By Hayes Hunt and Jeffrey M. Monhait
The focus on the political consequences of the Internal Revenue Service scandal has overshadowed a troubling reality that a federal agency targeted specific groups of people for discriminatory treatment. In singling out conservative groups, the IRS reminded us that the McCarthy-era Red Scare is not the distant memory many would like to believe. However, the media's uniform condemnation of this conduct demonstrates how the world has changed since then. People do not quietly allow government abuses to occur. This political backlash may be responsible in part for the U.S. Department of Justice's criminal investigation into the IRS's actions. Civil lawsuits are being filed by affected groups. The critical question is what legal remedies are available to organizations singled out by the government for discriminatory treatment.
IRS REVIEWS APPLICATIONS FOR TAX-EXEMPT STATUS
Organizations seeking exemption from federal taxes must apply to the IRS for that classification. The IRS, in particular the Office of Rulings and Agreements, of the Exempt Organizations function, evaluates these applications. The majority of applications (70 percent in 2012) are approved without additional requests for information from the applicant. If the IRS needs substantially more information, the application is assigned to the Determinations Unit. A specialist in that unit sends the applicant a request for information, and after the information is received, the specialist issues a final determination letter approving or denying the tax-exemption application.
There are different types of tax-exempt groups. Charitable organizations may not participate in election activities. Social welfare organizations, agricultural and labor organizations and business leagues may engage in some campaign activities. Charitable organizations may only participate in "limited" lobbying, but the other groups may lobby in furtherance of their tax-exempt purposes.
IRS TARGETED CONSERVATIVE GROUPS
Last year, members of Congress and the media raised concerns that the IRS was targeting conservative groups' applications for increased scrutiny. Responding to these concerns, the U.S. Department of the Treasury inspector general for tax administration initiated an audit to investigate the IRS's conduct in reviewing applications.
The report of that review, published May 14, revealed that the Determinations Unit selected for enhanced scrutiny applications submitted by any organization with the words "Tea Party," "Patriots" or "9/12" in their names. Rather than using criteria developed based upon the tax laws and regulations, the IRS agents targeted specific political viewpoints for disparate treatment.
These practices reach back to 2010. The targeted groups were subjected to lengthy delays in the processing of their applications and often had to reply to burdensome information requests (including, in some cases, submitting donor lists). Some applications were pending for more than three years. The audit reviewed 296 "potential political cases," and although 108 had been approved and none denied, 160 cases remained open, pending for between 206 and 1,138 days.