08.
---------------------------------------------------------------------------
Throughout the remainder of December 2011 and into the
first half of January 2012, Seok assigned political advocacy
applications to the team members and reviewed their draft
development letters.\519\ In his report to Bowling dated
February 13, 2012, Seok indicated that development letters had
been sent out for most of the applications that had been
assigned and that except for a few applications, no responses
had yet been received.\520\ On February 15, 2012, Seok
circulated to the Advocacy Team members as well as to Bowling
copies of several draft documents, including a document that
contained template development questions.\521\ Among the
template questions, which numbered in excess of 80, were
questions seeking: the identity of donors and the amounts and
dates of donations; the identity of volunteers; copies of every
webpage including social networking sites and blog sites;
detailed descriptions of all events sponsored by the
organizations; and copies of all handouts distributed by the
organizations.\522\
---------------------------------------------------------------------------
\519\Id.
\520\Id.
\521\Email from Stephen Seok to Steve Bowling and the Advocacy Team
(Feb. 15, 2012) IRS0000594910-29.
\522\Id.
---------------------------------------------------------------------------
Seok used the draft guidesheet that had been provided to
him to prepare the template questions.\523\ In addition, Seok
and other Advocacy Team members apparently used earlier
iterations of the draft template questions to prepare some of
the development letters sent to Tea Party organizations in
January and early February 2012.
---------------------------------------------------------------------------
\523\SFC Interview of Steve Miller (Dec. 12, 2013) p. 113. The
close relationship between the draft guidesheet and the template
questions clearly suggests that the former was used to prepare the
latter.
---------------------------------------------------------------------------
Beginning about the middle of February 2012, the IRS began
to receive Congressional inquiries about the processing of
applications for tax exemption filed by Tea Party
organizations.\524\ The inquiries were prompted by complaints
from Tea Party groups seeking tax-exempt status that had
recently received development letters from the IRS containing
questions that appeared to be burdensome, inappropriate, and
sometimes intrusive.\525\ Many of the development letters
requested information such as the names of all donors, donation
amounts and dates of donations; the identities of all
volunteers; and whether board members and officers would run
for political office.\526\ The application for tax-exempt
status (IRS Form 1023) does not require the provision of donor-
identifying information. However, if an organization seeking
tax-exempt status under section 501(c) provided information to
the IRS regarding its donors during the application process
pursuant to a follow-up request by an agent for donor-
identifying information in connection with an application, then
that information could be disclosed if the organization's
application were subsequently approved. In contrast, 501(c)
filers are required to disclose annually the names and
addresses of anyone who contributed $5,000 or more as part of
the Form 990 Schedule B, but Schedule B. is not required to be
made public, except in the case of private foundations.
Therefore, IRS agents requesting an organization's donor
information during the application process subjected that donor
information to a different standard of disclosure than
otherwise applicable to 501(c) organizations.
---------------------------------------------------------------------------
\524\SFC Interview of Holly Paz (July 26, 2013) pp. 141-142; Letter
from Senator Orrin G. Hatch to IRS Commissioner Shulman (Mar. 14, 2012)
IRS0000488582-85.
\525\Email chain between David Fish, Keith Frank, Andy Megosh and
others (Feb. 17-21, 2012) IRS0000610957-60.
\526\Email from Michele Eldridge to Steve Miller and others (Mar.
1, 2012) IRS0000341681-83.
---------------------------------------------------------------------------
In addition to Congressional inquiries, news articles began
to appear in February 2012 reporting that Tea Party
organizations that were awaiting determinations from the IRS on
their requests for tax-exempt status had recently received
burdensome development letters.\527\ These development letters,
which in some cases contained over 80 separate questions, also
allowed only 14 days for reply. Moreover, many of the letters
received by the applicant organizations contained duplicate
requests.\528\
---------------------------------------------------------------------------
\527\Email chain between Faris Fink, Steve Miller, Shane Ferguson
and others (Feb. 29, 2012) IRS0000341677-80.
\528\Email chain between Lois Lerner, Holly Paz, Cindy Thomas and
others (Feb. 24-Mar. 1, 2012) IRS0000594977-80.
---------------------------------------------------------------------------
In response to both mounting Congressional inquiries and
media stories about intrusive development questions that had
been received by Tea Party organizations, Steve Miller, then
Deputy Commissioner for Services and Enforcement, took several
remedial actions.\529\ Regarding donor information, Miller
directed that the IRS inform recipients of the development
letters that they need not provide the donor information.\530\
For organizations that had already provided that information,
Miller was apprised by the Office of the Chief Counsel that the
donor information could be destroyed since it had not been
used.\531\ Accordingly, in most cases, the donor information
was destroyed.\532\ Organizations were also allowed more time
to respond to the development letters and were permitted to
submit sample web pages, in lieu of screen shots of every
page.\533\ Moreover, Cindy Thomas disciplined Seok as the
majority of instances where donor information had been
requested were applications that Seok had worked.\534\ In
addition, Seok was eventually replaced as Coordinator for
political advocacy applications.\535\ However, in January 2013,
Thomas promoted Seok to the Group Manager position.\536\
---------------------------------------------------------------------------
\529\SFC Interview of Steve Miller (Dec. 12, 2013) pp. 123-129.
\530\Id.
\531\Id. Miller explained during his interview that if donor
information had been retained by the IRS and the organization's
application was subsequently approved, the donor information would then
become public.
\532\Id. However, in at least one instance, donor information was
not destroyed. See Email from Sharon Light to Lois Lerner (Apr. 19,
2013) IRS0000195724-25.
\533\SFC Interview of Steve Miller (Dec. 12, 2013) pp. 123-129.
\534\SFC Interview of Cindy Thomas (July 26, 2013) pp. 134-39.
\535\Id.
\536\Id.
---------------------------------------------------------------------------
The most significant consequence for the processing of
political advocacy applications resulting from the issuance of
the inappropriate, burdensome and sometimes intrusive
development letters occurred on February 29, 2012. On that
date, Lois Lerner instructed Paz to ensure that EO
Determinations sent no further development letters until the
letters were adjusted.\537\ Paz so advised Thomas, and Thomas
in turn directed Bowling to cease assigning any more political
advocacy applications ``until we have the template questions
from DC.''\538\ On February 29, 2012, the Advocacy Team
effectively ceased processing Tea Party and political advocacy
applications, an activity that it would not resume again until
mid-May 2012, when the IRS next attempted to process the Tea
Party and other political advocacy applications through the
``bucketing'' initiative described below.
---------------------------------------------------------------------------
\537\Email chain between Lois Lerner, Holly Paz, Cindy Thomas and
others (Feb. 29, 2012) IRS0000594977-80.
\538\Id.
---------------------------------------------------------------------------
While the idea to form the Advocacy Team to finally work
the Tea Party and other political advocacy applications appears
to have been well-intentioned, the team was ill-equipped to
carry out that task. The guidesheet relied on by the team was a
draft only, and as explained in greater detail within this
report, the IRS was never able to resolve its shortcomings.
Additionally, the results of the ``triage'' performed in 2011
which the Advocacy Team also used as guidance were of dubious
value, since the conclusions reached in that exercise were
premised on a review of only partial records. Lastly, and
perhaps most significantly, the Advocacy Team appears to have
suffered from a lack of effective leadership. While Seok's
errors may be explained somewhat by his apparent lack of
managerial experience, Bowling was aware of the template
questions, but failed to recognize the predictable consequences
of their use. In sum, Bowling failed to properly manage the
activities of the Advocacy Team, allowing burdensome, often
irrelevant and sometimes intrusive questions to be asked of a
group of organizations whose sensitivities were already
heightened by years of delay in the resolution of their
applications.\539\
---------------------------------------------------------------------------
\539\These egregious deficiencies in Bowling's management of the
advocacy team do not appear to have adversely affected the IRS's
assessment of his performance. In fact, the IRS performance review
board gave him the highest recommendation for an award for the period
which encompassed the events described above in late 2011 and early
2012. As a result, Bowling received a bonus that was among the highest
for TEGE front-line managers, an amount that exceeded 2% of his annual
salary. Email from Brent Brown to Lois Lerner and Dawn Marx (Nov. 29,
2012) (attachment containing sensitive personnel information omitted by
Committee staff). Not only did the IRS give Bowling a stellar cash
performance award in 2012, but upon Cindy Thomas's reassignment in
August 2013, it also elevated him to the position of EO Determinations
Manager along with Jon Waddell and Donna Abner. IRS Briefing for SFC
Staff (July 7, 2015).
---------------------------------------------------------------------------

G. The Multi-Step Review Procedure Established by EO Technical in 2012
for Political Advocacy Applications Reflected a Lack of Concern by IRS
Management for the Need To Process the Applications Expeditiously

In March 2012, Cindy Thomas informed Michael Seto, EO
Technical Manager, that EO Determinations was ready to send to
EO Technical the first application for exemption under
501(c)(4) that it thought should be approved.\540\ In apparent
anticipation of reviewing the first application and
recommendation, and presumably the others that would follow,
Michael Seto announced a multi-step process for providing
technical assistance to EO Determinations on advocacy
applications.\541\ The process involved the following steps:
---------------------------------------------------------------------------
\540\Email chain between Cindy Thomas, Michael Seto, Steve Bowling
and others (Mar. 6, 2012) IRS0000617020-21.
\541\Email chain between Justin Lowe, Michael Seto, Steve
Grodnitzky and others (Jan. 31-Mar. 5, 2012) IRS0000594982-84; Email
from Michael Seto to Steve Grodnitzky and others (Mar. 9, 2012)
IRS0000066875.
---------------------------------------------------------------------------
1. Hilary Goehausen, EO Technical, analyzes the
application and forms a recommendation;
2. Goehausen submits her analysis and recommendation
to Justin Lowe, EO Guidance for his review;
3. When Goehausen and Lowe complete their review and
recommendation, it is sent to Michael Seto for his
review;
4. Seto then schedules a meeting with Cindy Thomas
and Donna Abner, Director EO Quality Assurance, to
update them on EO Technical's analysis and
recommendation;
5. The analysis and recommendation are then sent to
the Office of the Chief Counsel for its comment/
concurrence;
6. When the Office of Chief Counsel completes its
review, Seto schedules a meeting with Lois Lerner,
Holly Paz and David Fish to discuss the recommendation;
7. The analysis/recommendation is released to EO
Determinations.
It is unclear who the originator of this process was, and
how many requests for technical assistance from EO
Determinations were actually subjected to the multiple handoffs
that characterize this ``process.''\542\ What is clear,
however, is that any request for technical assistance from EO
Determinations that was processed in this fashion would take
considerable time to move through all the steps. Steve
Grodnitzky stated to the Committee as follows:
---------------------------------------------------------------------------
\542\SFC Interview of Steve Grodnitzky (Sep. 25, 2013) pp. 137-146.
---------------------------------------------------------------------------
Q. . . . and looking at this process and the seven
steps, do you think it would have an effect on your--
the processing speed or the time it would take to move
cases through your--your Group 1?
A. Well, the more individuals that look at a
particular case, theoretically the longer it would take
to resolve.
Q. Okay. In looking at this process, do you think
that this would expedite or perhaps slow down the
movement of cases through your group?
A. Having more people that are involved in the
process would result in a case taking longer to
resolve.
Q. So this process would slow things down, right?
A. Yes, it could.\543\
---------------------------------------------------------------------------
\543\Id.
---------------------------------------------------------------------------
When asked about the length of time that it generally
required for the Office of Chief Counsel to respond to a
request for advice, Grodnitzky told the Committee the
following:

It could be 3 months, 6 months, a year. It--depends.
I--it varies on what their--well, let me step back. I
don't want to speak for counsel, but I can only speak
for my experience in working with counsel, and it
would--it's varying lengths of time, but in my
experience, counsel has taken--can take a great deal of
time.\544\
---------------------------------------------------------------------------
\544\Id.

This process was instituted at a time when some of the
applications received from the Tea Party groups were already
two and a half years old. It was also instituted after better
than two years of fruitless effort by EO Technical in working
``test cases,'' developing guidesheets, and triaging
applications. Implementation of the multi-step review process
at this juncture clearly evidences that management within EO,
whether at the EO Technical level or higher, was seemingly
unconcerned about the already long delays endured by many Tea
Party and other applicants seeking to engage in some level of
political advocacy. Rather than looking for ways to expedite
the processing of these long delayed applications, EO devised a
process that virtually guaranteed that any application subject
to the seven steps would languish without resolution for many
more months.

H. The MAY 2012 ``Bucketing'' Initiative Resulted in EO Determinations
Issuing the First Approvals of Tea Party and Other Political Advocacy
Applications After Nearly Two and a Half Years

In March 2012, Steve Miller, then Deputy Commissioner for
Services and Enforcement, grew increasingly concerned about the
processing of Tea Party and other political advocacy
applications.\545\ His concern was prompted by stories in the
media and Congressional inquiries regarding the apparent
issuance of intrusive and burdensome development letters by EO
Determinations to Tea Party groups.\546\ Miller sent Nancy
Marks, Special Assistant to the TE/GE Commissioner, to
Cincinnati to determine how EO Determinations was processing
the Tea Party and other political advocacy applications.\547\
In late April, Marks and several others arrived in Cincinnati
and interviewed employees involved in the processing of
political advocacy applications.\548\ Marks also examined
applications for exemption filed by political advocacy
organizations.\549\ She reported back to Miller on May 3, 2012
and among other revelations, indicated that the use of
unnecessary and sometimes intrusive development questions
resulted from a failure by EO Technical to provide EO
Determinations with adequate training and guidance.\550\ Marks
also told Miller that there were approximately 250-300
applications pending decision that involved possible political
advocacy.\551\ Marks recommended, and Miller agreed, that EO
Technical and EO Determinations personnel would review all of
the political advocacy applications through a ``bucketing''
exercise that would allow applications to be quickly approved
if they met the requirements for exemption.\552\
---------------------------------------------------------------------------
\545\SFC Interview of Steve Miller (Dec. 12, 2013) pp. 129-145.
\546\Id.
\547\Id.
\548\Email chain between Holly Paz, Cindy Thomas, Donna Abner and
others (Apr. 20-23, 2012) IRS0000003152-55.
\549\Id.
\550\SFC Interview of Steve Miller (Dec. 12, 2013) pp. 129-145.
\551\Id.
\552\Id.
---------------------------------------------------------------------------
In May 2012, Cindy Thomas advised members of her staff that
certain EO Determinations personnel, as well as ``a few
additional folks from D.C.,'' would place the advocacy
applications in one of the following four buckets:
1. Favorable (no further substantive development
needed).
2. Favorable (limited development with approximately
two or three questions to ask the applicant).
3. Significant development.
4. Probable denial.\553\
---------------------------------------------------------------------------
\553\Email chain between Cindy Thomas, Bonnie Esrig and others (May
8-9, 2012) IRS0000596252.
---------------------------------------------------------------------------
Thomas further informed her staff that, ``[m]ost likely,
we'll try to get those cases in Bucket 1 closed quickly and
then move to Bucket 2.''\554\
---------------------------------------------------------------------------
\554\Id.
---------------------------------------------------------------------------
The bucketing was preceded by several days of classroom
training for the EO Determinations specialists. Holly Paz
described the approach used to train the specialists as
follows:

We did it in a workshop format where we used the real
cases that we had and used those as a way to discuss
issues that come up. We also talked a lot about, here's
an issue you see on the application; how would you ask
a development question about it? What would the
question look like? And then worked through what would
be a good question that would get at what you needed to
know but not be too burdensome to the applicant.\555\
---------------------------------------------------------------------------
\555\SFC Interview of Holly Paz (July 26, 2013) p. 162.

The bucketing of applications commenced on May 16,
2012\556\ and extended for three weeks.\557\ Two employees, one
from EO Determinations and the other from EO Technical,
reviewed each application.\558\ Each employee reviewed the
application independently and made a recommendation as to the
bucket to which the application should be assigned.\559\ If the
two employees agreed on the bucket, the application was
assigned to that bucket.\560\ If there was disagreement, the
employees would meet and attempt to reconcile their
differences.\561\ If they could not, then the disagreement was
elevated to Sharon Light, Senior Technical Advisor to the EO
Director, who would make the determination as to the
appropriate bucket.\562\
---------------------------------------------------------------------------
\556\Email chain between Cindy Thomas, Bonnie Esrig and others (May
8-9, 2012) IRS0000596252.
\557\SFC Interview of Holly Paz (July 26, 2013) pp. 160-161.
\558\Id.
\559\Id.
\560\Id.
\561\Id.
\562\Id.
---------------------------------------------------------------------------
On June 7, 2012, Paz reported to Cindy Thomas and Lois
Lerner the results of the now completed bucketing exercise as
follows:

83 c/3s bucketed:
16 approval
16 limited development
23 general development
28 likely denial

199 c/4s bucketed:
65 approval
48 limited development
56 general development
30 likely denial\563\
---------------------------------------------------------------------------
\563\Email chain between Holly Paz, Lois Lerner, Donna Abner and
others (June 8, 2012) IRS0000578664-66.

While the bucketed applications were from groups on both
the political right as well as the left, the majority of the
applications were from right-leaning organizations. On July 18,
---------------------------------------------------------------------------
2012, Judith Kindell noted this fact to Lois Lerner as follows:

Of the 84 (c)(3) cases, slightly over half appear to
be conservative leaning groups based solely on the
name. The remainder do not obviously lean to either
side of the political spectrum.
Of the 199 (c)(4) cases, approximately \3/4\ appear
to be conservative leaning while fewer than 10 appear
to be liberal/progressive leaning groups based solely
on name. The remainder do not obviously lean to either
side of the political spectrum.\564\
---------------------------------------------------------------------------
\564\Email from Judith Kindell to Lois Lerner (July 18, 2012)
IRS0000585328.

Political advocacy applications received after June 8,
2012, were bucketed in EO Determinations.\565\ Commencing in
June 2012, 41 applicants for exemption, including Tea Party and
other political advocacy groups, received approval letters from
the IRS.\566\ These approvals represented the first approvals
of political advocacy applications since early 2010 when the
IRS had granted tax exemption to one 501(c)(3) and two
501(c)(4) Tea Party organizations. In addition, 31 development
letters were prepared and sent out in June 2012 by EO
Determinations on other bucketed applications.\567\ These were
the first development letters issued by EO Determinations since
February 29, 2012, when Lois Lerner suspended the further
issuance of development letters. For applications that were
likely denials and that had been placed in bucket 4, EO
Technical prepared the majority of development letters and
worked the applications.\568\ From June 2012 to December 2012,
the IRS approved a total of 133 political advocacy
applications.\569\
---------------------------------------------------------------------------
\565\Email chain between Holly Paz, Lois Lerner, Donna Abner and
others (June 8, 2012) IRS0000578664-66.
\566\Email chain between Cindy Thomas, Holly Paz, and Donna Abner
(June 27-28, 2012) IRS0000005239.
\567\Id.
\568\SFC Interview of Cindy Thomas (July 26, 2013) p. 108.
\569\Calculation based on data provided to the SFC by the IRS (Mar.
26, 2014).
---------------------------------------------------------------------------
While not entirely free from problems, the ``bucketing''
exercise represented the first IRS initiative in two and a half
years that actually succeeded in bringing political advocacy
applications to closure. Yet, as of March 2014, more than four
years since the first political advocacy applications were
filed, 22% of those applications were still unresolved. While
the IRS succeeded in closing most of the applications in the
ensuing year, 10 organizations were still waiting a
determination as of April 2015.\570\
---------------------------------------------------------------------------
\570\Based on data provided to the SFC by the IRS (Apr. 8, 2015).
---------------------------------------------------------------------------

VIII. THE IRS SELECTED LEFT-LEANING APPLICANTS FOR REVIEW AND SUBJECTED
THEM TO HEIGHTENED SCRUTINY AND DELAYS

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section discusses how the IRS handled applications for tax-
exempt status submitted by various types of progressive and left-
leaning organizations.
------------------------------------------------------------------------

IRS Exempt Organizations employees also selected left-
leaning and progressive organizations applying for tax-exempt
status for special processing:
Names associated with left-leaning
applicants were placed on the Watch List and Tag
Historical tabs of the BOLO list.
IRS screeners were instructed during
training sessions in 2010 to select left-leaning
applications that were potentially political
organizations.
In some cases, after selecting left-leaning applicants, EO
Determinations transferred the cases to EO Technical or placed
them on hold while awaiting technical assistance from the
Washington D.C. office, a process that delayed their resolution
for years.

A. EO Determinations Flagged Left-Leaning Applicants With the Names
``Progressive,'' ``Acorn,'' and ``Occupy''

1. PowerPoint Presentation Directs Employees to Flag ``Progressive''
and ``Emerge'' Applicants

A PowerPoint presentation and notes from a July 28, 2010
screening workshop meeting in Cincinnati show that IRS
employees were instructed to flag applications with the words
``progressive'' and applications associated with Emerge (an
organization that sought to train female Democratic political
candidates) and to send them to Group 7822 for secondary
screening.\571\ The notes from the meeting state that Gary
Muthert indicated that the ``following names and/or titles were
of interest and should be flagged for review:''
---------------------------------------------------------------------------
\571\Screening Workshop Notes (July 28, 2010) IRS0000012315-17;
Screening Workshop Presentation IRSR0000169695-720.
---------------------------------------------------------------------------
9/12 Project
Emerge
Progressive
We The People
Rally Patriots, and
Pink-Slip Program\572\
---------------------------------------------------------------------------
\572\Screening Workshop Notes (July 28, 2010) IRS0000012315-17.
---------------------------------------------------------------------------
This PowerPoint presentation from this screening workshop
also had a slide that read, ``Politics'' with a picture of an
elephant and a donkey. One slide stated ``Look for names like''
preceding additional slides with the words ``Tea Party . . .
Patriots . . . 9/12 Project . . . Emerge . . . Progressive . .
. We the People'' under the heading ``Current
Activities.''\573\
---------------------------------------------------------------------------
\573\Screening Presentation (July 28, 2010) IRS0000169695-720.
---------------------------------------------------------------------------

2. BOLO Spreadsheets Include the Phrase ``Progressive''

Numerous iterations of the BOLO spreadsheet included the
term ``Progressive'' on the TAG Historical tab. For example, a
BOLO list dated August 12, 2010, instructed screeners to send
applications containing the word ``Progressive'' to the TAG
Group. The BOLO list entry for ``progressive'' further
instructed screeners that the:

Common thread is the word ``progressive.'' Activities
appear to lean towards a new political party.
Activities are partisan and appear as anti-Republican.
You see references to ``blue'' as being
``progressive.''\574\
---------------------------------------------------------------------------
\574\BOLO Spreadsheet (Aug. 12, 2010).

According to IRS agent Ron Bell, who was responsible for
the BOLO list, screening terms were placed on the Tag
Historical tab after IRS employees were not seeing applications
as frequently.\575\
---------------------------------------------------------------------------
\575\SFC Interview of Ron Bell (July 30, 2013) (not transcribed).
---------------------------------------------------------------------------

3. IRS Determinations Manager Instructed Employees to Be Alert for
``Emerge'' Groups

In October 2008, the IRS placed two applications from
Emerge groups, an organization with state chapters that trained
Democratic women to run for political office, on SCRs
subjecting the applicants to multiple layers of review. The
Emerge applications that screeners were instructed to flag at
the screening workshop were not specifically listed on the
BOLO, but an IRS Determinations manager alerted screeners via
email on September 24, 2008, to look for applicants with
``Emerge'' in their name along with other ``politically
sensitive'' cases.\576\
---------------------------------------------------------------------------
\576\Email from Joseph Herr to Elizabeth Hofacre and others (Sep.
24, 2008) IRS0000011492-4.
---------------------------------------------------------------------------
The EO Technical review of the applications was delayed
because of pending litigation between the IRS and the
Democratic Party Leadership Council.\577\ Two additional Emerge
cases were put on the SCR, one in June 22, 2009, and another on
January 18, 2010.\578\ As explained in greater detail in
Section (B) below, the decision to review the Emerge cases
pending the outcome of litigation contributed to delays in
processing these cases.
---------------------------------------------------------------------------
\577\TE/GE Division Sensitive Case Report (Oct. 21, 2008)
IRS0000012307-08.
\578\TE/GE Division Sensitive Case Report (June 22, 2009)
IRS0000633497-98; TE/GE Division Sensitive Case Report (Jan. 18, 2010)
IRS0000147518-19.
---------------------------------------------------------------------------

4. Employees Were Instructed to Give ``Special Handling'' to Groups
Related to ACORN

Another PowerPoint presentation presented at training
events in June and July of 2010 titled ``Heightened Awareness
Issues,'' listed ``Successor to Acorn'' as a Watch List Issue
specifying that ``[s]pecial handling is [r]equired when
[a]pplications are [r]eceived.''\579\ ACORN (Association of
Community Organizations for Reform Now) was a national
``community organization group'' with local chapters that
``fought for liberal causes like raising the minimum wage,
registering the poor to vote, stopping predatory lending and
expanding affordable housing.''\580\ In addition, ACORN
assisted lower income families with tax return
preparation.\581\ The national organization declared bankruptcy
in the wake of accusations of fraud, embezzlement, and
mismanagement, but several local organizations decided to
regroup under new names.\582\
---------------------------------------------------------------------------
\579\Heightened Awareness Issues (undated) IRS0000557291-308; Email
from Chadwick Kowalczyk to Donna Abner and others (May 18, 2010)
IRS0000195587.
\580\Acorn on Brink of Bankruptcy, Officials Say, New York Times
(May 19, 2014).
\581\Id.
\582\Id.
---------------------------------------------------------------------------
On March 22, 2010, Cindy Thomas notified EO Technical that
descendants of ACORN were reorganizing, citing three specific
organizations that were likely to submit applications.\583\ In
April 2010, Sharon Camarillo emailed Cindy Thomas and Robert
Choi telling them that EO Determinations received two ACORN-
successor cases.\584\
---------------------------------------------------------------------------
\583\Email chain between Cindy Thomas, Steven Grodnitzsky and
others (Mar. 22, 2010) IRS0000458579448-51.
\584\Email from Sharon Camarillo to Cindy Thomas and Robert Choi
(Apr. 28, 2010) IRS0000458467.
---------------------------------------------------------------------------
Also in April 2010, an IRS interoffice research team
completed its research into allegations of illegal activity by
ACORN, its affiliates and employees. The research team was
formed to investigate allegations that ACORN was engaged in
actions inconsistent with tax-exempt status, including
systematic commingling of funds between taxable and tax-exempt
entities and individuals associated with ACORN. The Research
team found evidence of: the cover-up of an embezzlement
committed by a board member; possible conflicts created by
employees working for multiple affiliates and staffers and
members serving on the Board of Directors; improper money
transfers among the affiliates; lack of proper documentation of
financial transactions; and possible improper use of donations
as well as pension and health care benefit funds. The research
team concluded that these findings, together with ACORN's
apparent loose governance and a lack of respect for the
corporate structure, warranted a closer examination by the IRS
into the financial practices of ACORN and its affiliates to
determine if its tax-exempt status was appropriate.\585\ This
report was shared with IRS management, including Sarah Hall
Ingram, Joseph Grant and Lois Lerner, in June and July
2010.\586\
---------------------------------------------------------------------------
\585\IRS, ACORN Research Activities Summary Report (Apr. 28, 2010)
IRS0000713482-87.
\586\IRS, Memorandum on Investigative Research Findings (June 21,
2010) IRS0000713488; Email from Nancy Todd to Sarah Hall Ingram, Joseph
Grant, Lois Lerner, and others (July 8, 2010) IRS0000713482.
---------------------------------------------------------------------------
The August 12, 2010 BOLO listed ``ACORN Successors'' as an
``Issue Name'' on the ``BOLO List'' tab. The description states
that ``Following the breakup of ACORN, local chapters have been
reforming under new names and resubmitting applications.''
Screeners were instructed to send these cases ``to the TAG
Group.''\587\ An entry for ``Acorn Successors'' appeared on
copies of the BOLO lists, first on the BOLO List tab and then
on the Watch List tab, examined by Committee staff from 2010
until Holly Paz removed it in June 2012.\588\
---------------------------------------------------------------------------
\587\Combined Spreadsheet TAG 8 12 10 (Aug. 12, 2010).
\588\Id.; Email chain between Holly Paz, Cindy Thomas and others
(June 1, 2012) IRS0000013434-35.
---------------------------------------------------------------------------
An October 7, 2010 email from Jon Wadell alerted Steven
Bowling and Sharon Camarillo to two ACORN-related cases.
Waddell recommended ``an alert be sent informing agents/
screeners that to be on the lookout for the following name an
application factors associated with Acorn related cases.''\589\
In addition, he suggested adding the following ``factors to the
Watch Issue Description section for this category'':
---------------------------------------------------------------------------
\589\Email chain between Jon Waddell, Steven Bowling, Sharon
Camarillo and others (Oct. 7-8, 2010) IRS0000410433-34.
---------------------------------------------------------------------------
1. The name(s) Neighborhoods for Social Justice or
Communities Organizing for Change
2. Activities that mention Voter Mobilization of the
Low-Income/Disenfranchised
3. Advocating for Legislation to Provide for
Economic, Healthcare, and Housing Justice for the poor.
4. Educating Public Policy Makers (i.e. Politicians)
on the above subjects.\590\
---------------------------------------------------------------------------
\590\Id.
---------------------------------------------------------------------------
Sharon Camarillo forwarded the alert to John Shafer
instructing that his screeners ``be on the lookout for these
cases.''\591\ John Shafer forwarded Camarillo's email to IRS
screeners in his group.\592\
---------------------------------------------------------------------------
\591\Email chain between Jon Waddell, Sharon Camarillo, John Shafer
and others (Oct. 7-8, 2010) IRS0000389342.
\592\Id.
---------------------------------------------------------------------------
The Watch List tab of the February 2, 2011 BOLO instructed
IRS screeners to look for the words ``ACORN'' or ``Communities
for Change in the name and/or throughout the application.'' It
read:

Local chapters of the former ACORN organization have
reformed under new names and are requesting exemption
under section 501(c)(3). Succession indicators include
ACORN and Communities for Change in the name and/or
throughout the application.\593\
---------------------------------------------------------------------------
\593\BOLO Spreadsheet (Feb. 2, 2011) IRS0000389362.

ACORN cases were also being screened in 2012. Ron Bell
---------------------------------------------------------------------------
wrote an email to Carter Hull on May 13, 2012 stating:

I've got a case that I believe is an acorn successor
org. I googled the name of the org and that is where
several websites (such as the capital research center)
indicate that it is an acorn successor. The BOLO list
states to contact you . . . Please advise how you want
to process this case.\594\ [sic]
---------------------------------------------------------------------------
\594\Email from Ronald Bell to Carter Hull (May 13, 2012)
IRSR0000054963.
---------------------------------------------------------------------------

5. Groups Using ``Occupy'' in Their Name Were Flagged Using the BOLO
Watch List Tab

In January 2012, the IRS Determinations office began
screening organizations with the term Occupy in their name on
the Watch List tab on the BOLO. After a news article was
distributed within the IRS that suggested some organizations
affiliated with the Occupy movement were seeking tax-exempt
status, Cindy Thomas told Steven Bowling, the manager of the
IRS Determinations group that handled political advocacy cases,
that the Occupy cases should be referred to his Group so they
could be worked ``with the advocacy cases.''\595\
---------------------------------------------------------------------------
\595\Email chain between Cindy Thomas, Steven Bowling and Peggy
Combs (Jan. 20, 2012) IRS0000013418-19; Email chain between Cindy
Thomas, Steve Bowling, Peggy Combs and Mary Sheer (Jan. 20, 2012)
IRSR0000013414-15.
---------------------------------------------------------------------------
Steven Bowling told Cindy Thomas that the BOLO list would
need to be modified in order to properly flag the Occupy cases,
but expressed frustration that the IRS did not want to use the
words ``Tea Party'' or ``Occupy'' in screening.\596\ Thomas
replied:
---------------------------------------------------------------------------
\596\Email chain between Cindy Thomas, Steven Bowling and Peggy
Combs (Jan. 20, 2012) IRS0000013418-19.

We can't refer to ``tea party'' cases because it
would appear as though we're singling them out and not
looking at other Republican groups or Democratic
groups.
How about a compromise--What do you think about
changing the description for advocacy organizations on
the Emerging Issues tab to that which you've included
under scenario #1; then, you could include the Occupy
description from your scenario #2 on the Watch For tab
specifying that these cases should be referred to your
group? We could still have the same grade 13 agents
working the advocacy and Occupy cases.\597\
---------------------------------------------------------------------------
\597\Email from Cindy Thomas to Steven Bowling (Jan. 24, 2012)
IRSR0000621814-17.

After receiving this instruction from Thomas, Bowling added
``$ocial economic reform/movement'' to the BOLO entry for
``current political issues.'' In addition, Bowling added
``Occupy orgs'' to the BOLO Watch List tab. Ronald Bell wrote
an email to Bowling questioning the need for a separate entry
for ``Occupy orgs'' on the Watch List since he thought ``$ocial
economic reform . . . was our code word' for the occupy
organizations.'' Bowling replied, ``I think we can leave it in.
Some of the orgs are pushing that other than occupy
groups.''\598\
---------------------------------------------------------------------------
\598\Email between Steven Bowling and Ronald Bell (Jan. 25, 2012)
IRS0000013187.
---------------------------------------------------------------------------
Emails written in May 2012 show that at least two Occupy
cases were flagged by IRS screeners after the term was added to
the BOLO list.\599\ The next month, Holly Paz had Cindy Thomas
revised the BOLO list to ``remove the references to Acorn and
Occupy from the ``Watch List'' and replaced the ``Emerging
Issue'' description of ideological positions of conservative
and liberal groups with neutral language.\600\
---------------------------------------------------------------------------
\599\Email chain between Tyler Chumney, Peggy Combs and others (May
24-27, 2012) IRSR0000013234-48.
\600\Email chain between Holly Paz, Cindy Thomas and others (June
1, 2012) IRS0000013434-35.
---------------------------------------------------------------------------

B. Liberal and Progressive Organizations Experienced Delayed Processing

Some tax-exempt applicants affiliated with Emerge, ACORN
successor groups, and other left-leaning applications waited
years for a determination from the IRS after their applications
were flagged by screeners and held up or forwarded to the EO
Technical office in Washington, D.C.
In the case of three of the Emerge groups, it took three
years from the time they applied until the applications were
denied. Previously, the IRS erroneously approved five
applications affiliated with Emerge for 501(c)(4) status from
2004 through 2008, including the main umbrella organization
Emerge America.\601\ These five Emerge approvals were
subsequently determined to have been in error because Emerge
groups were found to benefit the Democratic Party. Their
501(c)(4) status was revoked.\602\
---------------------------------------------------------------------------
\601\Email chain between Donna Abner, Cindy Thomas and others (Sep.
8, 2008) IRS0000012292-93.
\602\Email from Nalee Park to Justin Lowe (Nov. 16, 2011)
IRS0000636384 (Email attachments containing taxpayer information
omitted by Committee staff).
---------------------------------------------------------------------------
On September 2008, emails show that IRS employee Donna
Abner recommended issuing an ``alert'' for other incoming
Emerge cases because of the ``partisan nature of the cases'' as
well as a reminder that ``sensitive political issue' cases are
subject to mandatory review'' per IRS guidelines and subject to
full development.\603\
---------------------------------------------------------------------------
\603\Email chain between Donna Abner, Cindy Thomas and others (Sep.
8, 2008) IRSR0000012292-93.
---------------------------------------------------------------------------
EO Technical staff asked EO Determinations to transfer the
Emerge Maine and Emerge Nevada applications on October 10,
2008, to be held ``until the litigation on this issue has
concluded and then we will work them.''\604\ EO Technical
instructed EO Determinations to hold any additional Emerge
cases ``pending the outcome of a similar issue in the DLC
litigation.''\605\ A January 2011 Sensitive Case Report
indicates that Emerge Massachusetts applied for tax-exempt
status on August 15, 2008, and was transferred to EO Technical
on April 16, 2009. Emerge Oregon applied on February 9, 2010,
and its application was transferred to EO Technical on April
14, 2010. The IRS did not inform the four Emerge groups, whose
cases were selected for review and then developed at EO
Technical until 2011, that their applications had been denied,
creating delays of approximately three years for some of the
organizations.\606\
---------------------------------------------------------------------------
\604\Email chain between Justin Lowe to Jon Waddell (Oct. 10, 2008)
IRS0000012299-300.
\605\Email chain between Deborah Kant, Cindy Wescott and others
(Oct. 16, 2008) IRS0000012304.
\606\TE/GE Division Sensitive Case Report (Jan. 18, 2011)
IRSR0000147518. Although this document is dated ``January 18, 2010,''
it references events in January 2011. Therefore, we believe that it was
mistakenly dated 2010 instead of 2011.
---------------------------------------------------------------------------

C. Organizations Deemed To Be Acorn Successors Experienced Delays

Organizations the IRS determined to be related to the
disbanded ACORN organizations also experienced significant
delays. EO Determinations began receiving ACORN-successor
organization applications in April 2010.\607\ On June 8, 2010,
the Acting Manager of EO Technical, Steven Grodnitzky,
instructed Cindy Thomas not to develop or resolve ACORN-related
cases until they received further instruction.\608\
---------------------------------------------------------------------------
\607\Email from Sharon Camarillo to Cindy Thomas and Robert Choi
(Apr. 28, 2010) IRS0000458467.
\608\Email chain between Steven Grodnitzky, Cindy Thomas, Donna
Abner and others (June 8, 2010) IRS0000054956.
---------------------------------------------------------------------------
On July 15, 2010, Cindy Thomas alerted Robert Choi that EO
Determinations received another ``potential successor to
Acorn'' applying for 501(c)(3) status related to a 501(c)(4)
ACORN-successor application received in April 2010.\609\ Thomas
reported that ``[w]e placed the other case in suspense pending
guidance from the Washington Office and are doing so with this
case.''\610\
---------------------------------------------------------------------------
\609\Email chain between Cindy Thomas, Robert Choi and others (July
15-16, 2010) IRS0000054949-50.
\610\Id.
---------------------------------------------------------------------------
Cindy Thomas emailed Holly Paz on October 24, 2010, with a
request for technical assistance on ACORN-successor cases from
EO Technical. Over a month later, on November 26, 2010, Holly
Paz told Cindy Thomas to work with Carter Hull in EO Technical
on the Acorn-successor cases, the same employee in charge of
developing the Tea Party cases in 2010 and early 2011.\611\
---------------------------------------------------------------------------
\611\Email chain between Holly Paz, Cindy Thomas and others (Oct.
14, 2010--Jan. 19, 2011) IRS0000054942-44.
---------------------------------------------------------------------------
An EO Determinations employee contacted Carter Hull on
March 4, 2011, telling him that ``we have four exemption
applications for organizations that have previously operated as
ACORN. Could we arrange to discuss these cases with you by
phone sometime next week?''\612\ It is unclear what guidance
Carter Hull provided EO Determinations on the ACORN-successor
applications but he informed another EO Determinations employee
in July 2011, that ``his manager informed him that he should
not be doing research for our cases.''\613\ Hull asked EO
Determinations to remove his name ``from the BOLO list as a
contact person.''\614\
---------------------------------------------------------------------------
\612\Email from John McGee to Carter Hull (Mar. 4, 2011)
IRS0000631878.
\613\Email chain between Melissa Conley, William Agner and others
(July 11, 2011) IRS0000054945-46.
\614\Id.
---------------------------------------------------------------------------
In April 2013, EO Technical was still developing two ACORN-
successor applications, including one of the applications that
spurred EO Determinations managers to alert screeners to flag
ACORN-successor cases in October 2010.\615\ The other case
mentioned in the email was transferred from EO Determinations
to EO Technical in April 2012.\616\ ACORN-successor cases were
still on hold as of May 2013, according to Cindy Thomas.\617\
---------------------------------------------------------------------------
\615\Email chain between Holly Paz, Cindy Thomas and others (Apr.
3, 2013) IRS0000054976-78.
\616\Id.
\617\See response submitted by Cindy Thomas, IRS Employee Responses
to Written Questions from Finance Committee Staff (Dec. 19, 2013).
---------------------------------------------------------------------------
Other left leaning and progressive groups told media
outlets their applications were delayed as well. One left-
leaning group, Alliance for a Better Utah, told NPR Morning
Edition in a story that aired on June 13, 2013, that it had
been waiting almost 600 days for a determination on its
application for 501(c)(3) status to do ``voter-education
work.''\618\ The same group told Politico a month later that
the delay was ``causing problems because it can't apply for
foundation and grant money while that application to become a
charitable organization is in limbo.''\619\ Progress Texas
reported that it took ``18 months to get its 501(c)(4)
approval.''\620\
---------------------------------------------------------------------------
\618\NPR, Liberal Groups say They Received IRS Scrutiny Too (June
19, 2013).
\619\Politico, IRS Scrutinized Some Liberal Groups (July 22, 2013).
\620\Id.
---------------------------------------------------------------------------

D. Inappropriate and Burdensome Information Requests

As described in Section VII(F) of this report, in January
2012 the IRS Determinations Unit made unnecessary and
burdensome requests to some tax-exempt applicants that in some
cases included requests for donor information. IRS officials
decided the request of the donor information was inappropriate
and ordered the donor information destroyed.\621\ Some left-
leaning/progressive groups received inappropriate development
questions regarding donor information while experiencing
lengthy delays in the application process. At least three of
the twenty-seven groups that received donor information
requests were left-leaning applicants for tax-exempt
status.\622\
---------------------------------------------------------------------------
\621\SFC Interview of Holly Paz (July 26, 2013) pp. 146-147.
\622\Email chain between Judith Kindell, Holly Paz and Sharon Light
(Apr. 25, 2012) IRS0000013868 (email attachment containing taxpayer
information omitted by Committee staff).
---------------------------------------------------------------------------

IX. ADDITIONAL FINDINGS NOT RELATED TO THE DETERMINATIONS PROCESS

------------------------------------------------------------------------

-------------------------------------------------------------------------
This section includes findings that are not directly related to the
processing of
applications for tax-exempt status, but are nonetheless relevant to the
IRS's
treatment of tax-exempt organizations. We describe how the IRS failed to
perform
any audits of political advocacy performed by tax-exempt organizations
for more
than three years. We also describe how the IRS failed to produce
documents that
were responsive to a 2010 FOIA request seeking information about how the
IRS was
processing Tea Party applications. Finally, we discuss TIGTA's
investigation
of several improper disclosures of information related to conservative
organizations.
------------------------------------------------------------------------

A. The IRS Struggled To Decide How To Review Allegations of Improper
Political Campaign Intervention by Tax-Exempt Organizations, Including
Tea Party Groups

The first area of supplemental findings concerns the IRS's
process for examining allegations of impermissible political
campaign intervention by tax-exempt organizations. The
Committee's investigation revealed numerous serious problems
that rendered the IRS incapable of resolving allegations
regarding the Tea Party and other political advocacy
organizations.

1. General Processes for Audits of Tax-Exempt Organizations

The Examinations unit, within the Exempt Organizations
Division, monitors whether organizations that have been
approved for tax-exempt status are operating in accordance with
federal tax law.\623\ At all times relevant to the Committee's
investigation, Nanette Downing was the Director of EO
Examinations and reported directly to Lois Lerner.\624\ Unlike
most other IRS divisions, which are administered at the IRS
headquarters in Washington, D.C., EO Examinations has its head
office in Dallas, Texas. IRS officials explained that EO
Examinations was placed outside of Washington to ensure that
other divisions of the IRS in Washington did not improperly
influence the tax enforcement decisions for exempt
organizations.\625\
---------------------------------------------------------------------------
\623\IRS, Charity and Nonprofit Audits: Exempt Organizations
Examinations.
\624\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 6, 9, 15.
\625\Id. p. 53; SFC Interview of Sarah Hall Ingram (Dec. 16, 2013)
p. 71.
---------------------------------------------------------------------------
EO Examinations serves as the repository for allegations
that tax-exempt organizations are engaged in improper conduct
(or ``referrals''). All referrals--including those that
originate in other divisions within the IRS, as well as those
made by individuals or entities outside of the IRS--are all
given the same consideration.\626\ EO Examinations employees
evaluate the referral based on its content and decide if the
IRS will investigate further.\627\ Apart from the referral
process, EO Examinations employees also use other criteria to
determine if the IRS needs to open a review.
---------------------------------------------------------------------------
\626\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 35-37.
\627\Id. pp. 26-29.
---------------------------------------------------------------------------
EO Examinations performs two kinds of reviews of tax-exempt
organizations:
Examinations (also known as audits) are
reviews of a taxpayer's books and records to determine
tax liability, and may involve the questioning of third
parties. For exempt organizations, an examination also
determines an organization's qualification for tax-
exempt status. If the IRS determines that an
organization is not complying with the tax law, the IRS
may impose a tax liability and, in some instances, may
also revoke the organization's tax-exempt status.\628\
---------------------------------------------------------------------------
\628\IRS Memorandum produced to SFC (Sep. 4, 2013) IRS0000378444-
46; IRS, Charity and Nonprofit Audits: Closing/Conclusion.
---------------------------------------------------------------------------
Compliance checks are less comprehensive
reviews used to determine if an organization is
following the required recordkeeping and reporting
requirements, and whether its activities are consistent
with its stated tax-exempt purpose. Compliance checks
are usually conducted using information already in the
possession of the IRS, although the IRS will sometimes
request additional information from the taxpayer. If
the IRS concludes that the organization might owe a tax
liability, it may refer the organization for a full
examination.\629\
---------------------------------------------------------------------------
\629\IRS Memorandum produced to SFC (Sep. 4, 2013) IRS0000378444-
46; IRS Publication 4386, Compliance Checks, Rev. 4-2006.
---------------------------------------------------------------------------
The Review of Operations (ROO) is a division within EO
Examinations that performs compliance checks on tax-exempt
organizations, usually 3-5 years after an organization has been
approved for tax-exempt status. Unlike other types of
compliance checks, IRS employees are not permitted to contact
the taxpayer during ROO compliance checks.\630\ In addition,
because the ROO does not conduct an examination, it is not
authorized to review an organization's books and records or ask
questions regarding tax liabilities or the organization's
activities.\631\
---------------------------------------------------------------------------
\630\IRS Memorandum produced to SFC (Sep. 4, 2013) IRS0000378444-
46.
\631\Id.
---------------------------------------------------------------------------
When the ROO receives a referral, ROO employees review the
referral, along with information in the possession of the IRS,
to determine if the allegations can be supported. The ROO then
recommends one of the following options:
Start an examination;
Start a compliance check; or
Take no further action.\632\
---------------------------------------------------------------------------
\632\Email from Diane Letourneau to Sarah Ingram, Nikole Flax, Lois
Lerner and others (Oct. 13, 2011) IRS0000468121-28.
---------------------------------------------------------------------------
Thus, a referral has the effect of bringing the referred
group to the attention of the ROO and subjecting the group's
information to review by ROO employees--thereby increasing the
probability (but not guaranteeing) that the IRS will commence
an examination or compliance check of the subject
organization.\633\
---------------------------------------------------------------------------
\633\Downing repeatedly disputed this conclusion during her
interview conducted by Committee staff:
---------------------------------------------------------------------------
Q. But you had indicated earlier that if a group is
referred to the ROO, one potential outcome is that there
will be an exam. Is that right?
A. Correct.
Q. Okay. So that referral to the ROO would increase the
chances that it will have an exam.
A. No.
Q. That follows, right?
A. No. No, I don't agree with that statement. I mean,
pulling up project data analytics I mean, it doesn't give
you a higher chance than anything else.
---------------------------------------------------------------------------
SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 65. The
Committee did not find Downing's testimony on this point to be
credible.
---------------------------------------------------------------------------

2. The Changing Process for Handling Allegations of Improper Political
Campaign Intervention

In recent years, the IRS altered its process for reviewing
the political activities of tax-exempt organizations. These
changes were spurred by an increasing number of referrals to EO
Examinations starting in 2010, after the Citizens United
decision, particularly referrals related to political campaign
intervention by 501(c)(4) organizations.\634\ By the end of
2010, Downing had suspended all examinations of 501(c)(4)
organizations that were alleged to have engaged in improper
political activities.\635\
---------------------------------------------------------------------------
\634\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 30-31.
\635\Id. pp. 63-64. The IRS continued to examine other types of
allegations against tax-exempt organizations.
---------------------------------------------------------------------------
In 2011, under the direction of Miller, Lerner and Downing,
the IRS developed a new approach for referrals of political
campaign intervention called the ``Dual Track'' process. This
process allowed the ROO to perform its own analysis of
organizations, using information from the annual Form 990 that
tax-exempt organizations are required to file. The ROO would
consider its analysis of the data, as well as any referral,
when deciding if it should recommend a review of an
organization's political campaign intervention.\636\
---------------------------------------------------------------------------
\636\Email from Diane Letourneau to Sarah Ingram, Nikole Flax, Lois
Lerner and others (Oct. 13, 2011) IRS0000468121-28.
---------------------------------------------------------------------------
The ROO's recommendation would then be reviewed by a panel
of career Federal employees, known as the Political Action
Review Committee (PARC).\637\ The PARC could either concur with
the ROO's recommendation or modify it. If the PARC selected an
organization for examination or a compliance check, the PARC
would also determine if the referral was high- or regular-level
priority.\638\
---------------------------------------------------------------------------
\637\IRS Memorandum produced to SFC (Sep. 4, 2013) IRS0000378444-
46.
\638\Email from Diane Letourneau to Sarah Ingram, Nikole Flax, Lois
Lerner and others (Oct. 13, 2011) IRS0000468121-28.
---------------------------------------------------------------------------
The Dual Track process was modified in 2012, after an
internal review found that the ROO's written explanations of
its decisions ``arguably [gave] the impression that somehow the
political leanings of [the organizations] mentioned were
considered in making the ultimate decision'' of whether or not
to recommend an examination or compliance check.\639\ The
internal review also noted other problems with the Dual Track
process, including choices made for reasons unrelated to the
tax issues presented (such as the effect that an examination
might have on an organization's fundraising ability).\640\
---------------------------------------------------------------------------
\639\Email from Lois Lerner to Nikole Flax, Nanette Downing and
others (July 9, 2012) IRS0000179069-71.
\640\Id.
---------------------------------------------------------------------------
Although examinations related to political campaign
intervention were suspended, the IRS continued to receive
allegations that Tea Party organizations and other advocacy
groups had engaged in improper political campaign intervention.
The IRS treated those allegations as referrals and sent them to
EO Examinations.\641\ In all, the IRS received 53 referrals
related to 24 applicants for tax-exempt status that the IRS
identified as ``political advocacy'' organizations.\642\ These
referrals were eventually reviewed using the Dual Track
criteria and some were selected for examination;\643\ however,
as of June 2015, the IRS had not conducted any examinations in
response to these referrals and was not actively considering
the referrals.\644\
---------------------------------------------------------------------------
\641\Email chain between Lois Lerner, Nicole Flax, David Fish and
others (Sep. 28-Oct. 3, 2011) IRS0000263043-67.
\642\IRS Memorandum produced to SFC (Sep. 4, 2013) IRS0000378444-
46.
\643\Id.
\644\IRS Briefing for SFC Staff (June 22, 2015).
---------------------------------------------------------------------------
Ultimately, the Dual Track process was suspended in June
2013 at the direction of TE/GE managers installed by then-
Principal Deputy Commissioner Daniel Werfel,\645\ and
permanently discontinued in 2015.\646\ As a result, from the
end of 2010 until April 2014, the IRS did not perform any
examinations of 501(c)(4) organizations related to
impermissible political campaign intervention.\647\ Since the
Dual Track process was discontinued in 2015, the IRS has sent
referrals of impermissible political campaign intervention to
the PARC, where they are reviewed in the same manner as other
referrals related to tax-exempt organizations.\648\ The IRS
also continues to evaluate data submitted on Form 990 tax
returns to assess if organizations have engaged in improper
political activity.\649\
---------------------------------------------------------------------------
\645\Id.
\646\IRS Briefing for SFC Staff (June 22, 2015).
\647\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 63-64; IRS
Briefing for SFC Staff (Aug. 26, 2014). In April 2014, the IRS re-
opened 26 examinations that had been selected under the Dual Track
process related to allegations of impermissible political campaign
intervention. These 26 examinations were all concluded by June 2015.
None resulted in revocation of tax-exempt status, although some of the
organizations received a written advisory. IRS Briefing for SFC Staff
(June 22, 2015).
\648\Id.
\649\Id.
---------------------------------------------------------------------------

3. EO Determinations Employees Recommended that the ROO Review the
Activities of Some Tea Party Organizations, and a Smaller Number of
Progressive Organizations, for Improper Political Campaign Intervention

In 2011, as the number of political advocacy applications
in EO Determinations' inventory increased, the IRS considered
whether all Tea Party cases should simply be approved and then
referred to the ROO for follow-up compliance checks. As Paz
explained in July 2011:

EOD Screening has identified an increase in the
number of (c)(3) and (c)(4) applications where
organizations are advocating on issues related to
government spending, taxes, and similar matters. . . .
Over 100 cases have been identified so far, a mix of
(c)(3)s and (c)(4)s. . . .
Lois would like to discuss our planned approach for
dealing with these cases. We suspect that we will have
to approve the majority of the c4 applications. Given
the volume of applications and the fact that this is
not a new issue (just an increase in frequency of the
issue), we plan to [have] EO Determinations work the
cases. . . . We will also refer these organizations to
the Review of [O]perations for follow-up in a later
year.\650\
---------------------------------------------------------------------------
\650\Email chain between Holly Paz and Janine Cook (July 18-19,
2011) IRS0000429489.

This idea was discussed during the July 5, 2011 meeting
that Lerner convened with Thomas and other EO employees. Lerner
elected not to follow this approach, because she did not think
that EO Examinations had enough employees to handle the
increased workload.\651\
---------------------------------------------------------------------------
\651\SFC Interview of Holly Paz (July 26, 2013) p. 139; Email chain
between Cindy Thomas, Ronald Bell, Steve Bowling and others (July 5,
2011) IRS0000620735-40.
---------------------------------------------------------------------------
Although Lerner did not uniformly implement this approach,
EO Determinations employees started to recommend that the ROO
review the activities of certain political advocacy groups in
the future. This happened with greater frequency during the
``bucketing'' process in 2012, when a large number of
applications were recommended for approval subject to later
review by the ROO.\652\ EO managers, including Thomas and Paz,
were aware of at least some of these recommendations.\653\
---------------------------------------------------------------------------
\652\Email chain between Sharon Light, Cindy Thomas and others
(Aug. 27-28, 2012) IRS0000573175-76; Email from Janine Estes to Hilary
Goehausen (July 11, 2012) IRS0000582651 (Email attachment containing
taxpayer information omitted by Committee staff).
\653\Email chain between Sharon Light, Cindy Thomas and others
(Aug. 27-28, 2012) IRS0000573175-76.
---------------------------------------------------------------------------
From the end of 2011 through May 2013, EO Determinations
employees recommended that the ROO review 60 political advocacy
organizations.\654\ After the TIGTA report came out, Downing
learned that these 60 ``Tea Party case referrals'' had been
``sitting in a pile for quite a while'' in the ROO.\655\
Analysis performed by the Committee staff indicated that of
these groups, 41 (68%) were conservative or Tea Party groups, 7
(12%) were progressive or liberal, and 12 (20%) had no obvious
political affiliation. After consulting with managers installed
by then-Principal Deputy Commissioner Werfel, Downing returned
these referrals to EO Determinations for further processing.
---------------------------------------------------------------------------
\654\IRS Chart produced to SFC (Sep. 4, 2013) IRS0000378447-48.
\655\SFC Interview of Nanette Downing (Dec. 6, 2011) pp. 47-48.
---------------------------------------------------------------------------
Despite substantial time and effort expended by the IRS,
the agency failed to perform any meaningful oversight of
political advocacy performed by tax-exempt organizations for a
three-year period. Although management has made recent changes
to the examination process, concerns persist that the IRS could
open examinations for an inappropriate reason. In July 2015,
the Government Accountability Office (GAO) issued a report on
the criteria and processes used by the IRS to select exempt
organizations for examination.\656\ GAO concluded that ``EO has
some controls in place that are consistent with internal
control standards, and has implemented those controls
successfully,'' but found ``several areas where EO's controls
were not well designed or implemented.'' Most significantly,
GAO stated that:
---------------------------------------------------------------------------
\656\GAO, IRS Examination Selection: Internal Controls for Exempt
Organization Selection Should be Strengthened (July 2015) GAO-15-514.

The control deficiencies GAO found increase the risk
that EO could select organizations for examination in
an unfair manner--for example, based on an
organization's religious, educational, political, or
other views.\657\
---------------------------------------------------------------------------
\657\Id.

Although the GAO did not consider whether these
deficiencies actually led to improper selection of
organizations for examination, these findings confirm that the
IRS must continue to implement changes to ensure that
examinations are opened only when warranted, based on a fair
and impartial decision.

B. The IRS Failed To Produce Responsive Documents to a FOIA Request in
2010 Seeking Information About its Handling of Tea Party Applications

The second area of supplemental findings concerns the IRS's
handling of a 2010 Freedom of Information Act (FOIA) request.
In June 2010, a freelance reporter made a FOIA request to
the IRS for records that explained how the IRS was processing
applications for tax-exempt status submitted by Tea Party
organizations.\658\ As described below, by the time of the
request, the IRS had generated numerous documents that
satisfied the search criteria and explained how the agency was
handling Tea Party applications. But the IRS performed a
deficient search that revealed only a few of these numerous
responsive documents in existence at the date of the request.
Then, the IRS elected not to produce any of the documents it
identified, incorrectly claiming that the agency had ``no
responsive documents.'' As a result, the reporter did not
obtain any of the documents showing how Tea Party cases were
handled in 2010.
---------------------------------------------------------------------------
\658\5 U.S.C. Sec. 552 (2009).
---------------------------------------------------------------------------
On June 3, 2010, the IRS received a FOIA request from
freelance reporter Lynn Walsh that sought:

Documents relating to any training, memos, letters,
policies, etc. that detail how the ``Tax Exempt/
Government Entities Division'' reviews applications for
non-profits, 501(c)(3)s, and other not-for-profit
organizations specifically mentioning ``Tea Party,''
``the Tea Party,'' ``tea party,'' ``tea parties.''\659\
---------------------------------------------------------------------------
\659\FOIA Request Letter from Lynn Walsh (June 3, 2010) IRSC003801.

The IRS determined that Walsh's letter was a valid request
under FOIA and assigned it to Sharon Baker, a Senior Disclosure
Specialist in the Washington, D.C. Disclosure Office. Baker
prepared an SCR for the FOIA request, noting that it was
``likely to attract media or Congressional attention'' and
forwarded a search notice to Michael Guiliano in EO Guidance
and Michael Seto in EO Technical.\660\ A copy of the incoming
request was also sent to the Office of Chief Counsel and to
Media Relations.\661\
---------------------------------------------------------------------------
\660\Email chain between Sharon Baker, Valerie Barta and others
(June 14, 2010) IRSC003861-63.
\661\Id.
---------------------------------------------------------------------------
On July 6, 2010, EO Guidance manager David Fish sent two
responsive documents to the disclosure division: the April 19,
2010 and May 24, 2010 SCRs prepared by Hull that explained how
the Tea Party cases were being handled.\662\ After that, there
were several additional document searches that were done within
the EO Division and the Office of Chief Counsel through early
November 2010.\663\
---------------------------------------------------------------------------
\662\Memorandum from David Fish to Manager, Disclosure with
Attachments (July 6, 2010) IRSC003845-49.
\663\Case Notes Report (Jan. 6, 2011) IRSC003756-61.
---------------------------------------------------------------------------
Inexplicably, Baker and her managers in the Disclosure
Office determined that these two documents were not responsive
to Walsh's FOIA request. Baker excluded the SCRs because she
deemed them to be outside of Walsh's request as they were not
``guidance,'' despite Giuliano's assertion that these documents
were indeed responsive. Baker notes in the Case Report that ``I
have been back and forth with Matthew and I am tried
[sic].''\664\ Tiffany Eder and others in the Office of Chief
Counsel also questioned Baker's interpretation of the request
and suggested that she follow up with Walsh to clarify the
scope of the request.\665\ It appears that the follow up never
occurred.
---------------------------------------------------------------------------
\664\Id.
\665\Id.
---------------------------------------------------------------------------
In response to one of the searches, a third document was
sent to Baker: a ``Coordinating Tea Party Cases Update
Memorandum'' prepared by Hull on October 18, 2010.\666\ This
document explained how Hull was working with Hofacre in EO
Determinations to review and develop incoming Tea Party
applications. Baker excluded the October 2010 memorandum on
grounds that the document was not responsive to the FOIA
request ``since it occurred after the FOIA request was received
in our office.''
---------------------------------------------------------------------------
\666\Fax transmission from James Mackay to Sharon Baker (Oct. 26,
2010) IRSC003782-84.
---------------------------------------------------------------------------
Ultimately, the IRS did not produce any documents to Walsh.
On January 6, 2011, Disclosure Manager Marie Twarog, formally
responded to Walsh's June 3, 2010 FOIA request, advising the
journalist that ``I found no documents specifically responsive
to your request.''\667\
---------------------------------------------------------------------------
\667\Letter to Lynn Walsh (Jan. 6, 2011) IRSC003765.
---------------------------------------------------------------------------
The IRS's handling of this FOIA request reveals several
troubling issues.
First, the search for responsive documents was deficient.
The IRS failed to search for relevant records in EO
Determinations' Cincinnati office, even though they learned
from the SCRs and Hull's memorandum that the Tea Party
applications were being processed by EO Determinations
employees in Cincinnati. The IRS also failed to locate numerous
responsive emails generated by Rulings & Agreement employees in
Washington regarding the handling of Tea Party cases, including
emails to and from Lerner and Paz.
Second, the IRS's narrow reading of Walsh's FOIA request
caused the agency to exclude responsive documents.
Although some IRS employees disagreed with Baker's
interpretation of the request, no one in Baker's management
chain overruled Baker or required her to follow up with Walsh
to clarify the scope of the request. By excluding these
records, the IRS violated its policies as stated in the IRM:

Disclosure personnel must be careful not to read a
request so narrowly that the requester is denied
information that the agency knows exists. Some
requesters may have little or no knowledge of the types
of records maintained by the Service while others have
greater knowledge of IRS files.\668\
---------------------------------------------------------------------------
\668\IRM Sec. 11.3.13.6.2(2) (Oct. 1, 2007).

Walsh's request far exceeded this standard and, in fact,
was precise enough that some IRS employees, including Guiliano
and others, were able to locate responsive records. The IRS
erred by ruling that these records were outside of the request.
Finally, the IRS also took a narrow view of the time limits
of Walsh's request.
The IRS regulations implementing FOIA state that the
agency's response ``shall include only those records within the
official's possession and control as of the date of the receipt
of the request by the appropriate disclosure officer.''\669\
But the IRM allows staff to include such documents at their
discretion, particularly when there are delays in processing:
---------------------------------------------------------------------------
\669\26 C.F.R. Sec. 601.702(c)(8)(ii) (2002).

In rare circumstances, a lengthy delay (e.g., 90
days) may be unavoidable before search efforts are
initiated. If this occurs, the case history must be
documented to explain the delay and the search period
must be extended to the date of search. Also, when
appropriate in terms of good customer service and/or in
the spirit of openness in government, Disclosure
personnel may make a determination to include records
created after the receipt date of the request. This
determination is to be made on a case-by-case
basis.\670\
---------------------------------------------------------------------------
\670\IRM Sec. 11.3.13.6.3(13) (Oct. 1, 2007) (emphasis added).

In this case, the IRS asked Walsh for five extensions to
respond to her letter and provided its ultimate response more
than 7 months after the initial request--far outside of the 20
business-day period prescribed by law.\671\ IRS also conducted
multiple searches of its records after finding that the initial
searches were deficient, circumstances that meet the criteria
of ``lengthy delay'' set forth in the IRM. Despite these
lengthy delays and multiple searches, Baker and other officials
chose not to extend the search period and instead construed the
IRS policies narrowly to exclude responsive records.
---------------------------------------------------------------------------
\671\5 U.S.C. Sec. 552(a)(6)(A) (2009).
---------------------------------------------------------------------------
Although there is no reason to believe that the IRS's
handling of this FOIA request was motivated by political bias,
its treatment was not consistent with the purpose of FOIA,
which states ``that the public has a right to know what goes on
in government without having to demonstrate a need or
reason''.\672\ The IRS's deficient response to Walsh deprived
her of the information that she was entitled to under the law,
including SCRs; information about the purpose and use of the
BOLO; and emails between Paz, Lerner and other managers
containing instructions about how these cases should be
handled. If the IRS had chosen to extend the responsive period
until November 2010--when EO and Chief Counsel employees
performed their final searches--they could have also produced
information about training on screening procedures for Tea
Party applications given to EO Determinations screeners; Hull's
October 2010 update on the status of Tea Party cases; and the
first circulated BOLO spreadsheet. If this information had been
made public in 2010 pursuant to a lawful FOIA request, the
IRS's treatment of applications received from Tea Party
organizations may have been exposed to the public in 2010, far
sooner than it was. Shining the light of transparency on how
the IRS was processing Tea Party applications in 2010 may have
forced the IRS to have resolved those applications sooner than
it eventually did. Instead, the IRS elected to release nothing
and consequently, these applications were left to fester for
years.
---------------------------------------------------------------------------
\672\IRM Sec. 11.3.13.1(3) (Oct. 1, 2007).
---------------------------------------------------------------------------

C. TIGTA Reviewed Several Allegations of Improper Disclosures of
Taxpayer Information by the White House and IRS

The final area of supplemental findings concerns
allegations that the IRS and White House improperly disclosed
taxpayer information.
The Committee requested that TIGTA provide information
about its investigations into four high-profile incidents of
alleged disclosure of confidential taxpayer information by the
White House and the IRS. Three of the alleged disclosures
involved information about conservative organizations that
applied for, or received, tax-exempt status. While the results
of the investigations are considered tax return information and
are thus confidential under section 6103 of the Internal
Revenue Code, Committee staff believes it is in the public
interest to lawfully disclose the results and status of these
TIGTA investigations because the high-profile nature of the
alleged disclosures raised serious concerns about public
officials' handling of confidential taxpayer information.

1. Koch Industries, Inc.

On August 27, 2010, White House advisor Austan Goolsbee,
during a briefing to reporters about a newly released report
from the President's Economic Recovery Board on corporate tax
reform, made the statement that Koch Industries may be avoiding
corporate income taxes by structuring itself as an S-
corporation. Mark Holden, senior vice president and general
counsel of Koch Industries provided The Weekly Standard with a
transcript of these remarks:

So in this country we have partnerships, we have S
corps, we have LLCs, we have a series of entities that
do not pay corporate income tax. Some of which are
really giant firms, you know Koch Industries is a
multibillion dollar businesses. So that creates a
narrower base because we've literally got something
like 50 percent of the business income in the U.S. is
going to businesses that don't pay any corporate income
tax. They point out [in the report] you could review
the boundary between corporate and non-corporate
taxation as a way to broaden the base.\673\
---------------------------------------------------------------------------
\673\The Weekly Standard, Koch Industries Lawyer to White House:
How Did You Get Our Tax Information? (Sep. 20, 2010).

---------------------------------------------------------------------------
Holden told The Weekly Standard in the same article:

I'm not accusing any one of any illegal conduct. But
it's my understanding that under federal law, tax
information, is confidential and it's not to be
disclosed or obtained by individuals except under
limited circumstances. . . . I don't know what [the
senior administration official] was referring to. I'm
not sure what he's saying. I'm not sure what
information he has. But if he got this information--
confidential tax information--under the internal
revenue code . . . if he obtained it in a way that was
inappropriate, that would be unlawful. But I don't know
that that's the case.\674\
---------------------------------------------------------------------------
\674\Id.

On September 23, 2010, seven Republican members of the
Senate Finance Committee wrote a letter to TIGTA Inspector
General Russell George asking that he ``investigate a very
serious allegation that Administration employees may have
improperly accessed and disclosed confidential taxpayer
information.''\675\
---------------------------------------------------------------------------
\675\Letter from Senate Finance Committee Ranking Member Charles
Grassley, et. al. to Inspector General J. Russell George (Sep. 23,
2010).
---------------------------------------------------------------------------
On September 25, 2010, Holden issued a statement supporting
an investigation while also stating that the ``senior Obama
administration official's August 27th statement is wrong--Koch
Industries does pay corporate income taxes and complies with
all its tax obligations.''\676\
---------------------------------------------------------------------------
\676\Koch Industries Statement (Sep. 25, 2010).
---------------------------------------------------------------------------
Inspector General George informed the Senate Finance
Committee Republicans on September 28, 2010 that he would
initiate a review of the matter.\677\ The TIGTA investigation
concluded in August 2011, but TIGTA refused to release the
results of its inquiry to Koch Industries or Senator Grassley,
citing the same confidentiality provisions that were allegedly
violated.\678\
---------------------------------------------------------------------------
\677\Bloomberg News, White House Advisor Goolsbee's Comment on Koch
Taxes Reviewed by Treasury (Oct. 7, 2010).
\678\The National Review, The Missing Koch Report (Aug. 20, 2013).
---------------------------------------------------------------------------
In response to inquiries from Senate Finance Committee
staff in connection with this investigation, Inspector General
George stated in a letter to Chairman Wyden that there was no
improper disclosure on the part of Austan Gooslbee. He wrote:
``[t]he allegation was disproved. We developed no evidence that
IRS information pertaining to Koch Industries was either
accessed for or disclosed to the President's Economic Recovery
Advisory Board.''\679\
---------------------------------------------------------------------------
\679\Letter from Inspector General J. Russell George to Chairman
Ron Wyden (May 22, 2014).
---------------------------------------------------------------------------

2. National Organization for Marriage

On March 30, 2012, The Huffington Post and Human Rights
Watch published the National Organization for Marriage's (NOM)
confidential Form 990 Schedule B that contains donor
information.\680\ The Huffington Post reported that the ``pro-
gay rights Human Rights Campaign was sent a private IRS filing
from NOM via a whistleblower.''\681\
---------------------------------------------------------------------------
\680\Human Rights Campaign Blog, One of NOM's Top Secret Donors
Revealed: Mitt Romney (Mar. 30, 2012); The Huffington Post, Mitt
Romney's PAC Funded Anti-Gay Marriage Group Under the Radar (Mar. 30,
2012).
\681\The Huffington Post, Mitt Romney's PAC Funded Anti-Gay
Marriage Group Under the Radar (Mar. 30, 2012).
---------------------------------------------------------------------------
After the confidential donor information was published,
Ranking Member Hatch wrote a letter on May 8, 2012 to IRS
Commissioner Shulman asking that the IRS investigate to
determine the source of the leak.\682\
---------------------------------------------------------------------------
\682\Letter from Senator Orrin Hatch to IRS Commissioner Shulman
(May 8, 2012).
---------------------------------------------------------------------------
NOM filed a lawsuit against the IRS on October 3, 2013,
alleging that the IRS willfully disclosed the Schedule B Form.
In response to inquiries from Committee staff in connection
with this investigation, TIGTA stated in a letter to Chairman
Wyden that there was an improper disclosure of confidential
taxpayer information. TIGTA determined that an IRS employee
working in the Return and Income Verification Services (RAIVS)
unit ``printed unredacted copies of the National Organization
for Marriage's IRS Form 990 . . . and the associated Schedule B
Form . . . and sent them outside the IRS.''\683\
---------------------------------------------------------------------------
\683\Letter from Inspector General J. Russell George to Chairman
Ron Wyden (May 22, 2014).
---------------------------------------------------------------------------
The RAIVS unit is responsible for processing Form 4506-A
(Request for Public Inspection or Copy of Exempt or Political
Organization IRS Form) requests for public versions of tax-
exempt organizations' Form 990s. However, the Schedule B of the
Form 990 is confidential and should not be provided in response
to a Form 4506-A public record request.\684\
---------------------------------------------------------------------------
\684\Instructions for Form 4506-A (Rev. Aug. 2014).
---------------------------------------------------------------------------
TIGTA found that the ``disclosure was probably a work error
by the IRS employee'' and that its investigation ``did not
identify any link between [the IRS employee] and the
organizations or individuals involved in posting or publishing
the unredacted forms.'' In addition, TIGTA did not find any
evidence that the disclosure was motivated by political animus.
TIGTA was ``also unable to determine whether the IRS received a
valid Form 4506-A . . . for the information at issue because''
TIGTA ``became aware of the allegation after the IRS's 45-day
retention period for the Form 4506-A had passed.''\685\
---------------------------------------------------------------------------
\685\Letter from Inspector General J. Russell George to Chairman
Ron Wyden (May 22, 2014).
---------------------------------------------------------------------------
On August 10, 2012, TIGTA first referred the matter to the
Department of Justice Public Integrity Section but it declined
prosecution on September 19, 2012. TIGTA then referred the
matter to the IRS ``for administrative action on October 17,
2012. On January 30, 2013, the IRS issued a `Closed Without
Action' letter with a cautionary statement'' to the employee
involved in the disclosure.\686\
---------------------------------------------------------------------------
\686\Id.
---------------------------------------------------------------------------
Previous to TIGTA's investigation, ``IRS RAIVS unit
employees had access to both redacted and unredacted copies of
the IRS Form 990 and associated Schedule B Forms on the IRS's
Statistics of Income Exempt Organizations Return Image Network
(SEIN).'' As a result of the incident, ``[t]he IRS has now
restricted RAIVS unit employees' access to only redacted Forms
990 maintained on the SEIN. In addition, the IRS's retention
period for IRS Forms 4506-A was extended from 45 days to three
years from the last day of the calendar year in which they are
received.''\687\
---------------------------------------------------------------------------
\687\Id.
---------------------------------------------------------------------------

3. Disclosure of Tax-Exempt Applications to ProPublica

In November 2012, ProPublica submitted a Freedom of
Information Act (FOIA) request to the IRS requesting tax-exempt
applications from 67 non-profit organizations.\688\ In
response, the IRS sent ProPublica records relating to 31 of the
groups. However, nine of these groups' tax-exempt applications
were still pending with the IRS, and were therefore still
confidential.\689\ On December 14, 2012, ProPublica published
the confidential application of Crossroads GPS on its website.
ProPublica reported:
---------------------------------------------------------------------------
\688\ProPublica, IRS Office That Targeted Tea Party Also Disclosed
Confidential Docs From Conservative Groups (May 13, 2013).
\689\Id.

The IRS sent Crossroads' application to ProPublica in
response to a public-records request. The document sent
to ProPublica didn't include an official IRS
recognition letter, which is typically attached to
applications of nonprofits that have been recognized.
The IRS is only required to give out applications of
groups recognized as tax-exempt.\690\
---------------------------------------------------------------------------
\690\ProPublica, Karl Rove's Dark Money Group Promised IRS It Would
Spend ``Limited'' Money on Elections (Dec. 14, 2012).

An IRS spokeswoman told ProPublica, ``It has come to our
attention that you are in receipt of application materials of
organizations that have not been recognized by the IRS as tax-
exempt.'' Further she told the news organization that
``publishing unauthorized returns or return information was a
felony punishable by a fine of up to $5,000 and imprisonment of
up to five years, or both.''\691\
---------------------------------------------------------------------------
\691\Id.
---------------------------------------------------------------------------
ProPublica disagreed with the IRS interpretation of the
statute penalizing publication of the application, citing the
First Amendment. Nonetheless, prior to publishing the document,
ProPublica ``redacted parts of the application to omit
Crossroads' financial information.''\692\ On the same day
ProPublica published the confidential tax-exempt application,
the IRS requested that TIGTA investigate the matter.\693\
---------------------------------------------------------------------------
\692\Id.
\693\Email chain between Beth Tucker, Timothy Camus, Nikole Flax
and others (Dec. 14, 2012-Jan. 4, 2013) IRS0000562277-78.
---------------------------------------------------------------------------
On January 2, 2013, ProPublica published details about five
other pending tax-exempt applications in an article citing
confidential application materials it had received from the
IRS.\694\
---------------------------------------------------------------------------
\694\ProPublica, Controversial Dark Money Group Among Five that
Told IRS They Would Stay Out of Politics, Then Didn't (Jan. 2, 2013).
---------------------------------------------------------------------------
On May 16, 2013, the Republican members of the Senate
Finance Committee asked TIGTA to investigate ``the IRS's
improper, and likely illegal, disclosure of nine organizations'
applications for tax-exempt status'' to ProPublica.\695\
---------------------------------------------------------------------------
\695\Letter from Senate Finance Committee Republicans to Inspector
General J. Russell George (May 16, 2013).
---------------------------------------------------------------------------
In response to inquiries from Committee staff in connection
with this investigation, TIGTA stated in a letter to Chairman
Wyden that there was an improper disclosure of confidential
taxpayer information. TIGTA determined that an IRS employee
improperly disclosed the tax-exempt applications of nine
organizations that were awaiting a determination from the IRS.
The organizations affected were Crossroads GPS,
Rightchange.com, Freedompath, Citizen Awareness Project,
Americans for Responsible Leadership, A Better America Now,
America is Not Stupid, YG Network, and Secure America Now. The
improper disclosure was made in response to a November 15, 2012
FOIA request from ProPublica, an online media
organization.\696\
---------------------------------------------------------------------------
\696\Letter from Inspector General J. Russell George to Chairman
Ron Wyden (May 22, 2014).
---------------------------------------------------------------------------
TIGTA did not find any evidence that the improper
disclosure was motivated by political animus, and referred the
matter to the IRS ``for administrative action on January 30,
2013.''\697\ TIGTA reported that ``[o]n March 7, 2013, the IRS
issued a `Letter of Admonishment' to the employee responsible
for the disclosure.''\698\ Cindy Thomas explained that the
letter from ProPublica had requested over 67 applications ``and
the clerical employee in the correspondence unit was trying to
go through these very quickly.'' Thomas told the Committee that
the IRS employee responsible was a ``good employee, and it was
the first time that she had made a mistake.''\699\
---------------------------------------------------------------------------
\697\Id.
\698\Id.
\699\SFC Interview of Cindy Thomas (July 25, 2013) p. 120.
---------------------------------------------------------------------------
As a result of this improper disclosure, the IRS now
requires that the release of tax-exempt entity documents under
FOIA be approved at the IRS headquarters level.\700\
---------------------------------------------------------------------------
\700\Letter from Inspector General J. Russell George to Chairman
Ron Wyden (May 22, 2014).
---------------------------------------------------------------------------

4. Republican Governors Public Policy Committee

On April 4, 2013, the Center for Public Integrity reported
that it ``obtained a copy of the [Republican Governors
Association Public Policy Committee's] Form 990 from a website
that displays tax returns online. The return included one page
of the `Schedule B' list of donors which the IRS does not
require to be made public.''\701\
---------------------------------------------------------------------------
\701\Center for Public Integrity, IRS ``Outs'' Handful of Donors to
Republican Group (Apr. 4, 2013).
---------------------------------------------------------------------------
The RGA spokesman told the Center for Public Integrity that
``donor information is confidential, and its partial disclosure
by the IRS was erroneous and unauthorized. In fact it is a
felony to disclose the information.''\702\
---------------------------------------------------------------------------
\702\Id.
---------------------------------------------------------------------------
TIGTA investigated the circumstances behind the disclosure.
They found that the Schedule B information was sent to the
website by an employee in the Ogden, Utah IRS office. TIGTA
concluded that the disclosure was a workplace error and found
no indication this this information was intentionally
disclosed. The IRS employee was subsequently disciplined by the
IRS.\703\
---------------------------------------------------------------------------
\703\TIGTA Briefing for SFC Staff (July 10, 2015).
---------------------------------------------------------------------------

X. CONCLUSION

This bipartisan report of the Committee concludes that
between 2010 and 2013, the IRS failed to fulfill its obligation
to administer the tax law with ``integrity and fairness to
all.''\704\ The IRS functioned in a politicized atmosphere
following the 2010 Citizens United Supreme Court decision,
which put pressure on the IRS to monitor political spending.
Employees in the TE/GE Division, including Lois Lerner, were
aware that the IRS had received an increasing number of
applications from organizations that planned to engage in some
level of political advocacy. Yet senior IRS executives,
including Lerner, failed to properly manage political advocacy
cases with the sensitivity and promptness that the applicants
deserved. Other employees in the IRS failed to handle the cases
with a proper level of urgency, which was symptomatic of the
overall culture within the IRS where customer service was not
prioritized.
---------------------------------------------------------------------------
\704\IRS, The Agency, Its Mission and Statutory Authority.
---------------------------------------------------------------------------
As a result of these failings, a number of Tea Party and
other political advocacy groups waited as long as five years to
receive a decision from the IRS. These delays negatively
affected applicants in many ways, including:
Inability to gain tax-exempt status within
their state until the IRS issued a determination
letter;\705\
---------------------------------------------------------------------------
\705\Some states require applicants to submit an IRS Determination
letter before the state will confer tax-exempt status. See, e.g.,
Georgia Department of Revenue, Tax-Exempt Organizations Frequently
Asked Questions.
---------------------------------------------------------------------------
Significant time and financial cost to
respond to lengthy and burdensome IRS questions;
Ineligibility for grants and other financial
support that require IRS documentation of tax-exempt
status;
Decreased donations; and
Financial uncertainty about whether the
organization will owe a tax liability if the IRS
determines that it does not meet the criteria for tax-
exemption.\706\
---------------------------------------------------------------------------
\706\For a discussion of these and other adverse effects of the
IRS' delayed rulings, see Politico, From IRS: ``Death by Delay'' (Feb.
26, 2015).
---------------------------------------------------------------------------
After experiencing these problems, numerous organizations
withdrew their applications for tax-exempt status and some
organizations ceased to exist altogether.
The consequences of the IRS's actions in singling out
organizations based on their name and subjecting them to
heightened scrutiny, substantial delays, and to burdensome and
sometimes intrusive questions are far reaching and troubling.
Undoubtedly, these events will erode public confidence and sow
doubt about the impartiality of the IRS. The lack of candor by
IRS management about the circumstances surrounding Lois
Lerner's missing emails may only serve to reinforce those
doubts.
The IRS exercises an important and powerful role in the
lives of every citizen in the country, and it is charged with
the responsibility to exercise that power in a fair and
impartial way. Sadly, this investigation has uncovered serious
shortcomings in how the IRS exercised that authority when it
processed applications for tax-exemption from organizations
that were engaged in political advocacy--shortcomings that
raise public doubt about whether the IRS is a neutral
administrator of the tax laws. Immediate and meaningful
changes, including increased accountability to Congress and
strengthened internal controls, are necessary if diminished
public confidence in the IRS is to be restored.

Additional Views of Senator Hatch

Prepared by Republican Staff

CONTENTS

Page
I. Executive Summary..............................................129
II. Lois Lerner's Personal Political Views Influenced the IRS's
Processing of Applications for Tax-Exempt Status from Tea Party
and Conservative Organizations.................................136
A. Lerner's Personal Political Views: Lerner Supported
the Democratic Party, President Obama, and Other
Democratic Politicians............................. 138
B. Lerner's Political Views Relevant to Her IRS
Position: Lerner Held Extreme Views on Limiting
Campaign Finance Expenditures and Political Speech. 140
C. Lerner's Bias Harmed Conservative Organizations..... 143
1. Lerner and Senior IRS Management Devised Ways to
Systemically Constrain Tax-Exempt Organizations
That Engaged in Political Speech............... 143
2. Lerner Exerted a ``Surprising'' Level of
Autonomy Over the Tea Party Applications....... 145
3. Lerner Created Roadblocks for Tea Party
Applications That Applied for Tax-Exempt Status 147
4. The IRS Sometimes Responded to Political
Inquiries by Quickly Deciding Certain
Applications, But Not When the Inquiries Were
About Tea Party Organizations.................. 149
5. Lois Lerner's Management of the EO Examinations
Unit Reveals Her Political Bias Against
Conservative Organizations..................... 153
D. Conclusions Regarding Lerner's Role and Culpability. 162
III. Senior IRS Officials Continuously Misled Congress About the IRS's
Handling of Applications Submitted by Tea Party Organizations..163
A. Doug Shulman Misled Congress Regarding the Targeting
of Tea Party Groups................................ 163
B. Steve Miller Withheld Information about Political
Targeting From the Congress........................ 165
1. Miller's Response to Senator Hatch's March 14,
2012 Letter Was Misleading..................... 165
2. Miller Became Aware of Important Information
Regarding Targeting Within a Week of Issuing
his Response to Senator Hatch's March 14, 2012
Letter, but Failed to Bring That Information to
the Attention of Congress...................... 166
3. Miller's Response to the June 18, 2012 Letter
From Senator Hatch Regarding the IRS's Attempt
to Collect Donor Information From Applicants
Continued Miller's Pattern of Obfuscation...... 168
4. Miller's Explanation for Failing to Inform
Congress Was a Sham............................ 169
C. Lois Lerner Actively Covered Up the Existence of IRS
Targeting in her Communications With Congress...... 170
1. Lerner Misled Staff of the U.S. House of
Representatives Committee on Oversight and
Government Reform.............................. 170
2. Lerner's Testimony Before the House Ways and
Means Subcommittee on Oversight was False and
Misleading..................................... 172
IV. The Obama Administration Signaled the IRS and Other Agencies to
Target Conservative Tax-Exempt Organizations...................175
A. White House Coordination With the IRS............... 177
B. The DOJ Enlisted the IRS's Help in Potential
Prosecution of Organizations Engaged in Political
Speech............................................. 179
1. In 2010, the DOJ Enlisted the IRS to Help
Examine Political Spending by Tax Exempt
Organizations.................................. 180
2. The FBI Was Investigating Tax-Exempt
Organizations in 2010.......................... 182
3. The DOJ Again Reached out to the IRS for
Assistance in 2013............................. 183
C. The FEC and the IRS Worked Together to Target
Conservative Organizations......................... 184
1. The FEC Used Information Provided by the IRS to
Target Four Conservative Organizations......... 185
2. The FEC Enlisted the IRS in Other Efforts to
Restrict Political Speech...................... 187
D. Treasury Department Coordination With the IRS....... 188
V. Disparate Treatment of Conservative and Progressive Applicants for
Tax-Exempt Status..............................................190
A. Applications From the Tea Party and Related
Conservative Groups Were Singled Out for Special
Treatment.......................................... 190
1. The ``Test Cases'' Selected for Development by
EO Technical Were Applications From Tea Party
Organizations.................................. 190
2. The Initial Process Used to Develop the Tea
Party Applications Was Highly Unusual.......... 191
3. Until July 2011, the Emerging Issues Tab of the
BOLO Spreadsheet Specifically Targeted the Tea
Party.......................................... 193
4. Until the Tea Party Entry Was Removed From the
Emerging Issues Tab, Applications From Both
Liberal and Conservative Groups That Did Not
Meet the Tea Party Criteria Were Sent to
General Inventory, Assigned, and Decided....... 195
5. The IRS Continued to Target the Tea Party After
the Emerging Issue Tab Was Revised in July 2011
to Remove the Entry for the Tea Party.......... 196
B. The IRS Did Not Target Progressive Organizations.... 198
1. Democratic Allegation: ``Progressive'' groups
were targeted because they appeared on the BOLO
spreadsheet.................................... 198
2. Democratic Allegation: Groups affiliated with
Association of Community Organizations for
Reform Now (ACORN) were targeted because they
appeared on the BOLO spreadsheet and were
subsequently inappropriately scrutinized....... 200
3. Democratic Allegation: The IRS targeted groups
affiliated with ``Occupy Wall Street,'' through
a standalone BOLO entry and also by expanding
the BOLO entry for political advocacy groups to
capture Occupy groups that might submit
applications................................... 203
4. Democratic Allegation: In 2008, an EO
Determinations manager instructed employees to
be on the lookout for applicants with the word
``Emerge'' in their names. It took 3 years for
the IRS to come to a conclusion on some of the
Emerge cases................................... 205
5. Democratic Allegation: TIGTA's audit, which
culminated in its report dated May 14, 2013,
established that IRS employees did not allow
their own political beliefs to influence the
manner in which they processed Tea Party
applications................................... 207
VI. Tea Party Organizations Were Harmed by IRS Targeting...........209
A. The Tea Party and Related Conservative Groups Whose
Applications Were Centralized and Delayed Were
Generally Small Organizations...................... 209
B. Tea Party Organizations Suffered Far Greater Harm
Than Progressive Applicants........................ 210
C. Tea Party Groups Suffered Substantial Harm as a
Result of IRS Delays............................... 213
1. The Albuquerque Tea Party....................... 213
2. American Junto.................................. 215
3. Pass the Balanced Budget Amendment (PBBA)....... 217
4. King Street Patriots and True the Vote.......... 219
VII. Political Influence Within the IRS.............................222
A. The IRS's Lack of Independent Agency Status Fostered
the Expression of Political Bias and Has
Irrevocably Tainted the Agency's Credibility....... 222
B. Union Influence Within the IRS Has Created an
Atmosphere of Political Bias....................... 224
C. Recent Violations of the Hatch Act Show Pervasive
Political Bias Throughout the IRS.................. 226
VIII.The IRS has Yet to Fully Correct its Problems..................227

A. Although the IRS Has Addressed Some Problems
Identified by TIGTA, There Is Much Work Left to Do. 228
1. Initial IRS Response and Suspension of BOLO..... 228
2. The Expedited Process........................... 229
3. Further Updates on TIGTA Recommendations and
Other Changes.................................. 231
B. Attempts by the IRS and Others to Suppress Political
Speech and Discourage an Informed Citizenry Must Be
Rejected........................................... 231
1. Background on 501(c)(4) Exemption............... 232
2. IRS's Proposed Regulatory Changes............... 233
3. Legislative Proposals........................... 234
4. View of the Majority Committee Members on
Legislative and Regulatory Proposals........... 236
IX. Conclusion and Recommendations.................................237

I. EXECUTIVE SUMMARY

The mission statement of the Internal Revenue Service (IRS)
charges its employees to ``[p]rovide America's taxpayers top
quality service by helping them understand and meet their tax
responsibilities and enforce the law with integrity and
fairness to all.''\1\ The IRS believes that ``[t]his mission
statement describes our role and the public's expectation about
how we should perform that role.''\2\ Indeed, the public has a
right to expect that the IRS will administer the tax code with
integrity and fairness in every context. Yet for many
conservative organizations that applied for tax-exempt status
during the last five years, the IRS fell woefully short of this
standard.
---------------------------------------------------------------------------
\1\IRS, The Agency, Its Mission and Statutory Authority.
\2\Id.
---------------------------------------------------------------------------
The Majority staff of the Senate Committee on Finance has
conducted a thorough review of the evidence presented during
the course of this investigation. Our findings are set forth in
these Additional Views of Senator Hatch Prepared by Republican
Staff (Additional Republican Views), which include the
following five primary conclusions.
First, we found that the IRS systemically selected Tea
Party and other conservative organizations for heightened
scrutiny, in a manner wholly different from how the IRS
processed applications submitted by left-leaning and
nonpartisan organizations.
Our investigation affirmed the conclusion of the Treasury
Inspector General for Tax Administration (TIGTA) in its May
2013 report that ``[t]he IRS used inappropriate criteria that
identified for review Tea Party and other organizations
applying for tax-exempt status based upon their names or policy
positions instead of indications of potential political
campaign intervention.''\3\ The inappropriate criteria were
initially developed and applied by revenue agents in the
Cincinnati Exempt Organizations Determinations office. While
these actions were arguably outside the scope of normal IRS
operating procedure, the hallmarks of disparate treatment--and
the resulting harm to conservative organizations--occurred
after the applications were raised to IRS managers in the
Washington, D.C. headquarters in March 2010. From that point
forward, Lois Lerner and other senior managers directed the
course of the applications and made decisions that directly
resulted in increased scrutiny, long delays, and requests for
inappropriate information.
---------------------------------------------------------------------------
\3\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review, Audit Report 2013-10-053 (May 14, 2013),
Highlights. We commend TIGTA for their thorough audit and report on
this issue.
---------------------------------------------------------------------------
A key finding is that at the time when the IRS developed
and employed the inappropriate criteria to process Tea Party
applications, it did not consider how each of the affected
groups operated. The initial Sensitive Case Report for Tea
Party applications, prepared in April 2010, indicates that
``[t]he various `tea party' organizations are separately
organized, but appear to be part of a national political
movement that may be involved in political activities.''\4\
Soon thereafter, the IRS considered developing a ``template''
questionnaire to send to Tea Party applicants--an approach that
had been used successfully in the past when the IRS received
numerous applications from groups that shared common
characteristics. Holly Paz explained why the IRS rejected this
approach for the Tea Party applications:
---------------------------------------------------------------------------
\4\Email from Richard Daly to Sarah Ingram, Joseph Grant and others
(June 6, 2010) IRS0000163997-164013 (email attachments containing
taxpayer information omitted by Committee staff).

Generally, you know, in situations where you are
talking about using a template or--our goal is to group
things for consistency. You wouldn't want similarly
situated organizations that are engaged in similar
activities to get different answers. Some to get
approved and some to get denied. But here, from what
Carter Hull was saying, the organizations were very
different. Some were represented by attorneys and
appeared very sophisticated. Some were very small
grassroots organizations. Some had talked about
educational activities. Others talked more about
candidate activity. So there was a lot of variety.\5\
---------------------------------------------------------------------------
\5\SFC Interview of Holly Paz (July 26, 2013) p. 71 (emphasis
added).

Although the IRS knew that the Tea Party applications were
too dissimilar to be grouped under a common template, it
continued to segregate them for screening and processing based
on the presence of certain key words or phrases in the
applicants' names or applications like ``Tea Party,'' ``9/12''
and ``Patriots,'' as well as indicators of political views that
included being concerned with government debt, government
spending or taxes, educating the public via advocacy or
lobbying ``to make America a better place to live,'' or being
critical of how the country was being run.\6\ At the time when
the IRS segregated the Tea Party applications, they had little
or no firsthand knowledge of the organizations' actual or
planned activities. Thus, the unifying factor for how Tea Party
applicants were handled was not specific activities, but rather
an underlying political philosophy.
---------------------------------------------------------------------------
\6\Email chain between John Shafer, Cindy Thomas, Steve Bowling,
and others (June 1-10, 2011) IRS0000066837-40.
---------------------------------------------------------------------------
This factor sets apart the IRS's treatment of conservative
organizations from left-leaning and nonpartisan organizations.
With one exception that affected just two organizations, all
left-leaning organizations that the Minority alleges were
improperly treated participated in activities that legitimately
called their tax-exempt status into question.\7\ The IRS did
not ``target'' these groups based on their names or ideologies,
but instead evaluated their actual activities that were known
to the IRS--activities that, in many cases, properly resulted
in denial or revocation of tax-exempt status. Although some
left-leaning organizations that applied for tax-exempt status
also experienced delays, we found no evidence that the IRS
scrutinized left-leaning organizations in the same manner, to
the same extent, or for the same politically-motivated reasons
as it targeted Tea Party and other conservative organizations.
Instead, those delays were merely a symptom of a culture within
the IRS that does not value customer service.
---------------------------------------------------------------------------
\7\The two liberal organizations that were improperly handled were
affiliated with the Occupy movement. As discussed below in Section
V(B)(3), the IRS briefly delayed these applications based on a poor
decision by EO managers in Cincinnati. The Minority does not allege
that these groups were subject to a concerted effort by IRS senior
management to delay processing, nor do they allege that these groups
were actually harmed by the IRS's actions.
---------------------------------------------------------------------------
The IRS's inequitable treatment caused great harm to
conservative organizations, the vast majority of which were
small, local groups. These groups had limited funding and were
ill-equipped to respond to the IRS's tactics of delaying their
applications and then buffeting them with an almost innumerable
number of requests for information. As a result, many of the
Tea Party groups seeking tax-exemption gave up on the process;
and some of these groups ceased to exist entirely, based at
least in part on their failure to secure tax-exempt status.
Second, our investigation revealed an environment within
the IRS where the political bias of individual employees like
Lois Lerner can, and sometimes does, influence decisions.
Structurally, the IRS is a bureau within the Treasury
Department, which precludes the IRS from being truly
independent of the governing administration. We found that
within the IRS, the union exerts extreme influence on employees
in nearly every facet of their employment. The union itself
favors the Democratic Party and contributes money almost
exclusively to its candidates, which makes it difficult for the
agency to remain apolitical. These influences are borne out in
the number of IRS employees who have violated Federal laws
designed to prevent government employees from exerting personal
political bias while on the job.
Within this atmosphere, IRS upper management gave the
Director of Exempt Organizations Lois Lerner free rein to
manage applications for tax-exempt status. We found evidence
that Lerner's personal political views directly resulted in
disparate treatment for applicants affiliated with Tea Party
and other conservative causes. Lerner orchestrated a process
that subjected these applicants to multiple levels of review by
numerous components within the IRS, thereby ensuring that they
would suffer long delays and be required to answer burdensome
and unnecessary questions. Lerner showed little concern for
conservative applicants, even when members of Congress inquired
on their behalf, allowing them to languish in the IRS
bureaucracy for as long as two years with little or no action.
The IRS began to resolve these applications only after some of
the problems became public in 2012. By that time, the damage
had been done.
Third, the IRS has shown a pattern of continually
misleading Congress about its handling of applications
submitted by Tea Party organizations.
Top IRS management including Doug Shulman, Steve Miller,
and Lois Lerner made numerous misrepresentations to Congress in
2012 and 2013 regarding the IRS's mistreatment of Tea Party
organizations. These three individuals made oral and/or written
assertions to Congress justifying and defending the IRS's
processing of applications for tax exemption from Tea Party
groups during this time period. In reality, that IRS processing
included subjecting the organizations to extraordinary delays
and causing them to divulge unprecedented amounts of highly
irrelevant and, in many cases, confidential information.
Contrary to their oral and/or written statements to Congress,
Shulman, Miller and Lerner knew, or had reason to know, that
the IRS's processing of those applications was improper and
that the IRS's demands for information from those groups was
unwarranted. Moreover, Shulman, Miller and Lerner concealed
information from Congress regarding the processing of those
applications which included the fact that the IRS had singled
out Tea Party groups for additional scrutiny based on their
political views.
The pattern of deception engaged in by Shulman, Miller, and
Lerner from 2012 to 2013 was designed to throw Congress off the
scent of IRS wrongdoing so as to allow the IRS to put into
place remedial half-measures aimed at addressing the targeting,
the long delays, and the collection of highly detailed but
irrelevant information from Tea Party applicants. By actively
misleading Congress about the IRS's mistreatment of Tea Party
groups, Shulman, Miller and Lerner effectively obstructed
Congress in the exercise of its authority to oversee the
activities of the IRS.
Fourth, soon after the Obama Administration began a
concerted effort to constrain spending on political speech, the
IRS and other executive agencies began scrutinizing
conservative organizations that had, or sought, tax-exempt
status.
The White House's focus on this issue intensified after the
Supreme Court issued its Citizens United decision in January
2010, starting with President Obama's castigation of the Court
in his State of the Union address and continuing throughout
2010 until the mid-term elections.
We found clear evidence that the IRS and other agencies
heeded the President's call. Just a few weeks after the
President's State of the Union address, the IRS made the
pivotal decision to set aside all incoming Tea Party
applications for special processing--a decision that would
subject those organizations to long delays, burdensome
questions, and would ultimately prove fatal to some of them.
Around that same time, the Department of Justice was
considering whether it could bring criminal charges against
501(c)(4) organizations that engaged in political activity. The
Federal Election Commission had also opened investigations into
conservative organizations that aired political ads. The IRS
met with both agencies, providing input on the Department of
Justice's proposals and information to the Federal Election
Commission on organizations that were under investigation.
These actions leave little doubt that when Congress did not
pass legislation to reduce spending on political speech, the
administration sought alternative ways to accomplish the same
goal.
Regrettably, the Majority staff was not able to determine
the full extent of Treasury Department and White House
involvement in this matter. The Treasury Department did not
fully cooperate with the Committee's requests to make witnesses
and documents available to the Committee. As a result, the
Committee interviewed only three current and former employees
of the Treasury Department and did not have access to the full
scope of relevant documents. Similarly, the Committee did not
have sufficient access to White House records or employees.
Together, these gaps in knowledge prevent us from determining
when the Obama Administration and the Treasury Department first
became aware that the IRS was targeting Tea Party groups. They
also prevent us from concluding that the Obama Administration
and the Treasury Department did not direct, approve of, or
allow any aspect of the targeting of Tea Party groups.
Regardless of whether an explicit directive was given, the
President's use of his bully pulpit had the effect of
increasing scrutiny on conservative organizations, rendering a
direct order to individual employees unnecessary.
Finally, the IRS harmed the Committee's investigation by
failing to properly preserve a significant portion of Lois
Lerner's email, resulting in its loss, and then concealing that
loss from the Committee for months.
As discussed more completely in Section II(C) of the
Bipartisan Investigative Report, in early February 2014, the
IRS determined that it could not locate many of Lois Lerner's
emails dating from 2010 and 2011, a period crucial to the
Committee's investigation. Upon conducting an inquiry into the
matter, the IRS discovered that many of these emails had been
stored on Lerner's laptop computer and that the computer
suffered a hard drive failure in June 2011. While IRS officials
were able to determine why many of Lerner's were missing, they
incorrectly assumed that server backup tapes containing copies
of those emails had been overwritten, and thus failed to
attempt to recover records from those backup tapes. Based on
that faulty assumption, the IRS ultimately concluded in April
2014 that Lerner's missing emails were permanently lost and so
advised the Treasury Department, which in turn, notified the
White House. However, the IRS failed to simultaneously inform
the various Congressional committees conducting investigations
into the IRS's treatment of Tea Party organizations, choosing
instead to conceal this fact from Congress.
In March 2014, this Committee asked the IRS to provide it
with a written statement attesting that all documents requested
by the Committee and relevant to its investigation had been
produced to the Committee. Rather than provide the attestation,
the IRS submitted to the Committee on June 13, 2014 a rambling,
nearly incomprehensible letter that, with attachments, was 27
pages in length. Buried nearly halfway through the letter was
an admission that the IRS had lost an undetermined number of
Lerner's emails from 2010 and 2011, and that backup tapes that
once contained those emails no longer existed. The
circumstances surrounding the IRS's dilatory admission
regarding the lost emails is troubling, as it strongly suggests
that had it not been for the Committee's request for an
attestation, the IRS may never have revealed to it the
existence of the missing emails.
Moreover, in a March 19, 2014 letter to the Committee, the
IRS asserted that it had completed its production of documents
as requested by the Committee and urged it to release its final
report on the investigation. As explained above, in February
2014, IRS officials knew that a substantial number of Lerner's
emails had been lost as a result of the hard drive failure, and
might not be recoverable from any other source. Accordingly, it
is difficult to reconcile the IRS officials' awareness of the
missing emails in February 2014 with their subsequent assertion
to the Committee in March 2014 that the document production was
complete and that the Committee should release its report.
Indeed, in light of this knowledge, it would appear that the
assertion was false and intended to hasten the Committee to
complete its investigation, thus foreclosing the possibility
that it would ever find out about the missing Lerner emails.
Furthermore, IRS staff had numerous interactions with
Committee staff after the March 19, 2014 letter and before the
IRS's reluctant admission on June 13, 2014 that it had lost
many of Lerner's emails. At no time during any of those
interactions did IRS staff attempt to correct the inaccurate
impression created in the March 19, 2014 letter that the IRS
had completed its production of requested documents.
In addition to concealing the loss of Lerner's emails, IRS
officials also failed to take adequate steps to preserve backup
tapes that contained copies of those emails. Upon concluding in
February 2014 that many of Lerner's emails from 2010 and 2011
were missing, IRS officials failed to conduct a proper search
for backup tapes that might contain copies of those emails. In
what appears to be an exercise in pure expediency, those
officials simply concluded that no such tapes existed because
they should have been overwritten by then in accordance with
the IRS's practice to recycle backup tapes every six months. In
truth, in February 2014, the IRS had in its possession nearly
1,200 backup tapes that could have contained Lerner's emails
from the period in question. Because the IRS failed to look
for, identify and preserve the backup tapes, 422 of those
backup tapes were erased by the IRS in March 2014, resulting in
the loss of Lerner emails relevant to the Committee's
investigation.
The actions taken by IRS officials, as well as those they
failed to take after discovering the missing Lerner emails,
harmed the Committee's investigation. IRS officials concealed
from the Committee for as long as possible the fact that
Lerner's emails were lost. Moreover, those officials misled the
Committee into believing that the IRS had completed its
document production, when in fact, they knew that many of
Lerner's emails from a period of time of great interest to the
Committee were missing. Further, those officials failed to
discharge their responsibility to take adequate steps to
preserve thousands of Lerner's emails, resulting in the
irrevocable loss of as many as 24,000 of those emails. These
actions not only deprived the Committee of information
important to its investigation and caused substantial delay in
its completion, but also further eroded the Committee's
confidence that the IRS has been forthcoming in all of its
other representations to Congress regarding this investigation.
The Committee undertook a number of measures aimed at
mitigating the consequences of the harm caused by the IRS's
failure to preserve copies of the backup tapes containing
Lerner's email. For example, in an effort to bridge the gap in
the missing emails, the Committee secured from alternate
sources, including the Treasury Department, the Department of
Justice, the Federal Election Commission, TIGTA, a private
organization, and the White House, copies of emails between
their employees and Lerner. In addition, TIGTA undertook
extraordinary efforts to recover missing Lerner emails. Within
two weeks of commencing its investigation into the lost emails,
TIGTA located 744 backup tapes that the IRS erroneously
determined contained no information relevant to the Committee's
investigation. After recovery efforts, those 744 tapes yielded
over 1,000 Lerner emails not previously provided to the
Committee by the IRS--some of which proved relevant to this
investigation. Additional recovery efforts by TIGTA from other
sources resulted in over 300 more Lerner emails. In total,
TIGTA was able to provide the Committee with 1,330 Lerner
emails that the IRS had been unable to produce and that the
Committee had not seen before. Although it was not possible to
reproduce a full record of Lerner's communications during 2010
and 2011, we believe that these efforts have provided the most
comprehensive record that is possible.
In addition to the findings set forth herein, the Majority
staff fully supports the joint findings contained in the
Bipartisan Investigative Report. Those findings reveal several
other serious problems at the IRS, including:
Management lacked an appreciation for the
sensitivity and volatility of the political advocacy
applications and allowed employees to use inappropriate
screening criteria. (See Sections III(A) and III(B) of
the Bipartisan Investigative Report.)
The IRS lacked any sense of customer service
for organizations that applied for tax-exempt status.
(See Section III(E)(1) of the Bipartisan Investigative
Report.)
The IRS improperly disclosed taxpayer
information of numerous conservative organizations.
(See Section IX(C) of the Bipartisan Investigative
Report.)
In 2010, a freelance reporter made a FOIA
request for documents related to the IRS's handling of
Tea Party applications. The IRS identified responsive
documents, but elected not to produce them, thereby
precluding early public scrutiny of its treatment of
Tea Party applicants. (See Section IX(B) of the
Bipartisan Investigative Report.)
In all, Committee staff reviewed more than 1,500,000 pages
of documents and conducted 32 interviews in the course of this
investigation. We believe that the findings described in the
Bipartisan Investigative Report and in these Additional
Republican Views are supported by the record.
As a result of the practices described in both the
Bipartisan Investigative Report and in these Additional
Republican Views, the public's confidence in the IRS has been
justifiably shaken. There is much work that needs to be done to
restore the public's trust in the IRS's ability to administer
the tax system in a fair and impartial way.

II. LOIS LERNER'S PERSONAL POLITICAL VIEWS INFLUENCED THE IRS'S
PROCESSING OF APPLICATIONS FOR TAX-EXEMPT STATUS FROM TEA PARTY AND
CONSERVATIVE ORGANIZATIONS

------------------------------------------------------------------------

-------------------------------------------------------------------------
Lois Lerner supported the Democratic Party and President Obama, and she
held
extreme views on campaign finance reform. Lerner's bias influenced the
IRS's
handling of Tea Party appications and these organizations were harmed by
her
actions.
------------------------------------------------------------------------

A central aim of the Committee's investigation was to
determine if any IRS actions toward conservative taxpayers were
influenced by political bias. Assuredly, employees working in
the executive branch are entitled to hold personal political
views--and indeed, many citizens who serve in federal agencies
can and do play a valuable part in the democratic process using
personal time and resources, and subject to limits the law
imposes on such activity by government employees. However, the
personal political views of a federal employee working in an
apolitical position should never influence their official
actions. If this were to happen, the public could question
whether the government has acted in a fair and impartial
manner. The danger of political bias is particularly acute at
the IRS, which has been entrusted to ``enforce the law with
integrity and fairness to all.''\8\
---------------------------------------------------------------------------
\8\IRS, The Agency, Its Mission and Statutory Authority.
---------------------------------------------------------------------------
As the senior executive in charge of Exempt Organizations
(EO), Lois Lerner was the person with ultimate responsibility
for overseeing all of the employees involved who processed
applications for tax-exempt status. By virtue of her position,
Lerner had the potential to exert tremendous power over many
taxpayers who sought to exercise their right to political
speech.
Amidst allegations that Lerner's political views influenced
IRS actions, our inquiry focused on three questions. First,
what are Lois Lerner's political views? Second, did she hold
any political views relevant to her specific responsibilities
at the IRS? And finally, is there any evidence that her
political views influenced official actions of the IRS? We
address these questions in turn below.
In resolving these questions, the Committee sought to
interview Lerner as part of its investigation. Indeed, because
of her position in the IRS, Lerner would be uniquely able to
explain how conservative applicants were treated by the IRS.
Lerner declined the Committee's request for an interview,
citing her Fifth Amendment right to remain silent. In the
absence of her testimony, the Committee has been able to reach
conclusions about her role after careful review of over
1,500,000 pages of documents and dozens of interviews with IRS
and Treasury employees, many of whom worked directly with
Lerner.
In response to our first question, the Senate Finance
Committee's investigation revealed that Lerner was a Democrat
who consistently supported Democratic politicians, particularly
President Obama, during her tenure at the IRS. Her
communications also suggest that she felt animus toward the
views of the Republican Party.
In response to our second question, we found that Lerner
favored campaign finance reform efforts and had deep disdain
for the Supreme Court's loosening of these restrictions in the
Citizens United decision, which she deemed ``by far the worst
thing that has ever happened to this country'' and feared would
lead to ``the end of `America.'''\9\
---------------------------------------------------------------------------
\9\Email chain between Lois Lerner and Mark Tornwall (June 1, 2012)
IRS0000800024.
---------------------------------------------------------------------------
In response to our third question, we conclude that
Lerner's partisan bias directly harmed conservative
organizations applying for tax-exempt status from early 2010
until May 2013. Under Lerner's leadership, Tea Party
organizations were systemically targeted and set aside for
special processing. The impact of Lerner's bias was exacerbated
by her superiors' failure to oversee her, and directly caused
conservative organizations to suffer long delays and endure
numerous rounds of burdensome questions. Her biases are
particularly evident when comparing her inaction on Tea Party
applications to her quick responses to inquiries from
Democratic politicians. We also found evidence that Lerner's
bias led to audits of some conservative organizations, which
imposed even greater burdens and further stifled their
political speech.

A. Lerner's Personal Political Views: Lerner Supported The Democratic
Party, President Obama, and Other Democratic Politicians

A primary focus of our investigation was whether Lerner's
personal political views favored one political party or the
other. Lerner has acknowledged that she is a registered
Democrat but she publicly stated that she is ``not a political
person.''\10\
---------------------------------------------------------------------------
\10\Politico, Exclusive: Lois Lerner Breaks Silence (Sep. 22,
2014).
---------------------------------------------------------------------------
Our review of Lerner's communications casts doubt on her
claim of being ``apolitical.'' To the contrary, her
conversations with family and friends show that Lerner followed
politics closely and supported the Democratic Party and
Democratic politicians, particularly President Obama. These
conversations--all on Lerner's government email account--also
show that Lerner's friends and family uniformly shared her
views and sometimes made disparaging comments about Republicans
and the Tea Party to Lerner:
In an October 2004 email conversation with a
former colleague from the Federal Election Commission
(FEC), Lerner said, ``[A]fter the election, we'll get
together--hopefully to celebrate, but it sure looks
iffy!''\11\ The next month, Republican George W. Bush
defeated Democrat John Kerry in the presidential
election.
---------------------------------------------------------------------------
\11\Email chain between Lois Lerner and FEC Employee (Oct. 12,
2004) FECSUBP5001079.
---------------------------------------------------------------------------
In October 2012, a friend wrote to Lerner
about the upcoming election: ``The Romney/Ryan ticket
is really scary. How did a creep like Romney ever get
elected to be governor of Massachusetts, anyway?''\12\
---------------------------------------------------------------------------
\12\Email chain between Lois Lerner and Mark Tornwall (Oct. 11-17,
2012) IRS0000793954.
---------------------------------------------------------------------------
In November 2012, a friend invited Lerner to
an election-night party that she decided to host ``now
that Nate Silver has raised Obama's chance of winning
to 85.1%.'' The party invitation included a picture of
the Democratic Party logo.\13\ Lerner responded,
``Would have loved to, but am in London.'' Lerner
passed the invitation along to her husband and told the
host, ``[I]f he's smart he'll join you.'' Lerner noted
that she was ``[k]eeping my fingers crossed. And, I did
vote!''\14\
---------------------------------------------------------------------------
\13\Email from friend to Lois Lerner and others (Nov. 4, 2012)
IRS0000794177-78.
\14\Email chain between Lois Lerner and friend (Nov. 4, 2012)
IRS0000794185.
---------------------------------------------------------------------------
On Election Day in 2012, Lerner's husband
told her that it was ``hard to find the socialist-labor
candidates on the ballot, so I wrote them in.'' Lerner
described the election as ``[o]nce in a lifetime
stuff'' and said that ``[people in London] get that
it's close but they don't seem to think Obama could
really lose. They all want to know who the heck this
Romney guy is.''\15\
---------------------------------------------------------------------------
\15\Email chain between Lois Lerner and Michael Miles (Nov. 6,
2012) IRS0000794247-48.
---------------------------------------------------------------------------
On November 7, 2012, a family member wrote
an email to Lerner with the subject ``Hurray, Hurray--
OBAMA for 4 more years.''\16\
---------------------------------------------------------------------------
\16\Email chain between Lois Lerner and family member (Nov. 7,
2012) IRS0000794253.
---------------------------------------------------------------------------
On November 7, 2012, Lerner's husband
described her as being ``in that post-election state of
bliss'' after the election results were announced.\17\
---------------------------------------------------------------------------
\17\Email chain between Lois Lerner and Michael Miles (Nov. 7,
2012) IRS0000794265.
---------------------------------------------------------------------------
In a November 2012 email with a family
member, Lerner was informed that Democrats retained
control of the U.S. Senate. Lerner responded: ``WooHoo!
I[t] was important to keep the Senate. If it had
switched, it would be the same as a Rep president.'' In
the same conversation, Lerner celebrated Maryland's
legalization of same-sex marriage. Lerner's family
member commented, ``I think there were 3 seats that
switched from tea party republicans to democrats so
that's exciting!''\18\
---------------------------------------------------------------------------
\18\Email chain between Lois Lerner and family member (Nov. 6-7,
2012) IRS0000317155-56.
---------------------------------------------------------------------------
In November 2012, Lerner had the following
email exchange with her husband, Michael Miles:

Miles: Well, you should hear the whacko wing of the
GOP. The US is through; too many foreigners sucking the
teat; time to hunker down, buy ammo and food, and
prepare for the end. The right wing radio shows are
scary to listen to.
Lerner: Great. Maybe we are through if there are that
many assholes.
Miles: And I'm talking about the hosts of the shows.
The callers are rabid.
Lerner: So we don't need to worry about alien
terrorists. It's our own crazies that will take us
down.\19\
---------------------------------------------------------------------------
\19\Email chain between Lois Lerner and Michael Miles (Nov. 8-9,
2012) IRS0000890492.

In January 2013, Lerner remarked that she
might look for a position at the Washington, D.C.
office of Organizing for Action, the successor
organization of President Obama's 2012 re-election
campaign--a possibility that her subordinates appear to
have taken seriously.\20\
---------------------------------------------------------------------------
\20\Email chain between Lois Lerner, Sharon Light, Holly Paz, and
others (Jan. 24, 2013) IRSC007157.
---------------------------------------------------------------------------
After the Tea Party scandal broke in May
2013, a friend wrote to Lerner to offer support. The
friend said, ``My brother was here when I read the
paper, and frankly, he was hoping you would `nail' the
tea party, but I realize that you are just doing your
job, ha ha.''\21\
---------------------------------------------------------------------------
\21\Email chain between Lois Lerner and friend (May 12, 2013)
IRS0000662634,
---------------------------------------------------------------------------
In a March 2014 conversation, a friend
informed Lerner that ``[t]his Republican crap has
become really bad in Texas.'' The friend then offered
negative comments about several Texas Republicans,
including former Governor Rick Perry, Ted Nugent, and
Greg Abbott, whom the friend believed was ``still
likely to be the next Governor of Texas simply because
he claims to be in favor of gun rights and against
same-sex marriage.'' The friend concluded, ``As you can
see, the Lone Star State is just pathetic as far as
political attitudes are concerned.'' This prompted
Lerner to state the following:

Look my view is that Lincoln was our worst president
not our best. He should'[v]e let the south go. We
really do seem to have 2 totally different
mindsets.\22\
---------------------------------------------------------------------------
\22\Email chain between Lois Lerner and Mark Tornwall (Mar. 6,
2014) 00064-66.

This was not the first time that Lerner expressed this
sentiment about the United States. In a December 2012 email to
---------------------------------------------------------------------------
a different friend, Lerner said:

We're in Ohio for the holiday and waiting to go over
the fiscal cliff! I truly believe this country is out
of its head with ridiculousness! We really need to
split in two--we are so polarized that we can't do
anything constructive.\23\
---------------------------------------------------------------------------
\23\Email chain between Lois Lerner and Lisa Klein (Dec. 23-24,
2014).

The Majority staff's review of approximately 1,500,000
pages produced by the IRS and other entities did not reveal
find any instances when Lerner expressed positive sentiments
about the Republican Party, a specific Republican candidate, or
the Tea Party. Similarly, we found no instances when any friend
of family member of Lerner's expressed such sentiments in a
message to Lerner. Indeed, it is highly probable that the
individuals who sent Lerner these politically charged messages,
which were supportive of Democratic politicians and often
critical of their Republican counterparts, did so because they
were aware of her political beliefs and knew that she shared in
their convictions.
As a whole, these communications establish that Lerner
staunchly supported President Obama and the Democratic Party
and, contrary to her assertions, followed politics closely.
They also suggest that Lerner held disdain for those who
supported conservative values and Republican ideals.

B. Lerner's Political Views Relevant to Her IRS Position: Lerner Held
Extreme Views on Limiting Campaign Finance Expenditures and Political
Speech

Next, we consider whether Lerner held any political views
that were relevant to her position at the IRS. As described
below, we conclude that Lerner supported campaign finance
reform efforts and was generally in favor of restraining
political speech by tax-exempt organizations. These views were
directly relevant to her oversight of the EO Division at the
IRS.
Before joining the IRS in 2001, Lerner spent most of her
career in election law. Lerner joined the FEC in 1981 and
served in several senior positions during her 20-year tenure,
including head of the Enforcement Division and Acting General
Counsel.\24\ A colleague from the FEC who has known Lerner
since 1985, attorney Craig Engle, described Lerner's views of
campaign finance law as follows:
---------------------------------------------------------------------------
\24\Resume of Lois Lerner (undated) IRS0000798764-65.

Engle describes Lerner as pro-regulation and as
somebody seeking to limit the influence of money in
politics. The natural companion to those views, he
says, is her belief that ``Republicans take the other
side'' and that conservative groups should be subjected
to more rigorous investigations. According to Engle,
Lerner harbors a ``suspicion'' that conservative groups
are intentionally flouting the law.\25\
---------------------------------------------------------------------------
\25\National Review, Lois Lerner at the FEC (May 23, 2013).
---------------------------------------------------------------------------
While Lerner was head of the FEC's Enforcement
Division, she was reported to have improperly
threatened a Republican candidate for the U.S. Senate,
allegedly saying, ``Promise me you will never run for
office again, and we'll drop [the pending charges
against you].''\26\
---------------------------------------------------------------------------
\26\The Washington Post, Lois Lerner: The Scowling Face of the
State (June 12, 2013).

Lerner's expertise in election law certainly shaped her
view of the role of tax-exempt organizations in the political
process when she joined the IRS in 2001 as the Director of
Rulings and Agreements. While she was at the IRS, Lerner
continued to support spending restrictions on political speech.
In a February 2002 message to a former colleague at the FEC,
Lerner stated that it was ``pretty exciting that the campaign
finance [reform bill] may actually go through.''\27\ Lerner was
referring to the Bipartisan Campaign Reform Act of 2002
(McCain-Feingold Act), which became law on March 27, 2002. More
recently, Lerner supported the DISCLOSE Act, a proposed law
that would require donor disclosure by tax-exempt organizations
that engage in political campaign activities, although she
apparently realized it was not likely to pass. When informed
that Democrat Chris Van Hollen introduced the DISCLOSE Act in
the House, Lerner said, ``Wouldn't that be great? And I won't
hold my breath.''\28\
---------------------------------------------------------------------------
\27\Email chain between Lois Lerner and FEC Employee (Feb. 22,
2002) FECSUBP5001236.
\28\Email chain between Lois Lerner, Joseph Urban and others (Feb.
13, 2012) IRS0000694708-10.
---------------------------------------------------------------------------
Given Lerner's support for the McCain-Feingold Act, it
should come as no surprise that she was disappointed when the
Supreme Court struck down parts of the Act in Citizens United
v. Federal Election Commission, 130 S. Ct. 876 (2010). The
depth of Lerner's emotion, however, is surprising. Lerner
bluntly told a friend:

Citizens United is by far the worst thing that has
ever happened to this country.\29\
---------------------------------------------------------------------------
\29\Email chain between Lois Lerner and Mark Tornwall (June 1,
2012) IRS0000800024.

After her friend agreed that it was a ``total disgrace that
the Supreme Court has endorsed this concept,'' Lerner expanded
on her view of the case to explain why the decision had
---------------------------------------------------------------------------
repercussions far beyond campaign finance rules:

We are witnessing the end of ``America.'' There has
always been the struggle between the capitalistic
ideals and the humanistic ideals. Religion has usually
tempered the selfishness of capitalism, but the rabid,
hellfire piece of religion has hijacked the game and in
the end, we will all lose out. [I]t's all tied
together--money can buy the Congress and the
Presidency, so in turn, money packs the SCt. And the
court usually backs the money--the ``old boys'' still
win.\30\
---------------------------------------------------------------------------
\30\Id.

These extreme views would be troubling if held by any
government official; but they are particularly troubling when
held by a senior IRS official charged with oversight of tax-
exempt organizations, including those that engage in political
speech.
While employed at the IRS, Lerner maintained close ties to
numerous outside advocacy groups that shared her goal of
limiting spending by tax-exempt organizations on political
speech. These groups took advantage of their direct access to
Lerner and other senior IRS officials, frequently asking the
IRS to tighten its control over political spending by tax-
exempt organizations as described in Section IV(D) of the
Bipartisan Investigative Report. Lerner even met with some of
them in person to discuss their proposals.
One group that had particularly close ties to Lerner is the
Americans for Campaign Reform (ACR). ACR describes itself as
``a community of citizens who believe passionately that public
funding [of elections] is the single most critical long-term
public policy issue our nation faces.''\31\ Lerner's ties to
ACR were strong enough that when ACR was searching for a new
CEO in 2012, they sought Lerner's opinion on Larry Noble, who
had been the General Counsel at the FEC during Lerner's tenure,
and thanked Lerner ``for [her] contribution to this
search.''\32\ Lerner recommended that ACR hire Noble and told
him that she was ``[g]lad I could be a part of their
decision.''\33\ Lerner and Noble made plans to have lunch, and
Lerner asked Noble, ``So, when should I expect your first
letter yelling at me about the c4s?''\34\ Noble replied,
``That's Fred's job,'' apparently referring to Fred Wertheimer,
President of Democracy 21--another group that was regularly in
touch with Lerner.
---------------------------------------------------------------------------
\31\Americans for Campaign Reform, About Us.
\32\Email chain between Lois Lerner and Larry Noble (Aug. 17, 2012)
IRS0000683618-20.
\33\Email chain between Lois Lerner and Larry Noble (Aug. 10, 2012)
IRS0000801074-77.
\34\Email chain between Lois Lerner and Larry Noble (Aug. 10, 2012)
IRS0000801105-08.
---------------------------------------------------------------------------
Lerner also maintained close ties with Kevin Kennedy, the
Director and General Counsel of the Wisconsin Government
Accountability Board, which administers and enforces Wisconsin
campaign finance and election laws.\35\ Kennedy shared many of
Lerner's views on campaign finance and the need for increased
regulation of political speech.\36\ In 2008, Kennedy organized
a panel discussion for the Council on Government Ethics Laws on
``regulating political speech.''\37\ Lerner spoke at this panel
along with Larry Noble (who was then practicing at a private
law firm), FEC Commissioner Ellen Weintraub, and Campaign Legal
Center attorney Paul Ryan.\38\ Kennedy and Lerner regularly
discussed election law, and in 2011 Kennedy bemoaned
Wisconsin's loosening campaign finance regulations, saying,
``[T]he legislature has killed our corporate disclosure
rules.''\39\ Kennedy described Lerner as his ``favorite IRS
person'' and, ``a professional friend [he has known] for more
than 20 years.\40\
---------------------------------------------------------------------------
\35\The Wisconsin Government Accountability Board is reported to
have provided assistance to prosecutors in a secret John Doe
investigation of conservative organizations' political activities
during the 2011 and 2012 Wisconsin recall elections. On July 16, 2015
the Wisconsin Supreme Court ended the John Doe investigation, ruling
that Scott Walker's campaign did not violate campaign finance laws. See
Milwaukee Journal Sentinel, Q&A: Untangling Wisconsin's recent John Doe
Investigations (Sep. 10, 2014); Wall Street Journal, Wisconsin Targets
the Media (Dec. 21, 2014); Wall Street Journal, Wisconsin's Friend at
the IRS (July 9, 2015); Milwaukee Journal Sentinel, Wisconsin Supreme
Court ends John Doe probe into Scott Walker's campaign (July 16, 2015).
\36\Email chain between Lois Lerner and Kevin Kennedy (July 22,
2011) IRS0000796497-98; Email chain between Lois Lerner and Kevin
Kennedy (Nov. 1, 2012) IRS0000726736; Isthmus, Wisconsin elections
director Kevin Kennedy is at the center of state's political storm
(Nov. 1, 2012). Kennedy characterized this piece as a positive piece
from the progressive media about himself.
\37\Email from Kevin Kennedy to Lois Lerner and others (Dec. 10,
2008) FECSUBP5001025-44; Email from Kevin Kennedy to Ellen Weintraub,
Lois Lerner and Paul Ryan (Dec. 3, 2008) FECSUBP5001131.
\38\Id.
\39\Email chain between Lois Lerner and Kevin Kennedy (July 22,
2011) IRS0000796497-98; Email chain between Lois Lerner and Kevin
Kennedy (Feb. 6-7, 2013) IRS0000667365; Email chain between Lois Lerner
and Kevin Kennedy (Jan. 28, 2013) IRS0001163477; Email from Lois Lerner
to Kevin Kennedy (Feb. 20, 2013) IRS0000052989-90.
\40\Email chain between Lois Lerner and Kevin Kennedy (Mar. 7,
2013) IRS0000811079; Wall Street Journal, Wisconsin's Friend at the IRS
(July 9, 2015).
---------------------------------------------------------------------------
Lerner's views on campaign finance laws and her close ties
to organizations and government officials that sought to limit
political speech must be taken into consideration when
evaluating how Lerner administered the tax law as Director of
EO.

C. Lerner's Bias Harmed Conservative Organizations

Finally, we consider whether Lerner's personal political
views influenced her work at the IRS. We found evidence of five
ways that Lerner's bias affected IRS actions, all of which
resulted in harm to conservative organizations that came into
contact with the IRS during Lerner's tenure.\41\
---------------------------------------------------------------------------
\41\In addition to our findings, Lerner's political bias is further
reinforced by findings of the House Ways and Means Committee in their
April 9, 2014 referral of Lerner to Attorney General Eric Holder at the
Department of Justice for willful misconduct by an IRS official and
potential violation of criminal statutes. In that letter, the House
Ways and Means Committee pointed to three potential violations of law:
---------------------------------------------------------------------------
Lerner used her position to improperly influence
agency action against only conservative organizations,
denying those groups due process and equal protection
rights under the law. She showed extreme bias and prejudice
toward conservative groups. The letter lays out evidence on
how Lerner targeted conservative organization Crossroads
GPS, as well as other right-leaning groups, while turning a
blind eye to liberal groups that were similarly organized,
such as Priorities USA.
Lerner impeded official investigations by
providing misleading statements in response to questions
from TIGTA.
Lerner used her personal email for official
business, including confidential return information.
Further investigation could show that Lerner committed an
unauthorized disclosure in violation of section 6103 of the
Internal Revenue Code.

1. Lerner and Senior IRS Management Devised Ways To Systemically
Constrain Tax-Exempt Organizations That Engaged in Political Speech
As described in Section IV of the Bipartisan Investigative
Report, various external forces--including several of the left-
leaning groups noted above--pressured the IRS to monitor and
curtail political spending of 501(c)(4) organizations in the
wake of the Supreme Court's Citizens United decision. Perhaps
no one was more aware of this pressure than Lerner,
particularly given her personal disdain for the ruling. As
described below, Lerner encouraged senior IRS management to use
the agency's tools to dampen the effect of the Supreme Court's
decision.
On the day after the Citizens United decision was
announced, Lerner brought the decision to the attention of
upper-level management in the Tax Exempt and Government
Entities (TE/GE) Division and the Chief Counsel's office.\42\
Lerner recognized the sensitivity of the case, stating,
``[t]his is the danger zone no matter what we say.''\43\ In
October 2010, Lerner described the pressure on the IRS when she
spoke at Duke University's Sanford School of Public Policy:
---------------------------------------------------------------------------
\42\Lerner's angst over the Supreme Court overturning the corporate
ban on political contributions commenced long before the actual
decision was rendered by the Court on January 21, 2010. Indeed, on
November 17, 2009, Lerner wrote to Sarah Hall Ingram in anticipation of
such an eventuality, stating that the Court's overturning the ban
``will open up numerous pandora's boxes'' for the IRS. She requested
that Ingram ``get a discussion going with [Steve] Miller so we at least
know the perameters [sic] of the box we're in . . . .'' Lerner also
indicated that ``[t]he Commissioner also needs to be aware that this is
going to get noisey [sic] real fast.'' Email between Lois Lerner and
Sarah Hall Ingram (Nov. 17-23, 2009) IRS0000853501-02.
\43\Email chain between Lois Lerner, Nicole Flax, Sarah Hall
Ingram, and others (Jan. 24-25, 2010) IRS0000442122-24.

The Supreme Court dealt a huge blow [in Citizens
United], overturning a 100-year old precedent that said
basically corporations could give directly in political
campaigns, and everyone is up in arms because they
don't like it. The Federal Election Commission can't do
anything about it. They want the IRS to fix the
problem. The IRS laws are not set up to fix the
problem. . . . So everyone is screaming at us right
now, ``Fix it now before the election, can't you see
how much these people are spending?'' I won't know
until I look at their 990s next year whether they have
done more than their primary activity as a political or
not. So I can't do anything right now.\44\
---------------------------------------------------------------------------
\44\SFC Transcription of Video Available on Youtube.com, Lois
Lerner Discusses Political Pressure on IRS in 2010 (Oct. 19, 2010)
.

Near the end of 2012, Lerner and other employees in the EO
division began considering whether it was possible to quantify
the effect that Citizens United had on political campaign
intervention by tax-exempt organizations. In December 2012, TE/
GE Division employee Cristopher Giosa sent Lerner his
preliminary analysis on sources of data that might be
available.\45\ Giosa suggested that EO consider enlisting the
IRS's Office of Compliance Analytics to help with this
project.\46\
---------------------------------------------------------------------------
\45\Email from Christopher Giosa to Lois Lerner, Joseph Grant and
others (Dec. 6, 2012) IRS0000185323-27.
\46\Id.
---------------------------------------------------------------------------
By April 2013, EO and the Office of Compliance Analytics
had prepared a detailed presentation on political spending by
501(c)(4) organizations.\47\ As background information for the
report, the authors noted:
---------------------------------------------------------------------------
\47\Email from Justin Abold to Lois Lerner, Holly Paz and others
(Apr. 12, 2013) IRS0000195666-90.

Since Citizens United (2010) removed the limits on
political spending by corporations and unions, concern
has arisen in the public sphere and on Capitol Hill
about the potential misuse of 501(c)(4)s for political
campaign activity due to their tax exempt status and
the anonymity they can provide to donors.\48\
---------------------------------------------------------------------------
\48\Id.

The authors then provided a ``problem statement,'' which
stated that ``[t]he public purpose of 501(c)(4)s may be diluted
by political campaign activities as an unintended consequence
of Citizens United.''\49\
---------------------------------------------------------------------------
\49\Id.
---------------------------------------------------------------------------
In May 2013, EO and the Office of Compliance Analytics
revised the presentation in advance of a May 7 briefing for
then-Acting Commissioner Miller.\50\ The revised presentation,
which was sent to Miller's office, made the following findings:
---------------------------------------------------------------------------
\50\Miller's calendar shows that he organized a meeting to discuss
``EO Data Matters'' with Nikole Flax, Dean Silverman, Eric Schweikert,
and Joseph Grant (May 7, 2013) IRS0000456399.
---------------------------------------------------------------------------
The number of 501(c)(4)s reporting political
campaign activities almost doubled from tax year 2008
through tax year 2010; and
The amount of political campaign activities
for large filers (defined as organizations with total
revenue of more than $10 million) almost tripled from
tax year 2008 through tax year 2010.\51\
---------------------------------------------------------------------------
\51\Email chain between Justin Lowe, Justin Abold and others (May
6, 2013) IRS0000494805-29.
---------------------------------------------------------------------------
The report identified two events that occurred
contemporaneously with the drastic rise in the number of
501(c)(4) organizations that reported political campaign
activities: the Citizens United decision and Congress's
consideration of the Affordable Care Act.\52\ Although the
report did not conclude that these events caused a rise in
political spending, by singling them out, it is clear that the
IRS viewed them as significant, relevant factors.
---------------------------------------------------------------------------
\52\Id.
---------------------------------------------------------------------------
It is unclear if IRS management considered OCA's report
when it proposed regulations that would provide guidance on
political activities to 501(c)(4) organizations on November 29,
2013. Regardless, the regulations would have had the effect of
restraining political speech by 501(c)(4) organizations, but
not by other types of tax-exempt organizations. The IRS
received more than 150,000 comments on the proposed regulations
from people and organizations across all parts of the political
spectrum, which were overwhelmingly opposed to the regulations.
In the face of this opposition, on May 22, 2014, the IRS stated
it planned to re-propose the regulations after a thorough
review of the submitted comments.\53\
---------------------------------------------------------------------------
\53\IRS, Update on the Proposed New Regulation on 501(c)(4)
Organizations (May 22, 2014).
---------------------------------------------------------------------------
Although the IRS was unsuccessful in implementing these
regulations, the IRS's aim was clearly aligned with Lerner's
belief that the IRS should take measures within its power as
the executive branch to restrain spending on political speech,
thereby circumventing the effect of the judicial branch's
Citizens United decision.

2. Lerner Exerted a ``Surprising'' Level of Autonomy Over the Tea Party
Applications

The unusual manner in which incoming Tea Party applications
were handled suggests that Lerner did not want other IRS
officials to influence the review process. In spite of Lerner's
concern about political spending, she did not inform her
managers that the IRS had received a large number of
applications from Tea Party organizations, some of which
engaged in political discourse, or that EO was struggling to
process these applications. Lerner's failure to elevate these
issues is discussed in greater detail in Section III(F)(2) of
the Bipartisan Investigative Report.
Lerner recognized that one of her key duties as EO Director
was to keep upper-level management informed. As she explained
to one of her subordinates:

[W]e ensure that all of our [senior] managers are
aware of all highly visible hot button issues. Our job
is to report up to our bosses on anything that might
end up on the front page of the NY Times.\54\
---------------------------------------------------------------------------
\54\Email chain between Lois Lerner, Nanette Downing and others
(May 10-11, 2011) IRS0000014917-20.

Yet, there was little accountability for executives like
Lerner within the TE/GE Division management chain. From late
2010 through May 2013, Lerner reported to Joseph Grant, who was
Acting Division Commissioner of TE/GE. Grant told Committee
staff that he had ``relatively minimal interaction'' with
Lerner.\55\ Grant believed that Lerner ``was enjoying being in
charge of EO . . . that was something that she ran with,'' but
Lerner's managerial style required Grant to ``make more
effort'' to stay aware of what was happening in EO.\56\
Lerner's previous immediate supervisor, Sarah Hall Ingram,
described a similar relationship with Lerner and noted that
their main face-to-face interaction was at quarterly
meetings.\57\ Thus, the onus was on Lerner to keep her
immediate managers informed of information that Lerner deemed
important.
---------------------------------------------------------------------------
\55\SFC Interview of Joseph Grant (Sep. 20, 2013) p. 63.
\56\Id. p. 64.
\57\SFC Interview of Sarah Hall Ingram (Dec. 16, 2013) p. 18.
---------------------------------------------------------------------------
Lerner appeared to have had more frequent contact with
Steve Miller than Grant or Ingram, despite the fact that Miller
was two or three levels above Lerner. Like Lerner, Miller's
background at the IRS was in the EO Division, where he served
as Director while Lerner served below as Director of Rulings
and Agreements in the early 2000s. Miller continued to be in
Lerner's management chain when he was promoted to Division
Commissioner for TE/GE, then to Deputy Commissioner for
Services & Enforcement, and ultimately, to Acting Commissioner
of the IRS. Throughout their time together at the IRS, Lerner
used Miller as a sounding board on tax-exempt issues and Miller
appears to have given Lerner broad authority and autonomy
within EO. In his interview with Committee staff, Miller
stated, ``Lois and I have a good relationship.''\58\
---------------------------------------------------------------------------
\58\SFC Interview of Steve Miller (Dec. 12, 2012) p. 242.
---------------------------------------------------------------------------
On the whole, Miller felt that Lerner ``was pretty good
about elevating things'' that required his attention.\59\ This
made Lerner's decision not to tell him about the Tea Party
applications particularly vexing for Miller, who stated, ``you
know, she was pretty good about [elevating issues], so this was
a bit of a surprise.''\60\ In fact, the first time that Miller
had any indication that something was amiss was in early 2012,
when the IRS started receiving questions from the media and
Congress about burdensome requests made of Tea Party and other
political advocacy applicants. By that point, Lerner had been
overseeing the processing of applications from Tea Party
organizations for almost two years.
---------------------------------------------------------------------------
\59\Id.
\60\Id.
---------------------------------------------------------------------------
Miller was not the only senior executive who Lerner kept in
the dark. As described more fully in Section III(F)(2) of the
Bipartisan Investigative Report, Lerner also failed to inform
Division Commissioner for TE/GE Sarah Hall Ingram, Acting
Division Commissioner for TE/GE Joseph Grant, Assistant Deputy
Commissioner for Services & Enforcement Nikole Flax, and IRS
Commissioner Douglas Shulman about the Tea Party applications.
Several of those managers also seemed surprised that Lerner
failed to brief them before the problems became public. Grant,
her direct supervisor from the end of 2010 through 2013, was
particularly frustrated:

In retrospect, of course I wish that [I had become
aware of Tea Party backlogs before April or May of
2012]. I would have liked to have known about that and
have been informed about the challenges and backlogs
that [EO] faced.\61\
---------------------------------------------------------------------------
\61\SFC Interview of Joseph Grant (Sep. 20, 2013) p. 50.

Lerner's decision not to brief upper-level management about
the Tea Party applications was a break from the norm. Her
omission suggests that there were reasons she did not want them
to be aware of her handling of these applications and did not
want others to become involved--such as those discussed in the
sections immediately below.

3. Lerner Created Roadblocks for Tea Party Applications That Applied
for Tax-Exempt Status

In the absence of input from upper IRS management, Lerner
exerted control over the Tea Party applications starting at the
time when she first became aware that Tea Party organizations
had applied for tax-exempt status in 2010. On May 13, 2010, EO
Technical Acting Manager Steven Grodnitzky alerted Lerner to a
number of open Sensitive Case Reports, including a new one that
had been prepared for the Tea Party applications. Lerner
responded by asking about the Tea Party applications, and
specifically, the basis of their exemption requests. Lerner
instructed Grodnitzky that ``[a]ll cases on your list should
not go out without a heads up to me please.''\62\ Through the
remainder of 2010, Lerner received at least four updates about
the status of Tea Party applications, which noted the growing
number of applications and the IRS's failure to resolve any of
them.\63\
---------------------------------------------------------------------------
\62\Email chain between Lois Lerner, Rob Choi, Steve Grodnitzky,
and others (May 13-16, 2010) IRS0000167872-73.
\63\Email from Steven Grodnitzky to Lois Lerner and Robert Choi
(May 27, 2010) IRS0000141812-14; Email from Theodore Lieber to Lois
Lerner and others (July 30, 2010) IRS0000807076-807115 (email
attachments containing taxpayer information omitted by Committee
staff); Email from Steven Grodnitzky to Lois Lerner and Robert Choi
(Sep. 30, 2010) IRS0000156433-36; Email from Holly Paz to Lois Lerner
and Robert Choi (Nov. 3, 2010) IRS0000156478-81.
---------------------------------------------------------------------------
Lerner grew more concerned about the Tea Party applications
in early 2011. On February 1, 2011, Michael Seto, the Acting
Manager of EO Technical, sent an updated summary of SCRs to
Lerner. She responded, ``Tea Party Matter very dangerous--This
could be the vehicle to go to court on the issue of whether
Citizen's United overturning the ban on corporate spending
applies to tax exempt rules.''\64\ Based on these concerns,
Lerner decided that the Office of Chief Counsel and Judy
Kindell needed to be involved with these applications and that
they should not be handled by Cincinnati but instead by
employees in Washington, D.C.\65\ Lerner must have anticipated
that these directives would inevitably delay the processing of
Tea Party applications:
---------------------------------------------------------------------------
\64\Email chain between Holly Paz, Lois Lerner, and Michael Seto
(Feb. 1-2, 2011) IRS0000159431-33.
\65\Id.
---------------------------------------------------------------------------
Kindell had ``a general reputation of being
slow in all work.'' Further, ``[s]he had a reputation
of having difficulty with deadlines and taking a
lengthy period of time on cases.''\66\ In an email to
her manager Ingram, Lerner described Kindell as
follows: ``[s]he's not real useable (sic) in terms of
making things happen.''\67\
---------------------------------------------------------------------------
\66\SFC Interview of Holly Paz (July 26, 2013) pp. 128, 166.
\67\Email chain between Lois Lerner and Sarah Hall Ingram (April
29, 2010) IRS0000858652-53.
---------------------------------------------------------------------------
Similarly, the Office of Chief Counsel could
take ``3 months, 6 months, a year'' to provide feedback
to EO and generally ``can take a great deal of time''
to respond to EO requests for help.\68\
---------------------------------------------------------------------------
\68\SFC Interview of Steven Grodnitzky (Sep. 25, 2013) p. 145.
---------------------------------------------------------------------------
Finally, as noted by Paz and others, the EO
office in Washington, D.C. had far fewer employees than
Cincinnati who could evaluate and develop applications
for tax-exempt status. Reviewing all of the Tea Party
applications, which by that point exceeded 100, in
Washington, D.C. would certainly result in delays.
Lerner convened a meeting in July 2011 with Paz, Thomas,
and others specifically to discuss the growing backlog of Tea
Party applications. Thomas summarized the outcome of the
meeting in a message to her employees in Cincinnati:

Lois expressed concern with the ``label'' we assigned
to these cases [on the BOLO]. Her concern was centered
around the fact that these type things can get us in
trouble down the road when outsiders request
information and accuse us of ``picking on'' certain
types of organizations. . . . Lois did want everyone to
know that we are handling the cases as we should, i.e.,
the Screening Group starts seeing a pattern of cases
and is elevating the issue.\69\
---------------------------------------------------------------------------
\69\Email chain between Cindy Thomas, Steven Bowling, John Shafer,
and others (July 5, 2011) IRS0000620735-40.

In other words, Lerner was concerned about the perception
that the IRS might be ``picking on'' Tea Party and conservative
organizations, but she was not concerned about how the
applications were actually being handled. Rather than
expediting the applications--some of which had now been pending
for nearly a year and a half--Lerner added more layers of
review and raised hurdles for applicants to clear during the
July 2011 meeting:
EO Technical would develop and draft a guide
sheet for EO Determinations to use when reviewing
501(c)(3) and 501(c)(4) ``advocacy organization''
applications to assist in spotting issues associated
with these types of cases.
EO Determinations would send 15-20 developed
cases to EO Technical for review.
The IRS would require 501(c)(3) and
501(c)(4) ``advocacy organizations'' to make certain
representations regarding compliance with the guide
sheet and certain issues (i.e. they won't politically
intervene) in order to pin them down in the future if
they engage in prohibited activities.
EO Determinations would also look to see if
these organizations have registered with the Federal
Election Commission and if so, they would ask
additional questions.\70\
---------------------------------------------------------------------------
\70\Memorandum from Hilary Goehausen to Michael Seto, Notes from
Meeting on c3/c4 ``advocacy organization'' applications with Lois on
July 5 (July 6, 2011) IRS0000487709.
---------------------------------------------------------------------------
These and other measures implemented under Lerner's watch
ensured that the Tea Party and other conservative organizations
were subjected to multiple levels of review, as explained more
fully in Section VI of the Bipartisan Investigative Report.
Lerner continued to receive updates, including a November 2011
message from Thomas advising that the backlog of political
advocacy applications had grown to more than 161 and that some
of them had been in process since 2009.\71\ In spite of these
warning signs, Lerner did nothing to expedite these
applications until the problems started becoming public in
early 2012.
---------------------------------------------------------------------------
\71\Email chain between Cindy Thomas, Lois Lerner and others (Nov.
3, 2011) IRS0000162845-46 (email attachment containing taxpayer
information omitted by Committee staff).
---------------------------------------------------------------------------
Due to the circuitous process implemented by Lerner, only
one conservative political advocacy organization was granted
tax-exempt status between February 2009 and May 2012. Lerner's
bias against these applicants unquestionably led to these
delays, and is particularly evident when compared to the IRS's
treatment of other applications, discussed immediately below.

4. The IRS Sometimes Responded to Political Inquiries by Quickly
Deciding Certain Applications, But Not When the Inquiries Were About
Tea Party Organizations

Although applications from the Tea Party and conservative
organizations languished at the IRS, this was not the case for
all groups that applied. In cases where the IRS wanted to act
quickly, it did--particularly for other high-profile
applications that attracted political attention.
One example is an application for 501(c)(3) tax-exempt
status filed by Applicant X.\72\ On February 21, 2012, a
Democratic U.S. Senator's office sent a letter to Commissioner
Shulman requesting that the IRS perform an expedited review of
the application.\73\ The letter noted that ``[Applicant X] fits
the profile of a `new markets' district, with its low income
and high unemployment profile . . . [and] will acquire,
finance, construct, rehabilitate and lease . . . a . . .
building for use as a municipal office facility with street
level retail.''\74\ Applicant X had applied for tax-exempt
status in October 2011 and had twice requested expedited
review, and twice the IRS denied the request.
---------------------------------------------------------------------------
\72\The Majority staff has assigned a pseudonym to this taxpayer to
protect its identity. Documents referring to this taxpayer have also
been redacted by the Majority staff to remove identifying information
about the taxpayer and the U.S. Senator who was involved with this
application.
\73\Email chain between Senator's staff, Floyd Williams, Doug
Shulman and others (Feb. 21--Mar. 2, 2012) IRS0000411951-52 (email
attachments containing taxpayer information omitted by Committee
staff).
\74\Id.
---------------------------------------------------------------------------
Commissioner Shulman was scheduled to talk with the Senator
on March 5, 2012.\75\ Shulman was advised to tell the Senator
that he doesn't get involved in individual cases but that he
will convey to EO why the Senator thought the case should be
expedited.\76\ The next day, Flax asked Lerner for an update on
the status of Applicant X. Lerner responded:
---------------------------------------------------------------------------
\75\Shulman told Committee staff that he had no recollection of
whether the conversation actually occurred. SFC Interview of Douglas
Shulman (Dec. 3, 2013) pp. 116-117.
\76\Email chain between Floyd Williams, Doug Shulman and others
(Feb. 21--Mar. 2, 2012) IRS0000411951-52 (email attachments containing
taxpayer information omitted by Committee staff).

The latest is that they will get approved today.
Cindy [Thomas] took another look and they are
comfortable with this one. I've asked Holly [Paz] to
tell Cindy [Thomas] to let us know once it has actually
been approved and closed. There is no ``but'' here.
[I]t will be approved today.\77\
---------------------------------------------------------------------------
\77\Email chain between Lois Lerner, Nikole Flax and others (Mar.
6, 2013) IRS0000429946-47.

Thomas further noted that the case had been approved based
on information already in the IRS's possession. The case had
been ``sitting in [EO's] full development unassigned
inventory'' until the IRS received the Senator's inquiry.\78\
Applicant X's application was approved on March 6, 2012.
---------------------------------------------------------------------------
\78\Id.
---------------------------------------------------------------------------
A second example occurred in late April 2013 when Lerner
instructed Thomas to keep an eye out for an incoming
application from Applicant Y and to send it to Washington, D.C.
so that it could be expedited for review by Lerner's senior
advisors.\79\
---------------------------------------------------------------------------
\79\Email chain between Lois Lerner, Holly Paz and others (Apr. 10-
19, 2013) IRS0000012957-60. The Majority staff has assigned a pseudonym
to this taxpayer to protect its identity. Documents referring to this
taxpayer have also been redacted by the Majority staff to remove
identifying information about the taxpayer and the U.S. Senator who was
involved with this application.
---------------------------------------------------------------------------
Thomas noted that under normal IRS procedures, Applicant Y
did not fall into a category that would receive expedited
processing; nonetheless, at Lerner's direction, Thomas
forwarded the case to Washington, D.C. for expedited processing
when it arrived in late April.\80\ Within a few days, the IRS
had reviewed the application, sent a development letter with
questions, and reviewed the organization's responses. The IRS
reviewers noted a problem that ``would prevent us from being
able to recognize them as a charitable (c)(3)
organization.''\81\ In the meantime, Acting Commissioner Miller
and Treasury Department Chief of Staff Mark Patterson had
spoken with the staff of the Democratic mayor of the city where
Applicant Y was based, and the IRS received a separate inquiry
from a Democratic U.S. Senator.\82\
---------------------------------------------------------------------------
\80\Id.; SFC Interview of Cindy Thomas (July 25, 2013) p. 39.
Thomas and other IRS employees noted that the IRS had also expedited
past applications received from applicants under similar circumstances.
\81\Email from Lois Lerner to Nancy Marks (May 6, 2013)
IRS0000013050-51.
\82\Email chain between Mark Patterson and Steven Miller (May 4,
2013) IRSC032185; Email chain between Andy Megosh, Lois Lerner and
others (Apr. 23, 2013--May 7, 2013) IRS0000207919-20; and SFC Interview
of Mark Patterson (Apr. 7, 2014) pp. 59-61.
---------------------------------------------------------------------------
Thereafter, Lerner, Nancy Marks, and other senior EO staff
spoke with the organization about how they could remedy the
problems that would preclude the IRS from granting tax-exempt
status.\83\ For example, On May 3, 2013, Lerner notified Nikole
Flax that she had personally informed a representative of the
applicant that ``our goal was to assist them in understanding
what troubles us about the application'' and ``to suggest ways
they might modify it. . . .''\84\ Miller also personally met
with the organization's leader.\85\ On May 14, 2013, the IRS
granted Applicant Y tax-exempt 501(c)(3) status.\86\
---------------------------------------------------------------------------
\83\SFC Interview of Steven Miller (Dec. 12, 2013) p. 229.
\84\Email from Lois Lerner to Nikole Flax and Joseph Grant (May 3,
2013) IRS0000662208.
\85\SFC Interview of Steven Miller (Dec. 12, 2013) p. 229.
\86\Letter from IRS to Applicant Y (May 14, 2013).
---------------------------------------------------------------------------
In a third case, a Democratic U.S. Senator's office
inquired about the status of an applicant for tax-exempt
status. Lerner stated, ``Our guys took a real close look at
this and we now think it is an approval and will be able to get
the letter out tomorrow.''\87\
---------------------------------------------------------------------------
\87\Email chain between Lois Lerner, Andy Megosh and others (Dec.
20-21, 2012) IRS0000185655-56.
---------------------------------------------------------------------------
Finally, in January 2013, the IRS received an inquiry from
a Democratic member of Congress about the status of an
application for tax-exempt status. Thomas told Paz that ``I
don't know why [the application] hasn't been assigned yet'' for
review since it had been received by the IRS six months
prior.\88\ Thereafter, the case was reviewed within the next
few days and Paz informed Lerner that it would be approved on
merit. Lerner expressed her frustration to Paz:
---------------------------------------------------------------------------
\88\Email chain between Lois Lerner, Holly Paz, Cindy Thomas, and
others (Jan. 30-Feb. 8, 2013) IRS0000194742-45.

I'm guessing you know this only makes me a little bit
happy. I have to talk to the Congressman about why it
takes so long for case[s] to be assigned and worked. .
. . As I told you--almost every time I ask them to go
back and look at a case that has been sitting--it
miraculously gets closed on merit--after it has been
sitting for months and months awaiting full
development.\89\
---------------------------------------------------------------------------
\89\Id.

Yet Lerner's observation--that the IRS usually resolved
applications within days of receiving a Congressional inquiry--
didn't always prove true. Republican members of Congress who
inquired about Tea Party groups were met with a very different
response from Lerner and her subordinates.
In November 2011, Thomas told Lerner that she had spoken
with representatives from political advocacy organizations who
were ``threatening to contact their Congressional
offices.''\90\ To ``buy time'' so one of the groups ``didn't
contact his Congressional office,'' Thomas informed Lerner that
she ordered one of her subordinate managers to send a
superfluous request for information to the group.\91\ Lerner
did not object to this plan.
---------------------------------------------------------------------------
\90\Email chain between Cindy Thomas, Lois Lerner and others (Nov.
3, 2011) IRS0000162845-46 (email attachment containing taxpayer
information omitted by Committee staff).
\91\Id.
---------------------------------------------------------------------------
In March 2012, Republican Representative Daniel Lungren
wrote a letter to the Treasury Department about an application
for tax-exempt status submitted by the Mother Lode Tea Party,
which Representative Lungren noted had already ``waited 12
months[.]''\92\ The request was routed to Lerner, who reviewed
a draft response to Mr. Lungren in April 2012. In August 2012,
Lerner told Paz:
---------------------------------------------------------------------------
\92\Email chain between Linda McCarty, Jennifer Vozne and others
(Feb. 13-14, 2013) IRS0000542433-38.

At this point, we aren't sending a response [to Mr.
Lungren] because we know he will ask for an end date--
which is why I was asking [for the] status. I think we
need to get the development letter out and that may be
what we say to him--application has raised questions
about whether the org meets requirements and have sent
them a letter trying to flesh out.\93\
---------------------------------------------------------------------------
\93\Email chain between Lois Lerner, Holly Paz and others (Aug. 10-
17, 2012) IRS0000210056-58.

Ten months after Representative Lungren's inquiry, the IRS
had still not submitted a response. At that point, the employee
coordinating the IRS process said, ``I have had absolutely no
luck in getting a response . . . [t]he last thing I heard was
this was with Nikole Flax in Commissioner's office [sic].''\94\
---------------------------------------------------------------------------
\94\Email chain between Linda McCarty, Jennifer Vozne and others
(Feb. 13-14, 2013) IRS0000542433-38.
---------------------------------------------------------------------------
In March 2011, the IRS received two Congressional inquiries
about the status of Tea Party applicants, one of which was
submitted by Republican Representative Wally Herger about
Patriots Educating Concerned Americans Now (PECAN).\95\ These
Tea Party inquiries were not even elevated to Lerner's level;
the IRS apparently did not respond to Representative Herger and
instead, Thomas and Seto subjected the applications to
additional levels of review.\96\
---------------------------------------------------------------------------
\95\Email chain between Cindy Thomas, Steven Bowling and others
(Mar. 29-Apr. 13, 2011) IRS0000576953-55 (Email attachments containing
taxpayer information omitted by Committee staff).
\96\Id.
---------------------------------------------------------------------------
More than a year later, Representative Herger's request
about PECAN was still outstanding when it eventually worked its
way to Lerner in July 2012. By that point, the Taxpayer
Advocate Service made the universal decision that the IRS would
respond to all outstanding inquiries regarding political
advocacy organizations by telling the taxpayer ``that they had
to wait for the decisions to be made.''\97\ Lerner was
enthusiastic about this development, telling Paz:
---------------------------------------------------------------------------
\97\Email chain between Lois Lerner, Holly Paz and others (July
27--Aug. 13, 2012) IRS0000221356-0959.

Well, that's a wonderful piece of news!\98\
---------------------------------------------------------------------------
\98\Id.

Lerner's comment encapsulates her view on the Tea Party
applications: it was fine for them to languish in the
bottomless abyss of IRS administrative review, and any
questions from the outside were a mere annoyance. Indeed, even
after Lerner's handling of Tea Party applications became public
in May 2013, she failed to show any remorse for the harm she
had caused, or even to grasp the significance of her role. In
---------------------------------------------------------------------------
June 2014, she told a friend:

How I got involved in this is simply because I was
the person who announced that the IRS had used
organization names (both conservative and liberal) to
select applications for additional review. The
conservative Republicans were sure they had a Watergate
on their hands and went into overdrive to prove it. $50
Million later and hundreds of documents and interviews
and they still don't have any evidence of their theory.
. . .\99\
---------------------------------------------------------------------------
\99\Email chain between Lois Lerner and Mark Tornwall (June 26,
2014) 00011-14.

---------------------------------------------------------------------------
She also told that same friend:

The Tea Party has decided this is a wonderful
fundraising event for them so they keep trying to keep
it alive. . . . [N]othing corroborating their version
of the story has come out. . . .\100\
---------------------------------------------------------------------------
\100\Email chain between Lois Lerner and Mark Tornwall (July 3-Sep.
4, 2013) 00025-30.

Lerner's comments do not accurately reflect the reality
facing hundreds of conservative organizations that applied for
tax-exempt status. Indeed, as of April 15, 2015, the IRS still
had not rendered a determination on the application filed by
PECAN, despite direct intervention by Representative Herger
years before.\101\ The difficulty that groups like PECAN faced
is particularly stark when compared to the IRS's treatment of
certain groups that received attention from Democratic
politicians, and should not be trivialized.
---------------------------------------------------------------------------
\101\Based on information provided by IRS to Senate Finance
Committee (April 15, 2015).
---------------------------------------------------------------------------

5. Lois Lerner's Management of the EO Examinations Unit Reveals Her
Political Bias Against Conservative Organizations

The influence of Lerner's personal political views on her
official duties is particularly evident in her management of
the IRS division that reviewed allegations of improper
political campaign intervention by tax-exempt organizations.
Indeed, Lerner showed great zeal for using examinations as a
weapon to intimidate tax-exempt organizations:

Just as they got Al Capone on tax evasion instead of
drugs, prostitution and murder, we need to do the same!
[. . .]
By the way, even if we couldn't ``get'' any of them
because of hazards with valuation or comp, that
wouldn't stop me from putting something out that says
we looked at these and it appears . . . .\102\
---------------------------------------------------------------------------
\102\Email chain between Lois Lerner, Nanette Downing, and Jason
Kall (Nov. 14-15, 2012).

As a result of Lerner's heavy-handed management of the EO
Examinations unit, numerous conservative organizations were
subject to unwarranted IRS scrutiny. The effect of Lerner's
bias was compounded by her distrust in the employees who were
supposed to make audit decisions and the failure of those
employees to report her interference to TIGTA.
a. Lois Lerner Closely Managed the Committee That Was
Created to Evaluate Referrals of Alleged Improper
Political Campaign Intervention
The Examinations unit, within the EO Division, monitors
whether organizations that have been approved for tax-exempt
status are operating in accordance with federal tax law.\103\
At all times relevant to the Committee's investigation, Nanette
Downing was the Director of EO Examinations and reported
directly to Lois Lerner.\104\
---------------------------------------------------------------------------
\103\IRS, Charity and Nonprofit Audits: Exempt Organizations
Examinations.
\104\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 6, 9, 15.
---------------------------------------------------------------------------
Unlike most IRS divisions, which are administered at the
IRS headquarters in Washington, D.C., EO Examinations has its
head office in Dallas, Texas. IRS officials explained that EO
Examinations was placed outside of Washington to ensure that
the tax enforcement decisions for exempt organizations were not
improperly influenced by other divisions of the IRS in
Washington.\105\
---------------------------------------------------------------------------
\105\Id. p. 53; SFC Interview of Sarah Hall Ingram (Dec. 16, 2013)
p. 71.
---------------------------------------------------------------------------
Those measures did not stop Lerner from closely managing EO
Examinations or, in some cases, directing EO Examinations to
commence examinations of particular entities. Lerner repeatedly
expressed her concern about Downing's management and questioned
the competence of EO Examinations staff.\106\ Lerner's distrust
of EO Examinations employees and management resulted in her
keeping tight reins on the operation,\107\ thereby
circumventing measures designed to handle allegations of
improper political campaign intervention.
---------------------------------------------------------------------------
\106\See, e.g., Email chain between Lois Lerner, Nanette Downing,
and others (Dec. 12-18, 2012) IRS0000185603-13. In that exchange,
Lerner stated that EO Examinations personnel ``have very little ability
to apply any judgment'' and asked Downing, ``Who, in Exam, is
responsible for oversight of the projects? More and more I'm feeling
like it's me, and that doesn't work.''
\107\The assertion that Lerner maintained tight control of EO
operations is further borne out by Lerner's own admission that she is
the ``queen of control.'' Email from Lois Lerner to Sarah Hall Ingram
(Oct. 25, 2010) IRS0000770062.
---------------------------------------------------------------------------
As described more fully in Section IX(A) of the Bipartisan
Investigative Report, one attempt to insulate the IRS from
political influence was to create the Political Action Review
Committee (PARC). The PARC was a panel of career Federal
employees who reviewed allegations of improper political
campaign intervention and made the final decision on whether to
open an examination of the subject organization.
The decisions of the PARC were supposed to be final.
Downing explained that attempting to override the PARC would
have serious consequences:
Q. And can any one person override a PARC decision?
A. No. No.
Q. So once the PARC makes a decision one way or the
other, no one can come in and say
A. No. And I would expect--I don't think you were in
here when I talked about this. I would expect if
anybody tried to do that, they would turn that in to
TIGTA [for investigation]. We are not allowed to do
that.\108\
---------------------------------------------------------------------------
\108\SFC Interview of Nanette Downing (Dec. 6, 2013) p. 36
(emphasis added).
---------------------------------------------------------------------------
Even with these supposed safeguards, Lerner kept close tabs
on the PARC. Shortly after it was created in 2012, Lerner cast
doubt on the PARC's first set of decisions in a message to
Downing:

Do you have any sense why of the 88 referrals
reviewed by the PARC they only recommended 33 for Exam?
Considering the allegations, that surprises me. Were
any others selected for compliance checks or
anything?\109\
---------------------------------------------------------------------------
\109\Email chain between Lois Lerner and Nanette Downing (Oct. 31-
Nov. 1, 2012) IRS0000184801.

Downing assured Lerner that a ``post review'' of the PARC's
decisions ``will be done.''\110\ Lerner indicated that she
wanted to further review the PARC's work:
---------------------------------------------------------------------------
\110\Id.

I looked at the names of the orgs selected [for
examination] and only one is one that had been in the
news. I would like to see the list of the ones not
selected [for examination].\111\
---------------------------------------------------------------------------
\111\Id.

Concluding the conversation, Lerner noted that she does not
``plan to talk about this with Steve [Miller],'' because Miller
``needs to be outside case selection'' since he had been
elevated to Acting IRS Commissioner.\112\ Lerner apparently saw
no problem with her own involvement in the process. Neither did
Downing, as she did not refer Lerner to TIGTA following this
email exchange. Downing's permissive management enabled Lerner
to inject her personal political bias into the review process
of allegations related to political campaign intervention.
---------------------------------------------------------------------------
\112\Id.
---------------------------------------------------------------------------
b. Lois Lerner Intervened in Audit Decisions Involving
Political Organizations
Apart from the PARC, Lerner was active in the process of
referring taxpayers for audits. As Downing explained:
Q. Would Ms. Lerner ever contact you about specific
taxpayers?
A. Yes. Often, she would have requests for--I mean,
we get that kind of stuff all the time: congressional
requests, media requests. And she would need to know
the status of something and whether or not we got it.
But then, also, if she got referrals, she would send
referrals to us.\113\
---------------------------------------------------------------------------
\113\SFC Interview of Nanette Downing (Dec. 6, 2013) pp. 17-18.
---------------------------------------------------------------------------
Indeed, documents reviewed by the Majority Staff of the
Committee show that Lerner often relayed referrals to EO
Examinations--particularly when the allegations related to
conservative organizations--and in one case, she may have acted
to prevent an audit of a Democratic organization.
i. Conservative Organizations Profiled by ProPublica
A prime example of Lerner's influence within the IRS to
open audits occurred in January 2013. ProPublica published an
article about ``dark money'' groups that named five
conservative organizations: Americans for Responsible
Leadership; Freedom Path; Rightchange.com; America is Not
Stupid; and A Better America.\114\ Lerner sent this article to
Paz, David Fish and Light and requested to meet to discuss the
``status of these applications.''\115\ While we do not know
what Lerner told Paz, Fish and Light at that meeting, analysis
performed by the House Ways and Means Committee found:
---------------------------------------------------------------------------
\114\ProPublica, Controversial Dark Money Group Among Five That
Told IRS They Would Stay Out of Politics, Then Didn't (Jan. 2, 2013).
\115\Email chain between Lois Lerner, Nikole Flax and others (Jan.
2, 2013) IRS0000122510.

[F]our of the five groups were subject to extra-
scrutiny; two of the groups were placed in the IRS'
surveillance program, called a ``Review of
Operations,'' and two were selected to be put before
the [PARC], which determines whether a group will be
audited. Ultimately three of the groups were selected
for audit.\116\
---------------------------------------------------------------------------
\116\House Ways and Means Committee, Letter from Chairman Camp to
Attorney General Eric Holder (Apr. 9, 2014) p.7 (internal citations
omitted).

Lerner's interest in these conservative organizations and
their resulting treatment by the IRS suggests that her left-
leaning political views may have influenced official IRS
actions.
ii. Teen Pregnancy Organization Affiliated With Bristol
Palin
Another example of Lerner's interest in conservative
organizations occurred in 2011, when Lerner considered opening
an audit of a group with ties to Bristol Palin. There were
reports that Palin received $332,500 in compensation from the
Candie's Foundation, a nonprofit organization that seeks to
prevent teen pregnancy. Upon receiving an article containing
this information, Lerner took the initiative to ask her senior
advisors if the IRS should open an audit of the organization:

Thoughts on the Bristol Palin issue? I'm curious that
a [private foundation] can pay any amount to someone
who is not a [disqualified person]? It is a [private
foundation] right? Even if it were a [public charity]--
would that be private benefit--what are the
consequences? I'm asking because I don't know whether
to send to Exam as a referral.\117\
---------------------------------------------------------------------------
\117\Email chain between Lois Lerner, David Fish, Judith Kindell,
and others (April 8, 2011) IRS0000847941-46.

Lerner's willingness to act on this particular news
article--among many that reached her inbox each day--shows that
she was paying close attention to conservative politicians and
organizations. In its review of nearly 1,500,000 pages of
documents provided by the IRS, Majority staff did not find any
instances where Lerner referred a progressive organization for
audit based on a news article.
iii. Crossroads GPS
One conservative group that particularly interested Lerner
was Crossroads GPS, which was founded by Karl Rove and applied
for 501(c)(4) tax-exempt status in 2010. Lerner's handling of
this application, in particular, shows her bias against
conservative organizations that sought tax-exempt status--and
her close connections to outside liberal advocacy groups. Of
particular note, the Majority staff's review of IRS documents
did not reveal any interactions between Lerner and
representatives from outside conservative groups similar to her
interactions with liberal groups described below.
In October 2010, Lerner received complaints about
Crossroads GPS's alleged political activities from the Ways and
Means Oversight Subcommittee Minority staff, as well as two
outside liberal advocacy groups, Democracy 21 and the Campaign
Legal Center.\118\ After learning that Crossroads GPS had filed
an application for tax-exempt status, Lerner suggested that the
application should be reviewed in Washington, D.C. instead of
Cincinnati, where the application would normally be
reviewed.\119\ A month later, on her own initiative, Lerner
followed up to ensure that the October letter from Democracy 21
and the Campaign Legal Center had been sent to EO Examinations
as a referral, so that they could decide whether to open an
audit based on the allegations in the letter.\120\
---------------------------------------------------------------------------
\118\Email chain between Lois Lerner, David Fish, Sarah Hall
Ingram, Joseph Grant, and others (Oct. 6, 2010) IRS0000453771-72; Email
chain between Lois Lerner, Nan Downing and others (Oct. 5-Nov. 4, 2010)
IRS0000459877-95.
\119\Email chain between Lois Lerner, David Fish, Sarah Hall
Ingram, Joseph Grant, and others (Oct. 6, 2010) IRS0000453771-72.
\120\Email chain between Lois Lerner, Joseph Urban and others (Oct.
5-Nov. 4, 2010) IRS0000459877-95.
---------------------------------------------------------------------------
The following May, Downing updated Lerner about two
referrals that EO Examinations had received about Crossroads
GPS.\121\ Paz noted that the Crossroads GPS application for
tax-exempt status had ``just arrived [in Washington, D.C.] from
Cincy.''\122\ Lerner then set up a meeting with her senior EO
managers, Holly Paz, Michael Seto, Judy Kindell, and David
Fish, to discuss ``several moving pieces'' involving Crossroads
GPS, which included ``[r]eferrals in Dallas [and] applications
in Cincy.''\123\ Lerner also told Downing that she wanted to
talk with her about Crossroads GPS.\124\ A few days after that
meeting, the application for Crossroads GPS was delivered to
Paz.\125\
---------------------------------------------------------------------------
\121\Email chain between Lois Lerner, Nan Downing, Holly Paz and
others (May 26-27, 2011) IRS0000196483-84.
\122\Id.
\123\Email chain between Lois Lerner, Nan Downing and others (May
26-27, 2011) IRS0000196485.
\124\Id.
\125\Email chain between Cindy Thomas, Holly Paz and others (June
1-0910, 2011) IRS0000066837-40.
---------------------------------------------------------------------------
Democracy 21 and the Campaign Legal Center subsequently
submitted two additional complaints about Crossroads GPS to the
IRS in July and September 2011.\126\ Lerner directed David Fish
to send the second letter to EO Examinations as a
referral.\127\
---------------------------------------------------------------------------
\126\Petition for Rulemaking on Campaign Activities by Section
501(c)(4) Organizations (July 27, 2011) IRS0000436241-0960; Email chain
between Lois Lerner, Nikole Flax and others (Sep. 28, 2011)
IRS0000511970-93.
\127\Email chain between Lois Lerner, David Fish and others (Sep.
28-30, 2011) IRS0000511994-2018.
---------------------------------------------------------------------------
In May 2012, Democracy 21 and the Campaign Legal Center
wrote again to the IRS, this time requesting that it deny
Crossroads GPS's request for tax-exempt status.\128\ After
receiving this letter, Lerner requested a status update on
Crossroads GPS's application. Sharon Light told Lerner that the
case has been reviewed by two reviewers and that one has
recommended general development while the other has recommended
limited development. Lerner responded by telling Light that
``full development may be the best course. . . .''\129\ Lerner
further stated to Light that ``I will leave it in your capable
hands. Having said that--as they say they have been filing
990s, you should be looking at those as well.''\130\ This
message illustrates Lerner's management style: on the surface,
she left matters in her employees' ``capable hands,'' but she
nudged them in whatever direction she desired--even senior
employees like Light.
---------------------------------------------------------------------------
\128\Email chain between Lois Lerner, Sharon Light and others (May
25, 2012) IRS0000199184-86.
\129\Id.
\130\Id.
---------------------------------------------------------------------------
A few weeks later, on June 20, 2012, Lerner forwarded an
article critical about Crossroads GPS to Downing and asked for
an update about ``referrals on this and what happened[.]''\131\
In response, Downing explained that out of the 16 referrals, 10
were closed after the Political Activities Compliance
Initiative committee decided not to pursue them, three others
were closed by EO Classification, and the remaining three would
be sent to the Review of Operations as part of the dual track
program.\132\
---------------------------------------------------------------------------
\131\Email chain between Lois Lerner, Nan Downing, and others (June
4-20, 2012).
\132\Id. See Section IX(A) of the Bipartisan Investigative Report
for additional discussion of the Review of Operations, as well as other
EO Examinations procedures.
---------------------------------------------------------------------------
On January 4, 2013 at 11:00 AM, Lerner met with Democracy
21 and the Campaign Legal Center to discuss the groups'
proposed regulatory changes that would curtail political
activities of 501(c)(4) organizations.\133\ Victoria Judson,
Associate Chief Counsel for TE/GE, and Ruth Madrigal, from the
Treasury Department's Office of Tax Policy, were also at the
meeting.\134\ Shortly after the meeting, Lerner asked her
technical advisor Thomas Miller if EO Examinations had opened
an audit of Crossroads GPS.\135\ Miller informed Lerner that EO
Examinations had twice considered allegations against
Crossroads GPS, and had decided both times not to start an
audit.\136\ After learning this information, Lerner questioned
EO Examinations' handling of the allegations in an email to
Downing:
---------------------------------------------------------------------------
\133\Email chain between Lois Lerner, Ruth Madrigal, Victoria
Judson, and others (Dec. 14-19, 2012) IRS0000446771-75.
\134\Email chain between Lois Lerner, Victoria Judson, Ruth
Madrigal, and others (Dec. 14, 2012) IRS0000446755-56.
\135\Email chain between Thomas Miller, Lois Lerner and Nanette
Downing (Jan. 4-7, 2013) IRS0000122549-51.
\136\Id.

To get ready for the [January 4, 2013] meeting [with
Democracy 21 and the Campaign Legal Center], I asked
for every document they had sent in over the last
several years because I knew they had sent in several
referrals. I reviewed the information last night and
thought the allegations in the documents were really
damning, so wondered why we hadn't done something with
the org. The first complaint came in 2010 and there
were additional ones in 2011 and 2012.

* * * * * * *

I don't know where we go with this--as I've told you
before--I don't think your guys get it and the way they
look at these cases is going to bite us some day. The
organization at issue is Crossroads GPS, which is on
the top of the list of c4 spenders in the last two
elections. It is in the news regularly as an
organization that is not really a c4, rather it is only
doing political activity--taking in money from large
contributors who wish to remain anonymous and funneling
it into tight electoral races. Yet--twice we rejected
the referrals for somewhat dubious reasons and never
followed up once the 990s were filed.\137\
---------------------------------------------------------------------------
\137\Id. (emphasis added).

Lerner further told Downing that while the organization had
recently been referred to EO Examinations again, ``this is an
org that was a prime candidate for exam when the referrals and
990s first came in.''\138\ Lerner also stated, ``I'm not
confident [EO Examinations employees] will be able to handle
the exam without constant hand holding--the issues here are
going to be whether the expenditures they call general advocacy
are political intervention.''\139\ Lerner closed by instructing
Downing:
---------------------------------------------------------------------------
\138\Id.
\139\Id.

Please keep me apprised of the org's status in the
[Review of Operations] and the outcome of the referral
committee. You should know that we are working on a
denial of the application, which may solve the problem
because we probably will say it isn't exempt. Please
make sure all moves regarding the org are coordinated
up here before we do anything.\140\
---------------------------------------------------------------------------
\140\Id. (emphasis added).

At 3:30 that afternoon, Lerner called a meeting with Paz
and others to discuss the Crossroads GPS application for tax-
exempt status. Paz noted that she ``suspect[ed] this will be
the first of many discussions'' about Crossroads.\141\ EO
Determinations agent Joseph Herr, who has been working on the
Crossroads GPS application for exemption since January 30,
2012, was also invited to the 3:30 meeting. Herr noted in the
case log for the Crossroads GPS application that he
participated on a conference call with EO Technical on January
4, 2013, ``[o]n how best to proceed with case.''\142\ On
January 7, 2013, Herr noted, ``Based on conference begin
reviewing case information, tax law and draft/template advocacy
denial letter, all to think about how to compose the denial
letter.''\143\ These entries reflect the first time in the log
that Herr noted the possibility of denying Crossroads GPS's
application since he was assigned the case in January 2012,
which suggests that he received the direction to deny the case
from Lerner during the conference call that afternoon.\144\
---------------------------------------------------------------------------
\141\Email from Holly Paz to Nancy Marks (Jan. 4, 2013)
IRS0000475846.
\142\EP/EO Case Chronology Record for Crossroads Grassroots Policy
Strategies (undated) IRS0000071224-26.
\143\Id.
\144\In fact, the IRS prepared a draft denial in April 2013. See
Email chain between Sharon Light, Holly Paz, Joseph Herr and others
(April 8-May 30, 2013) IRS0000529074-75 (attachment containing taxpayer
information omitted by Committee staff). As of April 2015-54 months
after Crossroads GPS submitted its application for tax-exempt status--
the IRS had still not rendered a final decision.
---------------------------------------------------------------------------
On January 7, 2013, Downing provided a summary to Lerner of
the referrals made about Crossroads GPS and the decisions of
the PARC not to open audits.\145\ Lerner told Downing that the
reasons given by the PARC are ``most disturbing.'' Lerner
further told Downing:
---------------------------------------------------------------------------
\145\Email chain between Thomas Miller, Lois Lerner and Nanette
Downing (Jan. 4-7, 2013) IRS0000122549-51.

As I said, we are working on the denial for the 1024,
so I need to think about whether to open an exam. I
think yes, but let me cogitate a bit on it.\146\
---------------------------------------------------------------------------
\146\Id. (emphasis added).

If anything is ``disturbing'' about the IRS's handling of
Crossroads GPS, it is Lerner's excessive involvement in all
stages of the application and examination process. Lerner's
actions went beyond mere concern that the IRS would reach the
correct decisions on the application and referrals. Through her
heavy-handed management, she ensured that the application
received particular attention in Washington, D.C. and that the
allegations of improper activity were considered time and time
again--culminating in her discussion with Downing about whether
they should open an examination in January 2013 after her
subordinates had repeatedly declined to do so.
iv. Stupak for Congress, Inc.
In at least one instance, Lerner and other senior IRS
officials may have acted to stop a planned audit of a
Democratic organization.
An organization affiliated with Democratic Congressman Bart
Stupak was selected for examination in April 2010 by the
National Research Program (NRP). TE/GE Division staff
identified the organization as an ``extremely sensitive'' case,
characterizing Stupak as an ``anti-abortion Democrat'' who was
a ``lightning rod for the Republicans and anti-abortion crowd''
and whose ``office was picketed by the Tea Party folks.''\147\
The proposed audit was elevated to Nan Downing, who then asked
Lerner if the IRS should continue with the planned audit.
Lerner, in turn, asked Ingram if the audit should continue.
Ingram suggested that Lerner should see if the NRP would ``toss
them out'' of the planned audit because the organization would
cease to exist after Stupak left office in January 2011. Lerner
indicated that she would follow up with the NRP as Ingram
suggested.\148\
---------------------------------------------------------------------------
\147\Email chain between Lois Lerner, Sarah Hall Ingram, Nan
Downing, and others (Apr. 19-0920, 2010) IRS0000713405-09.
\148\Id.
---------------------------------------------------------------------------
It is unclear if Lerner and Ingram were able to stop the
audit. But regardless, their actions show a willingness to
manipulate the audit process when political issues were at
stake.
c. Nan Downing Allowed Lois Lerner to Make Audit Decisions
and Did Not Refer Her to TIGTA
As noted throughout the discussion above, Downing allowed--
and in some cases enabled--Lerner and other senior IRS
officials to become directly involved in selecting
organizations for examination. Although many of these
discussions appear to be prohibited by IRS policy, their
extended discussion about referrals for Crossroads GPS,
described immediately above, is most troubling. Although Lerner
did not overtly direct Downing to open an audit, Lerner's
emails reveal her belief that the IRS should audit Crossroads
GPS. Lerner's repeated involvement with this conservative
taxpayer showed her persistence in making sure an audit was, in
fact, opened--and further evidence her bias against
organizations on the right side of the political spectrum.
Downing told Committee staff that interfering with the
career Federal employees in EO Examinations charged with
deciding whether to open audits had serious repercussions:

You know, as a revenue agent and, you know, even as
an IRS employee, you know, my folks are taught from the
very beginning about, you know, several things. One is,
you know, no one will tell us who to do an audit on. If
they did, you'd turn that in to TIGTA [for
investigation].\149\
---------------------------------------------------------------------------
\149\SFC Interview of Nanette Downing (Dec. 6, 2013) p. 18.

Downing stated that this rule would also apply to Lerner in
the event that she tried to direct an audit.\150\ Yet Downing
did not refer Lerner to TIGTA.\151\ Downing told Committee
staff that a referral was not necessary because she did not
consider Lerner's emails of January 4, 2013 and January 7, 2013
to be directing an audit:
---------------------------------------------------------------------------
\150\Id. p. 19.
\151\Id. p. 76.
---------------------------------------------------------------------------
Q. Is this Lois Lerner telling you or suggesting that
Exams open up an audit?
A. No. That's not the way I took it. The way I took
it is she worried--we were not lawyers, as I said. We
were accountants. And whether or not we were
correctly--if we knew what we were doing.

* * * * * * *

Q. Well, her statement that ``twice we rejected the
referrals for somewhat dubious reasons,'' doesn't that
suggest the negative
A. That
Q. that the correct decision was not projected?
A. That is not the way I took it. And maybe it was
because of my relationship of her. I did not take it
that she was telling me what to do.\152\
---------------------------------------------------------------------------
\152\Id.
---------------------------------------------------------------------------
Downing told Committee staff that she construed Lerner's
message as a general comment about the referral process, and
that it did not relate to Crossroads GPS specifically:
Q. How did you take the statement, ``Please make sure
all moves regarding the organization are coordinated up
here before we do anything''?

* * * * * * *

A. Okay. So this was--okay. So this one--and I think
she mentions somewhere in here that there's an
application pending. And in our dual track process--so,
to me, it wasn't Crossroads GPS, it was any of them,
that the team, as we built the dual track process, they
are to be cognizant if Rulings and Agreement[s] has an
application. So we're going to go on and start an exam,
but we just want to make sure, what if, right before we
get ready to start exams, they issue a denial? And I
don't even know what their process is, but what if they
deny it? So it's coordinating, making sure that piece
is in my process.
Q. I mean, because there's nothing in this email
chain relating to general process, and it's all
A. No.
Q. with respect to one taxpaying group.
A. But I took it
Q. So that just doesn't follow from the
A. Yeah. But that's how I took it because it's--it's
because of an application pending.

* * * * * * *

Q. So if you took that statement to be a general
statement about the process, why was your response
totally with respect to one group?
A. Well, she was originally asking about
Q. Well, in the statement she's asking about one
group.
A. She was asking about that referral, so I responded
to that. You know, you had to know Lois. You had to
know the emails you got. I responded with the facts,
and the rest of it I just made sure that we had this
built in to the process.

* * * * * * *

Q. So when she says, ``Please make sure all moves
regarding the org are coordinated up here before we do
anything''
A. What I did was what my staffing says: Do we have a
process in place that we know which ones have
applications pending? They said yes.
Q. But did you feel that you had to apprise her of
all moves regarding the org
A. No.
Q. with her?
A. No. What I took from that was, in that process, if
any of them, GPS, Crossroads GPS, anything else, had an
application pending, we built in to the process that if
it was decided for the exam, they had a contact to
reach out with [Rulings and Agreements] to see what the
status was.

* * * * * * *

Q. And then her statement, ``I need to think about
whether to open an exam. I think yes, but let me
cogitate on it a bit,'' that did not, to you, sound
like it was her decision whether or not to open up an
exam on
A. No. No. I didn't take it that way. I took it
about, what is the process, and when we have any
organization that has a potential application, and
where is that application and whether, you know--and,
again, how close is the decision on that
application.\153\
---------------------------------------------------------------------------
\153\Id. pp. 76-85 (portions omitted).
---------------------------------------------------------------------------
In spite of Downing's imaginative interpretation, Lerner
was clearly referring to Crossroads GPS in her messages of
January 4, 2013 and January 7, 2013. These exchanges should
have been referred to TIGTA as they amounted to an overt
attempt by Lerner to open an audit on a specific taxpayer. But
even taking Downing's testimony at face value, which we do not,
her complacent attitude allowed Lerner to exert improper
influence on the examination process.

D. Conclusions Regarding Lerner's Role and Culpability

There can be little doubt that Lois Lerner's personal
political views directed the course of IRS interactions with a
large number of tax-exempt organizations. The IRS's treatment
of these organizations was almost universally consistent with
Lerner's personal political views--this is, supporting
Democratic candidates and opposing conservative tax-exempt
organizations that engaged in political speech. Conservative
organizations that sought to participate in the nation's
political discourse, such as the Tea Party, drew the strongest
ire from Lerner. Her influence led not only to indefinite
delays in the processing of these groups' applications for tax-
exempt status, but also to audits. During that same time, the
IRS generally responded quickly and favorably to nonprofit
organizations that were affiliated with progressive causes or
politicians.
We conclude that Lerner was responsible for harm caused to
conservative taxpayers during her tenure at the IRS. But we
must hold IRS and Treasury management equally responsible for
their failure to exert any meaningful oversight of Lerner's EO
Division. A biased employee, such as Lerner, should not have
been allowed to remain in senior positions for more than 10
years, and should never have been given free reign over such a
vast and influential part of the IRS. To avoid exposing
taxpayers to the risk of biased treatment in the future, the
IRS and Treasury must keep a closer watch of their employees
and ferret out politically-biased behavior.

III. SENIOR IRS OFFICIALS CONTINUOUSLY MISLED CONGRESS ABOUT THE IRS'S
HANDLING OF APPLICATIONS SUBMITTED BY TEA PARTY ORGANIZATIONS

------------------------------------------------------------------------

-------------------------------------------------------------------------
Senior IRS officials including Doug Shulman, Steve Miller, and Lois
Lerner consis-
tently misled Congress about the IRS's targeting of Tea Party and other
political
advocacy groups that were seeking tax exempt status. These
misrepresentations
covered up IRS wrongdoing, allowed the IRS to escape accountability for
its abusive
treatment of Tea Party organizations until the release of the TIGTA
report in May
2013, and materially impeded Congress in the performance of its
Constitutional
oversight responsibilities.
------------------------------------------------------------------------

A. Doug Shulman Misled Congress Regarding the Targeting of Tea Party
Groups

On March 22, 2012, then-Commissioner Doug Shulman testified
before the House Ways and Means Subcommittee on Oversight.\154\
Prior to appearing before that Subcommittee, Shulman had become
aware from press stories, as well as from letters he received
from Members of Congress, of allegations that Tea Party groups
that had filed applications for tax-exempt status were
receiving intrusive development letters from the IRS that
sought unusual information such as the names of their
donors.\155\ Shulman was also aware from these sources that
there existed a backlog of applications for tax-exempt status
and that many of these Tea Party groups had been waiting a
substantial period of time for a decision from the IRS.\156\
Coverage of these issues in the media had been so pervasive
that Shulman anticipated that he might be asked questions
during the hearing regarding processing delays and intrusive
development letters.\157\ During the course of the hearing, the
following colloquy occurred between Representative Boustany and
Commissioner Shulman.
---------------------------------------------------------------------------
\154\Hearing before the Subcommittee on Oversight of the House
Committee on Ways and Means, ``Internal Revenue Service Operations and
the 2012 Tax Filing Season'' (Mar. 22, 2012).
\155\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 58-65.
\156\Id. pp. 39-40.
\157\Id. pp. 70-71.

Mr. Boustany: . . . It has come to my attention, I've
gotten a number of letters, we've seen some recent
press allegations that the IRS is targeting certain Tea
Party groups . . . Can you elaborate on what's going on
with that? Can you give us assurances that the IRS is
not targeting particular groups based on political
leanings?
Mr. Shulman: Thanks for bringing this up. I think
there's been a lot of press about this and a lot of
moving information, so I appreciate the opportunity to
clarify. First, let me start by saying, yes, I can give
you assurances.

* * * * * * *

There is absolutely no targeting. This is the kind of
back-and-forth that happens when people apply for
501(c)(4) status.\158\
---------------------------------------------------------------------------
\158\Hearing before the Subcommittee on Oversight of the House
Committee on Ways and Means, ``Internal Revenue Service Operations and
the 2012 Tax Filing Season'' (Mar. 22, 2012) pp. 93-94 (emphasis
added).

Shulman's response failed to acknowledge several facts of
which he was aware at the time of his testimony. For example,
he knew that the IRS had issued intrusive development letters
to these groups, in many cases seeking the names of donors, yet
he chose to depict these interactions as ``the kind of back-
and-forth that happens'' when the IRS processes an application
for tax-exemption.\159\ Moreover, he was aware of the fact that
these groups were experiencing substantial processing
delays.\160\ The intrusive questions and delays were facts that
clearly suggested that these groups were being treated
differently by the IRS, possibly as a result of their political
views. In light of Shulman's knowledge at the time of his
testimony, it is difficult to reconcile his emphatic assurance
that the IRS was not improperly processing applications from
conservative organizations. Indeed, characterizing these
circumstances as part of the ``back and forth that happens when
people apply for 501(c)(4) status'' was nothing short of
misleading and had the effect of throwing Congress and the
public off the scent of IRS wrongdoing.
---------------------------------------------------------------------------
\159\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 31-37.
\160\Id. pp. 34-35.
---------------------------------------------------------------------------
In early May 2012, just five or six weeks after Shulman's
appearance before the House Ways and Means Subcommittee on
Oversight, Shulman was informed by Steve Miller of the
existence of the BOLO list and that it contained an entry for
the Tea Party.\161\ Later that month, Inspector General George
apprised Shulman that TIGTA was pursuing an investigation into
the use by the IRS of inappropriate criteria in the processing
of applications for tax exempt status.\162\ Thus, by late May
2012, Shulman was not only aware that the IRS had been
improperly focusing on Tea Party groups as a result of their
political views, but also knew that the Inspector General was
launching an investigation into the matter. In spite of this
knowledge, Shulman elected to remain silent and make no effort
whatsoever to correct his recent inaccurate testimony before
the Subcommittee regarding the absence of targeting. His
failures allowed the IRS to actively conceal its mistreatment
of Tea Party and other political advocacy groups for more than
a year until the issuance of the TIGTA report in May 2013, and
thwarted the Subcommittee in the performance of its oversight
responsibilities.
---------------------------------------------------------------------------
\161\Id. pp. 40-52.
\162\Id. pp. 76-77.
---------------------------------------------------------------------------

B. Steve Miller Withheld Information About Political Targeting From the
Congress

During 2012, Steve Miller, while Deputy Commissioner for
Services and Enforcement, was afforded a number of
opportunities to apprise Congress about the use of
inappropriate criteria to target Tea Party and other political
advocacy organizations, but instead, elected at each instance
not to do so.

1. Miller's Response To Senator Hatch's March 14, 2012 Letter Was
Misleading

By letter dated March 14, 2012, Senator Orrin Hatch
together with 11 other Republican Members of the U.S. Senate
penned a letter to Commissioner Shulman regarding their concern
over intrusive IRS inquiries to Tea Party and other
conservative organizations that were seeking tax exemption
under section 501(c)(4).\163\ The letter stated that the
Senators were concerned in ensuring that ``tax compliance
efforts are pursued in a fair, even handed and transparent
manner--without regard to politics of any kind.''\164\ The
letter sought information about how and why the IRS sought
particular types of information from applicants and stated that
the questions were born of ``concerns about selective
enforcement and the duty to treat similarly situated
taxpayers'' in the same fashion.\165\
---------------------------------------------------------------------------
\163\Letter from Senator Orrin Hatch to Commissioner Douglas
Shulman (Mar. 14, 2012) IRS0000509339-42.
\164\Id.
\165\Id.
---------------------------------------------------------------------------
Miller responded by letter dated April 26, 2012.\166\ At
the time of Miller's response, he was aware of a number of
disturbing facts regarding how the IRS was processing
applications for tax-exempt status received from Tea Party and
other political advocacy groups. For example, he knew in
February 2012 that many of the applications for tax exemption
from Tea Party and other political advocacy groups that were
awaiting decision in the Determinations Unit were very
old.\167\ He was also aware of the press stories focusing on
the IRS's use of highly intrusive questions, including
questions about the identity of applicant organizations'
donors.\168\ Miller himself told Senate Finance Committee
investigators that he believed the questions constituted
``overreaching'' by the IRS.\169\ Further, he knew in late
March of 2012 that TIGTA was going to conduct an audit into how
the IRS processed applications for tax exemption under sections
501(c)(4), (5) and (6).\170\ In addition, at the time of his
response to Senator Hatch, Miller had grown alarmed about the
press stories and Congressional inquiries reporting lengthy
processing delays experienced by Tea Party groups and of the
use of intrusive development questions.\171\ Miller testified
that in March 2012, his concerns over these reports caused him
to send Nan Marks, a trusted senior advisor, to visit the
Determinations Unit in Cincinnati to investigate how the cases
were being processed and to report back to him.\172\
---------------------------------------------------------------------------
\166\Letter from Steven T. Miller to Senator Orrin Hatch (Apr. 26,
2012) TIGTA Bates No. 006998-7007.
\167\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 102-103.
\168\Id. pp. 159-160.
\169\Id. p. 159.
\170\Id. pp. 146-147. Email from Richard Daly to Steve Miller and
others (Mar. 29, 2012) IRS0000411131-32.
\171\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 123-130.
\172\Id. p. 129.
---------------------------------------------------------------------------
In spite of these facts, Miller's response to Senator Hatch
of April 26, 2012 actually defended and justified the IRS's
demands from applicant organizations for information such as:
the names of the organizations' donors; copies of social media
posts, speeches, and panel presentations; the names and
qualifications of speakers and participants at events; and
written materials distributed by these organizations at public
gatherings. In his April 26, 2012 response, Miller explained
these highly unusual and intrusive requests--which he
subsequently characterized during his interview with Senate
Finance Committee staff as ``overreaching''--in the following
manner:

The revenue agent uses sound reasoning based on tax
law training and his or her experience to review the
application and identify the additional information
needed to make a proper determination of the
organization's exempt status. The revenue agent
prepares individualized questions and requests for
documents based on the facts and circumstances set
forth in the particular application.''\173\
---------------------------------------------------------------------------
\173\Letter from Steven T. Miller to Senator Orrin Hatch (Apr. 26,
2012) TIGTA Bates No. 006998-7007.

At best, Miller's written response to the Senators was
disingenuous, and at worst, it was plainly false and likely
calculated to forestall further Congressional inquiry into the
matter of how the IRS was processing applications for tax
exemption from Tea Party and other political advocacy groups.

2. Miller Became Aware of Important Information Regarding Targeting
Within a Week of Issuing His Response to Senator Hatch's March 14, 2012
Letter, but Failed To Bring That Information to the Attention of
Congress

During the first week of May 2012--a scant week after
issuing his response to Senator Hatch's letter--Miller was
briefed by Nan Marks on her findings regarding how applications
were being processed.\174\ He then learned first-hand that the
reports of a backlog and the long delays that applicant
organizations were experiencing, in some cases for better than
two years, were accurate.\175\ He also learned from Marks that
the issuance of intrusive development questions by
Determinations Unit staff resulted from a failure to properly
train that staff and to provide it with adequate technical
support.\176\ Most importantly, Marks apprised Miller of the
existence of the BOLO list; that ``Tea Party'' was on the list;
and that applications for tax exemption had been selected for
full development based on the presence of terms in the
applications, such as ``Tea Party,'' ``Patriots,'' and ``9/
12.''\177\
---------------------------------------------------------------------------
\174\SFC Interview of Steven Miller (Dec. 12, 2013) p. 131.
\175\Id. pp. 133-135.
\176\Id. p. 134.
\177\Id. pp. 135-139.
---------------------------------------------------------------------------
Miller told Committee staff during his interview that he
was ``outraged'' when he first learned of the existence of the
BOLO list and felt that it was ``stupid'' and
``inappropriate.''\178\ Miller's outrage over the existence of
the BOLO list stemmed in part from his concern that such a list
that focused on the names of organizations, rather than on
their activities, suggested that the IRS was applying the tax
laws in a partisan way, with regard to the political views of
the organizations whose applications it was considering.\179\
---------------------------------------------------------------------------
\178\Id. pp. 139-141.
\179\Id.
---------------------------------------------------------------------------
Unfortunately, Miller's outrage over the use of terms like
``Tea Party'' to flag applications for full development did not
motivate him to the point of contacting Senator Hatch, to whom
he had most recently written, and to inform him of Marks's
findings. This is particularly troublesome given the fact that
the stated intent of Senator Hatch's letter was his concern
whether the IRS was administering the tax laws in a fair and
even way, ``without regard to politics of any kind''--the very
same concern that Miller formed when he purportedly became
``outraged'' over the fact that the IRS had been flagging
applications for full development based on the political views
of applicant organizations. Not more than a week after writing
to Senator Hatch to provide answers to questions raised by
their now shared concern whether the IRS was administering the
tax laws fairly and without regard to the political views of
tax payers, Miller was in possession of information directly
germane and responsive to that concern. Rather than inform
Senator Hatch of Marks's findings, Miller, once again, elected
to remain silent on the matter.
Of further note, and again reflective of Miller's lack of
candor with the Congress, is the fact that Marks told Miller
that the intrusive development questions resulted from a
failure to adequately train the EO Determinations Unit staff,
as well as a failure to provide that staff with sufficient
technical support.\180\ Accordingly, by the week of May 3,
2012, Miller was fully aware that the intrusive development
letters that had been issued by EO Determinations personnel
most certainly were not the product of ``sound reasoning'' nor
were they ``based on tax law training and . . . experience,''
as he had asserted in his response to Senator Hatch dated April
26, 2012. Miller was content to leave his inaccurate and
misleading response stand without revision, yet another
disingenuous act aimed at obfuscating the true state of affairs
with the IRS's processing of the Tea Party and other political
advocacy applications.
---------------------------------------------------------------------------
\180\Id. p. 134.
---------------------------------------------------------------------------

3. Miller's Response to the June 18, 2012 Letter From Senator Hatch
Regarding the IRS's Attempt to Collect Donor Information From
Applicants Continued Miller's Pattern of Obfuscation

On June 18, 2012, Senator Hatch, together with ten other
Republican Senators, corresponded again with Commissioner
Shulman over the IRS's treatment of Tea Party
organizations.\181\ This time, the focus of the Senators'
attention was on the collection by the IRS of the names of the
donors who made, or were expected to make, a donation to Tea
Party and similar political advocacy organizations seeking tax-
exempt status. As explained in the June 18, 2012 letter, by
operation of law, the identity of donors of tax-exempt
organizations is not information subject to disclosure by the
IRS. However, information provided to the IRS by an
organization in furtherance of its application can be disclosed
to the public once the IRS grants tax-exempt status. Thus, by
asking organizations for the names of their donors as part of
the application process, the IRS was, in effect, subjecting
that information to disclosure and thereby nullifying the
statutory safeguards designed to protect the privacy of donor
information. In light of this anomaly, Senator Hatch wrote to
Commissioner Shulman, posing specific questions about the IRS's
requests for donor information.
---------------------------------------------------------------------------
\181\Letter from Senator Orrin Hatch to Commissioner Douglas
Shulman (June 18, 2012).
---------------------------------------------------------------------------
Miller responded to Senator Hatch's letter three months
later on September 11, 2012.\182\ This response provided Miller
with an excellent opportunity to inform Congress about the BOLO
list and the targeting of Tea Party and similar political
advocacy organizations, facts of which Miller was now well
aware. However, rather than do so, Miller chose to avoid the
topic of targeting entirely, providing a very technical and
carefully drawn response to the immediate questions raised,
that once again justified the IRS's collection of information
regarding the identity of donors. By doing so, Miller elected
to stay the course of obfuscation, relying once again on the
IRS nostrum that:
---------------------------------------------------------------------------
\182\Letter from Steven Miller to Senator Orrin Hatch (Sep. 11,
2012).

Revenue agents use sound reasoning based on tax law
training and their experience to review applications
and identify the additional information needed to make
a proper determination of an organization's exempt
status. . . . As noted above . . . donor information
may be needed for the IRS to make a proper
determination of an organization's exempt status.\183\
---------------------------------------------------------------------------
\183\Id.

Miller's letter was misleading on an even more basic level.
The September 11, 2012 letter failed to note IRS management's
own concerns about the attempt to collect donor information, a
concern that prompted Miller to direct on March 8, 2012, some
six months earlier, that applicant organizations that called
the IRS to discuss requests for the identity of their donors
were to be informed that they did not need to provide that
information.\184\ Miller also failed to inform Senator Hatch
that at the request of Lois Lerner, the Office of the IRS Chief
Counsel had provided an opinion on May 21, 2012, that the donor
information submitted by organizations in response to requests
received from the IRS could be destroyed.\185\ Similarly,
Miller's response of September 26, 2012 omitted the fact that
on June 27, 2012, Holly Paz directed IRS staff to expunge donor
information from files and to send affected applicants a letter
advising them that the donor information would be
destroyed.\186\
---------------------------------------------------------------------------
\184\Email from Nikole Flax to Lois Lerner (Mar. 8, 2012)
IRS0000465957.
\185\Email chain between Margo Stevens, Lois Lerner and Kristen
Witter (May 21, 2012) IRS0000177231.
\186\Email from Holly Paz to Sharon Light and Matthew Giuliano
(June 25, 2012) IRS0000432414.
---------------------------------------------------------------------------
Miller's statements to Congress defending the requests for
donor information when he was fully aware that they were
inappropriate, constituted ``overreaching'' and in fact, had
been halted by the IRS, were false and misleading.

4. Miller's Explanation for Failing To Inform Congress Was a Sham

At Miller's interview with Senate Finance Committee Staff,
he was asked why, after learning from Nan Marks about the BOLO
list and that applications from Tea Party groups had been
flagged for full development based on the basis of their
political views, he did not convey that information to Senator
Hatch. Miller's response was that he did not have all the facts
yet, and that TIGTA was conducting a review.
Q. . . . Why didn't you pick the phone up? Why didn't
you write an email to Senator Hatch? Why didn't you ask
your staff to contact the Senate Finance Committee
staff and have them come over and brief them on what
Ms. Marks had found? All those things were things that
could have been done and should have been done, don't
you think?
A. No. I didn't have all the facts. TIGTA was working
on the facts . . . .\187\
---------------------------------------------------------------------------
\187\SFC Interview of Steve Miller (Dec. 12, 2013) p. 168.
---------------------------------------------------------------------------
Miller took the position that he had no duty to inform
Senator Hatch after learning about the BOLO list and how it had
been used because TIGTA was now investigating the matter in
order to establish ``all the facts.'' In Miller's view, the
involvement of TIGTA obviated any responsibility on his part to
bring the facts of which he was aware to the attention of
Congress.
The flaw in Miller's rationale for failing to inform
Congress is evident when viewed in the light of Miller's
subsequent actions in April and May of 2013. Miller had been
briefed by Inspector General George on March 27, 2013 about
TIGTA findings regarding the IRS's use of inappropriate
criteria in the processing of applications for tax exempt
status.\188\ Shortly thereafter, either in March or April,
Miller was also given a discussion draft of the TIGTA report to
review.\189\ Even though the TIGTA review was not yet completed
nor the report finalized, Miller plotted with Lois Lerner to
disclose the draft findings of that report to the public at an
American Bar Association (ABA) meeting on May 10, 2013, before
issuance of the final report, in an effort to get out in front
of the unfavorable conclusions reached by TIGTA.\190\
Accordingly, while Miller asserted to the Senate Finance
Committee investigators that the ongoing TIGTA investigation
relieved him of any responsibility to inform Congress that
applications from Tea Party and other political advocacy groups
had been flagged for full development based on the political
views of the groups in question, apparently, he felt no such
constraint when it came to leaking the contents of TIGTA's
investigation to the public in furtherance of his own
interests.
---------------------------------------------------------------------------
\188\Id. pp. 210-213.
\189\Id.
\190\Id. p. 218; SFC Interview of Nikole Flax (Nov. 21, 2013) pp.
190-194.
---------------------------------------------------------------------------
In sum, Miller's communications with Congress about IRS
targeting evidenced a pattern of half-truths, misinformation,
and downright deception. Unfortunately, this conduct served
Miller well throughout 2012 and early 2013, as it kept Congress
and the public from confirming as true what was then widely
suspected as IRS wrongdoing in the treatment of Tea Party
organizations.

C. Lois Lerner Actively Covered Up the Existence of IRS Targeting in
Her Communications With Congress

Much the same as her superiors Shulman and Miller, Lerner
also misled Congress about the targeting of Tea Party and other
political advocacy groups.

1. Lerner Misled Staff of the U.S. House of Representatives Committee
on Oversight and Government Reform

In 2012, Lerner provided several briefings to staff of the
U.S. House of Representatives Committee on Oversight and
Government Reform (OGR) regarding the treatment of applications
received from Tea Party and other political advocacy
groups.\191\ During the course of one such briefing on February
24, 2012, she was asked by House Committee staff if the IRS had
changed the criteria for evaluating applications for tax-exempt
status.\192\ Lerner apparently informed House Committee staff
that it had not.\193\ This answer was false, as Lerner knew
that the criteria had changed in 2010 with the issuance of the
BOLO list that identified the Tea Party as an emerging
issue.\194\ She was aware that screeners had used the names of
conservative organizations like ``Tea Party,'' ``Patriots,'' or
``9/12'' as the criteria to select applications for full
development.\195\ She also knew that for other organizations
whose names did not include these terms, screeners had used the
conservative policies advocated by these organizations (e.g.,
balancing the budget, limiting government, reducing taxes,
etc.) as the criteria for selecting their applications.\196\
Moreover, Lerner herself had ostensibly changed the criteria in
July 2011 when she directed Cindy Thomas to remove the ``Tea
Party'' entry from the BOLO list and replace it with the more
generic reference ``advocacy orgs.''\197\
---------------------------------------------------------------------------
\191\U.S. House of Representatives Committee on Oversight and
Government Reform, The Internal Revenue Service's Targeting of
Conservative Tax-Exempt Applicants: Report of Findings for the 113th
Congress (Dec. 23, 2014).
\192\Id. p. 55.
\193\Id.
\194\Email from Justin Lowe to Holly Paz and others (June 27, 2011)
IRS0000431165-66.
\195\Id.
\196\Id.
\197\Email chain between Cindy Thomas, Ronald Bell, Steve Bowling,
John Shafer and others (July 5, 2011) IRS0000620735-40.
---------------------------------------------------------------------------
Subsequently, on April 4, 2012, Lerner provided another
briefing to House Committee staff regarding highly intrusive
development questions that the IRS had sent to Tea Party and
other political advocacy organizations, seeking unusual
information that included, among other things, the names of the
donors of the applicant organizations.\198\ Lerner falsely
characterized these requests for information as not being out
of the ordinary.\199\ As explained more fully below, Lerner
herself had reservations about the information requests months
earlier, information requests that TIGTA subsequently
determined were irrelevant, burdensome and caused delays in the
processing of applications.\200\
---------------------------------------------------------------------------
\198\U.S. House of Representatives Committee on Oversight and
Government Reform, The Internal Revenue Service's Targeting of
Conservative Tax-Exempt Applicants: Report of Findings for the 113th
Congress (Dec. 23, 2014) p. 55.
\199\Id.
\200\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review, Audit Report 2013-10-053 (May 14, 2013).
---------------------------------------------------------------------------
Indeed, on May 4, 2012, Lerner provided a 45 page written
response to a letter dated March 27, 2012 from then Chairman
Issa requesting additional information regarding the intrusive
development questions, such as the names of donors, a list of
issues important to the organization, and details about events
held by the organization.\201\ Lerner explained the
circumstances under which the IRS would request each piece of
information identified in the March 27, 2012 letter and
repeated the IRS ``go-to-line'' that:
---------------------------------------------------------------------------
\201\Letter from Lois Lerner to Chairman Darrell Issa (May 4, 2012)
TIGTA Bates No. 007008-007052.

The revenue agent working a case uses sound reasoning
based on tax law training and his or her experience to
review the application and identify the additional
information needed to make a proper determination of
the organization's tax exempt status. Follow-up
information requested would be based on the facts and
circumstances set forth in the particular
application.\202\
---------------------------------------------------------------------------
\202\Id.

Unfortunately, Lerner failed to convey in her response to
Chairman Issa some very important additional information on the
matter of the development questions. For example, Lerner failed
to state that on February 29, 2012, she had grown concerned
about the highly burdensome development questions (possibly as
a result of the bad press and Congressional inquiries the IRS
was receiving as a consequence of their use) and apprised Holly
Paz to direct EO determinations to stop using the questions, as
---------------------------------------------------------------------------
follows:

Have we given Cincy new guidance on how they might
reduce the burden in the information requests and make
it clearer that recipients can ask for extensions? I
don't want anymore [sic] letters going out on advocacy
cases until the letters have been adjusted. Also, I
have been telling folks that not all the letters are
the same because it depends on the facts. What I've
seen so far though is identical letters--can you
clarify for me please. Thanks\203\
---------------------------------------------------------------------------
\203\Email chain between Lois Lerner, Holly Paz, David Fish, and
Cindy Thomas (Feb. 24-29, 2012) IRS0000209976-77 (emphasis added).

Moreover, on April 24, Holly Paz asked Judith Kindell to
review development letters and to ``create a list of what you
consider to be the 5-10 most troubling questions . . . .''\204\
Kindell complied and prepared a list that she sent to Paz on
April 25, 2012.\205\ Among the seven types of development
questions that Kindell identified as ``troubling'' were
questions asking organizations to identify their donors,
describe the issues important to them, and provide details
regarding events held by them.\206\ These were the very same
questions that Lerner depicted in her May 4, 2012 letter as
authorized under law and appropriate and necessary for the IRS
to ask in order to properly evaluate applications.\207\
---------------------------------------------------------------------------
\204\Email from Holly Paz to Judith Kindell (Apr. 24, 2012)
IRS0000512491.
\205\Email from Judith Kindell to Holly Paz and Sharon Light (Apr.
25, 2012) IRS0000013868.
\206\Id.
\207\Letter from Lois Lerner to Chairman Darrell Issa (May 4, 2012)
TIGTA Bates No. 007008-007052.
---------------------------------------------------------------------------
Accordingly, Lerner's May 4, 2012 response to then-Chairman
Issa created the false impression that the questions were
entirely proper and regular, when in fact, Lerner had
recognized months earlier that they were burdensome and
possibly not tailored to the facts of each application, and had
therefore directed that EO Determinations agents stop using
them. Moreover, among the questions that Lerner justified as
appropriate were questions that her own Senior Technical
Advisor, Judith Kindell, had flagged as ``troubling'' just a
week earlier. Indeed, EO not only viewed these questions as
``troublesome,'' but also concluded that they were
``unnecessary.''\208\ Contrary to Lerner's misleading
statements, the questions then, were not based on ``sound
reasoning,'' ``tax law training and . . . experience'' nor were
they ``based on the facts and circumstances set forth in the
particular application.''
---------------------------------------------------------------------------
\208\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review, Audit Report 2013-10-053 (May 14, 2013).
---------------------------------------------------------------------------

2. Lerner's Testimony Before the House Ways and Means Subcommittee on
Oversight Was False and Misleading

Sometime in April 2013, Steve Miller and Lerner agreed that
she would make a public statement regarding the results of the
TIGTA review in advance of the release of the TIGTA
report.\209\ Lerner ultimately chose the May 10, 2013 ABA Tax
Section's Exempt Organizations Committee Meeting as the venue
for her public announcement.\210\ In order to make the plan
work, Lerner needed to be certain that she would be asked a
question that would afford her the opportunity to preview
TIGTA's conclusions.\211\ Accordingly, she contacted Celia
Roady, an acquaintance and Washington D.C. tax attorney who
would be attending the ABA meeting.\212\ Lerner arranged to
have Roady ask her a ``planted'' question during the question
and answer portion of the ABA meeting.\213\ The relevant
portions of Lerner's statements at the meeting are as follows:
---------------------------------------------------------------------------
\209\SFC Interview of Steven Miller (Dec. 12, 2013) pp. 218-221.
\210\Email from Lois Lerner to Steven Miller (May 8, 2013)
IRS0000209214.
\211\Email from Lois Lerner to Nikole Flax (May 9, 2013)
IRS0000209300.
\212\U.S. News and World Report, Exclusive: Woman Who Asked IRS's
Lois Lerner Scandal-Breaking Question Details Plant (May 17, 2013).
\213\Id.
---------------------------------------------------------------------------
Ms. Roady: Lois, a few months ago there was some
concern about IRS review of 501(c)(4) organizations,
501(c)(4) applications by Tea Party organizations. And
I'm just wondering if you can provide any update on any
of that.
Ms. Lerner: . . . So our line folks in Cincinnati
that handle the applications did what we call
centralization of these cases. They centralized work on
these in one particular group. . . .
However, in this case the way they did the
centralization was not so fine. Instead of referring to
the cases as advocacy cases, they actually used case
names on this list. They used names like Tea Party, or
Patriots. They selected cases simply because the
application had those names in the title.
That was wrong, that was absolutely incorrect, it was
insensitive, and it was inappropriate. That's not how
we go about selecting cases for further review. We
select them for further review because they need
further review, not because they have a particular
name.
The other thing that happened was they also, in some
cases, cases sat around for a while. They also sent
some letters out that were far too broad; they were
asking questions of these organizations that weren't
really necessary in the type of application.
In some cases you probably read that they asked for
contributor names. That's not appropriate, it's not
usual. . . .\214\
---------------------------------------------------------------------------
\214\American Bar Association, Transcript of The Exempt
Organization Tax Review (May 10, 2013) ABA Tax Section's Exempt
Organizations Committee Meeting, Vol. 72, No. 2 pp. 126-127.
---------------------------------------------------------------------------
Lerner's admission that ``line folks'' at the IRS had
targeted Tea Party groups seeking tax-exempt status for
``further review,'' subjected them to delays as well as to
unnecessary and burdensome development questions, and her tepid
apology for those actions, came as a shocking revelation. For
over a year, Lerner, Shulman and Miller had steadfastly denied
any wrongdoing by the IRS in the treatment of Tea Party groups.
Indeed, just two days before her admission and apology, Lerner
appeared before the Subcommittee on Oversight of the House
Committee on Ways and Means.\215\ Lerner was asked by
Representative Joseph Crowley about the status of the IRS's own
investigation into 501(c)(4) groups. The exchange between
Representative Crowley and Lerner was as follows:
---------------------------------------------------------------------------
\215\Hearing Before the Subcommittee on Oversight of the House
Committee on Ways and Means, ``Hearing on the Internal Revenue
Service's Colleges and Universities Compliance Project'' (May 8, 2013).
---------------------------------------------------------------------------
Mr. Crowley: And finally, in the summer of 2012 it
was reported that the IRS was going to undertake a
similar investigation into the one taken here on
colleges and universities on political entities that
fund political campaign ads that were taking donations
anonymously and are tax exempt. These are the folks
that put on hundreds of millions of dollars in campaign
ads in 2012 elections, all with no accountability and
with taxpayer subsidy.
This hearing highlights certain compliance problems
in the tax-exempt sphere, and I hope the IRS
aggressively looks into these political and business
leagues to see if they are abusing the tax-exempt
status. I don't want to speak for the chairman or for
the ranking member, but I know my constituents in
Queens do not want their tax dollars being used to
subsidize political campaigns. I suspect neither do any
of the members on this panel.
So, Ms. Lerner, if you could comment briefly on the
status of the IRS investigation into these political
not-for-profits, I would appreciate that as well.
Ms. Lerner: Well, there was a questionnaire that
began this discussion and there is also a questionnaire
out there, you can look at it on our Web site right
now, that is seeking information from section
501(c)(4), (5), and (6) organizations, and a big piece
of that questionnaire relates to their political
activities. So that is our beginning.
Mr. Crowley: I appreciate that. Thank you.\216\
---------------------------------------------------------------------------
\216\Id.
---------------------------------------------------------------------------
Lerner's referral to an obscure IRS questionnaire in
response to Representative Crowley's point-blank question
regarding the status of the IRS investigation into ``political
not-for-profits'' was pure deception. On May 8, 2013, the date
of her appearance before the Subcommittee on Oversight, Lerner
was aware of a number of incriminating facts. She knew at least
as early as July 2011 that organizations seeking tax-exempt
status that had the names ``Tea Party,'' ``Patriots'' and ``9/
12'' had been singled out on the BOLO List and subjected to
additional scrutiny.\217\ Also, nearly a year before her
exchange with Representative Crowley, Lerner became aware that
TIGTA would conduct a review of how the IRS processed
applications for tax exempt status under section 501(c)(4) that
involved political advocacy issues.\218\ Lerner knew that the
outcome of that review would be condemnatory. She told Sarah
Hall Ingram, Holly Paz and others on June 22, 2012 that:
---------------------------------------------------------------------------
\217\Email chain between Cindy Thomas to Ronald Bell, Steve
Bowling, John Shafer and others (July 5, 2011) IRS0000620735.
\218\Email chain from Lois Lerner to Richard Daly, Sarah Hall
Ingram, Holly Paz and others (June 22-25, 2012). IRS00000000475251-52.

It is what it is. Although the original story isn't
as pretty as we'd like, once we learned this were (sic)
off track, we have done what we can to change the
process, better educate staff and move the cases. So,
we will get dinged, but we took steps before the
``dinging'' to make things better and have written
procedures. So, it is what it is.\219\
---------------------------------------------------------------------------
\219\Id.

By March 21, 2013, Lerner had read TIGTA's Pre-Discussion
Draft Report and thus was aware of the full extent of the
``dinging'' that she was about to receive from TIGTA.\220\ She
knew from reading that draft that TIGTA's findings would not be
limited just to finding fault with the IRS's use of names like
``Tea Party,'' ``9/12'' and ``Patriots'' to identify
applications for further review, but would also ascribe blame
to her organization for causing long delays in the processing
of applications and for using unnecessary and burdensome
development questions, including questions seeking the identity
of donors and the amounts of their contributions. Yet when
asked by Representative Crowley about the status of the
investigation, Lerner could offer only a dissembling reference
to an IRS questionnaire.
---------------------------------------------------------------------------
\220\Email chain between Lois Lerner, Troy Patterson, Holly Paz and
others (Mar. 21, 2013). IRS0000053201.
---------------------------------------------------------------------------
Lerner's failure to truthfully respond to Representative
Crowley's question during the House Subcommittee on Oversight
hearing was yet one more act of deception and obfuscation in a
series of such acts intended to either cover up the IRS's
targeting of Tea Party groups, or mitigate the consequences of
that targeting.
In sum, Shulman, Miller, and Lerner engaged in an active
pattern of deception in their oral and written communications
with Congress regarding the IRS's treatment of Tea Party and
other conservative groups seeking tax-exempt status. That
pattern of deception is evident not only in what these
individuals told Congress about the treatment of Tea Party
groups, but also in what they failed to tell Congress. It is
also apparent in the way that Miller and Lerner conspired to
disclose the existence of the targeting through the use of a
planted question at an ABA meeting, so as to diminish the
repercussions resulting from TIGTA's soon-to-be released
findings. The duplicity in their communications with Congress
allowed the IRS to keep the legislative branch at arm's length
in 2012 and 2013 while they took whatever steps they felt were
necessary to address the targeting. Lerner's email quoted
immediately above clearly shows the plan--when the targeting
was discovered and ultimately disclosed by TIGTA, the IRS would
claim that it had long ago corrected the problem and had taken
the steps necessary to ``make things better.''\221\ By actively
concealing IRS wrongdoing in an effort to avoid Congressional
scrutiny and interference, Shulman, Miller, and Lerner also
undermined Congress's exercise of its Constitutional authority
to oversee the activities of the IRS.
---------------------------------------------------------------------------
\221\Email chain from Lois Lerner to Richard Daly, Sarah Hall
Ingram, Holly Paz and others (June 22-25, 2012). IRS00000000475251-52.
---------------------------------------------------------------------------

IV. THE OBAMA ADMINISTRATION SIGNALED THE IRS AND OTHER AGENCIES TO
TARGET CONSERVATIVE TAX-EXEMPT ORGANIZATIONS

------------------------------------------------------------------------

-------------------------------------------------------------------------
Political pressure from the White House following the Supreme Court's
Citizens
United decision unduly influenced the IRS and other government agencies,
most
notably the Department of Justice and the Federal Election Commission,
to scru-
tinize political spending by 501(c) organizations. These agencies
coordinated
with each other on initiatives targeting conservative tax-exampt
organizations.
------------------------------------------------------------------------

The Democratic Party has consistently called for increased
controls on political spending. In fact, this issue has been
included in their national platforms since 2000:
2000: ``We must restore American's faith in their own
democracy by providing real and comprehensive campaign
finance reform, creating fairer and more open
elections, and breaking the link between special
interests and political influence. The Republicans will
have none of this. Instead of limiting the influence of
the powerful on our politics, they want to raise
contribution limits so even more special interest money
can flow into campaigns.''\222\
---------------------------------------------------------------------------
\222\Democratic Party Platform of 2000 (Aug. 14, 2000).
---------------------------------------------------------------------------
2004: ``To guarantee the integrity of our elections
and to increase voter confidence, we will seek action
to ensure that voting systems are accessible,
independently auditable, accurate, and secure. We will
support the full funding of programs to realize this
goal. Finally, it is the priority of the Democratic
Party to fulfill the promise of election reform.''\223\
---------------------------------------------------------------------------
\223\Democratic Party Platform of 2004 (July 26, 2004).
---------------------------------------------------------------------------
2008: ``We support campaign finance reform to reduce
the influence of moneyed special interests, including
public financing of campaigns combined with free
television and radio time. We will have the wisdom to
put the public interest above special interests.''\224\
---------------------------------------------------------------------------
\224\Democratic Party Platform of 2008 (Aug. 25, 2008).
---------------------------------------------------------------------------
2012: ``Our political system is under assault by
those who believe that special interests should be able
to buy whatever they want in our society, including our
government. Our opponents have applauded the Supreme
Court's decision in Citizens United and welcomed the
new flow of special interest money with open arms. In
stark contrast, we believe we must take immediate
action to curb the influence of lobbyists and special
interests on our political institutions.''\225\
---------------------------------------------------------------------------
\225\Democratic National Platform of 2012 (Sep. 3, 2012).
---------------------------------------------------------------------------
Political pressure to curtail political speech reached a
crescendo following the Supreme Court's January 21, 2010
Citizens United decision, which struck down parts of the
Bipartisan Campaign Reform Act of 2002 (McCain-Feingold
Act).\226\ That same day, President Obama sharply condemned the
decision, stating:
---------------------------------------------------------------------------
\226\558 U.S. 310 (2010).
---------------------------------------------------------------------------
With its ruling today, the Supreme Court has given a
green light to a new stampede of special interest money
in our politics. It is a major victory for big oil,
Wall Street banks, health insurance companies and the
other powerful interests that marshal their power every
day in Washington to drown out the voices of everyday
Americans.\227\
---------------------------------------------------------------------------
\227\The White House, Statement from the President on Today's
Supreme Court Decision (Jan. 21, 2010).
---------------------------------------------------------------------------
A few days later, President Obama used his State of the
Union Address as an opportunity to shame the Court and call for
reform:

With all due deference to separation of powers, last
week the Supreme Court reversed a century of law that I
believe will open the floodgates for special
interests--including foreign corporations--to spend
without limit in our elections. I don't think American
elections should be bankrolled by America's most
powerful interests, or worse, by foreign entities. They
should be decided by the American people. And I'd urge
Democrats and Republicans to pass a bill that helps to
correct some of these problems.\228\
---------------------------------------------------------------------------
\228\The White House, Remarks by the President in the State of the
Union Address (Jan. 27, 2010).

During the next several months leading up to the 2010 mid-
term election, President Obama repeatedly denounced the
Citizens United decision and called on Congress to tighten the
reins on political spending by nonprofits. The calls were
echoed by others in the Obama Administration and by Democrats
in Congress, who introduced the DISCLOSE Act, which would have
required certain nonprofits that engage in political activity
to report information about their donors.\229\ When the Senate
failed to pass the legislation, President Obama castigated
Republican lawmakers and stated that the bill's failure was ``a
victory for special interests and U.S. corporations--including
foreign-controlled ones--who are now allowed to spend unlimited
money to fill our airwaves, mailboxes, and phone lines right up
until Election Day.''\230\
---------------------------------------------------------------------------
\229\S. 3295, 111th Cong. (2010); H.R. 5175, 111th Cong. (2010).
\230\The White House, Statement by the President on the DISCLOSE
Act Vote in the Senate (Sep. 23, 2010).
---------------------------------------------------------------------------
President Obama's statements did not go unnoticed by the
IRS and other government agencies. As discussed more fully in
Section IV(A) of the Bipartisan Investigative Report, employees
throughout the IRS closely monitored media coverage of the
issue. The Division Commissioner for TE/GE, Sarah Hall Ingram,
even referenced the President's words directly in a September
2010 email to other senior managers, stating that the ``secret
donor theme will continue--see Obama salvo and today's Diana
Reehm [sic].''\231\
---------------------------------------------------------------------------
\231\Email chain between Sarah Hall Ingram, Lois Lerner, Joseph
Grant, and others (Sep. 21, 2010) IRS0000508974-76. The Diane Rehm Show
that aired on September 21, 2010 included a segment called ``Campaign
Spending,'' which featured Democratic Congressman Chris Van Hollen and
Sheila Krumholz, Executive Director of the Center for Responsive
Politics, among other guests. Diane Rehm's website describes the
segment as ``Diana and guests explore campaign finance and the
influence of secret donors.'' The Diane Rehm Show, Campaign Spending
(Sep. 21, 2010).
---------------------------------------------------------------------------
As the President repeatedly called for tighter regulation
of spending on political speech, the IRS began to
systematically target Tea Party organizations that applied for
tax-exempt status. Indeed, just a few weeks after the
President's State of the Union address in 2010, the IRS made
the pivotal decision to set aside all incoming Tea Party
applications for special processing. In the following weeks,
IRS executives who closely monitored news about the White House
would set a course for these applicants that subjected them to
long delays, burdensome questions, and ultimately proved fatal
to some of them.
A major focus of the Committee's investigation was to
determine to what extent the IRS coordinated with the
Department of Justice (DOJ), the FEC, and the Treasury
Department in responding to the political pressure from the
White House. Our investigation revealed concerted actions by
these arms of the Obama Administration which had the effect of
targeting conservative tax-exempt organizations.

A. White House Coordination With the IRS

Due to the documentary limitations discussed more fully in
Section II(C) of the Bipartisan Investigative Report, as well
as Lois Lerner's refusal to cooperate with this investigation,
the Committee was not provided with a full record of
communications between the White House and IRS.\232\ But we
need look no further than the President's repeated public
criticism of the Citizens United decision to determine the
White House's influence on other executive agencies. Indeed,
White House's continuous messaging rendered communication to
individual employees unnecessary.
---------------------------------------------------------------------------
\232\In June 2014, the IRS informed Congress that Lois Lerner's
computer experienced a hard drive crash in May 2011, potentially
resulting in emails being lost between January 2009 and May 2011, as
described more fully in Section II(C) of the Bipartisan Investigative
Report. In an effort to obtain lost Lerner emails, then-Chairman Wyden
of the Senate Finance Committee and then-Chairman Camp of the House
Ways and Means Committee sent letters to President Obama, requesting
all communications between Lerner and White House employees between
January 2009 and May 2011. Accordingly, the White House conducted a
search for Lerner emails but did not find any direct emails between
Lerner and White House employees. However, the White House did identify
three emails that both Lerner and White House employees had received
from a third party. On June 18, 2014, the White House responded to the
Chairmen's letters and provided the Committees with these three emails,
totaling 66 pages of documents. After review, the Committee determined
that these emails were not relevant to the Committee's investigation:
one email was spam and the other two were from an individual requesting
tax assistance. See Letter from Chairman Dave Camp to President Barack
Obama (June 16, 2014) and Letter from W. Neil Eggleston to Chairmen
Camp and Wyden (June 18, 2014).
---------------------------------------------------------------------------
The Committee found evidence that several key employees
within the IRS maintained regular contact with the White House.
Most notably, Commissioner Shulman admitted that he had
``pretty regular interactions'' and ``went to a whole number of
meetings'' with White House staff during his tenure at the
IRS.\233\ Indeed, the White House visitor log shows 174 visits
from ``Douglas Shulman'' or ``Doug Shulman'' between February
2009 and December 2012.\234\
---------------------------------------------------------------------------
\233\SFC Interview of Douglas Shulman (Dec. 3, 2013) p. 19.
\234\SFC Interview of Douglas Shulman (Dec. 3, 2013) Interview
Exhibit 8, also available at White House Visitor Access Records, http:/
/www.whitehouse.gov/briefing-room/disclosures/visitor-records. This log
includes visits to all buildings in the White House complex: the White
House proper, the Eisenhower Executive Office Building and the New
Executive Office Building.
---------------------------------------------------------------------------
Analysis by the House Ways & Means Committee staff shows
that at least 17 entries on this log also appear on Shulman's
calendar.\235\
---------------------------------------------------------------------------
\235\Id.; SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 87-
116; and selected entries from Douglas Shulman calendar, IRS0000385548-
49, IRS0000385566, IRS0000385577, IRS0000385584, IRS0000385604 and
IRS0000385603.
---------------------------------------------------------------------------
When interviewed by Committee staff, Shulman indicated that
his meetings with White House staff concerned implementation of
the Affordable Care Act; issues related to the IRS budget; tax
provisions in the American Recovery and Reinvestment Act;
economic roundtables and other high-level domestic policy
matters involving the IRS; and events open to the general
public, such as the Easter Egg Roll.\236\ However, Shulman
could not recall anything about a number of his other meetings
with White House employees.\237\
---------------------------------------------------------------------------
\236\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 19-22, 87-
116; Hearing before the House Oversight and Government Reform
Committee, ``The IRS: Targeting Americans for their Political Beliefs''
(May 22, 2013) p. 51 (extraneous pages omitted).
\237\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 90-91, 93-
95, 97, 101, 104, 106-107.
---------------------------------------------------------------------------
Shulman described four in-person meetings with President
Obama:
a press conference with the President and
Treasury Secretary Geithner about offshore tax
proposals on May 4, 2009;\238\
---------------------------------------------------------------------------
\238\Id. p. 93.
---------------------------------------------------------------------------
a meeting where Shulman presented the daily
economic briefing to the President about general
matters of the tax gap on October 21, 2009;\239\
---------------------------------------------------------------------------
\239\Id. p. 96.
---------------------------------------------------------------------------
a meeting with the President and other heads
of agencies about how to improve the government on June
6, 2011;\240\ and
---------------------------------------------------------------------------
\240\Id. pp. 111-12.
---------------------------------------------------------------------------
a photo-op with the President on December
14, 2012 after Shulman's term as IRS Commissioner
expired.\241\
---------------------------------------------------------------------------
\241\Id. p. 116.
---------------------------------------------------------------------------
Shulman denied that the targeting of Tea Party
organizations was ever discussed at any meeting with White
House staff or the President.\242\ Several other IRS employees
met with White House staff between 2010 and 2013. Like Shulman,
those employees denied that they discussed the Tea Party
applications with anyone in the White House or received any
directions about how the applications should be handled.
---------------------------------------------------------------------------
\242\Hearing before the House Oversight and Government Reform
Committee, ``The IRS: Targeting Americans for their Political Beliefs''
(May 22, 2013).
---------------------------------------------------------------------------
We determined that the White House was briefed by Treasury
officials before TIGTA released its report publicly. Former
Treasury Chief of Staff Mark Patterson told Committee staff
that he spoke with Mark Childress, who at that time was a
Deputy Chief of Staff at the White House, twice in April or May
2013 about the IRS's plan to apologize in advance of the
forthcoming TIGTA report.\243\ Childress concurred with
Patterson's view that if the IRS apologized, it should do so
only once.\244\ Patterson does not know if Childress spoke with
anyone else at the White House about this issue.\245\ Former
Treasury Deputy Secretary Neal Wolin and Patterson indicated
that, to their knowledge, the only meetings with the President
and other White House staff about the Tea Party targeting
occurred shortly after the TIGTA report was released.\246\ The
Committee did not interview any White House employees during
the course of the investigation.
---------------------------------------------------------------------------
\243\SFC Interview of Mark Patterson (Apr. 7, 2014) pp. 33-36.
\244\Id.
\245\Id.
\246\Id. pp. 36-42; SFC Interview of Neal Wolin (May 1, 2014) pp.
22-25.
---------------------------------------------------------------------------
The Treasury Department and the White House also had
advance notice about the IRS's loss of information potentially
relevant to this investigation caused by Lois Lerner's hard
drive crash. As described more fully in Section II(C) of the
Bipartisan Investigative Report, the IRS first discovered a gap
in Lerner's emails in early February 2014. The IRS did not
inform Congress of this problem--which was material to this and
several other Congressional investigations--until June 13,
2014. However, the Treasury Department learned of the problem
in April 2014, when a senior IRS advisor notified an attorney
in the Treasury's Office of General Counsel.\247\ Treasury, in
turn, informed the White House shortly thereafter.\248\
---------------------------------------------------------------------------
\247\TIGTA Memorandum of Interview or Activity, Personal Interview
of Catherine Duval (July 1, 2014).
\248\Letter from Neil Eggleston to Chairman Camp and Chairman Wyden
(June 18, 2014).
---------------------------------------------------------------------------
Overall, it is apparent that it was unnecessary for the
President to direct any individual government employee to
target the Tea Party and conservative organizations. Instead,
the White House's frequent public statements condemning
political spending ensured that government agencies were
acutely aware of the President's wishes and they responded
accordingly.

B. The DOJ Enlisted the IRS's Help in Potential Prosecution of
Organizations Engaged in Political Speech

President Obama's repeated criticism of the Supreme Court's
Citizens United decision and his frequent calls to curtail
political spending quickly infiltrated the halls of the DOJ.
One option that DOJ officials considered was the feasibility of
prosecuting 501(c) organizations for engaging in political
speech.
The Public Integrity Section (PIN) of the DOJ's Criminal
Division combats corruption of public officials and prosecutes
election crimes.\249\ Documents produced to the Committee show
that Lois Lerner was the PIN's key contact at the IRS, and in
this capacity she provided DOJ with critical data and access to
IRS officials as she coordinated the IRS's response to DOJ's
requests for assistance. Lois Lerner and PIN employees were
communicating with each other and discussing campaign finance
options as early as March 2009.\250\ EO and DOJ staff were also
discussing the Tea Party as early as July 2010 when staff
discussed a campaign ad for Tea Party Congressional Candidate
Rick Barber.\251\ Emails produced to the committee document a
clear, deliberate, and multi-year effort on the part of DOJ to
scrutinize conservative tax-exempt organizations.
---------------------------------------------------------------------------
\249\DOJ, Public Integrity Section.
\250\Email chain between Craig Donsanto, Lois Lerner and others
(Mar. 6, 2009) SFC IRS 000211
\251\Email chain between Justin Lowe, Nicole Siegel and others
(June 30-July 1, 2010) SFC IRS 000751.
---------------------------------------------------------------------------

1. In 2010, the DOJ Enlisted the IRS to Help Examine Political Spending
by Tax Exempt Organizations

On September 21, 2010, Jack Smith, PIN Chief, wrote to his
subordinates Raymond Husler, PIN Principle Deputy Chief, Justin
Shur, PIN Deputy Chief, and Richard Pilger, Director of the
Election Crimes Branch, about a New York Times story on
501(c)(4)s intentionally using donations for political spending
in order to skirt campaign finance law:

This seems egregious to me--could we ever charge a
371 conspiracy to violate laws of the USA for misuse of
such non profits [sic] to get around existing campaign
finance laws + limits? I know 501s are legal but if
they are knowingly using them beyond what they are
allowed to use them for (and we could prove that
factually)?\252\
---------------------------------------------------------------------------
\252\Email chain between Jack Smith, Richard Pilger and others
(Sep. 21-22, 2010) SFC IRS 000004. Although not noted by name, it
appears that the DOJ employees were referring to a September 21, 2010
New York Times article titled ``Donor Names Remain Secret as Rules
Shift.''
---------------------------------------------------------------------------
Smith then recommended that PIN meet with TE/GE Division
Commissioner Sarah Hall Ingram to discuss the feasibility of
his idea. The following day, Pilger expressed skepticism about
Smith's plan and advised him to take an alternate path forward:

It would be good to gear up some enforcement, but
very challenging as criminal work in the near term
unless there is coordination with campaigns. Absent
coordination, the Department's way in is probably most
directly through Tax Division.\253\
---------------------------------------------------------------------------
\253\Id.

Nancy Simmons, PIN Senior Counsel, agreed with Pilger's
assessment, stating, ``This area has been the subject of much
debate and press articles over the past, but I don't see a
viable way to make a prosecutable federal case here.''\254\
Despite the concerns raised by his staff, Smith decided to
press forward with his plan and set up a meeting on September
22 with Pilger, Simmons and others to discuss these
issues.\255\ The following week, PIN employees Smith, Shur,
Simmons, Pilger, and Husler met again to discuss a ``Possible
501/Campaign Finance Investigation.''\256\
---------------------------------------------------------------------------
\254\Id.
\255\Email calendar invite from Jack Smith (Sep. 22, 2010) SFC IRS
000006. Email calendar invite from Richard Pilger to Nancy Simmons
(Sep. 22, 2010) SFC IRS 000007.
\256\Email from Jack Smith to Richard Pilger and others (Sep. 30,
2010) SFC IRS 000016.
---------------------------------------------------------------------------
On September 29, Pilger reached out to Sarah Hall Ingram's
office to set up a meeting with the IRS to discuss 501(c)(4)
issues. Ingram told her staff, ``we have to do this'' but since
she was traveling, Ingram asked Lois Lerner to organize the
meeting.\257\ The IRS planned to:
---------------------------------------------------------------------------
\257\Email chain between Richard Pilger, Cynthia Brown and Sarah
Hall Ingram (Sep. 29, 2010) IRSC038433; Email chain between Sarah Hall
Ingram, Richard Pilger, Lois Lerner, and others (Sep. 29, 2010)
IRSC038466.

[W]alk [PIN] through the basic civil law rules within
our jurisdiction and find out what if anything else
they are looking for. If they need more than the primer
then we would need to assign carefully to preserve the
civil-criminal wall. These are not tax people so
[Lerner] may also take Joe Urban to do clear perimeters
about tax info should they want to do any 6103 fishing
(as opposed to public record 6104 info).\258\
---------------------------------------------------------------------------
\258\Email chain between Sarah Hall Ingram, Richard Pilger, Lois
Lerner and others (Sep. 29, 2010) IRSC038466.

On Monday, October 4, Lerner and Pilger spoke in
preparation for Friday's meeting.\259\ During the call, Lerner
and Pilger discussed having the IRS provide the DOJ and the
Federal Bureau of Investigation (FBI) with 501(c)(4) filing
data and inviting the FBI to attend the Friday meeting.
---------------------------------------------------------------------------
\259\Email chain between Richard Pilger, Lois Lerner and Cynthia
Brown (Sep. 29--Oct. 2, 2010) SFC IRS 000017-18.
---------------------------------------------------------------------------
On Friday, October 8, the IRS, DOJ and FBI held their first
meeting to discuss political spending by 501(c)(4)
organizations.\260\ Siri Buller, an employee in EO Technical,
prepared a summary about what was discussed during this meeting
that included the following points:
---------------------------------------------------------------------------
\260\Email calendar invite from Richard Pilger to Sarah Hall
Ingram, Jack Smith and others (Oct. 8, 2010) SFC IRS 000038. Email
chain between Lois Lerner, Richard Pilger, Brian Fitzpatrick, and
others (Oct. 6--7, 2010) SFC IRS 000034-35
---------------------------------------------------------------------------
``[PIN] attorneys expressed concern that
certain section 501(c) organizations are actually
political committees posing' as if they are not subject
to FEC law, and therefore may be subject to criminal
liability. The attorneys mentioned several possible
theories to bring criminal charges under FEC law,''
including a partnership between DOJ, FEC and IRS.
Lerner explained the tax law surrounding
501(c)(4)s and challenges to criminally prosecuting
these organizations including confusing terminology and
a lack of clear definitions and rulings.\261\
---------------------------------------------------------------------------
\261\Email from Siri Buller to Lois Lerner, Judith Kindell and
others (Oct. 11, 2010) IRSC038444-46. The IRS also provided the DOJ
with a series of documents regarding political activity of 501(c)(4)s.
Email from Siri Buller to Joseph Urban (Oct. 7, 2010) IRSC038472-73
---------------------------------------------------------------------------
In a follow-up meeting a few weeks later, Pilger asked for
a contact from the IRS so that PIN could further discuss
``criminal tax enforcement against tax exempt organizations''
with the IRS.\262\ Nancy Marks provided Pilger with the
requested contact but noted the very unusual nature of DOJ's
inquiry and warned that the IRS had not ``seen activity that
rises to the level of criminal investigation.''\263\
Apparently, the DOJ's overly zealous attempts to criminally
prosecute tax-exempt groups were enough to make even the IRS
uncomfortable.
---------------------------------------------------------------------------
\262\Email chain between Joseph Urban, Nancy Marks and others (Oct.
19, 2010) IRSC038471.
\263\Id.
---------------------------------------------------------------------------

2. The FBI Was Investigating Tax-Exempt Organizations in 2010

The FBI is tasked with investigating tax fraud and
performing counterterrorism operations as part of its law
enforcement responsibilities, and the FBI routinely coordinates
work on these issues with the IRS. Cooperation between agencies
is common during law enforcement actions and allows law
enforcement personnel to take advantage of the expertise
provided by other government agencies. This cooperation between
the FBI and IRS was a common occurrence both before and during
the time the IRS was inappropriately targeting conservative
tax-exempt organizations, and the Committee possesses emails
documenting numerous instances of cooperation that appears to
be appropriate.
Nonetheless, one set of interactions between the agencies
raises questions of impropriety. On October 5, Lerner informed
her staff about DOJ's request for 501(c)(4) filing data:

They [DOJ] would like to begin looking at 990s from
last year for c4 orgs. They are interested in the
reporting for political and lobbying activity. How
quickly could I get disks to them on this? Also would
990 EZ filers have information on lobbying and
political activity on the EZ?\264\
---------------------------------------------------------------------------
\264\The 990 and 990 EZ forms are the annual tax return forms filed
by 501(c)(4) organizations. Email chain between Lois Lerner, Cheryl
Chasin, Sherry Whitaker, and others (Oct. 5, 2010) IRS0000902548-50

Lerner's staff immediately began working on this request,
compiling a list of 501(c)(4)s that had engaged in political
activity between 2007-2010.\265\ Over the next couple of days
Lerner and her staff worked with the DOJ to nail down details
about the request as they shepherded DOJ's request through the
IRS bureaucracy.\266\
---------------------------------------------------------------------------
\265\Cheryl Chasin evaluated if a 501(c)(4) was engaged in
political activity based on the Form 990. Email chain between Lois
Lerner, Cheryl Chasin, Sherry Whitaker and others (Oct. 5, 2010)
IRS0000902548-50; Email chain between Lois Lerner, Judith Kindell,
Sherry Whitaker and other (Oct. 5--Nov. 7, 2010) IRS0000807007-08.
\266\The IRS provided DOJ only with publically available data and
did not produce the protected Schedule B of the 990 form. Email chain
between Judith Kindell and Cheryl Chasin (Oct. 5, 2010) IRS0000902536-
37; Email chain between Lois Lerner, Cheryl Chasin, Sherry Whitaker,
and others (Oct. 5, 2010) IRS0000902548-50; Email chain between Lois
Lerner and Richard Pilger (Oct. 5-7, 2010) IRSC038475-76; Email chain
between Sherry Whitaker and David Hamilton (Oct. 5, 2010) IRSC038477-
78; Email chain between Sherry Whitaker and David Hamilton (Oct. 5,
2010) IRSC038479-80; Email chain between Lois Lerner, Richard Pilger,
Sherry Whitaker, and others (Oct. 5-7, 2010) SFC IRS 000034-35; Email
chain between Lois Lerner, Richard Pilger, and Sherry Whitaker (Oct. 5-
7, 2010) SFC IRS 000036-37.
---------------------------------------------------------------------------
On October 22, the IRS sent the requested documents,
totaling 21 DVDs of information, to FBI Supervisory Special
Agent Brian Fitzpatrick in Washington D.C.\267\ These DVDs
contained the 990s filed between 2007 and 2010 by 501(c)(4)s
that had indicated they had engaged in some level of political
activity.\268\ On November 4, Lerner followed up with her staff
to verify that the 990s had been sent to the FBI.\269\
---------------------------------------------------------------------------
\267\Email chain between Sherry Whitaker and David Hamilton (Oct.
7-22, 2010) IRSC038436.
\268\Email chain between Lois Lerner, Judith Kindell, Sherry
Whitaker and others (Oct. 5--Nov. 7, 2010) IRS0000807007-08; Email
chain between Judith Kindell and Cheryl Chasin (Oct. 5, 2010)
IRS0000902536-37.
\269\Email chain between Lois Lerner, Judith Kindell, Sherry
Whitaker, and others (Oct. 5--Nov. 7, 2010) IRS0000807007-08.
---------------------------------------------------------------------------
The FBI's interest in this information, and the IRS's
willingness to provide it, raises the question of whether the
FBI was used by the administration to target political advocacy
organizations.

3. The DOJ Again Reached Out to the IRS for Assistance in 2013

The IRS and DOJ continued to discuss political spending by
501(c) organizations sporadically throughout 2011 and
2012.\270\ Serious consideration of prosecuting 501(c)
organizations reemerged just days before news of the Tea Party
targeting scandal broke.
---------------------------------------------------------------------------
\270\In late 2011 and early 2012, the IRS, DOJ, and FEC worked on a
report to The Council of Europe's Group of States against Corruption
(GRECO), explaining U.S. campaign finance law to foreign tax officials.
See Email from Jane Ley to Lois Lerner, Judith Kindell and others (Nov.
18, 2011) FECSUBP5000052-93; Email chain between John Brandolino, Nancy
Simmons, Lois Lerner, Nancy Simmons, and others (Jan. 26-27, 2012)
IRS0000313073-74; Email chain between Jane Ley, Lois Lerner and others
(Nov. 19-21, 2011) IRS0000714413-15; Email chain between Jane Ley,
Nancy Simmons, Lois Lerner and others (Nov. 19-21, 2011) IRS0000714408-
09; Email chain between Lois Lerner and Richard Pilger (Jan. 26, 2011)
SFC IRS 0000194-95.
---------------------------------------------------------------------------
In early 2013, DOJ gave Democratic staff of the Senate
Judiciary Committee's Subcommittee on Crime and Terrorism a
briefing on:

The Department of Justice's approach to and
investigation or prosecution of . . . material false
statements to the IRS regarding political activity in
order to obtain and maintain 501(c)(4) status . . .
[and] knowing and willful violations of disclosure
rules.\271\
---------------------------------------------------------------------------
\271\Email chains between DOJ staff and Democratic Staff of the
Senate Judiciary Committee (Nov. 2012--Mar. 2013).

On April 9, 2013, the Senate Judiciary Committee's
Subcommittee on Crime and Terrorism held a hearing entitled
``Current Issues in Campaign Finance Law Enforcement.''
Subcommittee Chairman Sheldon Whitehouse questioned IRS and DOJ
witnesses as to why they had failed to prosecute 501(c)(4)
organizations that appeared to make false statements regarding
---------------------------------------------------------------------------
their political campaign activities:

I would urge that the Department and the Service get
together and rethink whether in these two specific
areas, which I think bear little resemblance to
traditional tax violations and are in fact very plain-
vanilla criminal cases . . . or whether the Department
could not proceed to . . . put together a criminal case
showing a fairly straightforward false statement or a
fairly [straightforward] shell corporation disclosure
violation.\272\
---------------------------------------------------------------------------
\272\Hearing before the Subcommittee on Crime and Terrorism of the
Senate Judiciary Committee, ``Current Issues in Campaign Finance Law''
(April 9, 2013) pp. 13-14 (extraneous pages omitted).

In an apparent response to political pressure from
Democrats, Richard Pilger again reached out to Lerner for
assistance in May 2013--just two days before Lois Lerner
revealed that the IRS had been targeting conservative groups.
---------------------------------------------------------------------------
Lerner informed her colleagues of DOJ's meeting request:

[Pilger] wanted to know who at IRS the DOJ folks
could talk to about Sen. Whitehouse [sic] idea at the
hearing that DOJ could piece together false statement
cases about applicants who ``lied'' on their 1024s--
saying they weren't planning on doing political
activity, and then turning around and making large
visible political expenditures. DOJ is feeling like it
needs to respond, but want 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
programs.\273\
---------------------------------------------------------------------------
\273\Email chain between Lois Lerner, Nikole Flax and others (May
8-9, 2013) IRS0000209398-400.

In response to Lerner's email, Nikole Flax expressed
support for DOJ's idea and asked about the potential of
inviting the FEC to also attend the meeting. After some
deliberation, Lerner decided to let DOJ invite the FEC, and she
also recommended inviting IRS Criminal Investigations Division
and their counsel to the meeting.\274\ On May 10, 2013, Lerner
revealed that the IRS had been targeting Tea Party
organizations. Even in the midst of the fierce backlash that
resulted from this revelation, she continued to assist DOJ in
their efforts to target tax-exempt groups. On the evening of
May 10, Lerner told Pilger that Nancy Marks would work on
arranging this meeting between the IRS and the DOJ.\275\
Majority staff does not know if this meeting ever occurred, as
the IRS produced no further records regarding this meeting.
---------------------------------------------------------------------------
\274\Id.
\275\Email chain between Richard Pilger and Lois Lerner (May 8,
2013) SFC IRS 000201; Email chain between Richard Pilger, Lois Lerner
and others (May 8-10, 2013) SFC IRS 000204.
---------------------------------------------------------------------------
Throughout its dealings with DOJ, the IRS provided timely
response to requests for information and assistance. Lerner was
quick to respond to DOJ staff. On multiple occasions Lerner
made herself available for calls, sometimes within a few
minutes after receiving DOJ's request for assistance. Instead
of delegating to her subordinates, Lerner personally handled
these requests and she guided them through the IRS bureaucracy.
These examples illustrate a multi-year coordinated effort
between the IRS and the DOJ to constrain political spending by
tax-exempt organizations, pursuant to the President's public
statements and views.

C. The FEC and the IRS Worked Together To Target Conservative
Organizations

In response to mounting pressure to constrain political
spending in recent years, the FEC increased its scrutiny of
political speech. Indeed, some of this pressure predated
President Obama's administration as part of a broader
Democratic push to limit the amount of money in politics, as
noted above. But following the calls for reform after Citizens
United, the FEC's scrutiny of conservative tax-exempt
organizations reached new levels.
We found that the FEC worked with the IRS to investigate
conservative organizations--but not any progressive
organizations--with Lois Lerner's eager assistance. Lerner had
previously worked at the FEC and was well known for her
aggressive investigation of conservative groups, particularly
those that she believed were attempting to expand the influence
of money in politics.\276\ Documents produced to the Committee
show that the FEC also worked with the IRS on broader political
spending issues, concurrent with the IRS's systematic targeting
of Tea Party applications for tax-exempt status.
---------------------------------------------------------------------------
\276\National Review, Lois Lerner at the FEC (May 23, 2013).
---------------------------------------------------------------------------

1. The FEC Used Information Provided by the IRS To Target Four
Conservative Organizations

On November 18, 2013, then-Ranking Member Hatch sent a
letter to the Chair of the FEC requesting that the FEC provide
all documents reflecting communications between FEC employees
William Powers and Wade Sovonick and any employee of the
Treasury Department (including the IRS), from January 2006 to
the present. Lisa Stevenson, Deputy General Counsel--Law, FEC,
responded to Senator Hatch's letter via email on November 26,
2013.\277\ Ms. Stevenson noted that she had attached a complete
set of responsive documents the FEC was producing in response
to Senator Hatch's letter. The Committee also made a similar
request to the IRS for communications its employees had with
the FEC. On September 11, 2013, the IRS informed Senator Hatch
that it had produced all relevant documents.\278\ Review by the
Majority staff confirmed that many of the same documents were
produced by both agencies and that there were no substantive
differences or omissions.
---------------------------------------------------------------------------
\277\Email from Lisa Stevenson to SFC Staff (Nov. 26, 2013).
\278\Letter from Leonard Oursler to Senator Orrin Hatch (Sep. 11,
2013).
---------------------------------------------------------------------------
As a whole, the documents show that Lerner was the FEC's
key contact at the IRS. In this capacity she and the IRS helped
the FEC with enforcement actions against four conservative tax-
exempt organizations.\279\
---------------------------------------------------------------------------
\279\Email chain between Lois Lerner, William Powers, Wayne
Sovonick and others (Feb. 3, 2009) FECOGC000005-06.
---------------------------------------------------------------------------
The first communication regarding these conservative groups
occurred in July 2008, when FEC Enforcement Division attorney
Wade Sovonick contacted Lerner to discuss a 501(c)(4)
organization that he believed ``recently filed [for tax-exempt
status] with the IRS.''\280\ Shortly thereafter, Sovonick and
another Enforcement attorney, William Powers, spoke with Lerner
and revealed that their inquiry related to the tax-exempt
status of the American Future Fund.\281\ At the time of this
conversation, the FEC was considering a complaint filed against
the American Future Fund by the Minnesota Democratic Farmer
Labor Party alleging violations of the Federal Election
Campaign Act related to television advertisements.\282\
According to materials cited in the complaint, the American
Future Fund describes itself as a ``mechanism to promote
conservative, free market ideas, and to communicate them to the
public.''\283\ It appears that Lerner provided only limited
information to the FEC attorneys during the July 2008
conversation. She explained that section 6103 of the Internal
Revenue Code prevented her from sharing further information
about an application for tax-exempt status while the
application is still pending before the IRS.\284\
---------------------------------------------------------------------------
\280\Email chain between Wayne Sovonick and Lois Lerner (July 9,
2008) FECOGC000001-02.
\281\FEC, Report of Telecon (July 10, 2008) FECOGC000003-04.
\282\FEC, First General Counsel's Report (Sep. 30, 2008).
\283\Id.
\284\FEC, Report of Telecon (July 10, 2008) FECOGC000003-04.
---------------------------------------------------------------------------
On September 30, 2008, Powers and other FEC attorneys
recommended that the FEC Commissioners find that the American
Future Fund violated three provisions of the Federal Election
Campaign Act.\285\ The recommendation memorandum did not
directly reference the conversation with Lerner, but instead
stated, ``The IRS has not yet issued a determination letter
regarding [American Future Fund's] application for exempt
status. Based on the information from the response and the IRS
website . . . it is likely that the [American Future Fund's]
application is still under review.''\286\
---------------------------------------------------------------------------
\285\FEC, First General Counsel's Report (Sep. 30, 2008) p. 15.
\286\Id.
---------------------------------------------------------------------------
Just two weeks after President Obama was sworn in, Powers
contacted Lerner for an update on the American Future Fund and
for information about three additional conservative
organizations: the American Issues Project, Citizens for the
Republic, and Avenger, Inc.\287\ As Powers noted in his
message, American Issues Project was the successor of the other
two subjects of his inquiry--Citizens for the Republic and
Avenger.
---------------------------------------------------------------------------
\287\Email chain between William Powers, Lois Lerner and others
(Feb. 3, 2009) FECOGC000005-06.
---------------------------------------------------------------------------
At the time of Powers's request, the FEC was considering
two complaints filed against American Issues Project: one by
Obama for America, and another by Democracy 21--a liberal group
that Lerner also directly corresponded with regarding
complaints against conservative groups lodged with the IRS, as
discussed above in Section II(C)(5).\288\ American Issues
Project described its mission as ``[t]o advocate for and
promote the core conservative principles of our founding
fathers and Ronald Reagan.''\289\ FEC records show that at the
time of Powers's inquiry, the FEC was trying to determine the
amount of political spending by the American Issues Project.
The FEC had scant information--it was only aware of the
organization's spending on one advertisement--and could not
determine the overall percentage of political spending because
the organization had not ``filed anything [with] the IRS
yet.''\290\ FEC records also show that the FEC was apparently
seeking the IRS's opinion about whether political spending
constituted the organization's primary activity. Indeed, this
appears to be the purpose of Powers's message to Lerner--``to
see if an IRS determination has been made re exemption.''\291\
---------------------------------------------------------------------------
\288\FEC, Complaint by Obama for America, MUR No. 6081 (Sep. 8,
2008); FEC, Complaint by Democracy 21, MUR No. 6094 (Oct. 10, 2008)
(exhibits omitted).
\289\FEC, Statement of Reasons of Vice Chairman Donald F. McGahn
and Commissioners Caroline C. Hunter and Matthew S. Peterson (July 25,
2013) p. 10.
\290\FEC, Case Activation Meeting Notes (Jan. 21, 2009)
FECOGC000195-98.
\291\Id.
---------------------------------------------------------------------------
Before Lerner responded to Powers's February 2009 message,
the Commissioners closed the complaint against American Future
Funds on a split vote.\292\ On March 3, 2009, Lerner provided
the requested information about all four organizations and
Powers thanked her, noting that the information ``looks as if
it will be very useful.''\293\ Lerner apologized for the
response taking so long.\294\ On March 31, 2009, Michael Seto
provided an additional 150 pages of records about American
Issues Project and American Future Fund to Powers, including
the applications for tax-exempt status for both groups and the
2007 Form 990 for the former group.\295\
---------------------------------------------------------------------------
\292\FEC, Amended Certification, MUR. 5988 (Feb. 25, 2009).
\293\Email chain between Lois Lerner, William Powers and others
(Feb. 3--Mar. 6, 2009) FECOGC000008-09.
\294\Id.
\295\FEC, Fax transmission cover sheet from Michael Seto to William
Powers (Mar. 31, 2009) FECOGC000069 (subsequent pages omitted by
Committee staff).
---------------------------------------------------------------------------
In January 2010, following the Citizens United ruling,
President Obama began condemning the decision in his public
statements including his State of the Union address. In,
February 2010, just weeks after these events, Powers requested
more information about American Issues Project--including the
tax return for 2008, which would show financial information--
while the FEC was still considering the two complaints lodged
against the organization.\296\ The next day, Lerner informed
Powers that ``we have checked our records and there are no
additional filings at this time.''\297\ Neither the IRS nor the
FEC produced any records of subsequent communications between
the agencies about any of these organizations. In July 2013,
the FEC Commissioners dismissed the complaints against American
Issues Project, finding that the organization was not a
political committee subject to FEC regulation.\298\
---------------------------------------------------------------------------
\296\Email chain between Lois Lerner, William Powers and others
(Feb. 2, 2010) FECOGC000013.
\297\Email chain between Lois Lerner, William Powers and others
(Feb. 3, 2010) FECOGC000014-15.
\298\FEC, Statement of Reasons of Vice Chairman Donald F. McGahn
and Commissioners Caroline C. Hunter and Matthew S. Peterson (July 25,
2013) p. 25.
---------------------------------------------------------------------------
The IRS's attentive treatment of the FEC requests for
information stands in stark contrast to the experience of
conservative organizations that applied for section 501(c)(3)
and 501(c)(4) status. Lerner was quick to respond to FEC
attorneys; rather than having staff employees assist the FEC,
Lerner shepherded their requests through the IRS herself, with
the assistance of two senior managers: Michael Seto (Manager of
EO Technical) and Robert Choi (Director of Rulings and
Agreements). Powers noted that Seto in particular was
``extremely helpful . . . in providing me the requested
documents both promptly and professionally.''\299\
---------------------------------------------------------------------------
\299\Email chain between Lois Lerner, William Powers and others
(Apr. 3, 2009) FECOGC000012.
---------------------------------------------------------------------------

2. The FEC Enlisted the IRS in Other Efforts To Restrict Political
Speech

As early as 2006, the IRS was working with the FEC on
examining political spending by 501(c)(4)s.\300\ On November 3,
2006, FEC Assistant General Counsel Mark Shonkwiler asked Lois
Lerner for assistance:
---------------------------------------------------------------------------
\300\Email between Lois Lerner and Mark Shonkwiler (Nov. 3, 2006)
FECSUBP5000751.

Which division/office of the IRS would be in the best
position to receive a report from the Commission . . .
regarding apparent violations of the law in connection
with an organization which claims tax exempt status
under Section 501(c)(4) status, yet appears to be
focused primarily, if not exclusively, on electoral
politics--and actually is registered as a state
political committee?\301\
---------------------------------------------------------------------------
\301\Id.

Lerner told Shonkwiler that would that she would forward
the report to the IRS Classification Office, which handles
referrals.\302\
---------------------------------------------------------------------------
\302\Id.
---------------------------------------------------------------------------
In 2010, the FEC took the unusual step of requesting formal
written comments from the IRS on proposed regulations for
501(c)(3)s.\303\ IRS employees noted the unprecedented nature
of this request, with Catherine Livingston saying ``Mike
[Blumenfeld] tells me he is not aware of a prior instance in
which we have sent a formal written comment to the FEC on
proposed regulations.''\304\ Nevertheless, the IRS Chief
Counsel's Office worked with Lerner to draft comments on the
FEC proposal, per the FEC's request.\305\
---------------------------------------------------------------------------
\303\Email chain between Eugene Lynch, Michael Blumenfeld and
others (Feb. 17-18, 2010) IRS0000713335.
\304\Email chain between Catherine Livingston, Nikole Flax and
others (Feb. 26, 2010) IRS0000853254.
\305\Email between Lois Lerner, Michael Blumenfeld and others (July
23, 2010) IRS0000834396.
---------------------------------------------------------------------------
Overall, the Majority staff finds that the IRS and the FEC
worked together to constrain political speech over a period of
several years in direct response to the political pressure by
Democrats, both in and out of the Obama administration. These
efforts resulted in greater scrutiny on spending of political
speech by organizations on the right side of the political
spectrum.

D. Treasury Department Coordination With the IRS

Based on evidence uncovered by the Majority staff, it
appears that top Treasury officials had some knowledge of the
IRS's handling of Tea Party applications before TIGTA publicly
released its report. Aspects of Treasury's overall role in the
targeting remains unclear due to a lack of cooperation with the
Committee investigation.
IRS Commissioner Shulman had regular contact with the
Deputy Secretary of the Treasury and other high-level Treasury
officials, but he denied that he spoke with them about the
targeting of Tea Party groups.\306\ Several other IRS employees
met with Treasury officials between 2010 and 2013, including
Acting Commissioner Miller, Chief of Staff Nikole Flax, and
attorneys in the IRS Office of Chief Counsel, including Chief
Counsel William Wilkins. Like Shulman, those employees denied
that they discussed the Tea Party applications with anyone in
the Treasury, or received any directions from Treasury about
how these applications should be handled.
---------------------------------------------------------------------------
\306\SFC Interview of Douglas Shulman (Dec. 3, 2013) pp. 16-19, 77.
---------------------------------------------------------------------------
The Committee interviewed two former Treasury executives:
former Deputy Secretary Neal Wolin and former Chief of Staff
Mark Patterson. Wolin told Committee investigators that in
2012, Inspector General George told him that TIGTA had started
an audit; however, Wolin claimed he only learned that Tea Party
groups were targeted after Lerner apologized for that targeting
in May 2013.\307\ Patterson stated that he first learned that
TIGTA was doing an audit in early 2013, but he did not learn
about TIGTA's conclusions until a few weeks before its report
came out.\308\ TIGTA's records differ from Patterson's
recollection: TIGTA informed the Committee that Inspector
General George first briefed Patterson on September 14, 2012,
and that, to the best of his recollection, George ``conveyed
the general sense that the IRS had selected applications from
certain political groups for additional scrutiny, including
using descriptors such as `tea party' to identify such
applications.''\309\ Neither Wolin nor Patterson recalled
discussing the Tea Party targeting with Secretary Lew until
after Lerner's apology.\310\ TIGTA informed the Committee that
it briefed Secretary Lew about the audit on March 15,
2013.\311\
---------------------------------------------------------------------------
\307\SFC Interview of Neal Wolin (May 1, 2014) pp. 25-26, 30.
\308\SFC Interview of Mark Patterson (Apr. 7, 2014) pp. 25-29.
\309\TIGTA Summary of Briefings to IRS and Treasury Leadership,
Provided to SFC on May 19, 2014.
\310\SFC Interview of Neal Wolin (May 1, 2014) pp. 31-32; SFC
Interview of Mark Patterson (Apr. 7, 2014) pp. 28-30.
\311\TIGTA Summary of Briefings to IRS and Treasury Leadership,
Provided to SFC on May 19, 2014.
---------------------------------------------------------------------------
Below the Deputy Secretary's level, Treasury employees in
the Office of Tax Policy discussed the political activities of
tax-exempt organizations with Lerner and other IRS employees a
number of times between 2010 and 2013. The primary Treasury
employee who was involved in these discussions was Ruth
Madrigal, an attorney in the Office of Tax Policy.\312\ When
forwarding an article about an appellate court's decision about
political activity on 501(c)(4) organizations, Madrigal said
that ``I've got my radar up'' about the issue and noted that
``we mentioned potentially addressing them (off-plan) in
2013.''\313\ In spite of Madrigal's clear connection to the
subject of the Committee's investigation, the Treasury
Department refused repeated requests of the Committee to make
her available for an interview. Thus, we could not definitively
determine if Madrigal had any role in, or knowledge about, the
IRS's decisions that disproportionately affected conservative
organizations.
---------------------------------------------------------------------------
\312\See, e.g., email chain between Ruth Madrigal, Judith Kindell
and others (Oct. 6, 2010) IRS0000446776-77 (regarding political
activities of 501(c)(4), (5) and (6) organizations); email chain
between Ruth Madrigal, Lois Lerner, Victoria Judson, and others (June
14, 2012) IRS0000015400-01 (discussing the possibility of addressing
501(c)(4) regulations ``off plan''); email chain between Lois Lerner,
Ruth Madrigal, Victoria Judson and others (Dec. 14, 2012)
IRS0000189994-95 (regarding an upcoming meeting between Democracy 21,
Campaign Legal Center and the IRS to discuss petition for rulemaking on
political activities of 501(c)(4) organizations).
\313\Email chain between Ruth Madrigal, Lois Lerner, Victoria
Judson and others (June 14, 2012) IRS0000015400-01.
---------------------------------------------------------------------------
As discussed above, the Treasury Department and the White
House also had advance notice about the IRS's loss of
information potentially relevant to this investigation caused
by Lois Lerner's hard drive crash. Indeed, in April 2014, IRS
officials notified the Treasury Department that Lois Lerner
emails were lost, and in turn, the Treasury Department notified
the White House. In contrast, IRS only notified the Committee
of the lost emails in June 2014.
In view of the limitations noted above, we are not able to
determine the full scope of the Treasury Department's
involvement in this matter. However, we conclude that Treasury
had at least some knowledge of the IRS's targeting of
conservative organizations before the matter was made public.
Overall, we conclude that the White House's drive to
curtail political speech resulted in a coordinated effort
across several executive agencies to increase scrutiny of
conservative tax-exempt organizations. Furthermore, the IRS
played a central role in the various attempts to target
conservative groups engaged in political speech.

V. DISPARATE TREATMENT OF CONSERVATIVE AND PROGRESSIVE APPLICANTS FOR
TAX-EXEMPT STATUS

------------------------------------------------------------------------

-------------------------------------------------------------------------
Applications received from Tea Party organizations were not only singled
out, but
were processed differently than other applications, including
applications submitted
by left-learning organizations. Left-leaning organizations were not
subjected to the
heightened scrutiny that Tea Party organizations encountered.
------------------------------------------------------------------------

A. Applications From the Tea Party and Related Conservative Groups Were
Singled Out for Special Treatment

While the Minority has attempted to create the impression
that applications submitted by left-leaning groups were also
singled out by the IRS, the facts recounted below demonstrate
that applications received from Tea Party groups were not only
singled out, but were processed differently than other
applications.

1. The ``Test Cases'' Selected for Development by EO Technical Were
Applications From Tea Party Organizations

On February 25, 2010, one of the first applications for tax
exemption received by the IRS from a Tea Party drew the
attention of Jack Koester, a screener in EO
Determinations.\314\ Koester noted that the application from
the Albuquerque Tea Party had the potential to be a ``high-
profile'' case since the Tea Party was the object of ``recent
media attention.''\315\ Koester also noted that the Albuquerque
Tea Party indicated in its application that it may support
political candidates.\316\ Thereafter, the decision was made by
Holly Paz to send several Tea Party applications to EO
Technical so that EO Technical could work the cases.\317\ The
intention was for EO Technical to develop guidance to assist EO
Determinations in processing these applications.\318\
Ultimately, the applications for Albuquerque Tea Party and
Prescott Tea Party were sent to EO Technical and assigned to
Carter Hull to be worked.\319\ When the Prescott Tea Party
failed to respond to a development letter, Hull closed the
application for ``failure to establish'' and requested another
Tea Party application.\320\ He was subsequently assigned an
application submitted by a conservative organization applying
for 501(c)(3) status called American Junto.\321\ Steve
Grodnitzky, Acting EO Technical Manager at the time Hull was
assigned the cases, described the test cases as follows:
---------------------------------------------------------------------------
\314\Email chain between Holly Paz, Cindy Thomas, Jack Koester, and
others (Feb. 25-Mar. 17, 2010) IRS0000180869-73.
\315\Id.
\316\Id.
\317\Id.
\318\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\319\Id.
\320\Id.
\321\Id.
---------------------------------------------------------------------------
Q. . . . [T]he cases that were under review in
Cincinnati and the cases that were under review in EO
Technical by Mr. Hull, those were--as far as you
understood, what were they? Were they cases across the
whole political spectrum, or were they essentially Tea
Party cases?
A. Well, with--I guess with respect to the
organizations that--I don't want to sound--in my mind,
they were Tea Party organizations. They came in, and in
their name, Albuquerque Tea Party----
Q. Uh--huh A.--Prescott Tea Party, those had ``Tea
Party'' in their name.
Q. Uh-huh.
A. So I assumed that they were Tea Party
organizations.
Q. And one of them--I think, if you'll--you probably
recall this. At some point in 2010, Mr. Hull--and I
think you actually had indicated that Prescott was a
(c)(3) and it failed to establish, right?
A. That is correct.
Q. And Mr. Hull requested another case, and he got
another case from Cincinnati, a (c)(3) to work; is that
correct?
A. That is correct.
Q. And actually, if you look at the sensitive case
report summary charts, but--but they will indicate that
that replacement case, I think was American Junto?
A. American Junto or Hunto?
Q. Junto or Hunto, I don't know how they pronounce it
either. Was your appreciation then that American Junto
was either a Tea Party org or related or affiliated
with the Tea Party, or perhaps espoused the same kind
of political views as a Tea Party?
A. My understanding of a case that was coming up,
American Hunto or Junto, that was to replace the
Prescott Tea Party, was that it was connected in some
way to the Tea Party. Perhaps it was--they had the same
beliefs that--that the Prescott Tea Party or the
Albuquerque Tea Party organizations had.\322\
---------------------------------------------------------------------------
\322\SFC Interview of Steve Grodnitzky (Sep. 25, 2013) pp. 70-71.
---------------------------------------------------------------------------
As is evident from this exchange, the IRS's intention to
scrutinize the Tea Party applications extended down to its
selection of ``test cases.''

2. The Initial Process Used To Develop the Tea Party Applications Was
Highly Unusual

In addition to working on the ``test cases,'' Hull was
assigned to assist Elizabeth Hofacre develop the Tea Party
applications then pending in EO Determinations.\323\ Hull
provided Hofacre with several sample development letters to use
on the Tea Party applications, but then also required Hofacre
to send to him each draft development letter together with a
hard copy of the application for his examination.\324\ Hofacre
could not release the development letters without first
securing Hull's approval.\325\ Moreover, once applicants
responded to the development letters, Hull instructed Hofacre
to send the responses to him for his review.\326\ Under this
scheme, Hofacre was unable to act independently and exercise
the normal range of discretion that an EO Determinations agent
would have in determining how an application should be
processed, or whether sufficient information existed upon which
to base a recommendation to approve or deny the exemption
request.\327\ Hofacre described her experience to Committee
staff as follows:
---------------------------------------------------------------------------
\323\SFC Interview of Carter C. Hull (July 23, 2013) (not
transcribed).
\324\Email chain between Carter C. Hull, Steve Grodnitzky, Ronald
Shoemaker, and others (May 17, 2010) IRS0000631583-84.
\325\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 57-64.
\326\Id.
\327\Id.
---------------------------------------------------------------------------
Q. Okay. So this process that you've--that you've
outlined where you would get the case and you would
review the case and you would draft the letter and then
you would send it to Mr. Hull, and Mr. Hull would send
it back to you, and then you would release it, then you
would get the response and you'd send the response to
Mr. Hull . . .
A. Yes. Exactly.
Q. Is this--is this process a usual process, in your
experience as an EOD agent in the--and the, I think it
was almost 11 years that you'd been an EOD agent at the
time that this process was put into place? Is that a
usual--something that was usual in your experience?
A. I had never seen that in my experience before or
since then.\328\
---------------------------------------------------------------------------
\328\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 65.
---------------------------------------------------------------------------
Hofacre also told Committee staff that she had sufficient
information in her possession in 2010 to recommend to her
manager a decision on some of the Tea Party applications, but
was prevented from doing so under the highly unusual review
process imposed by Hull.
Q. But for the process where you had to submit the--
the development letter to Mr. Hull or perhaps--get Mr.
Hull's approval on what the next step was, but for that
process, could you have decided some of these cases and
whether they had been a denial or a grant of the
exemption request?
A. Yes.
Q. Okay. And that would have been in that window of
time that you were in [Group] 7822, which would have
been May to October of 2010?
A. Right. There was enough information there to make
a determination, whether or not positive or adverse.
Q. But you were prevented from making that?
A. I had no decision making authority.
Q. Okay. And typically you would have that authority
as an [EO Determinations] agent, right?
A. Right. Like I said in my interview in May, this
particular project and the procedure in this was so
peculiar and so odd that I was--had no decision making
authority. There was no--no freedom to do
anything.\329\
---------------------------------------------------------------------------
\329\Id. pp. 63-64.
---------------------------------------------------------------------------
The unfortunate consequence of imposing this highly rigid
and unorthodox process on EO Determinations was that many Tea
Party applications that could have been decided in 2010 were
not. Rather, those Tea Party applications unnecessarily
languished for several more years, while the IRS mismanaged its
way through a series of failed initiatives designed to bring
the applications to decision.

3. Until July 2011, the Emerging Issues Tab of the BOLO Spreadsheet
Specifically Targeted the Tea Party

The first iteration of the Emerging Issues tab of the
Combined Issues spreadsheet dated July 27, 2010, contained an
entry for Tea Party applications.\330\ The entry read as
follows: ``These cases involve various local organizations in
the Tea Party movement [that] are applying for exemption under
501(c)(3) or 501(c)(4).''\331\ While the July 27, 2010
spreadsheet was distributed only to managers, subsequently, on
August 12, 2010, Elizabeth Hofacre sent the first BOLO
spreadsheet to all EO Determinations employees.\332\ The
Emerging Issues tab of the August 12, 2010 BOLO spreadsheet
contained an entry for ``Tea Party'' identical to the entry
found on the July 27, 2010 Combined Issue Spreadsheet. The
entry specifically targeting the Tea Party remained in the
Emerging Issues tab of the BOLO spreadsheet until the July 2011
revision. At that time, the entry was deleted and replaced with
one for ``Advocacy Orgs.'' which were described as
``[o]rganizations involved with political, lobbying or advocacy
for exemption under 501(c)(3) or 501(c)(4).''
---------------------------------------------------------------------------
\330\Email from Elizabeth Hofacre to Steve Bowling, John Shafer,
and others (July 27, 2010) IRS0000008609-24.
\331\Id.
\332\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 130.
---------------------------------------------------------------------------
Elizabeth Hofacre, Emerging Issues Coordinator from May
2010 to October 2010, was shown a list that Carter Hull had
prepared on October 18, 2010, reflecting the status of the 40
``Tea Party'' applications then pending in EO Determinations.
Hofacre told Committee staff the following:
Q. . . . in looking at this list, I think you
indicated this before, and I don't want to belabor the
point, but these essentially are Tea Party cases, 9/12
cases or conservative cases. Is that correct?
A. Yes, that would be correct.
Q. All right. And there's no Emerge or Acorn or
liberal or progressive groups in this list that you're
aware of, right?
A. No, there are not.
Q. Okay. And that's because the criteria that was
being used focused only on Tea Party, patriots, 9/12,
conservative organizations; right?
A. Yes, that's correct.\333\
---------------------------------------------------------------------------
\333\Id. pp. 91-92.
---------------------------------------------------------------------------
Ronald Bell assumed responsibility as Emerging Issues
Coordinator from Hofacre in October 2010, and remained in that
position for more than a year.\334\ Bell was shown a copy of
the BOLO spreadsheet dated November 16, 2010. The Emerging
Issues tab of the spreadsheet has an entry for ``Tea Party''
that states that ``[t]hese cases involve various local
organizations in the Tea Party movement [that] are applying for
exemption under 501(c)(3) or 501(c)(4).''\335\ Bell explained
to Committee staff that he used this BOLO entry to perform
secondary screening on the applications sent to him by
screeners, in order to ensure that the applications he received
were, in fact, applications from Tea Party organizations. He
stated to Committee staff as follows:
---------------------------------------------------------------------------
\334\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
\335\BOLO iteration chart (Apr. 30, 2012) IRS0000352979-84.
---------------------------------------------------------------------------
Q. Okay. And then you were describing your process
earlier when cases, new cases were referred to you as
Tea Party coordinator. You would look at the criteria
on the BOLO to see if it was actually really a case
that should stay, is that correct?
A. Correct.
Q. So based on this criteria here [November 16, 2010
BOLO], which cases would you have kept in your group
for processing?
A. Which cases would I have kept and added to the
advocacy inventory?
Q. Yes.
A. Ones that talked about the Tea Party.
Q. Okay. So at the time [November 2010] this was on
the BOLO, you weren't necessarily pulling any case that
had political advocacy issues, it was just the ones
that were related to the Tea Party?
A. That's correct.\336\
---------------------------------------------------------------------------
\336\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------
The criteria developed by the screeners to identify ``Tea
Party'' cases clearly illustrates that the IRS was focused, at
least until July 2011, exclusively on applications received
from Tea Party or related groups, and not just on applications
containing general advocacy issues. An application was
considered to be received from a ``Tea Party'' if it contained
the words ``Tea Party,'' ``9/12 Project,'' or
``Patriots.''\337\ If those words were not present it was still
considered a Tea Party application if the application indicated
that the group was concerned with government debt, government
spending or taxes, or that it would educate the public via
advocacy or lobbying ``to make America a better place to
live,'' or that it was critical of how the country was being
run.\338\ When asked about these criteria and their connection
to the Tea Party entry on the Emerging Issue tab, Holly Paz
told Committee staff the following:
---------------------------------------------------------------------------
\337\Email chain between John Shafer, Cindy Thomas, Steve Bowling,
and others (June 1-10, 2011) IRS0000066837-40.
\338\Id.
---------------------------------------------------------------------------
Q. Just to look at this, kind of, the connection
between the criteria as you understand it and it was
given to you by Mr. Shafer and this reference in the
BOLO, it makes perfect sense, doesn't it, that the
screeners were using the kind of criteria they were
using if they were looking for cases involved with the
Tea Party movement?
A. Yeah, I mean, the language on this be-on-the-
lookout list uses the name ``Tea Party.'' So the other
names appear to be an extrapolation of that.\339\
---------------------------------------------------------------------------
\339\SFC Interview of Holly Paz (July 26, 2013) p. 84.
---------------------------------------------------------------------------
Accordingly, until at least July 2011, the IRS screening
criteria exclusively targeted Tea Party and related
organizations.

4. Until the Tea Party Entry Was Removed From the Emerging Issues Tab,
Applications From Both Liberal and Conservative Groups That Did Not
Meet the Tea Party Criteria Were Sent to General Inventory, Assigned,
and Decided

Elizabeth Hofacre explained to Committee staff that during
her tenure as Emerging Issues Coordinator, applications that
contained political advocacy issues but that did not meet the
criteria for a Tea Party case were handled differently than
applications received from Tea Parties. She recounted the
following to Committee staff:
Q. Okay. And when you began to receive the
applications from the groups, the liberal groups or the
progressive groups, did you also perform a secondary
screening function or task on those applications?
A. I didn't start receiving those applications until
July [2010]. The only screening that I performed was
very limited, to make sure they either met or did not
meet the Tea Party criteria.
Q. Okay. And what was the Tea Party criteria?
A. Well, a lot of times Tea Party was in their name,
9/12 Organizations, or Patriots. Some of the activities
would be kind of Tea Party-type rallies. A lot of the
applicants would educate--I'm sorry, educate the public
on the Constitution, the Bill of Rights, those types of
activities.
Q. Okay. So if a case had that--those indicators in
it then, is that a case you kept, you retained and
began to develop?
A. That is correct.
Q. So just to draw a contrast now, so in July or in
the subsequent months, if you received an application
from an organization that was liberal or progressive
that the screeners had sent to you, you know, what did
you do with that case?
A. Well, if it came from an agent and if it didn't
meet the Tea Party criteria, I would send it back to
that particular agent. If it came from a screener and
they thought it met the Tea Party criteria, and if I
determined that it did not, it went to general
inventory.

* * * * * * *

Q. . . . if they went back in general inventory . .
. they were in the normal pipeline to be worked and for
decisions to be made on them. Is that correct?
A. Yes it is.
Q. Okay. So they didn't get hung up or held up in
this collection of Tea Party cases?
A. Correct.\340\
---------------------------------------------------------------------------
\340\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 45-46,
48.
---------------------------------------------------------------------------
Therefore, until at least through Hofacre's tenure as
Emerging Issues Coordinator, October 2010, and most likely
until the July 2011 BOLO change in which the reference to Tea
Party was deleted, applications that raised political advocacy
issues but that did not met the ``Tea Party'' criteria were
sent to general inventory, assigned and worked. In contrast,
applications that did meet the ``Tea Party'' criteria were
systematically collected by the IRS and subjected to a variety
of delays and failed processing attempts.

5. The IRS Continued To Target the Tea Party After the Emerging Issue
Tab Was Revised in July 2011 to Remove the Entry for the Tea Party

In July 2011, at Lois Lerner's direction, Cindy Thomas
revised the Emerging Issues tab to remove the reference to the
Tea Party and in its place, to add an entry for ``Advocacy
Orgs.'' that were described as ``organizations involved with
political, lobbying or advocacy . . .''\341\ Even after this
change, Ronald Bell, the Emerging Issues Coordinator, continued
to add Tea Party applications to his inventory of political
advocacy applications if they merely contained the words ``Tea
Party'' and otherwise exhibited no suggestion that the
organization would engage in political advocacy. Bell explained
this in the following exchange with Committee staff:
---------------------------------------------------------------------------
\341\Email chain between Cindy Thomas, Ronald Bell, and others
(July 5, 2011) IRS0000620735.
---------------------------------------------------------------------------
Q. Okay. Do you recall seeing any groups that were
affiliated with the Tea Party that didn't have
political activity?
A. You mean did they check the box ``yes'' or ``no?'
Q. No. In your evaluation of the application.
A. We, in fact--in one exhibit, from the Exhibit 1
[Screening Workshop Notes--July 28, 2010],\342\ it says
to err to the conservative. So, if the Tea Parties--
there was a question whether they were exempt or not.
So, if I didn't maybe see that, ``vote for this
candidate'' or whatever, it still went in the
inventory.
---------------------------------------------------------------------------
\342\Email from Nancy Heagney to Ronald Bell and others (July 29,
2010) IRS0000006700-04.
---------------------------------------------------------------------------
Q. When you say ``err to the conservative,'' you mean
for the screeners to err to the side of giving a case
full development?
A. Yes.
Q. Okay. So is it accurate to say that after the BOLO
change of July 2011, you still continued to pull all of
the Tea Party cases that you saw into the full
development Tea Party group?
A. Yes.\343\
---------------------------------------------------------------------------
\343\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------
As Bell confirmed, the July 2011 change to the Emerging
Issue tab was no more than a triumph of form over substance.
While it outwardly created the appearance that applicants were
being evaluated on the content of their applications, in
reality it did nothing to change the practice of systemically
selecting Tea Party applications and subjecting them to
heightened scrutiny and substantial processing delays based on
the mere presence of the words ``Tea Party'' in their
applications. This is further borne out by the fact that TIGTA,
in its May 14, 2013 review of the IRS practices related to the
processing of political advocacy applications, found that 100
percent of all applications that contained the words ``Tea
Party,'' ``9/12 Project,'' and ``Patriots'' were selected for
full development by the IRS, and consequently experienced
significant processing delays.\344\
---------------------------------------------------------------------------
\344\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review (May 14, 2013) p. 8.
---------------------------------------------------------------------------
On January 25, 2012, Cindy Thomas and Steve Bowling removed
the ``Advocacy Orgs.'' Entry from the Emerging Issues tab of
the BOLO spreadsheet.\345\ In their place, Thomas and Bowling
inserted a new entry captioned ``Current Political Issues''
that Bowling described as follows: ``political action type
organizations involved in limiting/expanding Government,
educating on the Constitution and Bill of Rights, Social
economic reform/movement.''\346\ Ronald Bell explained that
part of the motivation for this change was to identify the Tea
Party without actually using the name ``Tea Party.'' Bell
stated the following:
---------------------------------------------------------------------------
\345\SFC Interview of Cindy Thomas (July 25, 2013) p. 95.
\346\BOLO iteration chart (Apr. 30, 2012) IRS0000352979-84.
---------------------------------------------------------------------------
Q. Were you guys just trying to get at Tea Party with
the first, you know--because the Tea Party guys say
they want to limit Government and that gets at the Tea
Party while it also looks balanced because you also say
``expanding Government?''
A. Yeah.

* * * * * * *

Q. And the same thing on ``educating on the
Constitution and Bill of Rights,'' that you mentioned
the Tea Party and 9/12, Patriots who that caught in
that filter, right?
A. Yeah . . .\347\
---------------------------------------------------------------------------
\347\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------
Accordingly, even after the Emerging Issues tab was revised
to remove direct reference to the Tea Party, the changes made
to the Emerging Issues tab in January 2012 were designed to
continue to target the Tea Party without mentioning it by name.
The Tea Party applications continued to receive unwarranted
scrutiny from the IRS even after the Emerging Issues tab was
revised again in June 2012. The revision redefined ``Current
Political Issues'' as ``501(c)(3), 501(c)(4), 501(c)(5) and
501(c)(6) organizations with indicators of significant amounts
of political campaign intervention . . . .'' In August 2013,
Jack Koester, a screener in EO Determinations, told Committee
staff he applied the revised BOLO criteria as follows:
Q. If you saw--I am asking this currently, if today
if a Tea Party case, a group--a case from a Tea Party
group came in to your desk, you reviewed the file and
there was no evidence of political activity, would you
potentially approve that case? Is that something that
you would do?
A. At this point I would send it to secondary
screening, political advocacy.
Q. So you would treat a Tea Party group as a
political advocacy case even if there was no evidence
of political activity in the application. Is that
right?
A. Based on my current manager's direction, uh
huh.\348\
---------------------------------------------------------------------------
\348\SFC Interview of Jack Koester (Aug. 1, 2013) pp. 39-40.
---------------------------------------------------------------------------
In sum, applications for tax-exempt status submitted by Tea
Party and conservative organizations were treated very
differently by the IRS than applications submitted by other
groups, including those on the left. Beginning in early 2010,
the IRS focused singular attention on Tea Party applications
and selected several exemplars from among those applications to
serve as ``test cases.'' The IRS's exclusive focus on the Tea
Party extended unbroken until the July 2011 change from ``Tea
Party'' to ``Advocacy Org.'' in the Emerging Issues tab of the
BOLO list. Thus, until July 2011, the IRS grappled with the
issue of the permissible extent of political advocacy for a
section 501(c)(4) organization only within the context of the
Tea Party's political agenda. During that span of time, Tea
Party applications were methodically and systematically culled
from the application pool by IRS workers, subjected to a
bizarre and dilatory development process, and eventually left
to languish unattended for lengthy periods of time while the
IRS bumbled its way through a variety of failed processing
initiatives.
In contrast, throughout the period culminating with the
July 2011 change to the Emerging Issues tab, applications
received from other organizations, including those on the left
that involved political advocacy issues, were assigned, worked
and resolved by IRS staff, and consequently suffered no
untoward delays in their resolution. Even after the July 2011
change in the Emerging Issues tab as well as the subsequent
changes in January and June of 2012, applications received from
every Tea Party organization as well as every organization with
a name that included ``9/12 Project'' or ``Patriots''
automatically drew IRS attention and with it, the rigors of
full development and its associated delays. This was true
whether or not the organizations calling themselves ``Tea
Party,'' ``9/12 Project'' or ``Patriots'' indicated in their
applications an intention to engage in political discourse. In
this way, applications submitted by Tea Party organizations and
other conservative groups were processed by the IRS in a
fashion unlike any other applications.

B. The IRS Did Not Target Progressive Organizations

Throughout the Committee's investigation, there have been
claims by the Minority and by others that the IRS targeted
progressive groups in the same manner as the Tea Party. This is
simply not accurate.
Our investigation revealed that there was no plan to
systemically capture and delay left-leaning applications at the
IRS, as there was for Tea Party and conservative applications.
While it is true that some liberal groups got caught in the
process, most of the groups that were harmed by the IRS were
Tea Party and conservative groups, and those were the groups
that endured the longest delays because they were the first to
be set aside.
In the Additional Democratic Staff Views, there are various
claims in support of the flawed assertion that the IRS
``targeted'' left-leaning groups, too. Each is discussed below
in turn.\349\
---------------------------------------------------------------------------
\349\Many of the same arguments raised by the Minority have already
been disproven. See U.S. House of Representatives Committee on
Oversight and Government Reform, Debunking the Myth that the IRS
Targeted Progressives: How the IRS and Congressional Democrats Misled
America about Disparate Treatment (Apr. 7, 2014).
---------------------------------------------------------------------------

1. Democratic Allegation: ``Progressive'' Groups Were Targeted Because
They Appeared on the BOLO Spreadsheet

Response: The term ``Progressive'' was on a part of
the BOLO spreadsheet that was not actively used by IRS
employees who screened incoming applications, and did
not result in any disparate treatment.
The Minority correctly observes that certain terms
identifying left-leaning organizations appeared on the BOLO
spreadsheet from August 2010 through April 2013, including the
term ``Progressive.'' Indeed, during the three years that the
BOLO spreadsheet was used, there were dozens of terms that
appeared on the BOLO spreadsheet in some capacity--including
other terms, besides the ``Tea Party'' entry, that involved
conservative organizations or conservative values. Merely
appearing on the BOLO spreadsheet does not indicate that the
IRS improperly targeted a particular organization; what matters
is how IRS employees applied the BOLO criteria to process
applications.
From August 2010 until May 2013, the BOLO spreadsheet was
distributed to all EO Determinations employees, who used it as
a reference tool when screening and reviewing applications for
tax-exempt status. The BOLO spreadsheet was comprised of five
``tabs'':\350\
---------------------------------------------------------------------------
\350\Heightened Awareness Issues (July 28, 2010) IRS0000557291-308.

------------------------------------------------------------------------
Tab Name Tab Characteristics/Purpose
------------------------------------------------------------------------
Emerging Issues...................... Groups of applications
for which there is no
established case law or
precedent
Issues arising from
significant current events
(excluding disaster relief
organizations)
Issues arising from
changes to tax law or other
significant world events
Watch List........................... Applications have not
yet been received
Issues were the result
of significant changes in tax
law or world events and would
require ``special handling'' by
the IRS when received.
TAG (also referred to as Potential Abusive tax avoidance
Abusive). transactions including abusive
promoters and fake determination
letters
Activities that were
fraudulent in nature including:
applications that materially
misrepresented operations or
finances, activities conducted
contrary to tax law (e.g.
Foreign Conduits)
Applicants with
potential terrorist connections
TAG Historical (also referred to as TAG issues that were no
Potential Abusive Historical). longer encountered, but that
were of historical significance
Coordinated Processing............... Multiple applications
grouped together to ensure
uniform processing
Existing precedent or
guidance does not exist
------------------------------------------------------------------------

While some terms discussed below that describe left-leaning
organizations did appear on the BOLO spreadsheet, it is clear
that these BOLO entries did not result in the same treatment as
the ``Tea Party'' BOLO entry, which appeared on the Emerging
Issues tab of the BOLO spreadsheet.
From 2010 through 2013, there was an entry for
``Progressive'' organizations on the TAG Historical tab of the
BOLO spreadsheet. As Cindy Thomas explained, the entries on
this part of the spreadsheet were there because ``there were no
current cases that they had seen, but they--we didn't want to
lose track of it, and that's why it stayed on the Historical
tab.''\351\
---------------------------------------------------------------------------
\351\SFC Interview of Cindy Thomas (July 25, 2013) p. 154.
---------------------------------------------------------------------------
It is unclear when, if ever, the ``Progressive'' entry was
ever relevant. Indeed, no employee interviewed by Committee
staff knew when, or why, the term was added to the TAG
Historical tab. The manager of employees who screened all
incoming cases, John Shafer, did not recall receiving any
``progressive'' applications during the last 10 years:
Q. Now, do you recall seeing any--during the time, and
I'm talking about the whole time that you were the
screening manager, all the way back to 10 years, I
guess, to 2003, do you recall any cases that came in
that met this criteria of progressive?
A. Not to my knowledge. You said this was TAG History?
Q. It was--the tab in the Excel document is called TAG
Historical.
A. Okay.
Q. So do you recall any progressive cases that were
sent to Washington for processing?
A. I do not.\352\
---------------------------------------------------------------------------
\352\SFC Interview of John Shafer (Sep. 17, 2013) pp. 129-130.
---------------------------------------------------------------------------
Shafer's testimony is consistent with other IRS employees
who do not remember reviewing any ``Progressive'' applications
in EO Determinations after 2006\353\ or in EO Technical, in
Washington, D.C., after 2007.\354\
---------------------------------------------------------------------------
\353\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 140.
\354\SFC Interview of Judith Kindell (July 18, 2013) pp. 107-108.
---------------------------------------------------------------------------
Hofacre further explained that the TAG Historical tab of
the BOLO spreadsheet was not relied on by EO Determinations
employees:
Q. Okay. Would the EO [Determinations] agents need to
know this information [in the TAG Historical Tab] in
order to do their job?
A. Based on my opinion, no.\355\
---------------------------------------------------------------------------
\355\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) p. 136.
---------------------------------------------------------------------------
Other employees also confirmed that they did not refer to
the TAG Historical tab when reviewing incoming applications;
instead, they focused on the Emerging Issues tab.\356\ Thus,
the entry for ``Progressive'' applications did not affect how
the IRS screened incoming applications for tax-exempt status
during the period covered by the Committee's investigation.
---------------------------------------------------------------------------
\356\SFC Interview of Ronald Bell (July 30, 2013) (not
transcribed).
---------------------------------------------------------------------------

2. Democratic Allegation: Groups affiliated with association of
Community Organizations for Reform Now (acorn) were targeted because
they appeared on the bolo spreadsheet and were subsequently
inappropriately scrutinized

Response: The IRS had legitimate cause to look for
incoming cases from ACORN-related organizations
following the dissolution of ACORN amidst widespread
concern about criminal activity, and the BOLO
spreadsheet was not used inappropriately to screen
these groups.
From August 2010 until the beginning of January 2012, the
BOLO spreadsheet contained an entry for ``ACORN Successors.''
This entry appeared on the Watch List tab of the BOLO, which
was used to mark issues that had not yet come before the IRS,
but would require special handling if and when they arose.\357\
The ACORN entry would only be placed on this part of the BOLO
spreadsheet if the IRS was not actively receiving applications
that met this criteria.
---------------------------------------------------------------------------
\357\Heightened Awareness Issues (July 28, 2010) IRS0000557291-308.
---------------------------------------------------------------------------
In fact, the IRS had good reason to look for incoming
applications from ACORN-related groups. As the Minority
acknowledges, ACORN purportedly disbanded in 2010 after
accusations of fraud, embezzlement and mismanagement--all
issues that would directly affect an organization's ability to
maintain or attain tax-exempt status. In July 2009, the Ranking
Member of the House OGR Committee issued a report entitled ``Is
ACORN Intentionally Structured as a Criminal Enterprise?''\358\
This report, which was provided to the IRS,\359\ raised many
allegations regarding the operation of ACORN and its
affiliates. Included among those allegations were the
following: ACORN failed to report an embezzlement of nearly $1
million, covered up the crime for more than 8 years, and used
charitable contributions to recover the losses due to the
embezzlement; it comingled accounts of its federally funded
affiliates with its politically active affiliates and then used
those funds to engage in partisan political activities; it
conducted voter registration drives that routinely produced
fraudulent registrations; and ACORN illegally plundered
employee benefits and relieved corporate debts through
prohibited loans.\360\
---------------------------------------------------------------------------
\358\U.S. House of Representatives Committee on Oversight and
Government Reform, ``Is ACORN Intentionally Structured As a Criminal
Enterprise?'' (July 23, 2009).
\359\Email from Nancy Todd to Sarah Hall Ingram, Joseph Grant, Lois
Lerner, and others (July 8, 2010) IRS0000713482.
\360\U.S. House of Representatives Committee on Oversight and
Government Reform, ``Is ACORN Intentionally Structured As a Criminal
Enterprise?'' (July 23, 2009).
---------------------------------------------------------------------------
In February 2010, Minority staff of the House OGR Committee
issued a second report on ACORN entitled ``Follow the Money:
ACORN, SEIU and their Political Allies.''\361\ Included in this
report were a number of new findings that shed light on ACORN's
operations including the following: there was no distinction
between ACORN and its affiliates making it impossible to
consider them as separate organizations; ACORN and its
affiliates used coercion and threats of litigation to extract
concessions, loans and funds from sources; and ACORN controlled
the Service Employees International Union (SEIU), received
money from it and used its employees to advance ACORN's
organizing and partisan political goals. Lois Lerner, Robert
Choi, Holly Paz and others received a copy of this report on
February 19, 2010.\362\
---------------------------------------------------------------------------
\361\U.S. House of Representatives Committee on Oversight and
Government Reform, ``Follow the Money: ACORN, SEIU and Their Political
Allies'' (Feb. 18, 2010) IRS0000791014-81.
\362\Email from Joseph Urban to Lois Lerner, Robert Choi, Holly
Paz, Nanette Downing and others (Feb. 19, 2010) IRS0000791013.
---------------------------------------------------------------------------
These accusations, together with those from other
Congressional sources, were serious enough to prompt the IRS to
establish its own research team in November 2009 to look into
ACORN's activities.\363\ The IRS research team completed its
review in April 2010, finding evidence that: ACORN had covered
up an embezzlement committed by a board member; ACORN employees
worked for multiple affiliates and staff and members served on
the Board of Directors, thereby creating potential conflicts of
interest; affiliates improperly transferred money among
themselves; ACORN and its affiliates failed to properly
document financial transactions; and ACORN may have improperly
used donations as well as employee pension and health care
benefit funds. The research team concluded that these findings,
together with ACORN's apparent loose governance and a lack of
respect for the corporate structure, warranted that the IRS
take a closer look into the financial practices of ACORN and
its affiliates.\364\
---------------------------------------------------------------------------
\363\IRS, Memorandum on Investigative Research Findings (June 21,
2010) IRS0000713488.
\364\IRS, ACORN Research Activities Summary Report (April 28, 2010)
IRS0000713483-87.
---------------------------------------------------------------------------
Around that same time, OGR Minority staff issued a third
report on ACORN entitled ``ACORN Political Machine Tries to
Reinvent Itself.''\365\ The report outlined how stories in the
press that ACORN was disbanding were greatly exaggerated. In
fact, many of the ACORN affiliates were simply changing their
names so as to remove any reference to ACORN, or re-
incorporating as new entities under new names, but maintaining
the same boards, staff and Employer Identification Numbers as
former ACORN affiliates. The report indicated that this
``rebranding'' activity was being orchestrated by the parent
ACORN organization and its national senior leadership.\366\
This report was provided to the IRS on June 3, 2010.\367\
---------------------------------------------------------------------------
\365\U.S. House of Representatives, Committee on Oversight and
Government Reform, Staff Report, ``ACORN Political Machine Tries to
Reinvent Itself'' (June 3, 2010) IRS0000742758-65.
\366\Id.
\367\Letter from Ranking Member Darrell Issa to IRS Commissioner
Douglas Shulman (June 3, 2010) IRS0000742756-57.
---------------------------------------------------------------------------
Even before OGR Minority staff provided a copy of its
report to the IRS in June 2010, several news stories and other
reports began to surface about ACORN's attempts to rebrand
itself.\368\ These news stories most likely contributed to the
IRS's awareness that some local ACORN groups were attempting to
reorganize and regain tax-exempt status under other names that
did not reference ACORN. These groups often had close ties to
former or current ACORN organizations. Steven Grodnitzky found
that in the case of one applicant, the Ballot Initiative Group
of Missouri, ``ACORN is a member of the organization,
contributes money, appoints a member of the board, and the
principal was a high ranking official with ACORN in the
Midwest.''\369\
---------------------------------------------------------------------------
\368\Fox News, ACORN Branches Rebrand After Video Scandal (Mar. 15,
2010); The American Spectator, ACORN Housing Boom (Mar. 2, 2010).
\369\Email chain between Steven Grodnitzky, Brenda Melahn and
others (June 8, 2010) IRS0000054956.
---------------------------------------------------------------------------
Indeed, the BOLO spreadsheet entry for ``ACORN Successors''
indicates that the IRS was concerned with precisely those types
of issues:

Local chapters of the former ACORN organization have
reformed under new names and are requesting exemption
under section 501(c)(3). Succession indicators include
ACORN and Communities for Change in the name and/or
throughout the application.\370\
---------------------------------------------------------------------------
\370\BOLO Spreadsheet (Feb. 2, 2011). Other versions of the BOLO
spreadsheet had slightly different entries for ACORN Successors, but
conveyed the same information.

Thus, the issue with ACORN applications wasn't necessarily
the existence or amount of political activity, but rather
whether these applicants were affiliated with a former non-
profit organization that was found to have engaged in criminal
wrongdoing.
IRS employees interviewed by Committee staff recalled
seeing a few incoming applications from ACORN-related groups.
As Hofacre explained, those applications were processed using
normal IRS procedures and were not subject to the specialized
process or scrutiny that the Tea Party cases received:
Q. And were the ACORN type cases treated the same as
the Tea Party cases? In other words, did they go to a
group and then
A. Based on my recollection, no.
Q. Did they go into general inventory or they go to
the TAG--I guess they went to the TAG Group, right?
A. Based on my recollection, no, they were just in
general inventory. I mean, some may have made it to
that, but based on my job as a reviewer right now, a
lot of times they are just sent to whoever gets them.
Q. Okay. And regarding the development of those
cases, if you know this, and I don't know if you are
competent to say if you know, in those particular ACORN
cases, were development letters created?
A. Yes, they were.
Q. Do you know if they were sent to EO Technical for
a review out of the same coordinated effort that was
engaged in with the Tea Party cases?
A. Based on--I only reviewed a couple of them. And
there was no processing like that.\371\
---------------------------------------------------------------------------
\371\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 146-
147.
---------------------------------------------------------------------------
Although some ACORN-related organizations did receive
heightened scrutiny from the IRS, they were not targeted for
their political beliefs and their treatment was in no way
comparable to Tea Party and conservative organizations.

3. Democratic Allegation: The IRS targeted groups affiliated with
``Occupy Wall Street,'' through a standalone BOLO entry and also by
expanding the BOLO entry for political advocacy groups to capture
occupy groups that might submit applications

Response: Although these changes to the BOLO were
misguided, they alerted the IRS to only two
applications submitted by organizations affiliated with
the ``Occupy'' movement. Those applications were
promptly sent to the ``bucketing'' process for
evaluation and there are no indications that the
affected groups suffered harm.
The January 25, 2012 BOLO spreadsheet included two entries
related to the Occupy Wall Street movement. The first reference
to Occupy organizations appeared in the entry for ``current
political issues'' on the Emerging Issues tab of the BOLO
spreadsheet:
Issue: Current Political Issues
Issue Description: Political action type
organizations involved in limiting/expanding
government, educating on the constitution and bill of
rights, $ocial economic reform/movement. Note: typical
advocacy type issues that are currently listed on the
Case Assignment Guide (CAG) do not meet these criteria
unless they are also involved in activities described
above.
Disposition of Emerging Issue: Forward to Group 7822.
Stephen Seok is the coordinator.\372\
---------------------------------------------------------------------------
\372\BOLO Iteration Chart (Apr. 30, 2012) IRS0000352979-84
(emphasis in original).
---------------------------------------------------------------------------
As explained more fully in Section VI(B)(5) of the
Bipartisan Investigative Report, this change occurred after
Paz, Thomas, and other managers expressed concern that the
previous BOLO entry was overly broad. In response to this
concern, Steve Bowling originally suggested modifying the BOLO
to once again reference ``Tea Party'' organizations; but his
manager Thomas informed him that Lerner had discontinued this
practice. To capture the same organizations without using the
words ``Tea Party,'' Bowling drafted new criteria that
described views of the Tea Party organizations: limiting the
government, and educating on the constitution and bill of
rights.\373\
---------------------------------------------------------------------------
\373\Id.
---------------------------------------------------------------------------
A secondary aim of Bowling was also to capture any
applications that might be submitted by groups affiliated with
Occupy Wall Street. To achieve this goal, he inserted the
phrase ``$ocial economic reform/movement,'' which was ``code''
for the Occupy organizations.\374\ Bowling believed that this
phrase would also apply to other groups besides Occupy that may
present themselves in the future and would advocate for similar
positions.\375\
---------------------------------------------------------------------------
\374\Email chain between Ronald Bell and Steve Bowling (Jan. 25,
2012) IRS0000013187.
\375\Id.
---------------------------------------------------------------------------
Bowling also created a separate BOLO entry, titled
```Occupy' Organizations,'' that applied more narrowly to
organizations affiliated with the Occupy Wall Street movement.
Like the ``ACORN Successors'' entry, the ```Occupy'
Organizations'' entry appeared on the Watch List tab of the
BOLO spreadsheet, which indicates that the IRS had not yet
received any applications meeting this criteria. The ```Occupy'
Organizations'' entry appeared only on the January 2012 version
of the BOLO spreadsheet.
It is without doubt that Bowling's revisions to the BOLO
spreadsheet were misguided. Indeed, as noted in Section VII(B)
of the Bipartisan Investigative Report, Bowling had already
committed several substantial errors that resulted in
applications from Tea Party and conservative organizations
being neglected for more than a year. As noted in Section
VII(F) of the Bipartisan Investigative Report, Bowling also
mismanaged the Advocacy Team in early 2012, thereby allowing it
to issue burdensome and improper development letters that
predictably resulted in an uproar in the media and in Congress.
Unlike some previous changes to the BOLO spreadsheet, the
changes made by Bowling in January 2012 were not approved by
Paz, Lerner, or any upper-level EO managers. When Paz and
Lerner became aware of the changes in May 2012, they quickly
ordered that the BOLO criteria be changed and removed all
references to ``Occupy,'' including the ``code'' reference, and
instead use neutral language that would apply to all political
advocacy organizations.\376\
---------------------------------------------------------------------------
\376\Email chain between Holly Paz, Cindy Thomas and others (June
1, 2012) IRS0000013434-35.
---------------------------------------------------------------------------
The Minority correctly states that in May 2012, the IRS
received two applications from organizations that the IRS
deemed to be part of the Occupy movement (although neither
group had the word ``Occupy'' in its name).\377\ EO
Determinations employees decided that these applications met
the criteria for the ```Occupy' Organizations'' Watch List BOLO
entry, and sent them directly to the bucketing process, where
they were evaluated along with applications from other
political advocacy groups.\378\ The Minority does not allege
that the two ``Occupy'' groups were harmed by the IRS.
---------------------------------------------------------------------------
\377\Email chain between Tyler Chumney, Stephen Seok and others
(May 24-27, 2012) IRS0000013234-48.
\378\Id. Emails from Tyler Chumney and Peggy Combs indicate that
the applications will be sent to the ``bickerers.'' Subsequent email
conversation between Chumney and Combs (not included with this report)
indicates that the word ``bucketers'' had been automatically changed by
the email program to ``bickerers.''
---------------------------------------------------------------------------
Meanwhile, Majority staff analysis reveals that during that
six-month period when the references to ``Occupy'' appeared on
the BOLO, IRS employees used the same BOLO criteria to
``centralize'' 46 applications from Tea Party or conservative
groups. A number of those 46 applications were still pending
resolution as of September 2014, more than two years later.

4. Democratic Allegation: In 2008, An EO Determinations manager
instructed employees to be on the lookout for applicants with the word
``emerge'' in their names. it took 3 years for the IRS to come to a
conclusion on some of the emerge cases

Response: The IRS approved a number of Emerge
applications before realizing that these organizations,
which were state chapters of the same organization,
were recruiting and training Democratic Party
candidates. The IRS subsequently determined that these
activities conferred a private benefit on the
Democratic Party and, thus, were not permissible
activities for a 501(c)(4) organization. When the IRS
learned about these activities, it decided to revoke
tax-exempt status from the organizations that had been
approved and deny tax-exempt status for pending
applications. The IRS's ultimate disposition was
delayed by several factors, including ongoing
litigation.
In support of this claim, the Minority cites an email
conversation dated September 8, 2008, which discusses several
applications submitted by Emerge affiliates.\379\ In the
initial email, an employee noted that a total of eight Emerge
organizations, each representing a different state, had filed
applications and that the IRS could therefore expect more
applications from affiliates in other states. The employee then
noted that ``[t]he purpose of the organizations appear [sic] to
be similar--train `Democratic' party candidates in areas such
as campaigning, fundraising, public speaking, press relations,
and leadership skills.'' Continuing, the employee noted that
``[b]ecause of the partisan nature of the cases'' further
guidance is pending. In the meantime, the employee recommended
that all incoming applications from Emerge affiliates be
handled in accordance with section 7.20.5 of the Internal
Revenue Manual (IRM).
---------------------------------------------------------------------------
\379\Email chain between Donna Abner, Sharon Camarillo, Joseph Herr
and others (Sep. 8-24, 2008) IRS0000011492-94.
---------------------------------------------------------------------------
The referenced IRM section specifies certain types of cases
that should be sent to the Quality Assurance division for
further review, including:
Applications that present sensitive political issues,
including the following types of activities:
Voter registration
Inaugural and convention host
committees
Post-election transition teams (to
assist the elected official prior to officially
assuming the elected position)
Voter guides
Voter polling
Voter education
Other activities that may appear to
support or oppose candidates for public
office.\380\
---------------------------------------------------------------------------
\380\IRM Sec. 7.20.5 (Aug. 14, 2007).
---------------------------------------------------------------------------
Based on information about previous Emerge organizations
cited in the September 8, 2008 email, the IRS's decision to
invoke this provision in the IRM seems reasonable. It was made
based on actual knowledge of the organization's activities,
which had been self-reported to the IRS and suggested the
possibility of private benefit. This lies in stark contrast to
the IRS's decision to set aside Tea Party applications in early
2010, which was based on very little information about the
actual or planned activities of the organizations.
Finally, the Minority notes that some of the Emerge
applicants waited three years to get a final determination
(although others were approved very quickly by the initial
screeners). As explained by several IRS employees, the issue
presented by Emerge organizations was not the presence or
amount of political campaign intervention, but rather the
inurement of private benefit--which is a distinct legal
issue.\381\ As the Minority notes, the IRS was also waiting for
the courts to resolve a ``similar issue'' that was being
litigated.\382\ This required the IRS to coordinate the review
of Emerge applications with the Chief Counsel Office, as Judith
Kindell explained:
---------------------------------------------------------------------------
\381\SFC Interview of Judith Kindell (July 18, 2013) pp. 111-113.
\382\Email chain between Deborah Kant, Cindy Westcott and others
(Oct. 10-16, 2008) IRS0000012304.

I believe [EO] coordinated [the Emerge applications]
with Counsel and that we ultimately denied the cases,
that there had been some that had been approved so we
had centralized the ones that we were aware of and
worked them together. We developed them. They were
fairly similar so that once we had developed them we
were able to apply it across the board because they
basically had, they were basically doing the same
thing.
. . . We were aware of some that had been approved
prior to us noticing the issue, and there was at least
one that even after we had noticed the issue and told
Cincinnati that we needed to bring them all in and work
them together there was at least one that was approved
on screening at the same time that we were developing
the denials.\383\
---------------------------------------------------------------------------
\383\SFC Interview of Judith Kindell (July 18, 2013) pp. 111-112.

The Emerge applications were all eventually denied when the
IRS concluded that the organizations ``were providing private
benefit to the Democratic party.''\384\ The disposition of
these applications supports the IRS's measured approach in
developing the applications and waiting until the legal issues
had been resolved before taking the consequential action of
denying tax-exempt status. Clearly, the type of activities
performed by the Emerge organizations was very different from
those of most Tea Party groups, which were concerned chiefly
with issue advocacy--an activity that is permissible under tax
law for 501(c)(4) organizations.
---------------------------------------------------------------------------
\384\Id.
---------------------------------------------------------------------------

5. Democratic Allegation: TIGTA's Audit, Which Culminated in Its Report
Dated May 14, 2013, Established That IRS Employees Did Not Allow Their
Own Political Beliefs To Influence The Manner in Which They Processed
Tea Party Applications

Response: Minority staff has sought to advance the
proposition that TIGTA made a finding, based on its
audit work, that the actions of IRS employees were not
politically motivated. Contrary to the assertions of
the Minority staff, TIGTA made no ``findings''
regarding the absence of political motivation, but
rather merely concluded, based on statements collected
from IRS employees including Lois Lerner, that there
was no evidence that political motivation influenced
official action. With regard to the issue of the
existence of political influences within the IRS, TIGTA
arrived at its conclusion without the benefit of a
record as substantial as the record developed by
Majority staff investigators. In contrast to the self-
serving statements relied upon by TIGTA, Majority staff
investigators uncovered a compelling trail of evidence
that demonstrates that Lois Lerner's political views
affected not only the performance of her duties, but
also shaped the way the IRS treated conservative tax-
exempt organizations.
Shortly after the release of TIGTA's May 14, 2013 audit
report, the Senate Finance Committee convened a hearing to
further probe into the IRS's use of inappropriate criteria to
process applications for tax-exempt status. During the course
of that hearing, the following exchange occurred between
Senator Crapo and Inspector General George.\385\
---------------------------------------------------------------------------
\385\While Minority staff quoted a portion of this exchange in the
Additional Democratic Views, it omitted the most significant part of
Inspector General George's testimony, the portion emphasized in bolded
text here.
---------------------------------------------------------------------------
Mr. Crapo: You know, there's been a lot of discussion
about who knew what and when they knew it. And, one of
the big questions I have--this is probably for you, Mr.
George--is it seems that there is an argument being
made that there was no political motivation in these
actions.
Is that a conclusion that you have reached?
Mr. George: In the review that we conducted thus far,
Senator, that is the conclusion that we have reached.
Mr. Crapo: And how do you reach that kind of
conclusion?
Mr. George: In this instance, it was as a result of
the interviews that were conducted of the people who
were most directly involved in the overall matter.
And so you take it one step by another and we
directly inquired as to whether or not there was
direction from people in Washington beyond those who
were directly related to the determinations unit. And
their indications to us--now I have to note that this
was not done under oath, this was again an audit and
not an investigation--but they did indicate to us they
did not receive direction from people beyond the IRS.
Mr. Crapo: When you say people beyond the IRS, that
could be anyone up the chain of the IRS?
Mr. George: In theory it could be, but we have no
evidence thus far that it was beyond the people in the
determinations unit.
Mr. Crapo: So, in other words, you have simply the
statement of those engaging in the conduct saying they
were not politically motivated?
Mr. George: That is correct, sir.
Mr. Crapo: And based on that, and statements not
under oath, you reached the conclusion that there was
no political motivation? Now, have you reached the
conclusion that there was none or that you haven't
found it?
Mr. George: It's the latter, that we have not found
any, sir.\386\
---------------------------------------------------------------------------
\386\Hearing before the Senate Finance Committee, ``A Review of
Criteria Used by the IRS to Identify 501(c)(4) Applications for Greater
Scrutiny'' (May 21, 2013) (emphasis added).
---------------------------------------------------------------------------
At a later point in the hearing, Inspector General George
had a further opportunity to clarify that TIGTA made no
findings regarding the absence of political motivation. The
following colloquy between Senator Portman and Inspector
General George reinforces this very significant point.
Mr. Portman: So, on page seven of your report, you
stated that Mr. Miller and subordinate employees, quote
``stated that the inappropriate criteria was not
influenced by any individual or organization outside of
the IRS.'' That's on page seven of your report. And
that's been used by the administration to say that
there was no--no influence.
Let me be clear. Is that a finding of your report? Or
is that simply a restatement of what IRS employees told
you?
Mr. George: It is a restatement of the information
that we received from IRS employees, Senator.\387\
---------------------------------------------------------------------------
\387\Id. (emphasis added).
---------------------------------------------------------------------------
Accordingly, TIGTA made no findings regarding the absence
of political influence in the processing of applications for
tax-exempt status. Rather, it simply concluded that no evidence
of such influence existed in the self-serving statements that
it collected from the very employees responsible for the
processing of those applications.
Regarding the existence of Lois Lerner's political bias,
and how that bias affected the performance of official duties,
it is important to point out that TIGTA's audit work, which
took nearly a year to complete, involved a review of a fairly
confined number of emails (5,500) from within the IRS. It is
without doubt that TIGTA should be commended on the quality and
completeness of its audit into the IRS's processing of
applications for tax-exempt status. However, in contrast, and
building on the excellent work TIGTA had already performed,
Majority staff spent more than two years conducting its own
investigation into the matter, including examining the issue of
possible political motivation by IRS employees. During the
course of that investigation, Majority staff reviewed a
substantially larger universe of documents (1,500,000 pages)
from numerous sources including some outside of the IRS,
documents that TIGTA auditors never saw. Unlike TIGTA, Majority
staff interviewed former IRS officials who had occupied high-
level IRS management positions including a former IRS
Commissioner, as well as officials from the Treasury
Department. Based upon disturbing information uncovered during
the course of its more exhaustive investigation, Majority staff
devoted particular emphasis to establishing the actions and the
motivations of Lois Lerner, significantly eclipsing any similar
effort by TIGTA. As a consequence, the Majority staff was able
to uncover substantial evidence that Lerner's political biases
influenced the manner in which the EO Division interacted with
tax-exempt organizations, evidence that TIGTA did not find.

VI. TEA PARTY ORGANIZATIONS WERE HARMED BY IRS TARGETING

------------------------------------------------------------------------

-------------------------------------------------------------------------
The Tea Party groups that were scrutinized by theIRS were generally
small and were
harmed significantly more than progressive organizations. The committee
highlights
four examples of groups that were harmed by the IRS targeting.
------------------------------------------------------------------------

A. The Tea Party and Related Conservative Groups Whose Applications
Were Centralized and Delayed Were Generally Small Organizations

Starting in 2009, Tea Party groups began to organize in
virtually all parts of the country.\388\ The Tea Party movement
is a grassroots movement of both local and national
groups.\389\ There is no central organization that controls the
various Tea Parties.\390\ While each Tea Party organization
exercises autonomy in deciding the subjects that it will
advance, most Tea Party organizations share certain core
beliefs, such as the elimination of excessive taxes, ending the
national debt, reducing the size of government, and terminating
deficit spending.\391\
---------------------------------------------------------------------------
\388\Tea Party Platform, Tea Party Movement.
\389\Id.
\390\Id.
\391\Id.
---------------------------------------------------------------------------
As part of its investigation, Majority Committee staff
spoke to a number of individuals who organized various Tea
Parties that applied for tax exemption and whose applications
were delayed by the IRS. All of these individuals shared the
same abiding sense of purpose: that the United States needs to
be placed on a course to ensure a fiscally responsible
government that taxes with restraint and spends within its
means.
The political left has sought to depict all Tea Party
groups as well-funded organizations patronized by wealthy,
anonymous donors.\392\ In actuality, a vast majority of Tea
Parties and related conservative organizations that sought tax-
exempt status from the IRS during the period 2010 to 2013 were
small operations. Majority staff reviewed a random sample of 40
applications submitted for exemption under 501(c)(4) by
organizations with ``Tea Party,'' ``9/12,'' or ``Patriots'' in
their names. Our review of these 40 sample organizations
revealed very limited funding:\393\
---------------------------------------------------------------------------
\392\Sourcewatch.org, Tea Party.
\393\Based on information contained in applications and other
documents provided by IRS.

SFC MAJORITY STAFF SAMPLE OF 40 RANDOMLY SELECTED TEA PARTY
ORGANIZATIONS THAT FILED FOR TAX-EXEMPT STATUS BETWEEN 2010 AND 2013
------------------------------------------------------------------------

------------------------------------------------------------------------
Average annual revenue.................................. $21,329
Median annual revenue................................... $9,755
------------------------------------------------------------------------

Indeed, one organization's annual revenue was a mere
$1,500. This data confirms that Tea Party and related
conservative groups that applied to the IRS between 2010 and
2013 for tax-exempt status were predominantly low budget
operations, created by people with a deep sense of conviction
that government growth, spending, and taxation need to be
checked in order to make, and keep, America strong.

B. Tea Party Organizations Suffered Far Greater Harm Than Progressive
Applicants

The Minority has asserted that left-leaning political
advocacy groups that applied for exemption under 501(c)(4)
experienced delays at the hands of the IRS just as the Tea
Party and other conservative groups did. While some left-
leaning groups may have encountered delays in receiving
decisions on their applications for exemption, it is clear that
the majority of applications that were delayed by the IRS were
submitted by Tea Parties and other right-leaning groups. Based
on information provided to the Committee by the IRS, 547
applications for exemption involving potential political
activity were identified by the IRS during the time period 2010
through 2014.\394\ The IRS ``centralized'' the 547 applications
by sending them, at various points in time, to the Emerging
Issues Group in EO Determinations for development and decision.
Of those 547 applications, analysis by the Majority Staff shows
that 359 were received from Tea Party or other conservative
groups. This represents 65.63% of all applications presenting
potential political advocacy issues. The remaining applications
were almost equally divided between liberal organizations
(19.20%) and non-aligned organizations that do not appear to be
either right or left-leaning (15.17%).
---------------------------------------------------------------------------
\394\Data provided to the Committee by the IRS reflect that 25 of
the 547 applications involving possible political advocacy were
centralized between May 21, 2013 and April 28, 2014. Even though the
Committee's investigation has principally focused on the IRS's
treatment of applications centralized from January 1, 2010 to May 20,
2013, the charts and analysis in this section include the 25
applications centralized after May 20, 2013. Since these applications
involved possible political advocacy issues, their treatment by the IRS
was relevant to the Committee's investigation.
TR119.003

Moreover, Tea Party and other conservative groups whose
applications were centralized waited longer, on average, for a
decision on their applications for tax-exempt status. These
groups, in total, waited 621 years for the IRS to make a
decision on their applications for tax exempt status. In
contrast, left leaning groups waited a combined total of 152
years and non-aligned groups waited 119 years. In addition, Tea
Party and other conservative groups waited nearly 100 days
longer than left-leaning and non-aligned groups to receive
decisions on their applications for tax-exempt status.
TR119.004

Tea Party and conservative organizations were
``centralized'' beginning in February 2010, when Jack Koester
first noticed an application from the Albuquerque Tea Party. In
October 2010, some two months after issuance of the first BOLO
spreadsheet containing an entry for ``local organizations in
the Tea Party movement,'' there were 40 applications involving
political advocacy awaiting decision in EO Determinations.\395\
Every one of those applications (100 percent) was from a Tea
Party or a related conservative organization.\396\ Left-leaning
groups were not captured by the BOLO Emerging Issues criteria
until later--mostly in 2012 and 2013--and as a result, their
applications were not delayed as long. By the time that the IRS
began issuing decisions on political advocacy applications in
June 2012, some of the Tea Party and other conservative groups
had already been waiting nearly two and a half years. As shown
in the succeeding chart, by January of 2012, the IRS had
centralized 236 applications from Tea Party and other
conservative organizations. In contrast, only 38 applications
from left-leaning groups had been centralized by that time.
Indeed, by January 2012, the IRS had centralized the same
number of applications from non-aligned groups (38) than from
left-leaning groups.
---------------------------------------------------------------------------
\395\Email chain between Carter Hull to Ronald Shoemaker (Oct. 18,
2010) IRS0000165172-76.
\396\SFC Interview of Elizabeth Hofacre (Sep. 24, 2013) pp. 91-92.
TR119.005

Furthermore, the lengthy application process, coupled with
burdensome requests for information, caused some conservative
applicants like American Junto to stop pursuing tax-exempt
status. Data produced by the IRS confirms that substantially
more Tea Party and conservative organizations than left-leaning
groups withdrew their applications for tax-exempt status, or
ceased responding to burdensome IRS requests, which resulted in
the IRS closing their applications for ``failure to
establish.'' Between 2010 and 2014, 104 organizations withdrew
their applications after being ``centralized.''\397\ Majority
staff analysis revealed that of the groups that withdrew or
that had their applications closed for FTE, 77 were Tea Party
or conservative, while only 15 were liberal or progressive. The
remaining 12 had no political affiliation. Thus, for every
liberal group whose application was either withdrawn or closed
for FTE, over 5 conservative groups suffered the same fate in
their quest for tax-exempt status.
---------------------------------------------------------------------------
\397\These 101 organizations include those that formally withdrew
their application by notifying the IRS as well as those that withdrew
informally by failing to respond to IRS requests for information.
TR119.006

All of the above data confirm that Tea Party and
conservative organizations waited longer and were more severely
harmed than left-leaning groups.

C. Tea Party Groups Suffered Substantial Harm as a Result of IRS Delays

Majority Committee staff interviewed principals from a
number of Tea Party and related conservative organizations
whose applications for exemption were, and in some cases
continue to be, delayed. These individuals all recounted
similar stories of long delays, intrusive inquiries bordering
on the Orwellian, and of adverse impact on the operations of
their organizations. Recounted below are several representative
stories told to Majority staff by these conservative groups.

1. The Albuquerque Tea Party

The Albuquerque Tea Party first filed its application for
exemption under 501(c)(4) in December 2009. EO Determinations
received the application on January 4, 2010.\398\ In its
application, the Albuquerque Tea Party indicated that it
intended to: sponsor educational forums informing attendees
about current political issues (40 percent of the
organizations' activities); provide advocacy training to
empower people to become more active in the political process
(30-40 percent of its activities); hold candidate forums
allowing non-partisan access to candidates for public office
(20 percent of its activities); and organize event rallies that
are non-partisan gatherings open to the general public for the
purpose of educating and motivating (10 percent of its
activities).\399\ Question 15 of the application asks if the
organization has spent, or intends to spend, funds attempting
to influence the selection, nomination, election, or
appointment of any person to public office or to office in a
political organization. In response, the Albuquerque Tea Party
stated that while no monies had yet been spent on these
activities, that approximately 20 percent of its budget would
be set aside for such purposes.\400\
---------------------------------------------------------------------------
\398\Email chain between Hilary Goehausen, Michael Seto and others
(Feb. 28, 2012) IRS0000058356-61.
\399\Email chain between Holly Paz, Cindy Thomas, Jack Koester, and
others (Feb. 25-Mar. 17, 2010) IRS0000180869-73.
\400\Id.
---------------------------------------------------------------------------
On February 25, 2010, Jack Koester, a screener in EO
Determinations, flagged this application as a possible ``high-
profile'' case because of media attention surrounding the Tea
Party.\401\ Koester's managers agreed with his assessment and
eventually, the application was sent to EO Technical and
assigned to Carter (Chip) Hull to work as one of the two Tea
Party ``test cases.''\402\ Hull sent the organization a
development letter in April 2010. Included among the questions
in Hull's development letter was a query asking the Albuquerque
Tea Party to describe its connection to ``Marianne Chiffelle's
Breakfasts,'' a breakfast gathering of the Bernalillo County
Republican Party organized by Marianne Chiffelle, a then-83
year old great-grandmother.\403\ Rick Harbaugh, the President
of the Albuquerque Tea Party, told Majority staff that he found
Hull's question about ``Marianne Chiffelle's Breakfasts'' to be
peculiar, as Chiffelle simply hosted a breakfast club and
offered a prayer before each breakfast. After the IRS granted a
brief extension of time to respond, the Albuquerque Tea Party
sent the IRS a reply in June 2010.
---------------------------------------------------------------------------
\401\Id.
\402\SFC Interview of Carter Hull (July 23, 2013) (not
transcribed).
\403\Washington Examiner, IRS Went After 89-year-old Tea Party
Granny (May 20, 2013).
---------------------------------------------------------------------------
Thereafter, the Albuquerque Tea Party heard nothing from
the IRS for nearly a year and a half, when in November 2011, it
received a second development letter from Tax Law Specialist
Hillary Goehausen. Goehausen's development letter asked for
substantially more information than Hull's had, such as copies
of every newsletter and publication of the Albuquerque Tea
Party. Harbaugh stated that he considered Goehausen's
development letter of November 2011 to be intrusive and
burdensome. The Albuquerque Tea Party sent its response to the
IRS in January 2012. Having heard nothing from the IRS for more
than a year, in March 2013, the Albuquerque Tea Party retained
counsel who made inquiry as to the status of its application.
Goehausen replied by stating that she had prepared a
recommended determination but that she could not disclose it to
the Albuquerque Tea Party and that it was pending with her
reviewer. Since April 2013, the Albuquerque Tea Party has not
heard anything more from the IRS regarding the status of its
application.\404\
---------------------------------------------------------------------------
\404\The Albuquerque Tea Party is currently involved in litigation
against the IRS. Generally, litigation does not preclude the IRS from
coming to a final determination on a litigant's pending application for
tax-exempt status.
---------------------------------------------------------------------------
Harbaugh spoke to Majority staff in February 2014. He
stated that it was difficult for him to understand why his
organization was still awaiting a decision on its application
after 50 months, while the Barack H. Obama Foundation, a
charitable organization operated by President Obama's brother,
received its approval to operate as a 501(c)(3) from Lois
Lerner within a month after it filed its application.\405\
Harbaugh indicated that the Albuquerque Tea Party had never
endorsed a political candidate, but rather has expended most of
its effort in advocating for small government. Harbaugh also
expressed concern about whether he had become a personal target
for the IRS and other government agencies as a result of his
Tea Party activities, as he was audited by the IRS in 2010 and
2011 and was approached by the U.S. Census Bureau on two
occasions during that time and asked to answer ``supplemental
questions.''
---------------------------------------------------------------------------
\405\The Daily Caller, IRS Official Lerner Speedily Approved
Exemption for Obama Brother's ``Charity'' (June 4, 2013); Barack H.
Obama Foundation, .
---------------------------------------------------------------------------
Harbaugh indicated that his ordeal in attempting to secure
tax-exempt status from the IRS has negatively affected the
operation of the Albuquerque Tea Party. He stated that the
absence of a determination letter from the IRS approving tax-
exempt status affects the willingness of donors to make
contributions. He expressed his belief that donors are less
inclined to make donations to an entity whose tax-exempt status
has not yet been confirmed by the IRS. He also indicated that
the lack of a determination letter negatively impacts his
ability to secure affiliations from other groups, as people are
afraid that they may also be ``oppressed'' by the IRS if they
lend their name to the Albuquerque Tea Party. Lastly, Harbaugh
told Majority staff that the absence of a determination letter
has caused him to operate very cautiously from a fiscal
perspective, as he must keep a portion of the group's revenue
on hand in the event of an adverse determination by the IRS, as
such a determination would result in a retroactive tax
liability. This factor has prevented the Albuquerque Tea Party
from engaging in the full range of activities that it would
otherwise have undertaken. As of April 2015, the Albuquerque
Tea Party was still waiting for a determination from the IRS,
more than five years after they applied for tax-exempt status.

2. American Junto

In 2008, American Junto was formed by Chris Littleton, a
self-described conservative, and several of his friends who had
become increasingly concerned with the direction the country
was taking, and with the sense that a growing number of
Americans were losing faith in the political process. They
wanted to do something to help others restore that lost faith.
This motivated Littleton and his friends to create American
Junto, an organization named after meetings that Benjamin
Franklin hosted in his home to discuss issues of the day.
American Junto was never intended to be an advocacy
organization or to engage in political campaign intervention,
and in fact, did not engage in these activities. Littleton's
plan was to make American Junto a non-profit, community-
centered, education organization that would provide
scholarships and host educational events aimed at encouraging
people to involve themselves in the political process.
In 2009, Littleton decided that American Junto would best
be able to accomplish its goal of encouraging citizen
participation in the political process by becoming a charitable
organization under 501(c)(3). As a 501(c)(3) organization,
donations made to American Junto would be tax-deductible.
Littleton, without legal assistance, prepared an application
for tax-exempt status under 501(c)(3), and submitted it to the
IRS in or about February 2010. Thereafter, Littleton
incorporated American Junto, opened a bank account for it and
began operating American Junto like a 501(c)(3) organization.
American Junto sponsored a conference that dealt with liberty
issues, hosted a conference on climate change, and raised
hundreds of dollars for scholarships.
American Junto received a development letter from Carter
Hull in July 2010. The letter inquired about American Junto's
connection to the Tea Party, as well as to Ohio Liberty
Council, a 501(c)(4) organization that Littleton had recently
formed to take positions on political issues. Littleton felt
that the questions asked by Hull were invasive and that the
time and effort required to respond to the letter would be
substantial. Nevertheless, he answered the development letter
since he understood that American Junto's ability to raise
funds through sustained donations was directly linked to its
receiving approval from the IRS to operate as a 501(c)(3)
organization. Sometime after responding to the development
letter, one of the co-founders of American Junto called Hull to
inquire as to the status of the application. The call to Hull
was motivated by the need to get IRS approval so that the
organization could raise in earnest the money it required to
fund its planned activities. Hull responded by stating that the
application was ``under review.''
While American Junto's application was ``under review'' by
Hull and his IRS colleagues in Washington D.C., Littleton began
to involve himself more with the activities of Ohio Liberty
Council. Then, nearly 10 months after responding to Hull's
first development letter, in April of 2011, he received a
second development letter from Hull. The application for
exemption was now 14 months old and Littleton began to lose
heart that it would ever be approved. Littleton weighed the
possibility of simply shutting down American Junto and moving
on with Ohio Liberty Council. After consulting with his co-
founders, Littleton decided to submit a response to Hull's
development letter and did so in May 2011.
In November 2011, American Junto received yet a third
development letter requesting more information, this one from
Hillary Goehausen. This letter sounded the curtain call for
American Junto. After waiting nearly 22 months and enduring
several rounds of detailed and intrusive development letters,
Littleton felt that no matter how he answered the development
letter, American Junto would never be approved as a 501(c)(3)
by the IRS. In December 2011, Goehausen called Littleton to
inquire if American Junto was going to provide the information
requested in the November development letter. Littleton
informed Goehausen that American Junto would not respond and
that the organization would be dissolved. Goehausen
subsequently sent Littleton a letter advising him that the
application was closed.\406\
---------------------------------------------------------------------------
\406\This is one example of an application that the IRS closed for
``failure to establish.''
---------------------------------------------------------------------------
Littleton explained to Majority staff how the IRS's
handling of the American Junto application had a profoundly
negative effect on American Junto's ability to operate as a
501(c)(3) entity. First, the absence of an approval letter from
the IRS prevented American Junto from fund raising effectively,
since donations would not be tax-deductible until the IRS
granted tax-exempt status. Littleton recounted how one donor
offered American Junto several thousand dollars to fund an
event, but withdrew the offer after learning that American
Junto had not yet been approved as a tax-exempt organization.
Second, Littleton indicated that the length of time that the
application was pending and the string of burdensome
development letters contributed to his decision to quit the
process. In essence, the IRS's glacial pace in developing the
application and the time consuming nature of its interactions
with Littleton simply wore down his resolve to complete the
application process. Third, Littleton feared that his
activities with American Junto had elevated his profile with
the IRS and other government agencies, a fear he believes was
realized in 2010 when he was audited by the IRS. While there is
no direct proof that the audit resulted from his activities
with American Junto, Littleton was quick to point out that an
acquaintance of his who is active with the Cincinnati Tea Party
was also audited by the IRS at about the same time. Littleton's
suspicions about the IRS's motivations in auditing him and his
acquaintance stem from a deep-rooted lack of confidence in the
impartiality of the IRS, a conviction shared by many of the
groups with whom Majority staff spoke.

3. Pass the Balanced Budget Amendment (PBBA)

This organization was started by Charles Warren and several
of his friends who share a common belief that the government
must eliminate unnecessary spending and balance the federal
budget. In November 2010, PBBA filed with the IRS an
application for tax-exempt status under section 501(c)(4). In
its application for exemption, PBBA indicated that its
activities included education, research, lobbying and media
efforts aimed at securing the passage of a balanced budget
amendment to the Constitution. PBBA stated to the IRS that it
would use town hall meetings, social media, speeches, rallies,
and printed media to promote its message. In support of the
requirement for exemption that it be primarily engaged in
promoting the common good of the citizenry, PBBA asserted in
its application that its activities would benefit the public by
resulting in a more robust economy, limiting federal spending,
and reducing inflation. Notably, in response to question 15 of
the application which asks if the organization will attempt to
influence the selection, nomination, election, or appointment
of any person to public office or office within a political
organization, PBBA answered ``no.'' Indeed from a review of
PBBA's application and the supporting documents submitted to
the IRS, it is clear that PBBA's purpose and activities were
dedicated exclusively to stimulating the electorate into
supporting the passage of a balanced budget amendment.
PBBA's application was screened in EO Determinations in
January 2011. The screener noted that there was no indication
of direct political activities in the application and
supporting documents. However, the screener characterized PBBA
as an ``advocacy group'' and sent its application to the
advocacy inventory. While PBBA was not a Tea Party and was
neither partisan in its message nor its educational activities,
it did promote a common theme advanced by Tea Parties--the
elimination of the national debt and of deficit spending.
Indeed, one of the screening criteria relied upon by EO
Determinations to identify ``Tea Party'' cases was the presence
of statements in the application related to ``Government
spending, Government debt . . ..''\407\ If the screener applied
the ``Tea Party'' screening criteria when reviewing the
application, it is highly probable that his decision to send
PBBA's application to the advocacy inventory was based on the
conclusion that PBBA met the criteria for a Tea party
application. In any event, the decision to send the case to the
advocacy inventory proved a fateful one for PBBA, as explained
below.
---------------------------------------------------------------------------
\407\Email chain between Holly Paz, John Shafer, Cindy Thomas and
others (June 1-10, 2011) IRS0000066837-40.
---------------------------------------------------------------------------
The application was initially assigned to an EO
Determinations agent in California. She sent the first
development letter to PBBA on March 31, 2011, and a second
development letter on May 12, 2011. After PBBA had responded to
the development letters and resolved an issue about its status
as a ``for-profit'' corporation under state law, the EO
Determinations agent was prepared to approve the application in
September 2011. However, she then realized that PBBA was
classified as an ``advocacy group'' and was therefore required
to send the application to the Emerging Issues Group in
Cincinnati.
The application was assigned to an EO Determinations agent
in Cincinnati in February 2012. The agent sent PBBA an
extremely detailed development letter containing, with
subparts, 48 questions. A number of the questions asked for
information that PBBA had already provided to the IRS in its
responses to the prior two development letters. However, many
of the questions asked for highly specific information:
a hardcopy printout of PBBA's entire
website;
a hardcopy printout of its social media
outlets;
copies of all handouts and workshop
materials for all public events conducted or planned to
be conducted by PBBA, including:
the content of all speeches
delivered or planned to be delivered at those
events; and
the identities of the speakers and
their credentials;
copies of all communications distributed by
PBBA regarding the outcome of specific legislation;
copies of all radio, television or internet
advertisements relating to lobbying activities; and
copies of all written communications with
members of legislative bodies.\408\
---------------------------------------------------------------------------
\408\Letter from Joseph Herr to PBBA (Feb. 7, 2012) IRS0000048218-
22 (emphasis added).
---------------------------------------------------------------------------
Shortly after receipt of the third development letter, PBBA
secured the services of an attorney who then submitted a
response to the IRS. On May 25, 2012, PBBA received a
determination letter from the IRS approving its application for
tax exemption under 501(c)(4).
Even so, PBBA was adversely impacted by the IRS's
mishandling of its application. First, the application and
supporting documents clearly demonstrated that PBBA, while
undoubtedly espousing a conservative message, was not a Tea
Party or an advocacy group. The decision to characterize PBBA
as an advocacy group delayed the IRS's decision to approve
PBBA's application for exemption. Had the application been
assigned to general inventory and developed in January 2011, it
is likely that it would have been approved shortly thereafter.
Aside from speculation, it is clear from the case history that
the EO Determinations agent in California was prepared to
approve the application in September 2011. However, because
PBBA had been characterized as an advocacy group, its
application was sent to Cincinnati where its approval was
further delayed by 8 months. In addition, PBBA was required to
respond to three rounds of development questions, and in
particular, extremely onerous and burdensome questions that
were hardly justified in light of the information already
provided to the IRS. That information bore stark witness to the
fact that PBBA was not a partisan political organization
engaged in campaign intervention. Finally, after receiving a
third development letter in 14 months, PBBA deemed it prudent
to secure legal counsel at substantial cost to it, as a hedge
against the vagaries of the application process.

4. King Street Patriots and True the Vote

Catherine Engelbrecht founded King Street Patriots (KSP)
and True the Vote (TTV) in 2009-2010 after witnessing voter
fraud and related abuses while serving as a volunteer poll
watcher in a Texas election. Her experiences as a poll watcher
convinced her that more needed to be done to ensure the
``sanctity of the vote.'' Accordingly, she formed KSP as a non-
partisan, non-profit organization dedicated to addressing some
of the problems at the polls that she had personally
experienced. KSP's activities included enlisting volunteers to
work at the polls, training those workers, leading voter
registration drives, and hosting events to encourage voter
turnout. In May 2010, Engelbrecht filed with the IRS, on behalf
of KSP, an application for tax exemption under 501(c)(4).
In September 2010, Engelbrecht submitted to the IRS an
application for exemption under 501(c)(3) for TTV. Engelbrecht
described TTV's activities as centering on the recruitment and
training of volunteers to work inside polling places. Among
other things, TTV was formed to aggressively pursue voter fraud
allegations to ensure prosecutions where appropriate, to
provide a support system to assist poll watchers carry out
their duties, and to engage in efforts aimed at validating
existing voter registration lists.
The IRS issued its first development letter to KSP in
February 2012, some 21 months after KSP's application was
filed. The development letter contained 95 questions and
requests for documents, including subparts. In a now all too
familiar pattern, the development letter sought from KSP an
enormous amount of highly detailed information of dubious
probative value:
copies of every page of KSP's webpage;
minutes of every board meeting;
copies of every fundraising solicitation;
a list of all issues important to KSP and
KSP's position on each issue;
the criteria KSP used when determining
whether to endorse a candidate for political office;
copies of all training materials;
copies of all materials distributed at
educational events;
copies of all materials distributed at
candidate forums; and
copies of all materials distributed during
voter registration drives.
KSP responded to the IRS's development letter in May 2012
with a submission totaling nearly 300 pages. The IRS's next
development letter was sent to KSP eight months later in
October 2012. KSP responded in November 2012 with the requested
information. Almost a year later, in December 2013, after
waiting nearly 3 and a half years, KSP received a determination
letter from the IRS approving its application for exemption
under 501(c)(4).
Development and resolution of TTV's application for tax-
exempt status under 501(c)(3) followed much the same course as
that of KSP's. TTV received its first development letter in
February 2011, five months after filing its application. The
letter asked a reasonable number of questions specifically
aimed at eliciting information about TTV's activities,
information clearly necessary for the IRS to be able to
determine if TTV's activities were consistent with tax-exempt
purposes. The next development letter that TTV received, a year
later in February 2012, was not so reasonable. The number of
requests for information and the demands for documents actually
exceeded that of the February 2012 letter sent to KSP, topping
the prodigious sum of 120.\409\ Moreover, many of these
oppressive and burdensome requests were identical to those
contained in the KSP development letter. It is indeed difficult
to understand how the answers and information provided to many
of these requests would possibly assist the IRS reach a
conclusion on whether TTV should be granted tax-exempt status.
The following examples give a flavor of the irrelevance of most
of these requests:
---------------------------------------------------------------------------
\409\Letter from Janine Estes to True the Vote (Feb. 8, 2012)
IRS0000084012-21.
---------------------------------------------------------------------------
the percentage of people trained as election
administration workers versus the percentage trained as
election observers;
the names and credentials of the election
law experts used by TTV to review TTV's materials and
to staff its voter integrity center;
the number of individuals trained to perform
voter registration integrity activities as well as the
number who are currently in training;
the number of jurisdictions in which TTV
conducted voter registration integrity activity;
the name of the owner of the intellectual
property rights to the software used by TTV to review
lists of registered voters; and
the name of any person or organization that
provided educational services to TTV, together with a
full description of the services and the political
affiliation of the person or organization.
Notwithstanding the enormity of the effort required to
respond to these largely superfluous and invasive requests, TTV
did, in fact, respond in March 2012. Thereafter, TTV heard
nothing from the IRS as another year passed. Then in March
2013, TTV was required to respond to yet another request for
information from the IRS. Ultimately, after waiting three
years, and responding to at least four different requests for
additional information, TTV received its determination letter
from the IRS granting it status as a 501(c)(3) tax-exempt
organization.
Engelbrecht explained to Majority Staff that the delays
experienced by both KSP and TTV adversely impacted the
operations of these organizations. She recounted that the long
delays and multiple rounds of development letters caused these
entities to incur substantial legal fees, as assistance of
counsel was required at nearly every juncture of the
application process. She also indicated that KSP and TTV
suffered the ``stigma'' of not having approved tax-exempt
status while attempting to operate as tax-exempt entities,
since the lack of IRS approval created the perception to some
that the organizations lacked legitimacy. She also expressed
frustration over TTV's inability to apply for foundation grants
while it waited the three years required by the IRS to approve
the application. Engelbrecht told Majority staff of one
instance in which TTV had been awarded a grant with the
condition that the funds could not be expended unless TTV was
approved as a 501(c)(3) organization by the end of the year.
When IRS approval was not forthcoming within that time, TTV was
required to return the funds. Engelbrecht also noted that since
KSP and TTV were both approved tax-exempt status, donations
have increased, which lead her to the reasonable conclusion
that the lengthy delays that both organizations endured from
2010 to 2013 negatively affected their ability to raise funds
in those years.
Perhaps the most disconcerting aspect of Engelbrecht's saga
is the heightened interest that several agencies of the U.S.
Government took in her personally from 2010 through 2013, as
well as in the operations of KSP, TTV and in Engelbrecht
Manufacturing, the business that she and her husband operate.
In January 2011, the IRS audited the tax returns of her
business for tax years 2008 and 2009 and then in June of 2011,
audited her personal returns for those same tax years.
Throughout 2011, she was contacted by the FBI six times (four
phone calls and two personal visits) regarding the general
activities of KSP and about a particular individual who
attended a KSP function. In 2012, a new round of government
inquiry into her business affairs commenced with two audits of
Engelbrecht Manufacturing by the Bureau of Alcohol, Tobacco,
Firearms, and Explosives as well as an audit by the
Occupational Safety and Health Administration. Engelbrecht
indicated that between the years 1994, when she and her husband
started their small business, and 2010, when she first filed
the applications for tax exemption, the extent of her contact
with the government had been limited to the filing of annual
tax returns. However, this changed dramatically after she
submitted applications to the IRS in 2010 seeking tax-exempt
status for KSP and TTV. It is unclear whether this increased
scrutiny into the business of Catherine Engelbrecht and her
husband was simply serendipitous, or was the product of an
orchestrated campaign by the government to harass her. It may
also have resulted from the decentralized actions of like-
minded bureaucrats in various agencies who were executing an
unstated directive to intimidate the political opponents of the
administration, or perhaps was a combination of some or all of
the above. Whatever the cause, Engelbrecht believes with
unshakable conviction that she has been personally targeted by
the government and that the actions directed against her, as
recounted above, reflect the ``weaponizing of
government.''\410\
---------------------------------------------------------------------------
\410\Townhall, True the Vote President Catherine Engelbrecht Slams
IRS Abuse, Weaponizing of Government (Feb. 7, 2014).
---------------------------------------------------------------------------

VII. POLITICAL INFLUENCE WITHIN THE IRS

------------------------------------------------------------------------

-------------------------------------------------------------------------
Recent events have demonstrated that the organizational structure of the
IRS is
fundamentally flawed, resulting in an environment rife with political
bias.
------------------------------------------------------------------------

A. The IRS's Lack of Independent Agency Status Fostered the Expression
of Political Bias and Has Irrevocably Tainted the Agency's Credibility

One of the critical lessons learned from the Committee's
investigation is the need for the IRS to be an independent
agency. To fully appreciate the politicized environment of the
IRS, it is necessary to understand the IRS's role as a bureau
of the Treasury Department--an entity that is closely
controlled by the President to implement his economic and
financial initiatives.
Many errantly believe that the IRS already is an
independent entity. Indeed, Jay Carney, the former White House
press secretary, mistakenly called the IRS ``an independent
enforcement agency with only two political appointees,'' during
a press briefing on May 10, 2013.\411\ President Obama also
claimed that the IRS was an ``independent agency,'' during a
May 13, 2013 press conference. Specifically, he stated, ``If,
in fact, IRS personnel engaged in the kind of practices that
had been reported on and were intentionally targeting
conservative groups, then that's outrageous and there's no
place for it. And they have to be held fully accountable,
because the IRS as an independent agency requires absolute
integrity, and people have to have confidence that they're
applying it in a non-partisan way--applying the laws in a non-
partisan way.''\412\
---------------------------------------------------------------------------
\411\White House, Press Briefing by Press Secretary Jay Carney (May
10, 2013).
\412\White House, Remarks by President Obama and Prime Minister
Cameron of the United Kingdom in Joint Press Conference (May 13, 2013).
---------------------------------------------------------------------------
Despite these claims from the Administration and the
misperception of many in the public that the IRS is indeed an
independent agency, the reality is that it is most definitely
not. The IRS is a bureau within the Treasury Department, which
is an executive branch agency within the Federal
Government.\413\ According to the IRS website, the agency was
``organized to carry out the responsibilities of the Secretary
of the Treasury under section 7801 of the Internal Revenue
Code.''\414\
---------------------------------------------------------------------------
\413\U.S. Department of Treasury, About Bureaus.
\414\IRS, The Agency, its Mission and Statutory Authority (emphasis
added).
---------------------------------------------------------------------------
The IRS Commissioner is a political appointee nominated by
the President and confirmed by the Senate. However, the IRS
Commissioner does not report to the President, as the head of
an independent agency would; instead, the IRS Commissioner
reports to the Secretary of the Treasury via the Deputy
Secretary of the Treasury.\415\ This reporting line ensures
that the IRS remains within Treasury's purview.
---------------------------------------------------------------------------
\415\U.S. Department of Treasury, About Treasury Order 101-05.
---------------------------------------------------------------------------
The law further states that the IRS Commissioner can be
removed from the position ``at the will of the
President.''\416\ That action cannot be taken against the heads
of some other ``independent'' agencies without a reason. For
example, the Chairman of the National Labor Relations Board can
``be removed by the President, upon notice and hearing, for
neglect of duty or malfeasance in office, but for no other
cause.''\417\ Likewise, Members of the Federal Reserve Board,
another independent agency, can only be removed ``for
cause.''\418\ These officials presumably have less concern that
their judgment could result in removal if the Administration
does not find it agreeable--unlike the IRS Commissioner, who
can essentially be fired at will.
---------------------------------------------------------------------------
\416\26 U.S.C. Sec. 7803 (2008).
\417\29 U.S.C. Sec. 153 (1982).
\418\12 U.S.C. Sec. 242 (2010).
---------------------------------------------------------------------------
Indeed, President Obama may have indirectly exercised his
authority to remove the IRS Commissioner on May 15, 2013, when
he stated that he had directed Treasury Secretary Jack Lew to
review TIGTA's findings. Soon after the President's directive,
Lew requested and accepted the resignation of then-Acting IRS
Commissioner, Steve Miller.\419\ At that time, it had been
reported that Miller was aware of the agency's targeting of
conservative political groups and chose not to disclose it to
members of Congress.\420\
---------------------------------------------------------------------------
\419\White House, Statement by the President (May 15, 2013).
\420\Washington Post, IRS Officials in Washington Were Involved in
Targeting of Conservative Groups (May 13, 2013).
---------------------------------------------------------------------------
One way that federal law attempts to remove partisanship
from the IRS is through the use of five-year terms for its
Commissioner that overlap the four-year presidential election
cycles. The only other political appointee in the agency
besides the Commissioner is the IRS Chief Counsel, who
``provides legal guidance and interpretive advice to the IRS,
Treasury and to taxpayers.''\421\
---------------------------------------------------------------------------
\421\IRM Sec. 1.1.5.1(5) (Oct. 28, 2008).
---------------------------------------------------------------------------
Another safeguard is that the law prohibits the President,
Vice President and members of their executive office staff from
requesting, ``directly or indirectly, any officer or employee
of the Internal Revenue Service to conduct or terminate an
audit or other investigation of any particular taxpayer with
respect to the tax liability of such taxpayer.''\422\
---------------------------------------------------------------------------
\422\26 U.S.C. Sec. 7217 (1998).
---------------------------------------------------------------------------
The Treasury Department is supposed to keep an arms-length
relationship with the IRS on matters of tax administration,
enforcement and ``process,'' which essentially means that it
doesn't ask the IRS for information about taxpayers. However,
on matters of tax policy and regulations, the Treasury
Department works closely with the IRS. This dichotomy is a
difficult one to balance and is made even more challenging
because the IRS Chief Counsel is actually organizationally
housed in the Treasury Department and is not a part of the IRS.
Instead, the Office of Chief Counsel and the Chief Counsel
reports through Treasury Department's chain of command, thereby
adding an even greater appearance of politicization.
This close working relationship between IRS and the
Treasury Department creates the appearance, if not the
actuality, of an inherent conflict of interest that allows
exactly the type of political bias that occurred when
conservative groups applied for tax-exempt status between 2010
and 2013. If the IRS is to fulfill its mission to act in a fair
and impartial manner while carrying out its very unique
function, then it needs to be treated uniquely.
Making the IRS an independent agency, like the Social
Security Administration, would minimize the political influence
of the Treasury Department, while at the same time allowing the
Commissioner to be an independent voice for tax administration.
In order for the American public to ever have its faith in the
IRS restored, it is essential that the IRS be taken out of the
political realm and put squarely where it needs to be--as an
independent enforcement agency that is free from all real and
perceived political influence and bias.

B. Union Influence Within the IRS Has Created an Atmosphere of
Political Bias

It is virtually impossible for the IRS to maintain the
reality, much less the appearance, of neutrality and fairness
to all taxpayers, when a substantial number of IRS employees
are members of the highly partisan and left-leaning National
Treasury Employees Union (NTEU). The NTEU is one of the largest
and most powerful federal employee unions in the federal
government. Currently the union represents about 150,000
employees in 31 government agencies, including the IRS.\423\ At
the IRS alone there are approximately 48,972 dues-paying union
employees, representing 65.5% of the bargaining unit employees
at the IRS.\424\
---------------------------------------------------------------------------
\423\NTEU, Who We Are.
\424\IRS Briefing for Majority staff (May 30, 2014).
---------------------------------------------------------------------------
Politically, the NTEU is extremely active and twice
endorsed Mr. Obama for President, first in 2008 and again in
2012. NTEU's current president, Colleen Kelley, was a 14-year
IRS revenue agent and is now both union president and an Obama
administration appointee to the Federal Salary Council, whose
function is to recommend raises for IRS and other federal
employees.\425\ During the 2010 election cycle, when the IRS
targeting of Tea Party groups began, the NTEU raised $613,633
through its political action committee (PAC), donating
approximately 98% of that amount to Democrats. In 2012,
$729,708--or 94% of NTEU PAC contributions--went to anti-Tea
Party Democrats.\426\
---------------------------------------------------------------------------
\425\Breitbart, Obama Met with IRS Union Boss Day Before Tea Party
Targeting Began (May 20, 2013).
\426\The American Spectator, Obama and the IRS: The Smoking Gun?
(May 20, 2013).
---------------------------------------------------------------------------
Of further note is that as of 2011, at least 201 IRS
employees worked full time on union issues. For that year,
625,704 hours of official employee time within Treasury
Department (including the IRS) was spent on union duties. These
union activities cost taxpayers an estimated $27 million.
Although IRS employees are career civil servants, many of
them are political partisans. For example, in the past three
election cycles, the Center for Responsive Politics's database
shows about $474,000 in political donations by individuals
listing ``IRS'' or ``Internal Revenue Service'' as their
employer.\427\ This money heavily favors Democrats: $247,000 to
$145,000.\428\ IRS employees also gave $67,000 to the NTEU
political action committee, which in turn gave more than 96
percent of its contributions to Democrats. When NTEU political
action committee contributions are added to the donations by
individual IRS employees, those contributions favor Democrats 2
to 1.\429\
---------------------------------------------------------------------------
\427\Center for Responsive Politics, data available at http://
www.opensecrets.org.
\428\Id.
\429\National Review, A Partisan Union at the IRS (May 20, 2013).
---------------------------------------------------------------------------
The IRS office in Cincinnati involved in the targeting of
Tea Party applications is even more partisan than the IRS as a
whole, judging by FEC filings. More than 75 percent of the
campaign contributions from that office in the past three
elections went to Democrats. In 2012, every donation traceable
to employees at that office went to either President Obama or a
particular Democratic Senator.\430\
---------------------------------------------------------------------------
\430\Washington Examiner, Tim Carney: The IRS is Deeply Political
and Very Democratic (May 15, 2013).
---------------------------------------------------------------------------
These figures indicate that IRS employees are primarily
paying for efforts to elect anti-Republican candidates, both
through their union membership and by their direct
contributions. Moreover, IRS employees are beholden to the
NTEU, as it has negotiated favorable labor agreements with the
IRS on their behalf that affect virtually every aspect of work
life, such as ``alternative work schedules, flexi-place,
transit subsidies, performance awards and much more.''\431\
These labor agreements also make it more difficult for IRS
management to discipline and terminate employees who are
failing to perform their jobs.
---------------------------------------------------------------------------
\431\NTEU, The Voice of Federal Employees.
---------------------------------------------------------------------------
In addition to the NTEU's leanings towards the Democratic
Party is the fact that the Tea Party's anti-IRS views are well
documented.\432\ These factors together create an atmosphere
that may foster an outright bias against Tea Party groups by
IRS employees in the performance of their duties; or, at least
one that may color their perspective to a degree that could
cause them to administer the tax laws unfairly to the detriment
of the Tea Party.
---------------------------------------------------------------------------
\432\Wall Street Journal, Tea Party Protesters Rally Against IRS,
Government (June 19, 2013).
---------------------------------------------------------------------------
Under current law, most federal employees are permitted
representation by a union. The major exception to this rule is
Federal employees who work in national security or other
agencies where the nature of their work requires them to be
completely apolitical. The Federal Labor-Management Relations
Statute provides that employees at the following agencies are
not entitled to union representation: Government Accountability
Office, Federal Bureau of Investigation, Central Intelligence
Agency, National Security Agency, Tennessee Valley Authority,
Federal Labor Relations Authority, Federal Service Impasses
Panel, and U.S. Secret Service and U.S. Secret Service
Uniformed Division.\433\
---------------------------------------------------------------------------
\433\5 U.S.C. Sec. 7103(a)(3) (2004). In at least one case,
subsequent legislation has allowed union representation at an agency
exempted by the Federal Labor-Management Relations Statute. See 31
U.S.C. Sec. 732(e)(2) (2008), authorizing a labor-management relations
program for the Government Accountability Office.
---------------------------------------------------------------------------
The IRS is currently not one of the exempted entities, but
the issues and facts brought forth by this investigation make a
compelling case of why they should be exempted. The charge of
the IRS is to administer the tax law in a fair and impartial
manner. It is difficult, if not impossible, for that to occur
when the union presence is so pervasive. The only way to
completely eliminate the appearance of any bias is to add the
IRS to the list of agencies where union membership is
prohibited.

C. Recent Violations of the Hatch Act Show Pervasive Political Bias
Throughout the IRS

The Hatch Act was enacted in 1939 following widespread
allegations that Federal employees were exerting improper
political influence in the course of their official duties. The
Act has been amended several times since its enactment and
prevents Federal employees from engaging in partisan political
activity while on duty. The Office of Special Counsel (OSC) is
authorized to issue advisory opinions about alleged violations
of the Hatch Act throughout the Federal Government.\434\
---------------------------------------------------------------------------
\434\U.S. Office of Special Counsel, Request an Advisory Opinion.
---------------------------------------------------------------------------
Federal employees are routinely warned about the
consequences of participating in prohibited political activity.
Still, in every election cycle, there are violations of the
Hatch Act. Some of these incidents occur when a reasonable
person may have made a mistake in judgment. Often, though, the
incidents are blatant violations, such as those described below
in recent investigations into the activities of IRS employees.
In total, OSC received 38 allegations of Hatch Act
violations committed by Treasury Department employees from
fiscal year 2010 through fiscal year 2013.\435\ Of those 38
allegations, 95% were lodged against IRS employees (the
remaining 5% comprised employees from all other bureaus within
the Treasury Department). In fiscal year 2013 alone--which
included the months surrounding the 2012 election--there were
22 allegations of Hatch Act violations filed against IRS
employees.
---------------------------------------------------------------------------
\435\OSC Summary of Alleged Violations of Hatch Act, Produced to
SFC Majority Staff (May 23, 2014).
---------------------------------------------------------------------------
OSC issued a press release on April 9, 2014, announcing its
investigation of several cases against IRS employees and
offices suspected of illegal political activity in support of
President Obama and fellow Democrats in 2012.\436\ In the press
release, OSC stated that it has evidence that an IRS employee
used his authority and influence as a customer service
representative for a political purpose.\437\ When fielding
taxpayer's questions from an IRS customer service help line,
the employee urged taxpayers to reelect President Obama in 2012
by repeatedly reciting a chant based on the spelling of his
last name. In June 2014, OSC announced that the employee had
agreed to serve a 100-day unpaid suspension and ``acknowledged
that he had used his authority and influence as an IRS customer
service representative for a political purpose and did so while
at work.''\438\
---------------------------------------------------------------------------
\436\U.S. Office of Special Counsel, OSC Enforces Hatch Act in a
Series of IRS Cases (Apr. 9, 2014).
\437\Id.
\438\U.S. Office of Special Counsel, OSC Obtains Disciplinary
Action in Two Hatch Act Cases (July 10, 2014).
---------------------------------------------------------------------------
In another recent IRS case, OSC found that an employee in
Kentucky promoted her partisan political views to a taxpayer
she was assisting during the 2012 Presidential election
season.\439\ The employee in question had previously been
warned about violating the Hatch Act. A recorded conversation
between the employee and a taxpayer revealed the employee
saying that she was ``for'' the Democrats because ``Republicans
already [sic] trying to cap my pension and . . . they're going
to take women back 40 years.'' The employee explained that her
mother always said, ```If you vote for a Republican, the rich
are going to get richer and the poor are going to get poorer.'
And I went, `You're right.' I found that out.'' The employee
then told the taxpayer, ``I'm not supposed to voice my opinion,
so you didn't hear me saying that.''
---------------------------------------------------------------------------
\439\U.S. Office of Special Counsel, OSC Enforces Hatch Act in a
Series of IRS Cases (Apr. 9, 2014).
---------------------------------------------------------------------------
Following OSC's investigation, the employee entered into a
settlement agreement in April 2014, agreeing to serve a 14-day
suspension. In the agreement, the employee admitted to
violating the Hatch Act's restrictions against engaging in
political activity while on duty and using her official
authority or influence to affect the result of an election.
Finally, OSC recently completed an investigation of
allegations that an IRS manager in California violated the
Hatch Act while on official travel to Las Vegas in November
2012. The manager allegedly canceled a meeting in Las Vegas to
meet her husband at the site of a rally for President Obama's
2012 reelection campaign. OSC concluded that the manager's
likely attendance of the Obama rally violated the Hatch Act's
restrictions on engaging in political activity during official
time. OSC referred its findings to the IRS, which is
considering misconduct charges against the manager.\440\
---------------------------------------------------------------------------
\440\OSC Briefing for SFC Staff (July 9, 2015).
---------------------------------------------------------------------------
In view of the IRS's targeting of conservative groups, the
actions of these employees have re-focused attention on whether
the IRS may have been used to benefit one political viewpoint
or candidate over another. Incidents such as these are
unfortunate, as they denigrate the public image of an agency
that has been given tremendous influence over the lives of
Americans and is supposed to be impartial in wielding this
influence.

VIII. THE IRS HAS YET TO FULLY CORRECT ITS PROBLEMS

------------------------------------------------------------------------

-------------------------------------------------------------------------
The IRS has failed to correct many of the fundamental problems that led
to the
inappropriate targeting of Tea Party groups.
------------------------------------------------------------------------

Soon after being installed as Principal Deputy
Commissioner, Danny Werfel recognized the importance of
addressing the problems identified in TIGTA's report:

I assure you, we're doing everything we can to re-
look at this process to make sure that it moves more
quickly and swiftly. It's too slow right now, I
absolutely agree. But the reforms that we put in place,
and I'm happy to send more time with you and your staff
detailing exactly how we're looking at the
reengineering these processes to make these
improvements. We're going to do everything in our power
to make sure that they take effect and take effect
quickly.\441\
---------------------------------------------------------------------------
\441\Testimony of Danny Werfel, House Ways and Means Subcommittee
on Oversight Holds Hearing on Oversight of the IRS Exempt Organizations
Division After the Treasury Inspector General for Tax Administration's
Audit (Sep. 18, 2013).

Commissioner Koskinen affirmed his commitment to fixing
these problems--and to working with the Committee--during his
---------------------------------------------------------------------------
confirmation hearing before the Committee:

Taxpayer services need to be improved, particularly
in the areas of tax-exempt organization filings and
operations. There are several investigations ongoing
into the delays encountered by many of those seeking to
establish themselves as 501(c)(4) social welfare
organizations. And I look forward to working with this
committee as it concludes its investigation of that
matter.\442\
---------------------------------------------------------------------------
\442\Testimony of John Koskinen, Senate Finance Committee
Confirmation Hearing on the Nomination of John Koskinen to be IRS
Commissioner (December 10, 2013).

Although there have been some changes at the IRS since May
2013, neither Mr. Werfel nor Mr. Koskinen has enacted the type
of structural changes that are necessary to correct the serious
problems identified by TIGTA and by this Committee. Moreover,
the IRS unsuccessfully attempted to modify the regulations to
constrain free speech of 501(c)(4) organizations, which would
have institutionalized the type of targeting that TIGTA found
to be problematic.

A. Although the IRS Has Addressed Some Problems Identified by TIGTA,
There Is Much Work Left To Do

1. Initial IRS Response and Suspension of BOLO

There was a flurry of activity after the IRS targeting of
conservative organizations became public in May 2013. The first
glimpse inside the agency came on June 24, 2013, when the
Principal Deputy Commissioner Werfel released a 30-day update.
Among the key steps noted in that report were the results of
the IRS's internal investigation, which found ``significant
management and judgment failures;'' replacement of four levels
in the management chain that had responsibility for the
activities identified in the TIGTA report; and the suspension
of use of the BOLO spreadsheet.\443\ At the time of the 30-day
update report, Lerner had been placed on paid administrative
leave by the IRS. She eventually retired in September 2013
after an internal investigation found that she was guilty of
``neglect of duties'' and recommended her removal.\444\
Notably, before TIGTA's report was released, Lerner had been
contemplating retiring on October 1, 2013--exactly one week
after her actual retirement date.\445\
---------------------------------------------------------------------------
\443\IRS, Charting a Path Forward at the IRS: Initial Assessment
and Plan of Action (June 24, 2013). Appendix C is a memorandum from
Karen Schiller titled Interim Guidance on the Suspension of BOLO List
Usage (June 20, 2013). The memorandum instructed employees to
immediately stop using the BOLO spreadsheet, including the Emerging
Issues tab and the Watch List tab. However, employees were permitted to
continue using other lists to identify and prevent waste, fraud and
abuse.
\444\Washington Times, Lois Lerner, IRS Official in Tea Party
Scandal, Forced Out for ``Neglect of Duties'' (Sep. 23, 2013).
\445\Email from Richard Klein to Lois Lerner (January 28, 2013)
IRS0000202615 (email attachment omitted by Majority staff).
---------------------------------------------------------------------------
These initial actions did not immediately cease all of the
practices that TIGTA found to be problematic. As discussed in
Section III(G) of the Bipartisan Investigative Report, it
appears that several months after TIGTA released its report,
employees lacked appropriate instructions from management and
possibly continued to pull out applications containing the
words ``Tea Party'' for separate processing. Since the
Committee conducted the interviews referenced in that section
of the report, the IRS has issued additional guidance to
employees implementing new procedures for reviewing tax-exempt
applications.\446\ We have no knowledge of whether the IRS's
recent guidance has affected the screening procedures applied
to incoming applications for tax-exempt status or whether the
IRS continues to subject Tea Party applicants to improper
levels of scrutiny named on their names or political
affiliation.
---------------------------------------------------------------------------
\446\IRS, Memorandum from Kenneth Corbin, Expansion of Optional
Expedited Process for Certain Exemption Applications Under Section
501(c)(4) (Dec. 23, 2013); IRS, Memorandum from Stephen Martin,
Streamlined Processing Guidelines for All Cases (Feb. 28, 2014).
---------------------------------------------------------------------------

2. The Expedited Process

In June 2013, the IRS also announced a ``new voluntary
process'' for political advocacy organizations with
applications for 501(c)(4) tax-exempt status that had been
pending for more than 120 days.\447\ The IRS would grant tax-
exempt status to applicants that certified that the
organization ``satisfies, and will continue to satisfy, set
percentages with respect to the level of its social welfare
activities and political campaign intervention activities[.]''
Specifically, applicants were required to certify that during
each past year that the organization has existed, during the
current year, and during all future years in which the
organization will rely on the IRS's determination of tax-exempt
status:
---------------------------------------------------------------------------
\447\IRS, Charting a Path Forward at the IRS: Initial Assessment
and Plan of Action, Appendix E (June 24, 2013).
---------------------------------------------------------------------------
The organization has spent, or will spend, 60% or
more of both the organization's total expenditures and
its total time (measured by employee and volunteer
hours) on activities that promote the social welfare;
and
The organization has spent, or will spend, less than
40% of both the organization's total expenditures and
its total time (measured by employee and volunteer
hours) on direct or indirect participation or
intervention in any political campaign on behalf of (or
in opposition to) any candidate for public office.\448\
---------------------------------------------------------------------------
\448\Id. (emphasis in original).
---------------------------------------------------------------------------
As of April 2015, the IRS reported that 145 political
advocacy organizations in the ``backlog'' were offered
expedited treatment; of those, 43 elected to participate in the
expedited process and were granted tax-exempt status.\449\ The
low participation rate--less than a third of eligible
organizations--indicates that the expedited process was a
deeply flawed proposition. First and foremost, the standards
were based on an arbitrary measure of organizational activity
that is not found in any statute or regulation. Rather than
asking applicants to certify that they will comply with the
existing law, the IRS created new standards.
---------------------------------------------------------------------------
\449\IRS Briefing for SFC Staff (April 15, 2015).
---------------------------------------------------------------------------
A second and related problem is that the invented standards
are, in fact, more stringent than the existing law. The
expedited option was not available to an organization that had,
in the past, performed a legally-acceptable amount of political
campaign intervention that exceeded 40%. Likewise, by attesting
to these requirements, an organization would be forfeiting its
ability to ever engage in the amount of political campaign
intervention allowable under the current law, thereby
restraining its speech.
Finally, the expedited process required applicants to
certify that their submission was accurate under penalty of
perjury. The IRS frequently requires all types of taxpayers to
sign submissions under penalty of perjury. But in this area of
tax law--where the IRS had difficulty applying its own statues
and regulations, and then invented new standards just for this
process--risking perjury seems like a risky proposition,
particularly when the organization must perform a precise
calculation of all past, current, and future activities.
Indeed, many organizations that were eligible for the
expedited process elected to proceed with the IRS's standard
process rather than submit to these onerous demands. The
Majority staff spoke with attorneys who together represent a
large number of Tea Party organizations, and they uniformly
advised their clients not to participate in the expedited
process. Some of those attorneys believed that the IRS then
drew adverse inferences about their clients' level of political
activities, a charge that the IRS has denied.
Despite these concerns, the IRS later broadened the
expedited option to ``include all applicants for 501(c)(4)
status (as opposed to only those with applications pending for
more than 120 days as of May 28, 2013) whose applications
indicate the organization could potentially be engaged in
political campaign intervention or in providing private benefit
to a political party[.]''\450\
---------------------------------------------------------------------------
\450\IRS, Memorandum from Kenneth Corbin, Expansion of Optional
Expedited Process for Certain Exemption Applicants Under 501(c)(4)
(Dec. 23, 2013).
---------------------------------------------------------------------------
Overall, as of March 26, 2014, 117 applicants that were
``centralized'' by the IRS were still waiting for a final
determination--more than one-fifth of the total number that
were delayed. Tellingly, all of those organizations preferred
to stick with the IRS's normal determination process, which by
that point had resulted in delays of more than three years for
some applicants. As of April 2015, 10 of those applicants were
still waiting for a final determination of their tax-
exemption.\451\
---------------------------------------------------------------------------
\451\IRS Briefing for SFC Staff (April 15, 2015).
---------------------------------------------------------------------------

3. Further Updates on TIGTA Recommendations and Other Changes

Since May 2013, the IRS has continued to update the
Committee about its progress in implementing TIGTA's
recommendations and other changes to its review of applications
for tax-exempt status. As of January 31, 2014, the IRS reported
that it had implemented all of TIGTA's recommendations.\452\
TIGTA concurred, writing in a March 2015 report that ``[t]he
IRS has taken significant actions to address the nine
recommendations made in our prior audit report.''\453\ In that
report, TIGTA made two additional recommendations: one related
to employee training, and a second suggestion that if the
expedited process becomes permanent, it should be available to
``additional organizations with similar political campaign
interventions.''\454\
---------------------------------------------------------------------------
\452\IRS, Exempt Organizations Recommended Actions Ending May 23,
2014.
\453\TIGTA, Status of Actions Taken to Improve the Processing of
Tax-Exempt Applications Involving Political Campaign Intervention,
TIGTA Audit Report 2015-10-025 (Mar. 27, 2015) p. 2.
\454\Id. pp. 11, 16.
---------------------------------------------------------------------------
We note that in addition to its implementation of the
recommendations outlined in TIGTA's March 2015 report, the IRS
has also made a number of other changes to the EO division,
which are reflected in the IRM and internal IRS operational
procedures.

B. Attempts by the IRS and Others To Suppress Political Speech and
Discourage an Informed Citizenry Must Be Rejected

Following the release of the TIGTA report, some argued that
although the IRS's actions were misguided, the larger
underlying problem lies in law and regulations that are vague,
outdated, and difficult to apply. Indeed, this theory is
advanced in the Additional Democratic Views. We disagree. As
described throughout this document, the fault in this matter
lies squarely with IRS executives in Washington, D.C. who
purposefully misapplied and manipulated well-established rules,
thereby interfering with the work of EO field offices.
In response to these concerns, the IRS proposed regulatory
changes in November 2013 that would have constrained political
speech by 501(c)(4) organizations. Although the IRS later
withdrew the regulations, the proposal should be recognized for
what it was: an attempt to suppress dialogue that leads to
informed debate. Based on these and other concerns, the
proposed regulations were roundly rejected by citizens,
regardless of their personal political affiliation.
Legislative proposals that would require near-universal
disclosure of donors, such as those advanced by the Minority
Staff, should also be rejected. These proposals show a
troubling indifference to harassment of individuals that
follows from the publication of donor identities--a concern
that was raised by the American Civil Liberties Union (ACLU) in
response to the IRS's proposed regulations on political speech.
As the ACLU and others of all political affiliation have noted,
there is a dark side to disclosure.

1. Background on 501(c)(4) Exemption

Section 501(c)(4) provides a tax exemption for civic
leagues or organizations not organized for profit but operated
exclusively for the promotion of social welfare, and no part of
the net earnings of which inures to the benefit of any private
shareholder or individual. Treasury regulations provide that an
organization is operated exclusively for the promotion of
social welfare if it is engaged primarily in promoting in some
way the common good and general welfare of the people of a
community or bringing about civic betterments and social
improvements.\455\ Contributions to 501(c)(4) organizations are
not tax deductible.\456\
---------------------------------------------------------------------------
\455\26 C.F.R. Sec. Sec. 1.501(c)(4)-1(a)(1) and (2)(i) (1990). An
organization is not operated primarily for the promotion of social
welfare if its primary activity is operating a social club for the
benefit, pleasure, or recreation of its members, or is carrying on a
business with the general public in a manner similar to organizations
that are operated for profit. 26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(ii)
(1990).
\456\26 U.S.C. Sec. 170 (2014). By contrast, contributions to
501(c)(3) organizations are deductible.
---------------------------------------------------------------------------
Treasury regulations provide that 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'' (``political
campaign intervention'').\457\ However, social welfare
organizations are permitted to engage in political campaign
intervention so long as the organization is primarily engaged
in activities that promote social welfare.\458\
---------------------------------------------------------------------------
\457\26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(ii) (1990).
\458\Rev. Rul. 81-95, 1981-1 C.B. 332.
---------------------------------------------------------------------------
Under current Treasury regulations, the determination of
whether an activity constitutes political campaign intervention
depends on all the facts and circumstances of the particular
case.\459\ The rules concerning political campaign intervention
apply only to activities involving candidates for elective
public office; the rules do not apply to activities involving
officials who are selected or appointed, such as executive
branch officials and judges. Similarly, section 501(c)(4)
organizations may engage in activities that educate the public
on important issues. Thus, section 501(c)(4) organizations are
allowed to hold candidate forums and distribute voter guides
outlining candidates' positions on issues important, in the
view of the organization, to the public. Section 501(c)(4)
organizations also are allowed to conduct nonpartisan get-out-
the-vote drives and voter registration drives.\460\
---------------------------------------------------------------------------
\459\Rev. Rul. 2007-41, 2007-25 I.R.B. 1421 (June 18, 2007)
(analyzing 21 different factual scenarios involving section 501(c)(3)
charitable organizations for political campaign intervention); Rev.
Rul. 81-95, 1981-1 C.B. 332 (referencing section 501(c)(3) standards in
determining whether activities of a section 501(c)(4) organization
constitute political campaign intervention).
\460\The proposed section 501(c)(4) regulations, discussed infra,
categorize all of these activities as political activity not consistent
with the promotion of social welfare.
---------------------------------------------------------------------------
Similar rules apply for determining whether other types of
section 501(c) organizations have engaged in political campaign
intervention, including charities (section 501(c)(3)), labor
and horticultural organizations (section 501(c)(5)), and
business leagues (section 501(c)(6)). However, while section
501(c)(4), (5) and (6) organizations may engage in some
political campaign intervention without jeopardizing exempt
status, section 501(c)(3) organizations alone are prohibited by
statute from engaging in any political campaign
intervention.\461\
---------------------------------------------------------------------------
\461\26 U.S.C. Sec. 501(c)(3) (2014).
---------------------------------------------------------------------------
The lobbying and advocacy activities of a section 501(c)(4)
organization generally are not limited, provided the activities
are in furtherance of the organization's exempt purpose.

2. IRS's Proposed Regulatory Changes

On November 29, 2013, the Internal Revenue Service and the
Treasury Department published proposed regulations regarding
the political campaign activities of section 501(c)(4)
organizations.\462\ The proposed regulations, which were
eventually withdrawn by the IRS in May 2014 in the face of
fierce public opposition, sought to replace the present-law
facts-and-circumstances test used in determining whether a
section 501(c)(4) organization has engaged in political
campaign intervention with an enumerated list of activities
that constitute political campaign activities.\463\
---------------------------------------------------------------------------
\462\Notice of Proposed Rulemaking, Guidance for Tax-Exempt Social
Welfare Organizations on Candidate-Related Political Activities REG-
134417-13, 78 Fed. Reg. 71535 (Nov. 29, 2013); incorporating Prop.
Treas. Reg. Sec. Sec. 1.501(c)(4)-1(a)(2)(ii), (a)(2)(iii), and (c).
\463\Notice of Proposed Rulemaking, Guidance for Tax-Exempt Social
Welfare Organizations on Candidate-Related Political Activities, REG-
134417-13, 78 Fed. Reg. 71535 (Nov. 29, 2013) p. 71536.
---------------------------------------------------------------------------
The proposed regulations were intended to replace the
political campaign intervention referenced in the existing
section 501(c)(4) regulations (i.e., ``direct or indirect
participation or intervention in political campaigns on behalf
of or in opposition to any candidate for public office'') with
a new defined term, ``candidate-related political
activity.''\464\ Candidate-related political activity is
defined in the proposed regulations as: (1) communications that
express a view on, whether for or against, the selection,
nomination, election, or appointment of one or more clearly
identified candidates (often referred to as express advocacy
communications); (2) certain public communications (as defined)
within 30 days of a primary election or 60 days of a general
election that refer to one or more clearly identified
candidates, or in the case of a general election one or more
political parties; (3) communications the expenditures for
which are reported to the FEC; (4) contributions (including
gifts, grants, subscriptions, loans, advances, or deposits) of
money or anything of value to or the solicitation of
contributions on behalf of a candidate, a section 527 political
organization, or a section 501(c) organization that engages in
candidate-related political activity; (5) conduct of a voter
registration drive or ``get-out-the-vote'' drive; (6)
distribution of any material prepared by or on behalf of a
candidate or by a section 527 political organization; (7)
preparation or distribution of a voter guide that refers to one
or more clearly identified candidates, or in the case of a
general election to one or more political parties; and (8)
hosting or conducting a forum for candidates within 30 days of
a primary election or 60 days of a general election.\465\
---------------------------------------------------------------------------
\464\Prop. Treas. Reg. Sec. Sec. 1.501(c)(4)-1(a)(2)(ii) and (iii).
\465\Prop. Treas. Reg. Sec. 1.501(c)(4)-1(a)(2)(iii)(A).
---------------------------------------------------------------------------
For purposes of candidate-related political activity, the
proposed regulations define the term ``candidate'' to mean ``an
individual who publicly offers himself, or is proposed by
another, for selection, nomination, election, or appointment to
any federal, state, or local public office or office in a
political organization, or to be a Presidential or Vice-
Presidential elector, whether or not such individual is
ultimately selected, nominated, elected, or appointed,''
including officeholders who are the subject of a recall
election;\466\ this includes certain judicial and executive
branch appointments.
---------------------------------------------------------------------------
\466\Prop. Treas. Reg. Sec. 1.501(c)(4)-1(a)(2)(iii)(B)(1).
---------------------------------------------------------------------------
The proposed regulations would have applied only to section
501(c)(4) organizations.\467\ Other section 501(c)
organizations (including section 501(c)(3) charitable
organizations, section 501(c)(5) labor and horticultural
organizations, and section 501(c)(6) business leagues) would
continue to use present-law rules concerning political campaign
intervention. The regulations were proposed to be effective on
the date they were published in the Federal Register as final
regulations.\468\
---------------------------------------------------------------------------
\467\Notice of Proposed Rulemaking, Guidance for Tax-Exempt Social
Welfare Organizations on Candidate-Related Political Activities REG-
134417-13, 78 Fed. Reg. 71535 (Nov. 29, 2013) p. 71537.
\468\Prop. Treas. Reg. Sec. 1.501(c)(4)-1(c). In the notice of
proposed rulemaking, the IRS requested comments from the public on a
number of issues, including: (1) whether the existing regulation that
provides that an organization is operated exclusively for social
welfare if it is engaged primarily in promoting in some way the common
good and general welfare of the people of a community should be
modified; and (2) whether the rules included in the proposed
regulations should be extended to other section 501(c) organizations or
to section 527 political organizations. Notice of Proposed Rulemaking,
Guidance for Tax-Exempt Social Welfare Organizations on Candidate-
Related Political Activities REG-134417-13, 78 Fed. Reg. 71535 (Nov.
29, 2013) p. 71537.
---------------------------------------------------------------------------
Conservative social welfare organizations--the types of
organizations targeted by the IRS--weighed in strongly against
the regulations. But it was not just conservative groups that
submitted comments critical of the proposed regulations. Left-
leaning and progressive groups also were highly critical. The
ACLU, for example, submitted a comment letter arguing that the
proposed regulations would ``produce the same structural issues
at the IRS that led to the use of inappropriate criteria in the
selection of various charitable and social welfare groups for
undue scrutiny.'' The ACLU argued that social welfare groups
should be free to participate in the political process because
that kind of participation ``is at the heart of our
representative democracy. To the extent it influences voting,
it does so by promoting an informed citizenry.''\469\ In all,
the IRS received more than 150,000 comments on the proposed
regulation before the comment period closed on February 27,
2014--by far the most comments ever submitted in response to a
proposed IRS regulation.\470\ On May 22, 2014, the IRS gave
public notice that it view of the comments it received, it
would make changes to the proposed regulation, issue a revised
proposed regulation, and then hold a public hearing on that
revised regulation.\471\ The IRS has not indicated when the
revised proposed regulation will be published.
---------------------------------------------------------------------------
\469\Public comment letter from ACLU to IRS Commissioner John A.
Koskinen (Feb. 4, 2014).
\470\Prepared Remarks of Commissioner of Internal Revenue Service
John Koskinen Before the National Press Club, (Apr. 2, 2014).
\471\IRS, IRS Update on the Proposed New Regulation on 501(c)(4)
Organizations (May 22, 2014).
---------------------------------------------------------------------------

3. Legislative Proposals

The legislative response to the proposed regulations that
has garnered the most support from Republicans in the Senate is
the Stop Targeting of Political Beliefs by the IRS Act of 2015
(S. 283), introduced on January 28, 2015, by Senator Jeff Flake
(R-AZ). The bill would prohibit the Secretary of the Treasury
from finalizing the proposed regulation, or from issuing other
forms of guidance (e.g., revenue rulings, etc.) to restrict
501(c)(4) political activity. The bill also provides that the
standards and definitions in effect on January 1, 2010, which
are used to determine whether an organization is operated
exclusively for the promotion of social welfare for purposes of
section 501(c)(4), shall apply for determining the tax-exempt
status of organizations under section 501(c)(4). The provisions
in the bill would sunset after February 28, 2017.
The legislative solution suggested by former Chairman Wyden
was the enactment of a bill he introduced on April 23, 2013,
co-sponsored by Senator Lisa Murkowski (R-AK), the Follow the
Money Act of 2013 (S. 791). The bill required comprehensive
disclosure of independent federal election-related activity--
both the money coming in and the money going out. Independent
federal election-related activity involved an expenditure made
by any person for the purpose of influencing the selection,
nomination or election of any individual to any federal office
which was made by a person or entity independent of the
candidate and which was not coordinated with the candidate. The
full universe of independent political spenders was covered by
this regime. This included independent spending by individuals,
unincorporated organizations, partnerships, Limited Liability
Companies, corporations, trade associations, labor unions,
SuperPACs, Indian tribes, 501(c) organizations of all types and
527 groups.
Not later than January 1, 2015, the bill required the FEC
to make available a real-time contribution disclosure system to
its regulated community. Once this system was implemented, the
regulated community would be required to report contributions,
including covered contributions to certain politically active
501(c)(4) organizations, not more than 10 days after receipt
and, in some cases, just 48 hours after receipt. The FEC would
immediately disclose this information to the general public
upon receipt.
The bill did not address the question of how much 501(c)(4)
organizations can spend on political activity, but in many
cases it would have required disclosure of 501(c)(4) donor
information currently protected as confidential by the Internal
Revenue Code. Thus, donor anonymity would be a thing of the
past for many 501(c) organizations.
What supporters of donor disclosure fail to fully
appreciate are the important Constitutional values that would
be impaired by their proposals. Just as we should not allow the
government to pull back the curtain of privacy that surrounds
the voting booth, we also should not allow government to use
donor identification information to suppress free speech or
impair the right to anonymous political association, including
when those rights are expressed in the form of financial
support for the causes of one's choice. This country has a long
history of reprisals and harassment that follow government
disclosure of the identity of donors to controversial groups.
As the ACLU observed in its letter commenting on the proposed
501(c)(4) regulations: ``It is well and long established that
forced donor disclosure for any controversial group--even
partisan groups--is unconstitutional.''\472\
---------------------------------------------------------------------------
\472\Public comment letter from ACLU to IRS Commissioner John A.
Koskinen (Feb. 4, 2014).
---------------------------------------------------------------------------
The ACLU was not making a frivolous argument. It was
referring to U.S. Supreme Court cases such as McIntyre v. Ohio
Elections Commission, 514 U.S. 334 (1995), which recognized a
Constitutional right to distribute anonymous campaign
literature; Brown v. Socialist Workers '74 Campaign Committee,
459 U.S. 87 (1982), which required exemption from donor
disclosure for controversial groups subject to reprisal or
harassment, and National Association for the Advancement of
Colored People v. Alabama, 357 U.S. 449 (1958), which
prohibited the State of Alabama from requiring donor disclosure
as a condition for in-state operation. As the ACLU pointed out,
the NAACP Court expressly recognized that imposing taxes upon
an activity as well as directly prohibiting an activity pose
equally severe First Amendment concerns.
The pattern is well known. First, a governmental entity
compels or permits the disclosure of donor identities. Next,
private actors, armed with information regarding donor
identities, embark on a campaign of reprisals and harassment.
This is precisely the scenario that concerned the Supreme Court
in the NAACP case: citizens that associate with particular
groups, having had their identities disclosed, will be
subjected to ``economic reprisal, loss of employment, threat of
physical coercion, and other manifestations of public
hostility.''\473\ Nor should we forget that many of the
taxpayer privacy protections in the Internal Revenue Code were
added in response to the common practice of both Democrat and
Republican Administrations in the 1970s and earlier of using
the Internal Revenue Service and the government's taxing power
to harass and intimidate political opponents.\474\
---------------------------------------------------------------------------
\473\357 U.S. 449 (1958) at 462. For a recent example of the
economic reprisals that can accompany the disclosure of a political
donor's identity, see the following post on The Mozilla Blog, dated
April 5, 2014 (emphasis added): ``On April 3, 2014 Brendan Eich
voluntarily stepped down as CEO of Mozilla. It has been well documented
that Brendan's past political donations led to boycotts, protests, and
intense public scrutiny. Upon his resignation, Brendan stated: `Our
mission is bigger than any one of us, and under the present
circumstances, I cannot be an effective leader.' The intense pressure
from the press and social media made it difficult for Brendan to do his
job as CEO and effectively run Mozilla.''
\474\For a recent example of the harassment political donors can
experience from agencies of the U.S. Government, including the Internal
Revenue Service, when their identities are disclosed, see Wall Street
Journal, Obama's Enemies List--Part II, (July 19, 2012).
---------------------------------------------------------------------------
Contrary to the suggestion in the Additional Democratic
Views, the Committee's Republican Members do not assert a
Constitutional right to a charitable tax deduction or insist on
a tax break when exercising one's free speech rights. As
previously noted, contributions to 501(c)(4) organizations are
not tax deductible. But the identity of the 501(c)(4) donors is
protected. As set forth above, anonymity in one's political
associations is an American value worth preserving and, as even
progressive groups like the ACLU have observed, has
Constitutional implications.

4. View of the Majority Committee Members on Legislative and Regulatory
Proposals

In the view of the Committee's Republican Members, it would
have been a grave mistake for the Treasury Department to
finalize the proposed 501(c)(4) regulations and thereby
institutionalize the very type of IRS targeting of grassroots
organizations that came to light in 2013. On April 2, 2014,
Commissioner Koskinen said, ``It's going to take us a while to
sort through all [of the] comments [received by the IRS], hold
a public hearing, possibly re-propose a draft regulation and
get more public comments.''\475\ Subsequently, the IRS
announced that it will publish a revised proposed regulation in
the future.\476\ We encourage the IRS to carefully review all
existing and future comments and heed the warnings of people
from all sides of the political spectrum. The IRS should
refrain from issuing another fatally flawed proposed
regulation.
---------------------------------------------------------------------------
\475\Prepared Remarks of Commissioner of Internal Revenue Service
John Koskinen Before the National Press Club, (Apr. 2, 2014).
\476\IRS, Update on the Proposed New Regulations on 501(c)(4)
Organizations (May 22, 2014).
---------------------------------------------------------------------------
Similarly, it would be a mistake for Congress to enact
legislation that requires or allows the government to compel
the disclosure of the identities of donors to 501(c)(4)
organizations, or otherwise impose new limits on their
operations or tax status. The Minority relies heavily on the
notion that there was confusion at the IRS regarding the
definition of ``political activity'' and imprecision in the
term ``primarily'' to advance the argument that legislative
changes to section 501(c)(4) are necessary. But the facts don't
bear out the need for, much less the wisdom of, new
legislation. First, testimony received by the Committee's
investigators reveals that the EO tax law specialists in
Cincinnati knew full well that ``primarily'' means 51%.\477\
Second, the distinction between social welfare activity and
political activity has a 55 year administrative track record of
interpretation by the IRS. For example, nonpartisan activities
like voter education, voter registration and get-out-the-vote
drives have long been acceptable activities for 501(c)(4)
organizations. It is the 2014 proposed regulation that has sown
confusion in this area, not the well-worn 1959 regulation.
---------------------------------------------------------------------------
\477\SFC Interview of Elizabeth Hofacre (Sep. 23, 2013) pp. 22-24.
---------------------------------------------------------------------------

IX. CONCLUSION AND RECOMMENDATIONS

The Committee's investigation uncovered serious
organizational problems throughout the IRS, which are detailed
both in the Bipartisan Investigative Report and in these
Additional Republican Views. The IRS has received
recommendations from TIGTA and from others, such as the
National Taxpayer Advocate, and has been receptive to
implementing at least some of them. Those measures are a step
in the right direction, but they are not sufficient to correct
the underlying problems uncovered by our investigation. We
believe that any attempt to address those problems, if it is to
be successful, must immunize the IRS from the whims of the
party that controls the Executive Branch, whether that party is
the Democratic or the Republican Party. Achieving this goal
will not only require legislative changes, but also constant
vigilance by both Congress and the public to ensure that the
IRS stays true to its mission and administers the tax laws
fairly and without regard to politics of any kind.
A chief finding of the Majority staff is that the
organizational structure of the IRS enabled the political bias
of individual employees like Lois Lerner to flourish. Indeed,
at least partly because of this bias, the IRS uniformly
targeted applications from Tea Party and other conservative
groups for extra scrutiny, which resulted in their experiencing
lengthy delays and in many cases, multiple rounds of burdensome
development questions. Unlike other organizations seeking tax-
exempt status including those on the left side of the political
spectrum, applications received from Tea Party and other
conservative groups were identified, collected and then
subjected to full development based on the political philosophy
of the groups, rather than on their planned activities.
Accordingly, these Tea party and other conservative groups
were, in fact, ``targeted'' by the IRS based on their political
views. We found no evidence that the IRS scrutinized left-
leaning organizations in the same manner, or for the same
politically motivated reasons, as it targeted Tea Party and
other conservative organizations.
Lois Lerner's personal political biases directly affected
how the IRS processed applications received from Tea Party and
other conservative organizations. Lerner managed a process that
caused applications received from these organizations to
undergo multiple levels of review by different components
within the IRS, virtually guaranteeing that these applications
would languish through the political campaign cycles of 2010
and 2012. Lerner showed complete disinterest in the plight of
these organizations as they sought tax-exempt status, even in
the face of growing Congressional interest in claims that they
were being treated unfairly by the IRS because of their
political views.
In 2012 Congressional interest finally prompted management
above Lerner to intercede and take remedial measures to reduce
the backlog of applications that she had allowed to grow. By
that time, irreparable damage had been done to many of these
Tea Party organizations. Most were small, grass-roots entities,
unable to withstand the withering barrage of intrusive IRS
development questions punctuated by year-long stretches of
silence from the IRS. As a consequence, many of these Tea Party
organizations simply withdrew from the application process.
Without IRS approval of their tax-exempt status, those that
stayed the course found it difficult to raise funds to carry
out their stated purposes, which generally included engagement
in the political process. Many were forced to secure legal help
in fending off the IRS at considerable expense to their
fledging budgets, and with a corresponding adverse impact on
their ability to exercise political speech.
Majority staff also found that top IRS officials, including
Doug Shulman, Steve Miller and Lois Lerner, continuously misled
Congress throughout 2012 and 2013 regarding the IRS's
mistreatment of Tea Party and other conservative groups. They
also actively concealed from Congress the existence of the
IRS's political targeting of the Tea Party and other
conservative groups with names that included ``9/12 Project''
or ``Patriots,'' thereby allowing the IRS to escape scrutiny
for that conduct until Lois Lerner made her fateful admission
regarding political targeting at an ABA Conference meeting,
just days before TIGTA released its report in which it
concluded that the IRS had used ``inappropriate criteria'' when
processing applications for tax exemption. The lack of candor
by these three individuals in their communications with
Congress not only concealed IRS wrongdoing, but it also
undermined the exercise of congressional oversight into the
IRS's treatment of Tea Party and other conservative groups.
Unfortunately, the lack of candor by senior IRS officials
in their dealings with Congress did not end with the release of
the TIGTA report in May 2013. The IRS was derelict in its duty
to preserve backup tapes containing Lois Lerner's email and
made subsequent false statements to Congress in June 2014
denying the existence of those backup tapes. Furthermore, IRS
officials misrepresented to Committee staff in March 2014 that
the documents that had been provided to the Committee by that
date completed its production of documents. In truth, some
senior IRS officials knew at that time that many of Lerner's
emails from 2010 and 2011, a period critical to the ongoing
Congressional investigations, were missing. In April 2014, the
IRS concluded that the missing Lerner emails were not
recoverable, and so notified the Treasury Department of their
loss. Unfortunately, the IRS failed to also notify the
Congressional committees conducting investigations of the IRS
of their loss, choosing instead to conceal that fact,
ostensibly in the hope that the loss might never be discovered
by Congress. Only when this Committee demanded a written
statement from the IRS Commissioner attesting to the
completeness of the IRS's document productions did the IRS
reluctantly reveal the loss of Lerner's emails. This pattern of
shoddy conduct by IRS officials in their dealings with Congress
is deeply disappointing and confirms that a ``culture of
concealment'' remains at the agency.
In addition, Majority staff concluded that the Obama
Administration's efforts to limit spending on political speech
directly or indirectly influenced the treatment of conservative
organizations by Executive Branch agencies. The IRS served as
the lynchpin for Administration activities against conservative
organizations. Not only did it engage in political targeting of
Tea Party and other conservative groups, but it also actively
assisted both the DOJ and the FEC in the pursuit of various
initiatives aimed at chilling the political speech rights of
conservative organizations. Indeed, the IRS provided advice to
the DOJ on various proposals to criminally punish organizations
that engaged in political activity in excess of that stated in
their applications for tax-exempt status, and offered FEC
information regarding specific conservative organizations under
investigation by the FEC for airing political advertisements.
Even if the IRS is able to root out all of the specific
causes of problems noted in this report, only the most
significant of which are mentioned above, it will still operate
in a politicized environment by virtue of its position as a
bureau within the Treasury Department, where the omnipresent
IRS union wields considerable influence.
To enable the IRS to meet its mission of administering the
tax code ``with integrity and fairness for all,'' the following
changes are needed:
1. The IRS must be removed from the authority of the
Treasury Department and established as an independent
stand-alone agency.
2. The Federal Service Labor-Management Relations
Statute must be amended to designate the IRS as an
agency that is exempt from labor organization and
collective bargaining requirements.
3. Congress should amend section 7428 of the Internal
Revenue Code to enable applicants for tax-exempt status
under 501(c)(4), (5), and (6) to seek a declaratory
judgment if the IRS has not rendered a decision on
whether or not it will approve an application within
270 days. Doing so would afford these organizations the
same remedy currently available only to 501(c)(3)
organizations, thereby advancing parity among
nonprofits.
4. A key finding of this report is that many small
organizations with limited resources were overwhelmed
by unduly burdensome IRS demands. We recommend that the
IRS establish a streamlined application process for
small organizations applying for tax exemption under
501(c)(3) and 501(c)(4) that enables them to avoid
unnecessary administrative burdens, provided that
appropriate conditions are satisfied.\478\
---------------------------------------------------------------------------
\478\We note that the IRS's expedited process for applicants is
currently limited to organizations that engage in political advocacy.
As discussed in these Additional Republican Views, we do not believe
that this process is an effective way to handle these applications, nor
do we endorse extending that process to all applicants for tax-exempt
status.
---------------------------------------------------------------------------
5. Any further attempt by the IRS to promulgate
regulations revising the standard for determining
whether section 501(c)(4) organizations have engaged in
political campaign intervention must not chill the free
exercise of political speech by those organizations,
nor disproportionately affect organizations on either
side of the political spectrum.
While Majority staff is confident in the soundness of the
findings expressed herein, there is no doubt that its
investigation into the IRS's treatment of political advocacy
organizations seeking tax-exempt status was hampered, if not
harmed, by the IRS's failure to preserve electronic records
belonging to Lois Lerner, the central figure in this sordid
story of how Tea Party and other conservative groups were
targeted by the IRS because of their political views.
Extraordinary efforts were made by TIGTA to locate and restore
some of Lerner's lost email, and indeed, those efforts yielded
positive results, with the recovery of over 1,300 emails not
previously produced by the IRS. Moreover, Majority staff
secured from sources, including the Treasury Department and the
White House, copies of emails between their employees and
Lerner in an effort to bridge the gap in the missing emails.
Together with the nearly 1,500,000 pages of documents produced
by the IRS, these documents reveal a disturbing pattern of
mismanagement and politically motivated misconduct by IRS
employees at all levels within the agency.

Additional Views of Senator Wyden Prepared by Democratic Staff

CONTENTS

Page
I. Executive Summary..............................................242
II. No Evidence of Political Motivation by IRS Employees...........244
III. No Evidence of Pressure from Obama Administration Political
Appointees to Increase Scrutiny of Politically Active Nonprofit246
IV. Delays in Processing of Nonprofit Applications.................247
V. Lack of Clarity in Standards for Political Activity by 501(C)(4)
Nonprofits.....................................................248
VI. There Was an Increase in Applications from Right-Leaning
Nonprofits.....................................................248
VII. The ``BOLO'' List..............................................250
VIII.Liberal and Progressive Groups Were Scrutinized by the IRS.....252

A. IRS Determinations Screened Left-Leaning Groups for
Review............................................. 252
1. ACORN........................................... 253
2. Watch For ``Occupy'' Groups..................... 254
3. Liberal and Progressive Organizations
Experienced Three-Year Delays.................. 255
B. Inappropriate and Burdensome Information Requests to
Left-Leaning Groups................................ 258
IX. What Could Have Been...........................................260
X. What Was.......................................................261
XI. Response to Additional Republican Views........................265
A. No Evidence of Political Bias in 501(c)(4)
Determinations..................................... 265
1. No Evidence of Lois Lerner Political Bias....... 265
2. No Double Standard for Members of Congress...... 267
3. No Evidence to Validate Charge of Union Bias.... 268
4. No Evidence Individual Employee Views Influenced
Decisions for Political Purposes............... 268
5. No Evidence White House or Treasury Officials
Influenced Tea Party Applications.............. 268
B. IRS Failure to Preserve Lerner's Emails............. 269
C. Misleading Congress................................. 270
D. IRS Independence.................................... 270
E. No Inappropriate FEC Interaction.................... 270
F. Attempts to ``Suppress'' Political Speech........... 271
G. Ways And Means Referral Letter...................... 271
XII. IRS Response to the TIGTA Report...............................272
A. IRS 30 Day Report................................... 272
B. Additional IRS Response............................. 273
XIII.Need for Reform of the Tax Code Treatment of Political Activity by
Nonprofits.....................................................273
A. Evolution of 501(c)(4) Nonprofits into Political
Entities Creates a Need for More Transparency...... 274
B. Statutory Changes are Needed........................ 278
1. The Follow the Money Act........................ 278
2. Return to the Pre-1959 Standard................. 279
3. Reform of 501(c)(5) and 501(c)(6) Organizations. 279
XIV. Conclusion.....................................................279
XV. Timeline of Key Events.........................................282

I. EXECUTIVE SUMMARY

The Committee has conducted significant investigations into
the activities of nonprofits in recent years. The Finance
Committee Democratic staff investigated Jack Abramoff's use of
nonprofits such as Americans for Tax Reform and Citizens
Against Government Waste to lobby Congress, summarized in a
2006 Finance Committee staff report.\1\ Senator Grassley, when
he was chairman or ranking member of the Committee, closely
scrutinized the nonprofit sector, investigating religious
organizations and nonprofit hospitals, among others. Together,
Chairman Grassley and Senator Baucus investigated the Nature
Conservancy, a 501(c)(3), in 2005.\2\
---------------------------------------------------------------------------
\1\Senate Finance Committee, Minority Staff Report: Investigation
of Jack Abramoff's Use of Tax-Exempt Organizations (Oct. 2007).
\2\Washington Post, Senators Question Conservancy's Practices (June
8, 2005).
---------------------------------------------------------------------------
On May 10, 2013, the Director of IRS Exempt Organizations
Lois Lerner disclosed that IRS employees selected tax exempt
applications for further review with ``names like Tea Party and
Patriots and they selected cases simply because the
applications had those names in the title.'' Lerner described
this process of selecting cases for review because of a
``particular name'' as ``wrong, insensitive, and
inappropriate.''\3\
---------------------------------------------------------------------------
\3\American Bar Association, Transcript of The Exempt Organization
Tax Review (May 10, 2013) ABA Tax Section's Exempt Organizations
Committee Meeting, Vol. 72, No. 2 pp. 126-127.
---------------------------------------------------------------------------
In addition, Lerner described how the IRS improperly
handled the tax-exempt applications that were set aside for
further review, subjecting them to delays and overly broad and
unnecessary requests for information.\4\
---------------------------------------------------------------------------
\4\Id.
---------------------------------------------------------------------------
According to Lerner, IRS employees' inappropriate scrutiny
of applications was not ``because of any political bias.''
Rather, the employees were trying to streamline and centralize
cases but ``they didn't have the appropriate level of
sensitivity about how this might appear to others and it was
just wrong.''\5\
---------------------------------------------------------------------------
\5\Id.
---------------------------------------------------------------------------
On May 14, 2013, the Treasury Inspector General for Tax
Administration (TIGTA) released a report finding that the IRS
``used inappropriate criteria that identified for review Tea
Party and other organizations applying for tax-exempt status
based on their names or policy positions instead of indications
of potential political campaign intervention.''\6\
---------------------------------------------------------------------------
\6\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review,'' Audit Report #2013-10-053, (May 14, 2013).
---------------------------------------------------------------------------
At the time of the disclosures from the IRS and TIGTA,
there was speculation and concern expressed that singling out
conservative organizations by name may have been a consequence
of political bias or motivation on the part of IRS employees,
possibly at the direction of political appointees at the IRS,
Treasury Department or the White House.
The Committee began an in-depth bipartisan investigation to
determine the facts surrounding the controversy due to the
serious nature of allegations that political considerations may
have driven the IRS's heightened scrutiny of conservative
leaning organizations applying for tax-exempt status.
On May 20, 2013, the Committee requested that IRS answer
questions and turn over internal documents relating to the
targeting controversy.\7\
---------------------------------------------------------------------------
\7\Letter from Chairman Baucus and Ranking Member Hatch to the
Acting Commissioner Steven Miller (May 20, 2013).
---------------------------------------------------------------------------
Key Democratic Staff Findings:
Actions by IRS personnel were not
politically motivated.
Political appointees did not influence the
enhanced scrutiny of 501(c)(3) and 501(c)(4)
applications presenting political advocacy issues.
Under federal tax law the IRS's scrutiny of
tax-exempt applications showing political activity was
completely justified.
The process of examining applications was
plagued by inefficiency, bad judgment, bad management,
and unwarranted delay.
Staff investigators received over 1.5 million pages of
documents and conducted 32 interviews with IRS employees.
The bipartisan narrative describes key events in the years
2010, 2011, and 2012 during which Tea Party and conservative-
leaning applications were set aside for special analysis. A
smaller number of politically left-leaning applications were
also subject to special scrutiny during that time.
There are currently 1.5 million nonprofits in the U.S and
70,000 nonprofit applications per year are received by the IRS.
Nonprofit organizations spent hundreds of millions of dollars
to influence the 2010 and 2012 election cycles. A 501(c)(3)
organization must be organized for religious, charitable, or
educational purposes, and these organizations cannot
participate or intervene in any political campaign activity.\8\
A 501(c)(4) organization must be organized for the primary
activity of promoting ``general welfare of the people of the
community'' and may engage in political campaign activity only
if the organization is determined not to be ``primarily
engaged'' in campaign activity.\9\
---------------------------------------------------------------------------
\8\26 U.S.C. Sec. 501(c)(3) (2014).
\9\26 C.F.R. Sec. 1.501(c)(4)-1(a)(2)(i) (1990).
---------------------------------------------------------------------------
Because federal law does not allow unlimited political
activity by 501(c)(4) nonprofits, it was necessary for the IRS
to scrutinize the applications of organizations seeking favored
tax status, including those associated with the Tea Party.
There is only a right to 501(c)(4) status under federal tax law
if standards for that status are met by the applicant.
Some argue that there is a Constitutional First Amendment
right to free speech through anonymous donations to 501(c)(3)
and 501(c)(4) organizations. Contrary to this view, IRS Chief
Counsel William Wilkins explained that case law indicates ``the
prohibition on political activity by 501(c)(3)s is not a
prohibition on free speech because there are other avenues for
the speech to proceed that don't generate charitable deductions
for the donor and that there is not a First Amendment right to
a charitable deduction.''\10\ This same standard applies to
501(c)(4) nonprofits.
---------------------------------------------------------------------------
\10\SFC Interview of IRS Chief Counsel William Wilkins (Nov. 7,
2013) p. 28.
---------------------------------------------------------------------------
Section 501(c)(3) organizations must apply to the IRS to be
recognized for tax-exempt status.\11\ The tax law allows
section 501(c)(4) organizations to operate as tax-exempt
without applying for IRS recognition of their status, although
most organizations apply for an IRS determination.\12\ Once
nonprofit status is granted, the IRS can investigate the
political activity of nonprofits in a thorough, but evenhanded
way. Nonprofit status can be terminated if it is determined
that political activity is the primary activity of the
nonprofit (see Section II(D) of the Bipartisan Investigative
Report for discussion of the law governing 501(c)).
---------------------------------------------------------------------------
\11\26 U.S.C. Sec. 508(a) (2006).
\12\Notes of Steven Miller (undated) IRS0000505538-42.
---------------------------------------------------------------------------
What is not defensible is the appearance the IRS gave of
``targeting'' the Tea Party, even though no evidence exists
that it was based on political beliefs or orders from political
appointees. And the best way to avoid that appearance would
have been to process the Tea Party applications as quickly as
possible using the fairest possible standards.
New IRS management has moved aggressively to address the
broken system of processing 501(c)(4) applications with
political advocacy issues by (1) removing key employees in the
IRS who failed to properly manage the processing of these
applications, (2) establishing new procedures to help process
nonprofit applications quickly, and (3) processing nearly all
the delayed applications.\13\
---------------------------------------------------------------------------
\13\Based on data provided to the SFC by the IRS (April 8, 2015).
---------------------------------------------------------------------------
These actions will help ensure that mistakes made by the
IRS in 2010, 2011 and 2012 are not repeated.

II. NO EVIDENCE OF POLITICAL MOTIVATION BY IRS EMPLOYEES

This investigation, based on staff interviews with 32 IRS
employees and a review of 1.5 million IRS documents, found no
evidence of political motivation driving the heightened
scrutiny of Tea Party and conservative groups and the
subsequent delays in processing their tax-exempt applications.
Furthermore, TIGTA, whose report highlighting the inappropriate
criteria used to identify tax-exempt applications for review
was the impetus of this investigation, made no finding that
political motivation was behind the inappropriate activity.\14\
---------------------------------------------------------------------------
\14\TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt
Applications for Review (May 14, 2013) TIGTA Audit Report #2013-10-053.
---------------------------------------------------------------------------
During interviews with Committee staff, IRS employees did
not cite political motivation as a factor for heightened
scrutiny of Tea Party applications. Attached are questions and
answers from each of the interviewees denying that politics was
involved.\15\
---------------------------------------------------------------------------
\15\IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013).
---------------------------------------------------------------------------
While TIGTA should be lauded for exposing the flawed review
process used by the IRS in screening tax exempt applications
for political activity, the narrow scope of its report and its
omission of key information contributed to a misimpression that
the controversy was politically motivated.
TIGTA documents released months after the report was
published show that its investigative staff, based on a review
of 5,500 emails, concluded three weeks prior to the release of
the audit report that there was no political motivation on the
part of IRS employees. An email from Timothy Camus, the Deputy
Inspector General for Investigations at TIGTA, concludes:

Review of these emails revealed that there was a lot
of discussion between the employees on how to process
the Tea Party and other political organization
applications. There was a Be On the Lookout (BOLO) list
specifically naming these groups; however, the e-mails
indicated the organizations needed to be pulled because
the IRS employees were not sure how to process them,
not because they wanted to stall or hinder the
application. There was no indication that pulling these
selected applications was politically motivated. The e-
mail traffic indicated there were unclear processing
directions and the group wanted to make sure they had
guidance on processing the applications so they pulled
them. This is a very important nuance.\16\
---------------------------------------------------------------------------
\16\Email from TIGTA Deputy Inspector General for Investigations
Timothy Camus to TIGTA staff (May 3, 2013) (emphasis added).

Despite this finding of no political motivation by IRS
employees in selecting Tea Party groups for additional
scrutiny, in a glaring omission, TIGTA failed to mention this
investigative finding by the Deputy IG in its audit report.
TIGTA Chief Counsel Michael McCarthy also concluded that
TIGTA had no evidence that IRS employees had political
motivations. After McCarthy reviewed a draft of the TIGTA
501(c)(4) audit report in late February 2013, he suggested that
the TIGTA auditors had overreached in writing that IRS
officials ``targeted'' the Tea Party. He wrote:

As an initial concern, ``targeted'' has a connotation
of improper motivation that does not seem to be
supported by the information presented in the audit
report. I think ``selected'' or even ``singled out''
would be more accurate.\17\
---------------------------------------------------------------------------
\17\Email from TIGTA Chief Counsel Michael McCarthy (Feb. 28, 2013)
TIGTA008002.

The same counsel commented on the criteria used in the BOLO
list (discussed in the following section ``The BOLO List'').
It was not until a Congressional hearing held three days
after the TIGTA report was released, in the midst of a media
frenzy that Inspector General Russell George confirmed, in
response to questioning from House Ways and Means Committee
Ranking Member Sander Levin, that his office did not find any
evidence of political motivation on the part of IRS
employees.\18\
---------------------------------------------------------------------------
\18\House Ways and Means Committee Hearing, Hearing on Internal
Revenue Service Targeting of Conservative Groups (May 17, 2013).
---------------------------------------------------------------------------
Levin: Did you find any evidence of political
motivation in the selection of the tax exemption
applications?
George: We did not, sir.\19\
---------------------------------------------------------------------------
\19\Id.
---------------------------------------------------------------------------
Additionally, the public did not learn about TIGTA's review
of IRS staff emails and its conclusion about the nonpolitical
nature of this controversy until House Oversight Committee
Democrats and House Ways and Means Democrats released the
internal TIGTA email describing the review in July 2013.\20\
TIGTA failed to include critical information about the
nonpolitical nature of the IRS mismanagement of the Tea Party
applications that would have provided crucial context to a
sensitive issue.
---------------------------------------------------------------------------
\20\Committee on Oversight and Government Reform, ``Cummings Asks
Issa to Recall IG for Testimony at Upcoming IRS Hearing,'' Democratic
Press Release (July 12, 2013)
---------------------------------------------------------------------------

III. NO EVIDENCE OF PRESSURE FROM OBAMA ADMINISTRATION POLITICAL
APPOINTEES TO INCREASE SCRUTINY OF POLITICALLY ACTIVE NONPROFITS

There is no evidence of Presidential appointees at the IRS,
the Treasury Department or the White House pressing IRS
personnel to target nonprofits engaging in political activity.
All of the IRS personnel interviewed were asked directly
whether political appointees in the Obama administration had
influenced the processing of the applications with political
activity issues, and not one of them identified any pressure
from the political ranks.\21\
---------------------------------------------------------------------------
\21\IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013).
---------------------------------------------------------------------------
In a Senate Finance Committee hearing on the TIGTA report
in May of 2013, Senator Crapo questioned TIGTA IG Russell
George on this issue.
Senator Crapo: You know there has been a lot of
discussion about who knew what and when they knew it.
One of the big questions I have, Mr. George, is it
seems that there is an argument being made that there
was no political motivation in these actions. Is that a
conclusion that you have reached?
Mr. George: In the review that we conducted thus far,
Senator that is the conclusion we have reached.
Senator Crapo: And how do you reach that kind of a
conclusion?
Mr. George: In this instance it was as a result of
the interviews that were conducted of the people who
were most directly involved in the overall matter, so
you take it one step by another and we directly
inquired as to whether or not there was direction from
people in Washington beyond those who are directly
related to the Determinations Unit they did indicate to
us that they did not receive direction from people
beyond the IRS.
Senator Crapo: When you say ``people beyond the
IRS,'' that could be anyone up the chain of the IRS?
Mr. George: It in theory could be, but we have no
evidence thus far that it was beyond, again, the people
in the Determinations Unit.\22\
---------------------------------------------------------------------------
\22\Senate Finance Committee Hearing, ``A Review of Criteria Used
by the IRS to Identify 501(c)(4) Applications for Greater Scrutiny''
(May 21, 2013) p. 19.
---------------------------------------------------------------------------
The TIGTA office reiterated this point in an answer to
questions posed by the Finance Committee:

Did any official from the office of the president or
the White House have any form of communication with any
IRS official employed in the Tax Exempt and Government
Entities Division between January 20, 2009 and the
present?

U.S. Senate Committee on Finance

List the days any communications occurred and the
form it took (i.e. phone, email, in person, etc)

TIGTA responded:

We have no knowledge of any communications between
the White House and any employee in the Tax Exempt and
Government Entities Division.\23\
---------------------------------------------------------------------------
\23\Senate Finance Committee Hearing Questions for the Record, ``A
Review of Criteria Used by the IRS to Identify 501(c)(4) Applications
for Greater Scrutiny'' (May 21, 2013) p. 107.

And the question was asked again with a focus on the
---------------------------------------------------------------------------
Treasury Department:

Did any employee of the Treasury Department
(excluding the IRS) who was appointed by the President
have any form of contact with any employee of the Tax
Exempt and Government Entities Division between January
1, 2010 and May 1, 2013?
List the days any communications occurred and the
form it took (i.e. phone, email, in person, etc.)

TIGTA responded:

We have no knowledge of any communication between
Presidential appointees at the Department of Treasury
and any employees in the Tax Exempt and Government
Entities Division.\24\
---------------------------------------------------------------------------
\24\Id. p. 108.

IV. DELAYS IN PROCESSING OF NONPROFIT APPLICATIONS

The key failure in this matter was the delay in processing
the Tea Party and other conservative leaning applications for
501(c)(4) status. The IRS took over two years to process what
were essentially a handful of applications. In February of 2010
the first Tea Party applications were received by the
Cincinnati office. In March 2012 TIGTA began their audit.
Making a decision on one application a day during this period
would have avoided most of the delay in processing the
applications.
Senior leadership at the Exempt Organizations office should
have stepped in much earlier in the process and demanded
expedited consideration of these politically sensitive
applications. They failed to take charge. The applications
piled up, complaints from Congress and the applicants
intensified, and a crisis developed. Eventually TIGTA stepped
in to investigate.
The decision in 2010 to allow the applications to pile up
while a confusing and inefficient process for analyzing them
was developed over the next two year period is inexplicable and
inexcusable.
The IRS prides itself on being nonpolitical. However, in
this case a more politically astute leadership team would have
never let this problem develop.

V. LACK OF CLARITY IN STANDARDS FOR POLITICAL ACTIVITY BY 501(C)(4)
NONPROFITS

While it is not an excuse for the delays in processing, it
is a fact that the rules for political activity by 501(c)(4)s
are extremely hard to understand.
501(c)(4) are intended to be organized exclusively for the
promotion of social welfare, however, social welfare
organizations are permitted to engage in political campaign
activity so long as it is not the organization's primary
activity.\25\
---------------------------------------------------------------------------
\25\Joint Committee on Taxation, ``Report to the House Committee on
Ways and Means on Present Law and Suggestions for Reform Submitted to
the Tax Reform Working Groups'' (May 6, 2013) p. 35.
---------------------------------------------------------------------------
The primary activity standard (discussed in the following
section entitled ``Need for Reform of the Tax Code Related to
Political Activity of Nonprofits'') is confusing and imprecise.
While it is logical to assign a percentage to determine whether
political campaign activity is an organization's primary
activity,--51%, 60%, 75%--the law and regulations do not set
such a number.\26\ Without a percentage standard to apply, it
is extremely difficult to make judgments about an application
from a 501(c)(4) nonprofit which shows an intent to engage in
political activity.
---------------------------------------------------------------------------
\26\The Additional Republican Views are dismissive of the
difficulty in determining this standard, stating that stuff knew full
well that ``primarily'' means 51%. While some IRS staff members
admitted to using a percentage test, such a test is not supported by
regulations or caselaw. The IRS points to a number of sources in this
regard, see, e.g. Treas. Reg. 1.501 (c)(4)-1 (a)(2) (No percentage test
established), Rev. Rul. 68-45, 1968-1 C.B. 259 (Principal source of
income does not determine an organization's primary activity under 501
(c)(4); all facts and circumstances are considered). Haswell v. United
States, 500 F.2d 1133, 1142, 1147 (CI. CI. 1974) (``A percentage test .
. . is not appropriate. Such a test obscures the complexity of
balancing the organization's activities in relation to its objectives
and circumstances in the context of the totality of the
organization.'') Contracting Plumbers v. United States, 488 F.2d 684,
686 (2d Cir. 1973) (multiple factors relevant in applying this
standard, including formative history, stated purposes, and actual
operations). Seasongood v. Commissioner, 227 F.2d 907, 909, 912 (6th
Cir. 1955) (expenditures, employees, and organization's time and effort
considered). See also, Exclusively Standard Under 501(c)(4), prepared
by IRS at 14, (``The IRS has not published a precise method of
measuring exempt activities or purposes in any of its published
guidance, thought three revenue rulings have state that all of the
organization's activities must be considered and that there is no pure
expenditure test.'').
---------------------------------------------------------------------------
Second, ``political activity'' is not well defined. The law
provides virtually no guidance at all on what ``political
activity'' means. This lack of clarity in the law, both on the
primary activity standard and on what constitutes political
activity, partially explains why IRS personnel froze at the
sight of hundreds of applications exhibiting evidence of
political activity.
This lack of clarity should have been well known to senior
members of the Exempt Organizations team--the law and the
regulatory structure had been on the books since 1959.
Focused and aggressive assistance to the Cincinnati office
by senior management in Washington D.C. could have overcome the
confusion surrounding the rules for 501(c)(4) nonprofits. Inept
management plus an uncertain legal and regulatory situation led
to two years of confusion and delay.

VI. THERE WAS AN INCREASE IN APPLICATIONS FROM RIGHT-LEANING NONPROFITS

The IRS was scrutinizing progressive non-profits with
political activity in addition to Tea Party-related
applications, as described below in the section entitled
``Liberal/Progressive Groups Were Scrutinized by the IRS.''
However evidence suggests that applications from
conservative-leaning groups substantially outnumber
applications from left-leaning groups. In fact, EO staff told
the Committee they were ``inundated'' with Tea Party
application issues in 2010.\27\ This trend continued at least
through 2011, when Holly Paz observed ``EOD Screening has
identified an increase in the number of (c)(3) and (c)(4)
applications where organizations are advocating on issues
related to government spending, taxes, and similar
matters.''\28\ The greater number of Tea Party applications
resulted in a greater number of Tea Party applications being
scrutinized. This outcome was used to establish an unproven
narrative of bias against nonprofits on the conservative side
of the political spectrum.
---------------------------------------------------------------------------
\27\SFC Interview of Liz Hofacre (Sept 24, 2013) pp 61-64.
\28\Email chain between Holly Paz and Janine Cook (July 18-19,
2011) IRS0000429489.
---------------------------------------------------------------------------
One explanation is the increase in the amount of political
activity engaged in by the Tea Party and related organizations.
The health care reform struggle resulted in many groups
mobilizing to influence the political system in 2009 and 2010.
But this does not explain the intense interest by hundreds
of groups in becoming 501(c)(4) organizations.
There is some evidence that conservative groups were
competing for anonymous donations to fund their activities,
donations from a number of very wealthy conservative donors. In
2010, Scott Reed, a Republican lobbyist and the Chamber of
Commerce's political strategist, told the Center for Public
Integrity in an interview that ``501cs are the keys to the
political kingdom . . . because they allow anonymity.''\29\
---------------------------------------------------------------------------
\29\Center for Public Integrity, Campaign Cash: The Independent
Fundraising Gold Rush since ``Citizens United'' Ruling (October 4,
2010).
---------------------------------------------------------------------------
A Wall Street Journal article published on August 28, 2013
provides some clues about why the Cincinnati office found
itself in 2010 looking at dozens of right leaning organizations
seeking non-profit status under the Internal Revenue Code. The
political activity of the Tea Party movement, which was born in
the summer of 2009 as citizens participated in town hall
meetings protesting efforts by Congress to reform the health
care system, helped the Republican Party take control of the
House of Representatives in the 2010 elections.\30\
---------------------------------------------------------------------------
\30\Wall Street Journal, ``Anger at IRS Powers Tea-Party Comeback''
(Oct. 10, 2013).
---------------------------------------------------------------------------
The Journal article focuses on the Tea Party Patriots
group, explaining that it applied for nonprofit status in late
2010. The Journal article stated that the Tea Party Patriots
had a 400,000 person donor base, a $24 million a year budget
and its director made $250,000 a year.\31\
---------------------------------------------------------------------------
\31\Id.
---------------------------------------------------------------------------
The article explained: ``One problem dogged the group: The
Patriots didn't have tax exempt status, a disincentive to some
potential donors. The group applied for such status in late
2010 but says it had heard nothing from the IRS during all of
2011.''\32\
---------------------------------------------------------------------------
\32\Id.
---------------------------------------------------------------------------
Nonprofits do not need to publically disclose who has
donated funds, nor do they need to disclose how much an
individual or corporation has contributed.
The Wall Street Journal article confirms a widely held
belief that political contributions are disguised by cycling
them through nonprofits. Again, no dollar amount from any
individual is revealed to the public.
This same incentive for obtaining nonprofit tax status is
identified in the article in a quote from Jenny Beth Martin,
executive director of the Tea Party Patriots: ``I kept telling
everyone--including the big donors who wouldn't give to us
without our nonprofit status--that the IRS appeared to be
targeting tea-party groups.''
The influx of 501(c)(4) applications to the IRS may have
been the result of a desire to attract ``big donors'' who would
not give to right leaning groups ``without . . . nonprofit
status.''\33\
---------------------------------------------------------------------------
\33\Id.
---------------------------------------------------------------------------
Finally, many point to the Citizens United decision as the
reason political spending soared during the years in question.
Acting Commissioner Steven Miller told the Finance
Committee that the number of 501(c)(4) applications doubled
since ``Citizens United released this wave of cash'' and ``some
of that cash headed towards c(4) organizations. That's proven
out by FEC data and IRS data.''\34\
---------------------------------------------------------------------------
\34\Senate Finance Committee Hearing, ``A Review of Criteria Used
by the IRS to Identify 501(c)(4) Applications for Greater Scrutiny''
(May 21, 2013) p. 23.
---------------------------------------------------------------------------

VII. THE ``BOLO'' LIST

Evidence suggests that the number of conservative-leaning
tax-exempt organizations active in this time period outnumbered
liberal organizations.\35\ The number of 501(c)(4)s reporting
political campaign activities almost doubled from tax year 2008
through 2010, and the amount of campaign activity for large
filers almost tripled.\36\ According to the Center for
Responsive Politics, more than 80% of the political funds spent
in the 2012 elections by nonprofits were sponsored by
conservative 501(c)(4)s.\37\ This amount of spending, along
with the desire to attract large donors, partially explains why
most of the nonprofit applications with political advocacy
issues were from conservative-leaning organizations during
2010, 2011 and 2012. The IRS was not targeting these groups,
rather it was facing the reality that more politically active
conservative groups than left-leaning groups were sending in
applications to the IRS Exempt Organizations office in
Cincinnati.
---------------------------------------------------------------------------
\35\The IRS receives 70,000 applications for nonprofit status each
year. The Committee did not have the resources necessary to determine
the total number of conservative and liberal organizations applying
during this time period.
\36\Email chain between Justin Lowe, Justin Abold, and others (May
6, 2013) IRS0000494805-29.
\37\USA Today, Dark Money of Non-profit Political Groups Targeted
(June 11, 2013).
---------------------------------------------------------------------------
A great deal of attention has been focused on the ``Be On
The Lookout'' (BOLO) list which designated the Tea Party as a
term for IRS employees to watch for when reviewing applications
for nonprofit status.
There is no question that the use of the BOLO and the terms
used therein presents a very unattractive picture of an IRS
focus on Tea Party groups seeking nonprofit status. Even Lois
Lerner believed it was wrong to place the term ``Tea Party'' on
the BOLO list.\38\ Placing names of right-leaning groups on the
BOLO list was inappropriate.
---------------------------------------------------------------------------
\38\Email chain between Cindy Thomas, Steve Bowling, John Shafer
and others (July 5, 2011) IRS0000620735.
---------------------------------------------------------------------------
While not endorsed by the Democratic staff, another point
of view on how the IRS operated should be noted. The charge is
that Cincinnati ``targeted'' the Tea Party because of its
political affiliation. But once the IRS had selected the two
Tea Party applications for review in the Washington D.C. office
it can be argued that it was logical to develop a method of
collecting all the Tea Party applications that continued to
surface in Cincinnati. The BOLO list can be seen as an
efficient procedure to use to make sure personnel in Cincinnati
identified the right applications to set aside while Washington
D.C. determined the best way to deal with these applications.
Applications by left-leaning groups were also collected in this
manner.
The IRS receives 70,000 applications a year for nonprofit
status. With so many applications to process the placement of
terms on a BOLO list was one way to gather all of the relevant
applications in one place while the experts in Washington D.C.
delivered to Cincinnati a plan for approving or disapproving
the applications.
Supporting this perspective, TIGTA's Chief Counsel
expressed concern about TIGTA describing the BOLO list terms--
Tea Party, 9/12 and Patriots--as ``inappropriate'' because it
did help IRS screeners centralize political cases. He wrote in
an email:

Also, it is not clear why exactly we find the
criteria used were ``inappropriate.''
It is because specific names associated with
political activity shouldn't be used as criteria? That
would seem to make it difficult for the IRS to identify
potential political applications for referral to the
specialized unit. If this is the rationale, the
information in footnote 11, that the use of
organization names occurs in non-political cases as
well, seems like it needs more attention, since it
suggests both that the IRS was not politically
motivated in this case, and that our recommendations
might need to be broader.
Or are we saying it was inappropriate because the use
of names was one-sided, i.e. name criteria included
only certain types of groups seen as conservative, and
names of other political groups with different policies
should have also been included? If that is the
rationale, do we have evidence that similarly situated
groups from the left side of the political spectrum
should have been included by name in the criteria, but
were not? The later sections of the report seem to
suggest this, but it is not clear.\39\
---------------------------------------------------------------------------
\39\Email from TIGTA Chief Counsel Michael McCarthy (Feb 28, 2013)
TIGTA008002.

---------------------------------------------------------------------------
The TIGTA Chief Counsel makes two critical points:

(1) Using names in the BOLO list simply helped the
IRS ``identify potential political applications for
referral to a specialized unit.'' The names were not
placed on the BOLO list because of political bias.
(2) Use of names in the BOLO list identifying left-
leaning groups (as reviewed in following section) is
evidence that the IRS was evenhanded in its
administrative processing of 501(c)(4) applications.

VIII. LIBERAL AND PROGRESSIVE GROUPS WERE SCRUTINIZED BY THE IRS

The IRS's treatment of liberal, Democratic, and progressive
organizations applying for tax-exempt status was similar to its
treatment of Tea Party applicants. Although TIGTA intentionally
limited the scope of its report to ``narrowly focus on Tea
Party organizations'' at the request of the Chairman of the
House Committee on Oversight and Government Reform,\40\ many of
TIGTA's findings with respect to the IRS's treatment of Tea
Party groups also apply to the IRS's treatment of left-leaning
organizations before and concurrent with the IRS's screening of
Tea Party groups.
---------------------------------------------------------------------------
\40\The Hill, IG: Audit of IRS Actions Limited to Tea Party Groups
at GOP Request (June 26, 2013).
---------------------------------------------------------------------------

A. IRS Determinations Screened Left-Leaning Groups for Review

TIGTA characterized the IRS Determinations Unit's use of
``specific names (Patriots and 9/12) or policy positions'' to
identify cases to be reviewed for political activity as
inappropriate.\41\ However, TIGTA's audit did not focus on
similar methods used by the IRS to identify and select left-
leaning applicants for review.\42\
---------------------------------------------------------------------------
\41\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review,'' Audit Report #2013-10-053 (May 14,
2013).
\42\It should also be noted that the term ``Patriot'' does not even
necessarily indicate the organization is conservative leaning.
According to Center for Responsive Politics, a group called Patriot
Majority was the most active left-leaning group in 2012 election cycle,
and the 14th most politically active of all 501(c)(4)s.
---------------------------------------------------------------------------
A PowerPoint presentation and notes from a July 28, 2010
screening workshop meeting show that IRS employees were
instructed to look for applications with the terms progressive
and Emerge (an organization that sought to train female
Democratic political candidates) in addition to Tea Party
groups.\43\ The notes from the meeting state that Gary Muthert
indicated that the ``following names and/or titles were of
interest and should be flagged for review:
---------------------------------------------------------------------------
\43\Screening Workshop Notes (July 28, 2010) IRS0000012315;
Screening Workshop PowerPoint (July 28, 2010) IRSR0000169695.

``9/12 Project,
``Emerge,
``Progressive
``We The People,
``Rally Patriots, and
``Pink-Slip Program.''\44\
---------------------------------------------------------------------------
\44\Screening Workshop Notes (July 28, 2010) IRS0000012315.

Similarly, the PowerPoint presentation from this screening
workshop has a slide that reads, ``Politics'' with a picture of
an elephant and a donkey. The slide states ``Look for names
like'' preceding additional slides with the words ``Tea Party .
. . Patriots . . . 9/12 Project . . . Emerge . . . Progressive
. . . We the People'' under the heading ``Current
Activities.''\45\
---------------------------------------------------------------------------
\45\Screening Workshop PowerPoint (July 28, 2010) IRSR0000169695.
---------------------------------------------------------------------------
Numerous iterations of the BOLO spreadsheet included the
term ``progressive'' on the ``TAG Historical'' tab. For
example, a BOLO list dated August 12, 2010 instructed screeners
to flag applications for the word ``progressive.'' The BOLO
list entry for ``progressive'' further instructed screeners
that the:

``Common thread is the word `progressive.' Activities
appear to lean towards a new political party.
Activities are partisan and appear as anti-Republican.
You see references to `blue' as being
`progressive.'''\46\
---------------------------------------------------------------------------
\46\Email from Liz Hofacre to IRS Staff (July 27, 2010)
IRS0000008609-24.

According to IRS agent Ron Bell, who was responsible for
the BOLO list, screening terms were placed on the ``Tag
Historical'' tab after IRS employees were not seeing the cases
as frequently.\47\ While the organizations with the name
``progressive'' in their name were not applying for tax-exempt
status as frequently as conservative or Tea Party
organizations, the IRS was still instructing its employees to
screen and set aside cases because of potential political
activity based on the word ``Progressive.''
---------------------------------------------------------------------------
\47\SFC Interview of Ron Bell (July 30, 2013).
---------------------------------------------------------------------------
The Emerge applications that screeners were instructed to
flag at the screening workshop were not specifically listed on
the BOLO, but an IRS Determinations manager alerted screeners
via email on September 24, 2008 to look for applicants with
``Emerge'' in their name along with other ``politically
sensitive'' cases.\48\
---------------------------------------------------------------------------
\48\Email from Joseph Herr to IRS EO screeners (Sep. 24, 2008)
IRS0000011492.
---------------------------------------------------------------------------

1. ACORN

Another PowerPoint presentation presented at training
events in June and July of 2010 titled ``Heightened Awareness
Issues,'' listed ``Successor to Acorn'' as a ``Watch For
Issue'' specifying that ``[s]pecial handling is [r]equired when
[a]pplications are [r]eceived.''\49\ ACORN (Association of
Community Organizations for Reform Now) was a national
``community organization group'' with local chapters that
``fought for liberal causes like raising the minimum wage,
registering the poor to vote, stopping predatory lending and
expanding affordable housing.''\50\ In addition, ACORN assisted
lower income families with tax return preparation.\51\ The
national organization declared bankruptcy in the wake of
accusations of fraud, embezzlement, and mismanagement but
several local organizations decided to regroup under new
names.\52\
---------------------------------------------------------------------------
\49\Heightened Awareness Issues PowerPoint, IRS0000557291; Email
between EO Employees (May 18, 2010) IRSR0000195587.
\50\New York Times, ``ACORN on Brink of Bankruptcy, Officials Say''
(May 19, 2014).
\51\Id.
\52\Id.
---------------------------------------------------------------------------
An entry for ``ACORN successors'' appears on copies of the
BOLO list examined by the Committee from 2010 until it was
removed by EO Director of Rulings and Agreements Holly Paz in
June 2012.\53\
---------------------------------------------------------------------------
\53\Email chain between Holly Paz, Cindy Thomas and others (June 1,
2012) IRS0000013434-35.
---------------------------------------------------------------------------
On March 22, 2010, EO Determinations Director Cindy Thomas
notified EO Technical that descendants of ACORN were
reorganizing citing three specific cases.\54\ In April 2010,
Sharon Camarillo emailed Cindy Thomas and Robert Choi telling
them that EO Determinations received two ACORN-successor
cases.\55\
---------------------------------------------------------------------------
\54\Email from Cindy Thomas to Steven Grodnitzky (Mar. 22, 2010)
IRS0000458448.
\55\Email from Sharon Camarillo to Cindy Thomas and Robert Choi
(Apr. 28, 2010) IRS0000458467.
---------------------------------------------------------------------------
The August 2010 BOLO lists ``ACORN Successors'' as an
``Issue Name.'' The description states that ``Following the
breakup of ACORN, local chapters have been reforming under new
names and resubmitting applications.'' Screeners are instructed
to send these cases ``to the TAG Group.''\56\
---------------------------------------------------------------------------
\56\Copy of Combined Spreadsheet TAG 8 12 10. (Aug. 12, 2010).
---------------------------------------------------------------------------
An October 7, 2010 email from Jon Waddell alerted Steven
Bowling and Sharon Camarillo to two ACORN-related cases.
Waddell recommended sending an alert to screeners ``to be on
the lookout for the following name [and] application factors
associated with ACORN related cases.''\57\ In addition he
suggested adding the following ``factors to the Watch Issue
Description section for this category:
---------------------------------------------------------------------------
\57\Email from Jon Waddell to Steven Bowling and Sharon Camarillo
(Oct. 7-8, 2010) IRS0000410433.

``1. The name(s) Neighborhoods for Social Justice or
Communities Organizing for Change.
``2. Activities that mention Voter Mobilization of
the Low-Income/Disenfranchised.
``3. Advocating for Legislation to Provide for
Economic, Heathcare, and Housing Justice for the poor.
``4. Educating Public Policy Makers (i.e.
Politicians) on the above subjects.''\58\
---------------------------------------------------------------------------
\58\Id.

Sharon Camarillo forwarded the alert to John Shafer
instructing that his screeners ``be on the lookout for these
cases.''\59\ John Shafer forwarded Camarillo's email to IRS
screeners in his group.\60\
---------------------------------------------------------------------------
\59\Email chain between EO Employees (Oct. 7-8, 2010)
IRS0000389342.
\60\Id.
---------------------------------------------------------------------------
The February 2, 2011 BOLO instructs IRS screeners to look
for the words ``ACORN'' or ``Communities for Change in the name
and/or throughout the application.'' It reads:

Local chapters of the former ACORN organization have
reformed under new names and are requesting exemption
under section 501(c)(3). Succession indicators include
ACORN and Communities for Change in the name and/or
throughout the application.\61\
---------------------------------------------------------------------------
\61\BOLO Spreadsheet (Feb. 2, 2011) IRS0000389362.

ACORN cases continued to be screened in 2012. Ron Bell
wrote an email to Carter Hull on May 13, 2012 stating: ``I've
got a case that I believe is an acorn successor org. I googled
the name of the org and that is where several websites (such as
the capital research center) indicate that it is an acorn
successor. The BOLO list states to contact you . . . Please
advise how you want to process this case.''\62\ [sic]
---------------------------------------------------------------------------
\62\Email from Ronald Bell to Carter Hull (May 13, 2012)
IRSR0000054963.
---------------------------------------------------------------------------

2. Watch For ``Occupy'' Groups

In January 2012, the IRS Determinations office began
screening organizations with the term ``Occupy'' in its name on
the ``Watch For'' list on the BOLO. After a news article was
distributed within the IRS that suggested some organizations
affiliated with the Occupy movement were seeking tax exempt
status, Cindy Thomas told Steven Bowling, the manager of the
IRS Determinations group that handles political advocacy cases,
that the Occupy cases should be referred to his group so they
can be worked ``with the advocacy cases.''\63\
---------------------------------------------------------------------------
\63\Email chain between EO Employees, (Jan. 20, 2012)
IRSR0000013418-19.
---------------------------------------------------------------------------
EO Determinations Group Manager Steven Bowling told Cindy
Thomas that the BOLO list would need to be modified in order to
properly flag the Occupy cases but expressed frustration that
the IRS does not want to use the words ``Tea Party'' or
``Occupy'' in screening.\64\ Thomas replied:
---------------------------------------------------------------------------
\64\Id.

[w]e can't refer to ``tea party'' cases because it
would appear as though we're singling them out and not
looking at other Republican groups or Democratic groups
. . . How about a compromise--What do you think about
changing the description for advocacy organizations on
the Emerging Issues tab to that which you've included
under scenario #1; then, you could include the Occupy
description from your scenario #2 on the Watch For tab
specifying that these cases should be referred to your
group? We could still have the same grade 13 agents
working the advocacy and Occupy cases.\65\
---------------------------------------------------------------------------
\65\Email chain between EO Employees, (Jan. 20, 2012)
IRSR0000013414; Email from Steven Bowling to Ronald Bell, (Jan. 25,
2012) IRSR0000013181.

After receiving this instruction from Thomas, Bowling adds
``$ocial economic reform / movement'' to the BOLO entry for
advocacy cases. In addition, Bowling added ``Occupy orgs'' to
the BOLO watch list. Ronald Bell wrote an email to Bowling
questioning the need for a separate entry for ``Occupy orgs''
on the watch list since he thought ``$ocial economic reform . .
. was our `code word' for the occupy organizations.'' Bowling
replied, ``I think we can leave it in. Some of the orgs are
pushing that other than occupy groups.''\66\
---------------------------------------------------------------------------
\66\Emails between Steven Bowling and Ronald Bell (Jan. 25, 2012)
IRS0000013187.
---------------------------------------------------------------------------
Emails written in May 2012 show that at least two Occupy
cases were flagged by IRS screeners after the term was added to
the BOLO list.\67\ By the next month, Holly Paz had Cindy
Thomas revise the BOLO list to ``remove the references to ACORN
and Occupy from the `Watch List''' and replaced the ``Emerging
Issue'' description of ideological positions of conservative
and liberal groups with neutral language.\68\
---------------------------------------------------------------------------
\67\Email chain between EO Employees (May 24-27, 2012)
IRS0000013234.
\68\Email from Holly Paz to Cindy Thomas (June 1, 2012)
IRS0000013434.
---------------------------------------------------------------------------

3. Liberal and Progressive Organizations Experienced Three-Year Delays

TIGTA's finding that ``[o]rganizations that applied for
tax-exempt status and had their applications forwarded to the
team of specialists experienced substantial delays''\69\
applies to left-leaning applicant organizations in addition to
Tea Party and conservative groups. The Committee investigation
and press reports show that applicants affiliated with Emerge,
ACORN successor groups, and others also waited years for a
determination from the IRS after their applications were
flagged as potentially political by screeners and forwarded to
the EO Technical office in Washington, D.C.
---------------------------------------------------------------------------
\69\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review,'' Audit Report #2013-10-053 (May 14,
2013).
---------------------------------------------------------------------------

Emerge

In the case of three of the Emerge groups, it took three
years from the time they applied until the applications were
denied. Previously the IRS erroneously approved five
applications affiliated with Emerge for 501(c)(4) status from
2004 through 2008, including the main umbrella organization
Emerge America.\70\ These approvals were subsequently
determined to have been in error because Emerge groups were
found to benefit the Democratic Party.\71\
---------------------------------------------------------------------------
\70\Email from Donna Abner to Cindy Wescott, Sharon Camarillo, and
Brenda Melahn (Sep. 8, 2008) IRS0000012292.
\71\Email from Park Nalee to Vasu Nair (October 21, 2011)
IRS0000636331.
---------------------------------------------------------------------------
On September 2008, emails show that IRS employee Donna
Abner recommended issuing an ``alert'' for other incoming
Emerge cases because of the ``partisan nature of the cases'' as
well as a reminder that ```sensitive political issue' cases are
subject to mandatory review'' per IRS guidelines and subject to
full development.\72\ EO Technical staff asked EO
Determinations to transfer the Emerge Maine and Emerge Nevada
applications on October 10, 2008 to be held ``until the
litigation on this issue and concluded and then we will work
them.''\73\ EO Technical instructed EO Determinations to hold
any additional Emerge cases ``pending the outcome of a similar
issue in the DLC litigation.''\74\ However, a January 18, 2010
Sensitive Case Report indicates that Emerge Massachusetts
applied for tax-exempt status on August 15, 2008 and was
transferred to EO Technical on April 16, 2009. Additionally,
Emerge Oregon applied on February 9, 2010 and its application
was transferred to EO Technical on April 14, 2010.\75\ The IRS
did not inform the four Emerge groups, whose cases were
selected for review and then developed at EO Technical until
2011, that their applications had been denied, creating delays
of approximately three years for some of the organizations.\76\
---------------------------------------------------------------------------
\72\Email from Donna Abner to Cindy Wescott, Sharon Camarillo, and
Brenda Melahn (Sep. 8, 2008) IRSR0000012292.
\73\Email from Justin Lowe to Jon Waddell (Oct. 10, 2008)
IRS0000012299.
\74\Email from Deborah Kant to Cindy Westcott (Oct. 16, 2008)
IRS0000012304.
\75\TE/GE Division Sensitive Case Report (Apr. 2010) IRS0000147518.
\76\Email from Holly Paz to Cindy Thomas (July 21, 2011)
IRS0000429500.
---------------------------------------------------------------------------

ACORN

Organizations the IRS determined to be related to the
disbanded ACORN organization also experienced delays of nearly
three years. EO Determinations began receiving ACORN-successor
organizations in April 2010.\77\
---------------------------------------------------------------------------
\77\Email from Sharon Camarillo to Cindy Thomas and Robert Choi
(Apr. 28, 2010) IRS0000458467.
---------------------------------------------------------------------------
ACORN-successor organizations were the subject of
congressional interest at this time as well. On June 3, 2010,
Ranking Member Darrell Issa on the House Oversight Committee
submitted a letter with an attached report to Commissioner Doug
Shulman urging him not to ``stop your investigation into ACORN
and its use of federal funds. I ask that you maintain oversight
over ACORN's rebranded affiliates.''\78\ In response, on June
8, 2010 the Acting Manager of EO Technical Steven Grodnitzky
instructed Cindy Thomas not to develop or resolve ACORN-related
cases until they receive further instruction.\79\
---------------------------------------------------------------------------
\78\Letter from House Oversight and Government Reform Committee
Ranking Member Darrell Issa to IRS Commissioner Doug Shulman (June 3,
2010) IRS0000459733.
\79\Email from Steven Grodnitzky to Cindy Thomas and Donna Abner
(June 8, 2010) IRS0000054956.
---------------------------------------------------------------------------
On July 15, 2010, Cindy Thomas alerted Robert Choi that EO
Determinations received another ``potential successor to
ACORN'' applying for 501(c)(3) status that is related to a
501(c)(4) ACORN-successor application received in April
2010.\80\ Thomas reported that ``[w]e placed the other case in
suspense pending guidance from the Washington Office and are
doing so with this case.''\81\
---------------------------------------------------------------------------
\80\Email from Cindy Thomas to Robert Choi (July 15, 2010)
IRS0000054948.
\81\Id.
---------------------------------------------------------------------------
Emails show that additional ACORN-successor organizations
were flagged in October 2010.\82\
---------------------------------------------------------------------------
\82\Email from Jon Waddell to Steven Bowling and Sharon Camarillo
(Oct. 7-8, 2010) IRS0000410433.
---------------------------------------------------------------------------
Cindy Thomas emailed Holly Paz on October 24, 2010 with a
request for technical assistance on ACORN-successor cases from
EO Technical. Over a month later, on November 26, 2010, Holly
Paz told Cindy Thomas to work with Carter Hull in EO Technical
on the ACORN-successor cases, the same employee in charge of
developing the Tea Party cases.\83\
---------------------------------------------------------------------------
\83\Holly Paz email to Cindy Thomas (Nov. 26, 2010) IRS0000054942.
---------------------------------------------------------------------------
An EO Determinations employee contacted Carter Hull on
March 4, 2011, telling him that ``we have four exemption
applications for organizations that have previously operated as
ACORN. Could we arrange to discuss these cases with you by
phone sometime next week?''\84\ It is unclear what guidance
Carter Hull provided EO Determinations on the ACORN-successor
applications but he told another EO Determinations employee in
July 2011 that ``his manager informed him that he should not be
doing research for our cases.''\85\ Hull asked EO
Determinations to remove his name ``from the BOLO list as a
contact person.''\86\
---------------------------------------------------------------------------
\84\Email from John McGee to Carter Hull (Mar. 4, 2011)
IRS0000631878.
\85\Email from Melissa Conley to Willian Agner (July 11, 2011)
IRS0000054945.
\86\Id.
---------------------------------------------------------------------------
In April 2013, EO Technical was still developing two ACORN-
successor applications including one of the applications that
spurred EO Determinations managers to alert screeners to flag
ACORN-successor cases in October 2010.\87\ The other case
mentioned in the email was transferred from EO Determinations
to EO Technical in April 2012.\88\ ACORN-successor cases were
still on hold as of May 2013, according to Cindy Thomas.\89\
---------------------------------------------------------------------------
\87\Email from Cindy Thomas to Steven Bowling and Jon Waddell (Apr.
3, 2013) IRS0000054976.
\88\Id.
\89\IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013) pp. 27-28.
---------------------------------------------------------------------------

Other Left-Leaning Groups Also Experienced Delays

Other liberal and progressive groups told media outlets
their applications were delayed as well. One left-leaning
group, Alliance for a Better Utah, told NPR Morning Edition in
a story that aired on June 13, 2013 that it had been waiting
almost 600 days for a determination on its application for
501(c)(3) status to do ``voter-education work.''\90\ The same
group told Politico a month later that the delay was ``causing
problems because it can't apply for foundation and grant money
while that application to become a charitable organization is
in limbo.''\91\ Progress Texas reported that it took ``18
months to get its 501(c)(4) approval.''\92\
---------------------------------------------------------------------------
\90\NPR, ``Liberal Groups Say They Received IRS Scrutiny Too''
(June 19, 2013).
\91\Politico, ``IRS Scrutinized Some Liberal Groups'' (July 22,
2013).
\92\Id.
---------------------------------------------------------------------------

B. Inappropriate and Burdensome Information Requests to Left-Leaning
Groups

As summarized by the TIGTA report and described in the
bipartisan narrative of this report, in January 2012, the IRS
Determinations Unit made unnecessary and burdensome requests to
a number of tax-exempt applicants that in some cases included
requests for donor information.\93\ Many groups that received
these questions saw the inquiry about donors as an unwarranted
intrusion.\94\ Ultimately, IRS officials decided the request of
the donor information was inappropriate and ordered the donor
information destroyed.\95\ Left-leaning/progressive groups also
received inappropriate development questions regarding donor
information while experiencing lengthy delays in the
application process, similar to Tea Party groups.
---------------------------------------------------------------------------
\93\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review,'' Audit Report #2013-10-053 (May 14,
2013).
\94\501(c) entities are required to submit to the IRS a list of
persons who have donated $5,000 or more on an annual basis. This
information generally is not made public.
\95\SFC Interview of Holly Paz, July 26, 2013 pp. 130-132.
---------------------------------------------------------------------------
Although TIGTA points out in its report that thirteen of
the 27 organizations that received requests for donor
information had ``Tea Party, Patriots, or 9/12 in their
names,''\96\ it is clear from reviewing documents that the IRS
was not acting on a partisan basis. Liberal and progressive
groups were subject to burdensome requests for information from
the IRS, similar to the requests made of conservative groups.
At least three of the groups that received donor information
requests were left-leaning applicants for tax-exempt
status.\97\ This treatment was unfair and inappropriate whether
directed at conservative or left-leaning groups.
---------------------------------------------------------------------------
\96\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review,'' Audit Report #2013-10-053, (May 14,
2013) footnote 43.
\97\Email with attachment from Judith Kindell to Holly Paz and
Sharon Light (Apr. 25, 2012) IRS0000013868.
---------------------------------------------------------------------------
This indicates that the donor list requests were not a
concerted political effort within the IRS to harass or
discriminate against conservative groups. While more
conservative groups were subject to burdensome development
letters, there were simply more conservative groups applying
for tax-exempt status during this period.
In addition to asking liberal organizations about their
donors, IRS Exempt Organizations Specialist Grant Herring asked
burdensome questions to at least one voter registration
organization.\98\ The letter asked the organization to respond
to approximately 82 different questions/requests for
information within twenty days. Two of the requests asked the
applicant to provide ``recruitment materials, training
materials and manuals you will create and employ'' (emphasis
added) for the purposes of voter registration activities and
assistance to other charitable organizations.\99\ These
questions indicate the IRS was asking the organization to
provide documents that may not have existed at the time it was
applying for tax-exempt status.
---------------------------------------------------------------------------
\98\IRS Letter to a Voter Registration Organization (Nov. 29, 2010)
IRS0000631009.
\99\Id.
---------------------------------------------------------------------------
Herring provided the questionnaire as an example to another
IRS employee who was reviewing a voter registration
organization's application for tax-exempt status. In his email
to the IRS employee he wrote:

What worries me about the big ones is that they
concentrate on turning out voters that historically
support one of the two parties, and this is their
unacknowledged purpose, rather than increasing civic
participation or voter education.
These questions are from one of my letters. I don't
know how complicated your organization is. If it is big
and ambitious all these questions may come in handy. I
think we need at least to put them on record that in
their voter contacts their conduct will be as pure as
the driven snow, because I do not think we will ever
apply the American Campaign Academy rationale to these
organizations, as we should.
If it is getting a lot of [private foundation] money
and seem to lean to the left, make sure it isn't an
ACORN successor.\100\
---------------------------------------------------------------------------
\100\Email from Grant Herring to Susan Maloney (Nov. 29, 2011)
IRS0000631168.

After EO Determinations employees began receiving ACORN-
successor applications in April 2010, Herring flagged a ``get-
out-the-vote'' organization that had already been approved as
tax-exempt but ``many internet sources allege is an ACORN
affiliate or front'' and had asked the IRS for an advance
4945(f) ruling. A 4945(f) ruling is an IRS determination that
the organization's voter registration activities satisfy legal
requirements to receive private foundation grants for that
---------------------------------------------------------------------------
purpose. On May 18, 2010, Herring wrote:

I question whether the applicant qualifies for
exemption. 501c3s can engage in non-partisan voter
registration, of course, but what is the basis of their
exemption if that is their exclusive or primary
activity, as in this case (no voter ed)? Also, I don't
think this org's activities are nonpartisan in effect:
they don't say ``Republican'' or ``Democrat'', but they
target their extremely-well-funded-by-left-leaning-PFs
voter registration activities to areas where
traditional Democrat constituencies are concentrated. I
don't think it would be difficult for EOT to revoke the
approval letter.\101\
---------------------------------------------------------------------------
\101\Email from Donald Herring to Joseph Herr (May 18, 2010)
IRS0000629458.

Grant Herring reported his activities related to developing
---------------------------------------------------------------------------
this case in July 2010:

A letter was sent on 7/15, with response due 8/4. I
asked very detailed questions about how they are
conducting their voter registration activities, to make
sure that they are being conducted in a non-partisan
manner. I do not think there is any doubt that the
targeted demographics will vote overwhelmingly for
Democratic candidates, and that it is the unstated
purpose of the organization to turn out the vote for
``progressive'' candidates; but I don't think the
request can be denied on that basis, although I am
going to make sure of that before I issue a favorable
letter. However, I thought that a politically biased
applicant like this one should be made to demonstrate
that it treats all political candidates and parties
even-handedly in its contacts with unregistered voters.
I am talking to Mike Repass in Technical about this
case and a different voter registration
organization.\102\ [sic]
---------------------------------------------------------------------------
\102\Email from Peggy Combs to Brenda Melahn (July 27, 2010)
IRS0000622672.

The case was sent to EO Technical as a result of Herring
``raising concerns'' because ``it involved voter registration
and a possible link to ACORN,'' according to an EO
Determinations manager summarizing the case a year later. As of
May 2011, there was a decision to grant a favorable 4945(f)
ruling with a referral to the Review of Operations Division but
the case was awaiting another layer of review by EO Quality
Assurance.\103\
---------------------------------------------------------------------------
\103\Email from Gerardo Fierro to Donna Abner (May 15, 2011)
IRS0000640477.
---------------------------------------------------------------------------

IX. WHAT COULD HAVE BEEN

Another useful perspective on the inefficiency and
mismanagement at the IRS is a focus on the month when the Tea
Party applications first arrived in Cincinnati and a two week
period when the IRS first acted decisively on the Tea Party and
right-leaning applications.
As discussed in the bipartisan narrative of this report,
the first Tea Party application arrived in February of 2010.
Cindy Thomas contacted Washington D.C. and asked for guidance
from EO technical. Holly Paz, in Washington D.C., agrees that
the applications should be reviewed by experts in Washington
D.C.

Results Come 26 Months Later

In May/June of 2012, the IRS finally finds a process and
personnel who make decisions relatively efficiently about the
about 200 applications that have been piling up starting in
February of 2010.\104\ This was referred to as a ``triage''
effort by IRS personnel. A team of five Washington D.C. based
staff, led by Sharon Light, was sent to Cincinnati. There they
meet up with a team from the Determinations unit. The two teams
conducted a workshop to establish a common understanding of the
rules for political activity and 501(c)(4) nonprofits.
---------------------------------------------------------------------------
\104\Email from Holly Paz to Winonna Holton (June 7, 2012)
IRS0000344052.
---------------------------------------------------------------------------
Teams of two--one from Washington D.C. and the other from
Cincinnati--were given applications to review. They were
allowed to reach one of these conclusions:
If they both agree an application should be
approved it is approved--no further appeals to multiple
IRS personnel in Washington D.C. follow. The decision
of the team is final.
The team can also agree to deny the
application. Again, no final review is necessary.
Finally the two teams can agree to gather
more information about the applications.
Using this process the Sharon Light led team approved 65
applications and denied 30, about 100 applications were set
aside for more information gathering.\105\
---------------------------------------------------------------------------
\105\Id.
---------------------------------------------------------------------------
If this process had been used in the summer of 2010, a few
months after the first Tea Party applications were received,
much of the delay in processing the applications could have
been avoided.
Another possible way to address large volumes of political
advocacy cases was devised by Acting Commissioner Danny Werfel
in the aftermath of the TIGTA report. This process allows
applicants to declare that over 60% of their activities are
non-political. If this declaration is made, a favorable
determination on the application is issued by the IRS within 2
weeks.\106\ (see discussion of the IRS 30 day response in these
views).
---------------------------------------------------------------------------
\106\IRS, Charting a Path Forward at the IRS: Initial Assessment
and Plan of Action, Appendix E (June 24, 2013).
---------------------------------------------------------------------------

X. WHAT WAS

Between February of 2010 and the ``triage'' effort in June
of 2012, the Finance Committee investigation found a continuing
series of missteps, bad management, inefficiency, confusion and
incompetence.
A quick summary of what transpired for two years in the
Washington D.C. office is contained in an email from Steve
Grodnitzky. EOT here is the Exempt Organization Technical
office which had the lead in analyzing political advocacy
issues related to 501(c)4s:

EOT is working on the Tea Party applications in
coordination with Cincy. We are developing a few
applications here in DC and providing copies of our
development letters with the agent to use as examples
in the development of their cases. Chip Hull is working
these cases in EOT and working with the agent in Cincy,
so any communication should include him as well.
Because the Tea Party applications are the subject of
an SCR, we cannot resolve any of the cases without
coordinating with [Robert Choi, the Director of Rulings
and Agreements].\107\
---------------------------------------------------------------------------
\107\Email from Steven Grodnitzky to Cindy Thomas and Sharon
Camarillo (July 6, 2010) IRS0000165422-24.

In short, Tea Party cases piled up in Cincinnati for two
years while Washington D.C. unsuccessfully tried to develop a
way to process them, i.e. approve or deny them. For some time
the focus was on two of the applications, but even that focus
was lost toward the end of the two year period and the EO team
became completely disorganized in its effort to make decisions
on the applications.
On April 28, 2010 Grodnitzky emailed Lerner and Choi a
summary chart of sensitive case reports (SCRs) being handled by
EO Technical that included Tea Party applications.\108\ He
wrote:
---------------------------------------------------------------------------
\108\Email from Steven Grodnitzky to Lois Lerner and Robert Choi
(Apr. 28, 2010) IRS0000141809.

Of note, we added one new SCR concerning 2 Tea Party
cases that are being worked here in DC. Currently,
there are 13 Tea Party cases out in EO Determinations
and we are coordinating with them to provide direction
as to how to develop those cases based on our
development of the ones in DC.\109\
---------------------------------------------------------------------------
\109\Id.

The SCR dated April 19, 2010 describing the two Tea Party
cases shows that the cases were flagged because they were
determined to be ``Likely to attract media or Congressional
attention.''\110\
---------------------------------------------------------------------------
\110\TEGE Sensitive Case Report Tea Party (Apr. 19, 2010)
IRS0000164074.
---------------------------------------------------------------------------
On May 13, 2010, in response to an inquiry from Lerner
about the basis for EO Technical's examination of Tea Party
cases, Grodnitzky replied that:

The [Tea Party] organizations are arguing education,
but the big issue for us is whether they are engaged in
political campaign activity.\111\
---------------------------------------------------------------------------
\111\Email chain between Steven Grodnitzky and Lois Lerner and
Robert Choi (May 13, 2010) IRS0000167872.

By November 3, 2010, the number of applications on hold in
EO Determinations increased to 40 as Cincinnati continued to
wait for development of the two Tea Party test cases in EO
Technical.\112\
---------------------------------------------------------------------------
\112\Email from Holly Paz to Lois Lerner and Robert Choi (Nov. 3,
2010) IRS0000156478.
---------------------------------------------------------------------------
Robert Choi told Committee investigators that he inferred
the Tea Party cases were likely on their way to being resolved
because a November 2010 summary of the sensitive case reports
indicated that EO Technical (Carter Hull) was drafting a
favorable determinations letter for one of the Tea Party test
cases.\113\
---------------------------------------------------------------------------
\113\SFC Interview of Robert Choi (Sep. 19, 2013) p. 67.
---------------------------------------------------------------------------
This was not the case--the confusion and bureaucratic buck
passing continued until the triage effort, 19 months later, in
June of 2012, well after the TIGTA investigation had begun,
sounding alarm bells at the IRS.
The bulk of the responsibility for managing the processing
of these applications falls on Lerner as manager of the
nonprofit tax division of the IRS. She refused to testify in
open session before the House Government Affairs Committee,
pleading the Fifth Amendment.\114\ She has refused to talk to
Finance Committee and Ways and Means investigators.
Consequently, her side of the story will not be completely told
in this report.
---------------------------------------------------------------------------
\114\New York Times, IRS Suspends Official at Center of Story (May
23, 2013).
---------------------------------------------------------------------------
Perhaps the best summary of her perspective comes from a
TIGTA interview with her conducted on May 22, 2012. Lerner
describes the initial process used to collect the applications
containing political advocacy issues:

It has been customary for the applications group in
Cincinnati to document emerging issues through emails.
However, we received complaints at a CPE that employees
were receiving too much information via e-mail and
there was no consolidated place where employees could
go for this information. As a result, Cincinnati began
consolidating information into what is called a BOLO
(Be On the Lookout). In the spring of 2010, the
applications group began seeing a surge in applications
that were very up front about political work the
organizations would be conducting. It is not unusual
for us to send cases to a specific group when we see an
uptick of applications with the same issues. We like to
have a specific group or set of people work the
applications so that we are consistent in our
determinations.\115\
---------------------------------------------------------------------------
\115\Memorandum of Discussion between Lois Lerner and Troy
Patterson (May 22, 2012).

She continued in the interview to summarize her decision to
---------------------------------------------------------------------------
order a change in the Tea Party designation in the BOLO list:

When I heard the criterion being used, I immediately
asked that the criterion be changed. While I don't
believe our folks in Cincinnati meant any malice, I was
disappointed with the language used to describe the
emerging issue. I would agree that the language should
be more about the issues in the applications and not
about particular groups that are applying for tax
exemption. I believe that Cincinnati was just using
shorthand to describe the cases and was not thinking
about the impact of describing the cases in a
particular manner. Our work is much more out in the
public and, while I believe the Cincinnati employees
were just trying to find an easy way to describe the
applications, our employees need to be cognizant of the
fact that we need to make it clear that we do not
select cases for additional determinations or
examination work based on political affiliation. It
should not enter into the conversation.\116\
---------------------------------------------------------------------------
\116\Id.

Holly Paz, a key EO figure and by all accounts a
conscientious worker, shifted jobs frequently and was often
designated as ``acting'' while filling a position. She was not
able, perhaps understandably, to take charge and move the
Exempt Organization team towards a quick resolution of the Tea
Party applications piling up in Cincinnati. Paz, between March
of 2010 and May of 2012, went through four different position
changes. This constant changing of jobs, and the multiple times
she was placed in an acting position, whether as a manager or
director, probably contributed to her inability to take charge
and resolve the challenge of dealing with the dozens of
501(c)(4) applicants who were intending to become involved in
political campaigns.\117\
---------------------------------------------------------------------------
\117\SFC Interview of Holly Paz (July 26, 2013) pp. 14-17.
---------------------------------------------------------------------------
She did not feel able, apparently, to confront Lerner about
the endless process of review and delay that was inevitably
leading to the TIGTA investigation, and the eventual explosion
of the issue in Congress and in the U.S. media.\118\
---------------------------------------------------------------------------
\118\SFC Interview of Holly Paz (July 26, 2013) pp. 50-51.
---------------------------------------------------------------------------
Months and months went by with the IRS personnel developing
``guidesheets,'' constructing a ``bucket'' system for analyzing
the cases, drafting development letters, and training personnel
on the 501(c)(4) political advocacy issues. ``Triage'' was
attempted in the fall of 2011 (reviewing all the applications
and attempting to make a quick decision on denial or approval),
meetings occurred, various offices refused to take charge and
resolve the pending applications. No evidence was uncovered
that political motivations fed this bureaucratic nightmare, but
that does not make it acceptable. Once the TIGTA investigation
began it was too late to undo the damage.
Two email chains providing an example of the endless,
confused and disorganized process is included in the appendix
of this report. In one, two months are squandered in an email
exchange that is almost incomprehensible. This occurs,
incredibly, 18 months after the first Tea Party emails were
received in Cincinnati, and 10 months after the Tea Party had
been partially credited with taking back the House of
Representatives for the Republican Party, an event that
produced a massive amount of media exposure and national
attention.\119\ In another email the reader can see a narrative
of buck passing and confusion that squandered three months,
from June 8, 2012 to September 12, 2012. Incredibly this email
covers a period after the TIGTA investigation had begun.\120\
---------------------------------------------------------------------------
\119\Email chain between EO Employees (Sep 15, 2011-Nov. 15, 2011)
IRS0000057399-426.
\120\Email chain between EO Employees (June 8, 2012-Sep. 12, 2012)
IRSR0000441141.
---------------------------------------------------------------------------
Three opportunities to expedite the processing of the
conservative leaning applications were missed from the summer
of 2010 to the summer of 2011.
Carter Hull was given the job of analyzing two Tea Party
applications (a 501(c)(3) and a 501(c)(4)) in April of 2010. As
one of the EO Technical employees with the most experience with
nonprofit political activity he was in a position to develop a
definitive test for the applications waiting to be resolved.
He took until January of 2011 to recommend that one of
these applications be approved. Had he been managed better and
finished his analysis in September or October of 2010 the
standards he set could have been used to test the dozens of
applications sitting in Cincinnati.
Another opportunity was wasted when Hull recommended
approving the (c)(4) application in January. A better
management team would have seized this moment and used his
analysis to immediately resolve the Tea Party applications
pending in Cincinnati.
A ``triage'' team similar to the one formed in June of 2012
could have made short work of the applications using the
standards set by Hull in recommending approval of the two
applications selected by the Washington D.C. office for special
analysis.
Instead of using the Hull decision on the 501(c)(4)
application to kick off a final review of the pending
applications his decision was reviewed by Senior Technical
Advisory Judy Kindell. Kindell recommended the application be
reviewed by Chief Counsel's office because the issue of private
benefit, namely whether the Tea Party groups were operating for
the benefit of the Republican Party, was not explored by Carter
Hull in his examination.\121\ This may have been a good idea if
a two week deadline for that effort had been enforced. But the
meeting with Don Spellman of the Office of Chief Counsel did
not occur until August--seven months after Hull had belatedly
made a final decision on the two applications.
---------------------------------------------------------------------------
\121\SFC Interview of Judith Kindell (July 18, 2013) pp. 53-55.
---------------------------------------------------------------------------
No clear 501(c)(4) political activity guidance was ever
given by the Counsel's office so this step in the process was a
complete waste of time.
A final missed opportunity was the failure to follow up on
the July 2011 meeting between Lerner and her senior team with a
plan to approve or disapprove the applications.
Lerner does get credit for ordering a change to problematic
BOLO terms that specifically mentioned the Tea Party and
conservative groups.\122\ But at the same meeting (June 29,
2011) at which she ordered the offending language removed she
did nothing to get her team to expedite the processing of Tea
Party applications.\123\ One hundred applications had piled up
in Cincinnati at this point.\124\
---------------------------------------------------------------------------
\122\Emails from Cindy Thomas to Steven Bowling and John Shafer
(July 5, 2011) IRS0000619080-81.
\123\Id.
\124\TIGTA, ``Inappropriate Criteria Were Used to Identify Tax-
Exempt Applications for Review'' (May 14, 2013) See Appendix VII,
``Over 100 applications were identified by this time. It was decided to
develop a guide sheet for processing these cases.''
---------------------------------------------------------------------------
This turned out to the last chance for the IRS to resolve
the pending applications before the TIGTA investigation was
initiated. From the June 29 meeting on, the IRS tax-exempt
office continued drifting on the political advocacy cases. With
no decisive action by Lerner or Paz, the IRS bureaucracy
stumbled forward without establishing a competent and efficient
plan for processing the applications.
Without a resolution of the applications in the fall of
2011 the frustration of the applicants increased. In early 2012
press reports and congressional inquiries triggered the TIGTA
investigation.

XI. RESPONSE TO ADDITIONAL REPUBLICAN VIEWS

A. No Evidence of Political Bias in 501(c)(4) Determinations

1. No Evidence of Lois Lerner Political Bias

Federal employees are allowed to have political
affiliations. The question is whether they let those
affiliations affect their professional duties. There is no
evidence that Lois Lerner allowed her political beliefs affect
how she carried out her duties as manager of the Exempt
Organizations, merely anecdotal evidence that she was a
Democrat.
Even though the decision came too late, Lois Lerner was
responsible for removing from the BOLO list the terms Tea
Party, 9/12 and Patriots out of a concern that these terms gave
the appearance of ``targeting'' the groups.\125\
---------------------------------------------------------------------------
\125\Email chain between Cindy Thomas, Steve Bowling, John Shafer
and others (July 5, 2011) IRS0000620735.
---------------------------------------------------------------------------
In addition, a September 15, 2010 email chain shows that
Lerner's office was concerned about the potential abuse of
501(c)(4) status by organizations from across the political
spectrum.\126\ After Lerner expressed concern about ``a
perception out there that'' 501(c)(4) organizations were set up
specifically for political activity, her colleague Cheryl
Chasin emailed her and wrote the abuse was ``definitely
happening.''\127\ In this email she listed ``a few
organizations . . . that sure sound . . . like they are
engaging in political activity:
---------------------------------------------------------------------------
\126\Email chain between Lois Lerner, Cheryl Chasin, Judith
Kindell, Nannette Downing and others (September 15-16, 2010)
IRS0000633894.
\127\Id.

Faulkner County Tea Party
Paradise Republican Womens Club
Culver PAC
Taxpayersadvocate Org State PAC
Escondido Republican Women Federated
Folsom Republican Women Federated
Alice B Toklas Lesbian & Gay Democratic Club
Obama Democratic Club Of Silicon Valley
National Breast Cancer Coalition Political Action
Committee.''\128\
---------------------------------------------------------------------------
\128\Id.

Lerner's response was, ``OK guys. We need to have a plan.
We need to be cautious so it isn't a per se political project.
More a (c)4 project that will look at levels of lobbying and
pol. activity along with exempt activity.''\129\ The email
shows that employees in the Exempt Organizations division were
concerned about abuse of the tax code no matter what political
views represented.
---------------------------------------------------------------------------
\129\Id.
---------------------------------------------------------------------------
Lerner's weakness in managing her office's processing of
tax-exempt applicants affected both left and right-leaning
organizations. Both types of groups faced delays in the
processing of their applications for nonprofit status. There is
no evidence Lerner treated left and right-leaning groups
differently.
There are no facts demonstrating that Lerner told her
employees to focus in an unfair way on right-leaning
applications. As the report states, left-leaning groups were
also placed on the BOLO list, were asked extensive questions
about their activities as part of the nonprofit approval or
disapproval process and waited years for their applications to
be processed.
Lerner's concern with the Citizens United decision was
appropriate given her role at the IRS. If the Supreme Court
decision led to more political advocacy activity by nonprofits
then the case was central to the Exempt Organizations team that
Lerner led. Making reference to it in conversations or in
speeches is not surprising; to ignore the decision would have
been odd.
It is similarly appropriate for Lerner to take notice of
Congressional efforts to reform campaign finance through the
DISCLOSE Act. The bill, which would require independent groups
to disclose the names of contributors who gave more than
$10,000 for use in political campaigns, had wide support in
2012. The Senate version, S. 3369, had 40 co-sponsors, while
the House version, H.R. 4010 had 165 co-sponsors.
Furthermore, campaign finance reform and the Citizens
United decision are issues that are important to many
Americans. Eighty five percent of Americans believe we should
either ``rebuild'' or make ``fundamental changes'' to our
campaign finance system.\130\ In addition, 75% of Americans
believe that groups who participate in political campaigns
should be required to publicly disclose their donors, and 8 in
10 Americans oppose Citizens United.\131\
---------------------------------------------------------------------------
\130\New York Times, ``American's Views on Money in Politics''
(June 2, 2015).
\131\Id.; Washington Post, ``Poll: Large Majority Opposes Supreme
Court's Decision on Campaign Financing'' (Feb. 17, 2010).
---------------------------------------------------------------------------
As for congressional inquiries, media interest and outside
groups contacting the EO office, this is the norm for any
federal agency or department. These interactions occur on a
daily basis in every federal government office. There is no
evidence that Lerner reacted to these contacts by ordering a
delay in the processing of 501(c)(4) applications.

2. No Double Standard for Members of Congress

The Additional Republican Views cite three cases in which
they say that Democratic Senators intervened to request that
the review of applications for tax-exempt status be expedited,
and where that apparently was done. The inference is that there
was a double standard, contrasting the quick resolution of
these cases to the long delays, described in this report, in
the cases of applications for 501(c) status by Tea Party and
other advocacy groups.
On their face, the facts of the three cases relied on do
not support the inference of a double standard. It appears that
the three applications were for 501(c)(3) status, organizations
that are not allowed to engage in any political activity, not
for the 501(c)(4) status which is the focus of this report.
Further, there is nothing to indicate that the three
applications were particularly difficult or controversial. The
one exception appears to be a request for the expeditious
consideration of an application for tax-exempt status by the
One Boston Foundation, in order to facilitate fundraising and
assistance to the victims of the Boston Marathon attacks in
April, 2013; in that case, it appears that the IRS did in fact
cut through some red tape so that the organization could get up
and running quickly.\132\ The three cases that the Additional
Republican Views rely on were not cases where Democratic
officeholders sought to expedite the approval of progressive
groups' applications for 501(c)(4) status. Further, we have not
looked carefully to consider how similar requests from
Republican Senators and Representatives (i.e., requests for
expeditious treatment of noncontroversial 501(c)(3)
applications) were handled.
---------------------------------------------------------------------------
\132\Boston Bar Journal, Disaster Relief: The One Fund Boston Model
(April 1, 2014). (An article in the Boston Bar Journal described the
efforts to get 501(c)(3) status for the ``One Fund'':
In the wake of the Boston Marathon bombings on April 15, 2013,
Boston Mayor Menino and Massachusetts Governor Patrick proposed
creating a charity to benefit the survivors and families of those
killed in the attack. On April 16, Mayor Menino reached out to local
businesses Hill Holliday and John Hancock to assist with the creation
of the One Fund Boston. Later that day, before the fund was even
incorporated and before Ken Feinberg was brought on as administrator,
the One Fund received its first $1 million commitment from John
Hancock. As the One Fund's attorneys, we at Goodwin Procter had to seek
quick incorporation of the fund and apply on an expedited basis for
501(c)(3) tax-exempt status with the IRS. However, applications for
501(c)(3) status often take up to eighteen months to process, and in
addition, obtaining the necessary approval was challenging, due to IRS
limitations on the types of distributions that charitable organizations
can make to individuals in the context of disaster relief.
Generally, to qualify for tax-exempt status, an organization must
show that it will assist a large enough or sufficiently indefinite
charitable class so that it is providing a public rather than a private
benefit. In addition, in IRS Publication 3833, the IRS takes the
position that an organization cannot distribute funds to individuals
merely because they are victims of a disaster, but generally must
determine that a recipient lacks adequate financial resources of his or
her own. The IRS therefore had questions about the One Fund's plans to
make distributions without financial needs testing.
The One Fund team worked closely with the IRS to overcome these
issues and to show that the One Fund instead met the criteria for a
501(c)(3) tax-exempt charitable organization as an organization that
lessens the burdens of government, focusing on the organization's
relationship with the City of Boston and the City's role in approving
distributions. ``Lessening the burdens of government'' is an
alternative method of qualifying as a 501(c)(3) organization. As far as
we know, this method has not been used before in the disaster relief
context. This approach to the formation of a relief organization
allowed the One Fund Boston to accomplish its immediate and ongoing
goals for distributions.
On May 14, just one month after the bombings, the IRS granted the
One Fund Boston 501(c)(3) tax-exempt status. The One Fund's attorneys
were able to use procedures for expedited approval and effective
dialogue with the IRS to obtain this unusually quick and favorable
result.
The One Fund has been a huge success and an important contribution
to Boston's recovery. All of the $60 million in funds donated to the
One Fund Boston through June 26, 2013 were distributed to those who
were most affected by the bombings, in accordance with a protocol
developed by Mr. Feinberg. In addition, the One Fund Boston will
continue to provide support for those affected and has announced that
it will make a second distribution.
---------------------------------------------------------------------------
As the bipartisan narrative makes clear, the IRS took far
too long to review 501(c)(4) applications from Tea Party and
other advocacy groups, and subjected many of the groups to
inappropriate review; the IRS was insufficiently responsive to
requests, from those groups as well as members of Congress, for
information and for better consideration. But the fact that the
IRS was able to handle a few very different cases reasonably
well does not show a double standard. In this regard, the
Additional Republican Views are comparing apples and oranges.

3. No Evidence To Validate Charge of Union Bias

Union membership in and of itself does not mean political
bias. The Additional Republican Views establish no factual
evidence that any IRS employee, whether they belonged to a
union or not, was politically biased in their actions related
to the 501(c)(4) applications with political advocacy issues.
Moreover, Lerner, as a senior manager, was not eligible for
union membership.

4. No Evidence Individual Employee Views Influenced Decisions for
Political Purposes

Again, there is no evidence of political bias on the part
of IRS personnel involved in the processing of the 501(c)(4)
applications with political advocacy issues. The Committee has
received signed statements from each of the IRS employees in
interviewed asserting that politics was not involved in the
decision making process.\133\ TIGTA also found no evidence of
political bias on the part of IRS personnel involved in
processing of 501(c)(4) applications.
---------------------------------------------------------------------------
\133\IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013).
---------------------------------------------------------------------------
Of the 85,000 employees at the IRS, the Additional
Republican Views highlight three who engaged in political
activity during company time in violation of the Hatch Act.
None work in the IRS offices processing the 501(c)(4)
applications.

5. No Evidence White House or Treasury Officials Influenced Tea Party
Applications

There is no evidence of Treasury or White House officials
participating in the processing of 501(c)(4) applications or
influencing how they were processed. There is no evidence that
any Treasury or White House employee directed or influenced the
actions of the IRS with regard to Tea Party or other political
advocacy applications. The Additional Republican Views provide
only unfounded speculation about the involvement of Treasury
and White House officials in the processing of advocacy
applications.
Two high ranking Treasury officials were interviewed by the
Committee, Mark Patterson, former chief of staff to the
Secretary, and Neal Wolin, former Deputy Secretary. One other
employee was requested by the Republican staff to appear for an
interview, Ruth Madrigal. Madrigal served as a policy expert on
501(c)(4) law at main Treasury.
Her interview transcript with the Oversight and Government
Reform/Ways and Means Republican staff was made available, and
after reviewing the transcript of the interview the Democratic
staff was satisfied that Madrigal had not even a remote
connection to the key decisions made by the EO office regarding
the applications with political advocacy issues. She did not
participate in any way in the management of those applications
by the IRS Exempt Organizations office. Nor did she consult
with upper level management of the IRS on how to respond to the
delay in processing of those applications once the
mismanagement was uncovered.

B. IRS Failure To Preserve Lerner's Emails

On June 23, 2014, then-Chairman Wyden and then-Ranking
Member Hatch asked Inspector General George to investigate the
circumstances surrounding a June 2011 hard drive crash suffered
by Lois Lerner, and to determine whether any additional
documents belonging to Lerner could be recovered.\134\ The hard
drive crash predated any investigations of Lerner by nearly two
years. TIGTA's resulting investigation found no evidence that
any IRS employee intentionally destroyed records to hide
information from Congress. TIGTA invested a significant amount
of time and resources to activate available disaster recovery
backup tapes used by the IRS. This effort resulted in the
production of 1,007 emails that had not been previously
produced as part of the 1,500,000 documents produced to the
Committee.\135\ Very few of these documents were germane to the
Committee's investigation.
---------------------------------------------------------------------------
\134\Letter from Chairman Wyden and Ranking Member Hatch to J.
Russell George (June 23, 2014).
\135\TIGTA, Exempt Organizations Data Loss, Report of Investigation
54-1406-008-I (June 30, 2014) p. 15.
---------------------------------------------------------------------------
TIGTA's investigation also uncovered a second batch of
backup tapes dating back to May 2011 that were erased by IRS
employees in May 2014. TIGTA ``did not uncover evidence that
the IRS and its employees purposely erased the tapes and order
to conceal responsive e-mails from the Congress, the DOJ and
TIGTA.''\136\ The IRS reasonably, but erroneously, assumed that
these backup tapes, which sat in storage in an IRS warehouse
for years, had been destroyed long ago. Disaster recovery
backup tapes do not store information in an easily accessible
format and are rarely utilized in litigation.\137\ However,
given the extraordinary interest in this matter, the IRS should
have exercised greater care and diligence in determining
whether meaningful information could be recovered from disaster
recovery tapes.
---------------------------------------------------------------------------
\136\Id. p. 13.
\137\See, e.g., Fed. R. Civ. P. 26(b)(2)(B); Zubulake v. UBS
Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).
---------------------------------------------------------------------------
The Additional Republican Views take great issue with the
amount of time that elapsed between when the IRS learned of
Lois Lerner's hard drive crash, February 2014, and when it
disclosed that information to Congress, June 2014. There is
bipartisan agreement that the IRS showed a lack of candor in
this matter. However, the Additional Republican Views
characterize statements made by the IRS to the Committee on
March 19, 2014 as ``false'' and ``intended to hasten the
Committee to complete its investigation.'' While the Democratic
staff respects the Republican staff and their view about the
veracity of these statements, we do not reach the same
conclusions. On March 27, 2014, Committee staff asked the IRS
for a statement attesting to the completeness of the IRS
production. When the statement arrived on June 13, 2014,
Lerner's hard drive crash was clearly disclosed.\138\
---------------------------------------------------------------------------
\138\Letter from Leonard Oursler to Senator Wyden and Senator Hatch
(June 13, 2014) Enclosure 3, p. 7.
---------------------------------------------------------------------------

C. Misleading Congress

The Additional Republican Views charge that senior IRS
officials continuously mislead Congress, citing hearings before
various Congressional committees and subcommittees, a meeting
with Finance Committee staff, and responses to letters from
Senator Hatch and other Republican Senators. The veracity of
these IRS officials' testimony and statements has not been a
subject of our bipartisan staff investigation. While we have
particular respect for Chairman Hatch's views about the
veracity and completeness of responses to him, it would, in our
view, take considerably more bipartisan work to reach
conclusions about such serious charges.

D. IRS Independence

The IRS is organized under the Treasury Department because
the tax function is a critical element of government and clear
lines of authority and management need to be established. This
report demonstrates how important accountability and the power
to act quickly are when mismanagement has occurred. Treasury
Secretary Jack Lew was able to fire the head of the IRS almost
immediately after revelations about the alleged Tea Party
targeting were unveiled. A truly independent agency, with
lengthy burdensome process for removing executives, could have
continued with its existing management for some period of time.
While there are clear lines of authority, this is balanced
by the nonpolitical nature of the IRS, demonstrated by the fact
that unlike other agencies, only two executives are political
appointees--nominated by the President and confirmed by
Congress. Except for the Commissioner and the Chief Counsel,
every other employee at the IRS is nonpartisan, ensuring that
the IRS acts in a nonpolitical fashion. Furthermore, it is
important to note that Commissioner Shulman, the Commissioner
during the relevant time of this investigation, was a George W.
Bush appointee.
Most agencies and departments have dozens of political
appointees, resulting in a much greater political focus by the
managers of the department.

E. No Inappropriate FEC Interaction

501(c)(4) nonprofits report their campaign spending to the
Federal Election Commission. It is clear from the investigation
that the IRS tries to determine levels of political spending in
their processing of 501(c)(4) applications with political
advocacy. The FEC deals with political spending even more
directly. Essentially there is overlapping jurisdiction over
campaign activities/spending between the FEC and the IRS.
Agencies in the federal government, all existing under the
umbrella of the executive branch, are encouraged to share
information when that information will assist them in carrying
out their responsibilities to the taxpayer. The information
shared in this case between the FEC and the IRS constitutes
proper cooperation between two agencies in the executive
branch.

F. Attempts To ``Suppress'' Political Speech

Efforts to change the law governing nonprofit political
advocacy are addressed in the following section entitled
``Evolution of 501(c)(4) Nonprofits into Political Entities
Creates a Need for More Transparency.'' The IRS withdrew
proposed regulations governing political activity by 501(c)(4)
nonprofits on May 22, 2014.

G. Ways and Means Referral Letter

On April 9, 2014, the Ways and Means Committee voted to
send a letter to the Attorney General asking DOJ to investigate
Lois Lerner to determine whether she violated ``multiple
federal criminal statutes.''\139\ The primary charge in the
letter is that Lerner focused intensively on the 501(c)(4)
application from Crossroads GPS and turned a blind eye to
liberal groups. The letter attempts to make the case that
Lerner relied on her own political party affiliation to
investigate the group's activities, eventually seeking to
cancel their 501(c)(4) status.\140\
---------------------------------------------------------------------------
\139\Letter from the Ways and Means Committee to Attorney General
Eric Holder (April 9, 2014).
\140\Id.
---------------------------------------------------------------------------
The issues raised in the Ways and Means referral letter
have not been the focus of the investigation conducted by the
Democratic and Republican Finance Committee staff summarized in
this report. There has not been enough development of the facts
in the current investigation to reach any informed conclusion
about the legality of Lerner's actions regarding Crossroads. In
addition, it is properly the role of the Justice Department to
determine the legality of Lois Lerner's actions highlighted by
the Ways and Means Committee.
However, the public should also be aware of significant
facts about Crossroads GPS that the House Ways and Means
Chairman omitted from his letter to the Justice Department.
These facts may explain why the Lois Lerner, the IRS official
primarily responsible for ensuring that political campaign
organizations are not masquerading as social welfare
organizations, would focus on Crossroads GPS.
The IRS permits 501(c)(4) organizations to ``engage in
political campaigns on behalf or in opposition to candidates
for public office provided that such intervention does not
constitute the organization's primary activity.''
A Federal Election Commission First General Counsel's
Report filed in November of 2012 concluded that Crossroads GPS
spent 53% of its budget on federal campaign activity in 2010.
Chairman Baucus's letter to the IRS in 2010 was partially based
on public reports of the vast amounts of money being spent on
political activity by Crossroads and left-leaning groups.\141\
OpenSecrets.org concluded that in the 2010 and 2012 election
cycles Crossroads spent almost $90 million on independent
expenditures (ads that advocate the election or defeat of
specific candidates). Consequentially it is not surprising that
Lois Lerner examined the activities of Crossroads as Director
of the Exempt Organizations team. Her job was to make sure that
501(c)(4) nonprofits obey the law and are not engaged primarily
in political activities. Without a full investigation it is
unfair to criticize her for doing her job on this matter.
---------------------------------------------------------------------------
\141\Letter from Chairman Baucus the Commissioner Doug Shulman
(Sept. 28, 2010).
---------------------------------------------------------------------------
Whether Lerner was evenhanded in doing her job is certainly
a legitimate question for any full investigation. As pointed
out in these views, left-leaning nonprofits were subject to
delay, applications for nonprofit status were denied and
withdrawn. Applications from left-leaning organizations were
subject to full development. The BOLO list contained terms
identifying left-leaning nonprofits.
A new investigation would have to examine the total number
of left-leaning nonprofits conducting political activity and
how Lerner dealt with each of them. Large left-leaning
nonprofits involved in political activity such as Priorities
USA and Organizing for America would be part of this inquiry.
Only after a complete investigation examining Lerner's actions
regarding both right and left-leaning applicants could a final
determination of bias be established.

XII. IRS RESPONSE TO THE TIGTA REPORT

A. IRS 30 Day Report

On June 24, 2013 a report was released by the IRS
describing their response to the TIGTA investigation.
A team appointed by Danny Werfel, Acting
Commissioner of the IRS, found no evidence of
intentional wrongdoing by IRS personnel, or
``involvement in these matters by anyone outside the
IRS.''
Personnel were replaced in the four levels
of the managerial chain that had responsibility for the
activities identified in the TIGTA report.
The following personnel were removed from or
left their management positions: the IRS: Acting IRS
Commissioner Steve Miller, Commissioner for Tax Exempt
and Government Entities Joseph Grant, Lois Lerner
(Lerner was put on paid leave on May 23, 2013 and
retired from federal service in September of 2013), and
Holly Paz.
BOLO (Be on the Lookout) lists were
suspended. These are the lists that contained the term
Tea Party and that identified left-leaning
organizations.
The 30 day plan also established a method of expediting the
processing of applications for nonprofit status. The new
procedures are available to applicants that are:
Involved in political campaign activities or
issue advocacy, and
Have had applications pending for more than
120 days as of May 28, 2013.
The IRS mailed letters to applicants caught up in the
enhanced scrutiny process. They received Letter 5228,
``Application Notification of Expedited 501c4 Option.''
The organization is allowed to self-certify by signing and
returning the letter if it agrees to abide by special rules for
obtaining tax exempt status.
Groups are granted 501(c)(4) status within two weeks if
they certify that 60% or more of their time and expenses are
devoted to activities promoting ``social welfare.'' They must
also certify their political campaign intervention involves
less than 40% of their spending and time.

B. Additional IRS Response

In testimony before the House Oversight and Government
Reform Committee on March 26, 2014 IRS Commissioner John
Koskinen summarized additional changes made following the TIGTA
report:
Establishing a new process for documenting
the reasons why applications are chosen for further
review;
Developing new training and workshops on a
number of critical issues, including the difference
between issue advocacy and political campaign
intervention, and the proper way to identify
applications that require review of political campaign
intervention activities;
Establishing guidelines for IRS EO
specialists on how to process requests for tax-exempt
status involving potentially significant political
campaign intervention; and
Creating a formal, documented process for EO
determinations personnel to request assistance from
technical experts.

XIII. NEED FOR REFORM OF THE TAX CODE TREATMENT OF POLITICAL ACTIVITY
BY NONPROFITS

The Joint Tax Committee summarizes the law addressing
political advocacy by 501(c)(3) organizations as follows:

[U]nder present law 501(c)(3) charitable
organizations may not participate in, or intervene in
(including the publishing or distributing of
statements), any political campaign on behalf of (or in
opposition to) any candidate for public office. The
prohibition on such political campaign activity is
absolute and, in general, includes activities such as
making contributions to a candidate's political
campaign, endorsements of a candidate, lending
employees to work in a political campaign, or providing
facilities for use by a candidate. Many other
activities may constitute political campaign activity,
depending on the facts and circumstances. The sanction
for a violation of the prohibition is loss of the
organization's tax-exempt status.
For organizations that engage in prohibited political
campaign activity, the Code provides three penalties
that may be applied either as alternatives to
revocation of tax exemption or in addition to loss of
tax-exempt status: an excise tax on political
expenditures, termination assessment of all taxes due,
and an injunction against further political
expenditures.\142\
---------------------------------------------------------------------------
\142\Joint Committee on Taxation, ``Report to the House Committee
on Ways and Means on Present Law and Suggestions for Reform Submitted
to the Tax Reform Working Groups'' (May 6, 2013) p. 35.

Section 501(c)(3) organizations are required to apply for
exempt status.\143\ Contributions to these organizations are
tax deductible.
---------------------------------------------------------------------------
\143\Id. p. 20.
---------------------------------------------------------------------------
The Joint Tax Committee description of the law relating to
501(c)(4) organizations is as follows:

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; however, social
welfare organizations are permitted to engage in
political campaign activity so long as it is not the
organization's primary activity.
[. . .]
Social welfare organizations need not, but may, seek
formal IRS recognition of exempt status, whereas
charitable organizations are required to file an
application for recognition of exemption.\144\
---------------------------------------------------------------------------
\144\Id. p. 39.

Along with section 501(c)(4) organizations (social
welfare), (c)(5) organizations (labor unions) and (c)(6)
organizations (trade associations) may participate in some
political activity as long as that activity is not the
organization's primary activity. \145\
---------------------------------------------------------------------------
\145\Id.
---------------------------------------------------------------------------
If it is determined the primary purpose of the 501(c)(4)
organization is political activity--that 70 or 80 or 90 percent
of the money goes to political activity--then that organization
could lose its tax exempt status.\146\
---------------------------------------------------------------------------
\146\Id.
---------------------------------------------------------------------------
Contributions to 501(c)(4) organizations are not
deductible.\147\
---------------------------------------------------------------------------
\147\Id.
---------------------------------------------------------------------------
Section 527 organizations are political organizations and
may engage in unlimited political activities. At formation,
these groups must give notice to the IRS within 24 hours. These
organizations are required to make public donors making
contributions of more than $200 per person, per calendar
year.\148\
---------------------------------------------------------------------------
\148\IRS, Section 527 Political Organizations--Tax Filing
Requirements.
---------------------------------------------------------------------------

A. Evolution of 501(c)(4) Nonprofits into Political Entities Creates a
Need for More Transparency

Much has changed since the Tariff Act of 1894, which
contained the earliest statutory reference to tax exemptions
for nonprofits. A critical change was made in 1959 when the IRS
issued an administrative rule opening the door to 501(c)(4)
political activity by interpreting ``exclusively'' to mean that
groups had to be ``primarily'' engaged in social welfare and
helping the community. Whether or not this was a valid
interpretation of the statute,\149\ it put the IRS in the
position of determining what level and type of activities
constitute ``primarily political'' activities. The events
described in this report illustrate the difficulty of such an
exercise. This is especially true given the vagueness of the
existing regulations, which have not been significantly
modified since 1959. A lot has changed since then, including
the apparent surge of political activity by 501(c)(4) groups in
recent years. The story told in this report is not just about
mismanagement. It also is about vague regulations that are
inherently difficult to apply and have become outdated.
---------------------------------------------------------------------------
\149\See footnote 102 in the Bipartisan Investigative Report.
---------------------------------------------------------------------------
For this reason, Democratic staff are surprised by the
implication, in the Additional Republican Views, that the 1959
regulations never should be revised in any way. This goes too
far. The current regulations are part of the problem. Granted,
the revisions that the Treasury Secretary proposed in 2013
generated a huge public response, and there were places where
the proposed revisions clearly went overboard, such as with
respect to voter registration and get-out-the-vote activity.
But that is not a sufficient argument for maintaining the 1959
regulations into perpetuity. Organizations seeking tax-exempt
status, as well as the IRS itself, would benefit from greater
clarity in this area, and we believe that the IRS and the
Treasury Department should continue to seek improvements to the
current regulations, with appropriate public input.
Better guidance on how to measure what is the ``primary
activity'' of social welfare organizations was also recommended
by the May 2013 TIGTA audit report.
We also are surprised by the Republican views' broad
opposition to transparency with respect to disclosing the
identity of contributors to groups engaging in extensive
political activities. One of the underlying questions in this
case is why there was such an apparent surge in applications
for tax-exempt status under section 501(c)(4), thereby
necessitating the IRS review of whether an applicant's primary
activities would be political. As it now stands, groups can
obtain tax-exempt status and engage in as much political
campaign activity as they want: their activities can be not
only primarily political but exclusively political. They simply
have to obtain their tax-exempt status pursuant to section 527
rather than section 501(c)(4); section 527 requires, in turn,
greater disclosure, including of the identity of those who
contribute $200 or more. To some extent, the increase in
applications may have been designed to avoid disclosure
requirements.
According to the Center for Responsive Politics, in 2012
nonprofit 501(c)(4) organizations spent over $200 million on
political activity.\150\ By electing to use 501(c)(4)s instead
of 527s, none of the organizations behind this $200 million
effort were required to reveal their donors.
---------------------------------------------------------------------------
\150\Center for Responsive Politics, 2012 Outside Spending by
Group.
---------------------------------------------------------------------------
Some have pointed to the Citizens United case as the reason
political spending by nonprofits has increased exponentially.
In Citizens United v. FEC (2010) the Supreme Court invalidated
restrictions on independent political campaign expenditures by
corporations, associations and labor unions.

Acting IRS Commissioner Steven Miller said at the Senate
Finance Committee hearing on the TIGTA report in May of 2013
that:
There is no doubt that since 2010 when Citizens
United sort of released this wave of cash that some of
that cash headed towards c 4 organizations. This is
proven out by FEC data and IRS data. That does put
pressure on us to take a look.\151\
---------------------------------------------------------------------------
\151\Senate Finance Committee Hearing, ``A Review of Criteria Used
by the IRS to Identify 501(c)(4) Applications for Greater Scrutiny''
(May 21, 2013) p. 23.

During a time where campaign spending is soaring and the
Supreme Court is loosening controls on political spending it is
critical that as much transparency as possible is required by
federal regulation and law.
Finance Committee Chairman Max Baucus wrote a letter to IRS
Commissioner Shulman in September of 2010 encouraging the IRS
to investigate the flood of political spending by social
welfare organizations. He asked this question: ``Is the tax
code being used to eliminate transparency in the funding of our
elections--elections that are the constitutional bedrock of our
democracy?''\152\
---------------------------------------------------------------------------
\152\Letter from Chairman Baucus to Commissioner Doug Shulman
(Sept. 28, 2010). (Sep. 28, 2010).
---------------------------------------------------------------------------
The Additional Republican Views sharply criticize proposals
to increase disclosure requirements for political campaign
contributions, arguing that such proposals would violate free
speech, citing the Supreme Court's decision in NAACP v.
Alabama. This shows a lack of confidence in the positive role
that transparency plays in our political process, and it also
dramatically overstates the constitutional point. The NAACP v.
Alabama decision stands for the proposition that organizations
cannot be required to disclose membership lists without a
sufficient justification from the government that outweighs the
implicated First Amendment and privacy rights.\153\ In
contrast, the Supreme Court has repeatedly upheld reasonable
political campaign disclosure requirements. Most notably, in
Buckley v. Valeo, the Supreme Court considered NAACP v. Alabama
when deciding the constitutionality of campaign finance
disclosure rules enacted in the Federal Election Campaign Act
of 1971.\154\ The disclosure provisions required candidates and
political committees to file quarterly reports containing
detailed information about donors who contributed over
$100.\155\ While the Court decided that, as a result of NAACP
v. Alabama, campaign finance disclosure rules should be subject
to strict scrutiny, it ultimately decided that the government's
interest can prevail in matters where the ```free functioning
of our national institutions' is involved.''\156\ The Court
found that the disclosure requirements were a ``reasonable and
minimally restrictive method of furthering First Amendment
values by opening the basic processes of our federal election
system to public view.''\157\ The Supreme Court cited three
justifications for upholding campaign finance disclosure: (1)
campaign finance disclosure laws provide voters with
information about candidates, (2) the rules ``deter actual
corruption and avoid the appearance of corruption,'' and (3)
recordkeeping is required to detect violations of disclosure
limitations.\158\ Similarly, in McConnell v. FEC, the Supreme
Court upheld the expanded campaign finance disclosure
provisions of McCain Feingold, including a provision requiring
the disclosure of contributors to political campaigns.\159\
Most recently, in McCutcheon v. FEC, Justice Roberts cited
campaign finance disclosure laws as part of the Court's
justification for striking down aggregate limits on campaign
contributions to candidates.\160\ He argued that ``disclosure
of contributions minimizes the potential for abuse of the
campaign finance system.''\161\ In addition, disclosure laws
are more effective against corruption now as opposed to when
Buckley was decided.\162\
---------------------------------------------------------------------------
\153\NAACP v. Alabama, 357 U.S. 449 (1958).
\154\Buckley v. Valeo, 424 U.S. 1 (1976).
\155\Id. at 61.
\156\Id. at 66 (quoting Communist Party v. Subversive Activities
Control Bd., 367 U.S. 1, 97 (1961)).
\157\Id. at 62.
\158\Id. pp. 66-68.
\159\McConnell v. FEC, 540 U.S. 93. The Court left the door open to
a challenge to disclosure laws in the case where a ``group can show a
`reasonable probability' that disclosing its contributors' names would
subject them to threats, harassment or reprisals from either Government
officials or private parties.'' Citizens United v. FEC, 558 U.S. 310,
367 (2010) (citing 540 U.S. 93, 198).
\160\McCutcheon v. FEC, No. 12-536, slip op. (U.S April 2, 2014).
\161\Id. p. 35.
\162\Id. p. 36.
---------------------------------------------------------------------------
Justice Scalia summed the point up well in a 2010 case (Doe
v. Reed):

Requiring people to stand up in public for their
political acts fosters civic courage, without which
democracy is doomed. For my part, I do not look forward
to a society which, thanks to the Supreme Court,
campaigns anonymously and even exercises the direct
democracy of initiative and referendum hidden from
public scrutiny and protected from the accountability
of criticism. This does not resemble the Home of the
Brave.

Chief Justice John Roberts observed in the McCutcheon v.
Federal Election Commission case:

With modern technology, disclosure now offers a
particularly effective means of arming the voting
public with information.

Our political system will benefit from more transparency,
not less.
An argument for why transparency matters was set forth in a
New York Times article on March of 2014. A report from a
special investigative committee in the Utah state legislature
described a 501(c)(4) organization set up solely to fund a
candidate for Attorney General who told payday loan companies
he would advocate for their policy interests.\163\ After
winning election in 2012 the Attorney General resigned amid
allegations of corruption a year later.\164\ The article states
that the campaign ``exploited a web of vaguely named nonprofit
organizations in several states to mask hundreds of thousands
of dollars in campaign contributions from payday
lenders.''\165\ According to the New York Times, the Attorney
General knew that the public would view his defense of payday
lenders as unsavory:
---------------------------------------------------------------------------
\163\New York Times, ``A Campaign Inquiry in Utah is the Watchdogs'
Worst Case'' (Mar. 18, 2014).
\164\Id.
\165\Id.

It was important to `not make this a payday race,' he
(the candidate) wrote. The solution: Hide the payday
money behind a string of PACs and nonprofits, making it
difficult to trace donations from payday lenders to Mr.
Swallow's campaign.\166\
---------------------------------------------------------------------------
\166\Id.

The section in the bipartisan views on flaws in the IRS's
response to a FOIA request also demonstrates the need for
transparency in the operations of government.
The goal of greater transparency is the basis for many
proposals to reform the law governing political advocacy by
nonprofits.

B. Statutory Changes are Needed

Democratic staff believes further changes in the 501(c)(4)
law are necessary and recommend the following be considered by
the Senate Finance Committee.
(1) Require (c)(4)s, (5)s, and (6)s to file notice of
formation within 24 hours (same as 527s)
(2) Create a bright-line test on political activity
(lobbying and campaigning)--for example, a limitation
of 10% of expenditures during the calendar year
(3) Penalty: Apply Section 4955 penalty to (c)(4)s--
excise tax on excess political expenditures.
(4) Require the disclosure of donors who contribute
over $200 to 501(c)(4)s who engage in political
activity (same as 527 organizations), or $1,000, which
is the threshold in the Wyden-Murkowski bill.
(5) Require FEC filings to be attached to 990s.
(6) Require electronic filing of 990s (included in
the Senate Finance Committee's Tax Administration
Discussion Draft).\167\
---------------------------------------------------------------------------
\167\Senate Finance Committee, Summary of Staff Discussion Draft:
Tax Administration (Nov. 20, 2013).
---------------------------------------------------------------------------

POSSIBLE ALTERNATIVE PROPOSALS

Require disclosure similar to 527
organizations (or by cross reference) for tax exempt
organizations that do any ``electioneering
communications'' as defined under FEC rules;
Require tax exempt organizations that wish
to fund electioneering communications to fund these
operations through a segregated 527 account, thus,
contributions would be subject to disclosure; or
Require these organizations be reclassified
as 527 organizations

1. The Follow the Money Act

The Follow the Money Act introduced by Chairman Wyden and
Senator Murkowski requires that all individuals and entities
engaged in independent political spending, including
501(c)(4)s, disclose the names of donors that contribute over
$1,000 per year. The legislation also requires real-time
disclosure of significant independent political expenditures by
501(c)(4)s similar to the way political candidates report
spending to the FEC. This legislation would lessen the
processing burden on the IRS Exempt Organizations office
because its disclosure regime will eliminate the incentive for
organizations to apply for tax-exempt 501(c)(4) status as a
means to funnel large anonymous donations into federal
elections.

2. Return to the Pre-1959 Standard

A final option which would not require changes in law
envisions the IRS reversing its decision in 1959 to interpret
``exclusively'' as meaning ``primarily.'' The regulatory
decision that has led to hundreds of millions of dollars of
political spending by ``social welfare'' organizations could be
cancelled by another regulatory decision setting the same
standards that applied before 1959.

3. Reform of 501(c)(5) and 501(c)(6) Organizations

The Democratic staff recommends that additional work be
done to determine what reforms to 501(c)(5) and 501(c)(6)
organizations are needed. Because the TIGTA report did not
involve those nonprofit categories, the Democratic staff does
not include a discussion of them in these views.

XIV. CONCLUSION

Hundreds of thousands of federal government employees work
hard every day to perform their duties, from the CIA personnel
that tracked Osama Bin Laden to Abbattobad, Pakistan to the NIH
researcher who makes it possible to take steps toward stopping
cancer, from border patrol agents preventing human trafficking
to weather forecasters tracking hurricanes. Sadly, in this case
IRS personnel fell short. They took exactly the wrong approach
to evaluating many 501(c)(4) applications, in particular the
flood of politically right-leaning organizations. There is no
evidence IRS personnel had any political bias, nor did they
receive outside interference or pressure from political
appointees in the IRS, at Treasury or in the White House, but
their actions created the appearance of political bias and
discrimination.
This was a consequence of bad management and bad judgment.
The director of the Exempt Organizations office, Lois
Lerner, deserves the largest share of the blame. It was her job
to manage and lead the EO division. In this case she failed to
organize her staff to quickly review and either approve or deny
the 501(c)(4) applications.
In a generous summary of her performance, former Acting IRS
Commissioner Steven Miller said that Lerner ``undermanaged''
the influx of Tea Party applications.\168\ Mr. Miller also took
a personnel action against Ms. Lerner, showing his frustration
with the failure to resolve the right-leaning
applications.\169\ Because Lerner refused to testify or be
interviewed on this matter, we were not able to establish her
side of the story.
---------------------------------------------------------------------------
\168\SFC Interview of Steven Miller (Dec. 12, 2014) pp. 164-165.
\169\Id.
---------------------------------------------------------------------------
This investigation, as well as the TIGTA investigation, did
not find any of the IRS actions to be politically motivated.
Interviews of IRS personnel showed them to be uninterested in
politics or politically naive. The following email from a TIGTA
investigator concludes that there was ``no indication of''
political motivation.

Review of these emails revealed that there was a lot
of discussion between the employees on how to process
the Tea Party and other political organization
applications. There was a Be On the Lookout (BOLO) list
specifically naming these groups; however, the e-mails
indicated the organizations needed to be pulled because
the IRS employees were not sure how to process them,
not because they wanted to stall or hinder the
application. There was no indication that pulling these
selected applications was politically motivated. The e-
mail traffic indicated there were unclear processing
directions and the group wanted to make sure they had
guidance on processing the applications so they pulled
them. This is a very important nuance.\170\
---------------------------------------------------------------------------
\170\Email from TIGTA Deputy Inspector General for Investigations
Timothy Camus to TIGTA staff (May 3, 2013).

Again, Russell George confirmed in a question from House
Ways and Means Committee Ranking Member Sander Levin that no
political motivation was found:
Levin: Did you find any evidence of political
motivation in the selection of the tax exemption
applications?
George: We did not, sir.\171\
---------------------------------------------------------------------------
\171\House Ways and Means Committee Hearing on IRS Tax-Exempt
Investigation (May 17, 2013).
---------------------------------------------------------------------------
IRS employees involved in processing and overseeing the
processing of Tea Party applications were each asked if their
actions were politically motivated. None of them answered
affirmatively.
No evidence was found linking political appointees at the
IRS, Treasury or the White House to this delay and
mismanagement. No IRS employees identified pressure from
political appointees as the cause of the delayed scrutiny of
right leaning applications.\172\
---------------------------------------------------------------------------
\172\IRS Employee Responses to Written Questions from Finance
Committee Staff (Dec. 19, 2013).
---------------------------------------------------------------------------
This was a case of gross mismanagement, rather than an
attempt to exert political influence. While the numbers of left
leaning 501(c)(4) applications were not as great as the right-
leaning 501(c)(4) applications, the IRS did use the BOLO list
to select left-leaning cases. IRS personnel subjected them to a
lengthy review, approving some applications and denying others.
The IRS employees set aside Tea Party applications, waiting
on a review in Washington D.C., and placed the term on a BOLO
list when the applications should have been treated like any
other 501(c)(4) seeking nonprofit status and processed
accordingly.
To compound the error, various IRS personnel in the
Washington D.C. office allowed month after month to go by as
they analyzed a handful of the applications. One application
was approved on January 11, 2011 by one of the most experienced
501(c)(4) political activity experts, Carter Hull, but his
superiors decided even more review was warranted.
At the same time this was taking place efforts were
underway to develop a guidesheet to help Cincinnati process the
applications. Months were wasted on this project. In the end no
guidesheet was ever agreed to.
A key meeting in July of 2011 between Lois Lerner and her
team discussed the idea of processing the applications
expeditiously, but there was no follow through--the EO team
stumbled along in the remaining months of 2011 until the TIGTA
investigation began in early 2012.
While these disorganized efforts to process the
applications continued, the Tea Party was attracting massive
amounts of media coverage--multiple in-depth articles appeared
in the New York Times, the Washington Post, the Wall Street
Journal and other publications across the country.
Many political commentators credited the Tea Party with
shifting control of the House of Representatives to the
Republican Party.
Yet no alarm bells went off at the IRS after the mid-term
elections in November of 2010. More than a year and a half went
by after this historic election without any efficient or
aggressive action on the 501(c)(4) right-leaning applications.
IRS personnel were completely oblivious to the harsh
consequences waiting for them because they ignored a new wave
of activism in the American political system.
No plan to process the applications quickly was organized
until June of 2012--after the TIGTA investigation was begun. By
that time it was too late to avoid damage to the reputation of
the IRS.
Commentators have complained that any attempt to review an
application for 501(c)(4) status, investigate how that
nonprofit operates, or for the IRS to propose clarifying the
political advocacy rules, is somehow a violation of the
Constitution's First Amendment protection of free speech. This
demonstrates a misunderstanding of the tax laws of the United
States and the Constitution. Any American or group of Americans
have freedom of speech in political matters. What they don't
have is a Constitutional right to a tax break for engaging in
political activity. IRS personnel have the responsibility to
scrutinize applications for 501(c)(4) status in an evenhanded,
thorough way. And after approving an application the IRS can
investigate that nonprofit's activities to determine if the
501(c)(4) law is being followed. Under the law the tax status
of nonprofits is determined by the IRS. If the participants in
the nonprofit feel their freedom of speech is being limited
they are free to engage in political activity outside the tax
advantaged status of a 501(c)(4) nonprofit.
Management at the IRS has moved aggressively to address the
broken system of processing 501(c)(4) applications with policy
advocacy issues.
Four key employees in the IRS who failed to manage properly
have been removed from their jobs.
A new process for quickly approving 501(c)(4) applications
with political advocacy issues has been put in place.
Finally, the Democratic staff believes the law governing
political activity by nonprofits must be strengthened further
to prevent abuses.
The Finance Committee staff will continue to monitor the
IRS to ensure these mistakes are not repeated.

XV. TIMELINE OF KEY EVENTS

2010

February 25: Tea Party case arrives in Cincinnati
Determinations Unit. Because of recent media attention, the
case is determined to be ``high profile'' and sent, along with
two other Tea Party applications, to Washington D.C. for
analysis.
March/April: Tea Party applications are held in Cincinnati
while the D.C. office examines the 3 test cases.
April: Tax Law Specialist Carter Hull is assigned two of
the three Tea Party test cases to review. Hull prepares
development letters to send to the organizations.
July: EO Determinations holds a screening workshop in
Cincinnati. A presentation instructs staff to ``look for names
like Tea Party, Patriots, 9/12 Project, Emerge, Progressive, We
the People.''
August: Be On the Lookout or ``BOLO'' spreadsheet
distributed with Tea Party designation added to ``Emerging
Issues'' Tab. Spreadsheet also identifies ``Progressive'' and
``ACORN Successor'' on other tabs.
October 18: Hull sends a memo to his manager summarizing
the relevant issues of the Tea Party cases he is developing and
apprising him of his progress.
October 26: Determinations Director Cindy Thomas expresses
concern to her superior about the manner and pace with which
Tea Party cases are being worked.
November: Burdensome development questions sent to left-
leaning voter registration applicant.
December: Cindy Thomas inquires about status of Tea Party
test cases in Washington D.C.

2011

January: Carter Hull recommends approval of Tea Party test
case applications. Recommendation sent to senior staff for
review.
March: Cindy Thomas is still concerned with pace of Tea
Party applications. Recommends developing a specific plan of
action to resolve cases.
April: Hull's recommendation is reviewed by a senior staff
member, who decides more development of the test cases is
needed. The case is sent to personnel in the Chief Counsel's
office for review.
July 5: Lois Lerner meets with staff on BOLO list issue (at
this point 100 Tea Party cases were in Cincinnati waiting for
decisions).
July 5: BOLO terminology changed to remove Tea Party, per
instructions from Lerner.
August: Meeting with Don Spellman of Chief Counsel's office
to discuss the two Tea Party test applications that had been
sent for review.
September: First attempt at application ``triage.''
November: Guidesheet for evaluating Tea Party applications
sent to Cincinnati; IRS personnel did not find it helpful.

2012

January: BOLO terminology changed again, modified to
capture conservative and left-leaning groups.
January: Extensive development letters are sent to Tea
Party and a few left-leaning applicants.
February: Beginning of press attention regarding failure of
IRS to approve or deny 501(c)(4) applications with political
activity issues. Lerner attempts to disseminate new guidance to
staff on how to reduce burdensome development requests.
March: TIGTA audit begins.
May: Commissioner Doug Shulman and Deputy Commissioner
Steven Miller briefed on audit.
May: Workshop conducted on bucketing exercise to expedite
Tea Party applications.
May 17: BOLO is changed again to eliminate current advocacy
organization language that is capturing conservative and
liberal groups.
June: Bucketing exercise begins in Cincinnati.
June 4: Acting General Counsel of Treasury Christopher
Meade briefed by Russell George.
End of 2012: Commissioner Shulman leaves IRS, Steve Miller
becomes Acting Commissioner.

2013

May: TIGTA report issued.

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