[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.
---------------------------------------------------------------------------
    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\
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    \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.
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    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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