From Russ Fox, EA, of Clayton Financial and Tax of Las Vegas, NV. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.
If the IRS and the Obama Administration was hoping the IRS crisis would blow over, it’s just not going to happen…and the IRS continues to ensure that’s the case. Reports have surfaced that the IRS is requiring the American Legion and other similar organizations to provide military service records for its members.
This definitely didn’t amuse Senator Jerry Moran (R-KS). He’s asked Danny Werfel, the current acting head of the IRS, to provide the authority that the IRS has for this, why it’s being done, who it’s being done to, and when this began. Senator Moran stated, “Given the American public’s increased frustration with the IRS and the failures of government bureaucracy at large, I am disappointed that such a policy targeting America’s servicemen and women would be a priority for the IRS.”
This won’t go over well with Congress (with either party).
More news this week on the IRS scandal. First, Tax Analysts has sued the IRS. “On May 21, Tax Analysts sent a FOIA [Freedom of Information Act] request to the IRS seeking all materials used since 2009 to train IRS personnel in the IRS exempt organizations determinations office in Cincinnati.” The IRS extended the deadline on June 25th to July 10th, and then to August 9th, and then to September 20th. Tax Analysts had enough…and they sued to force the IRS to comply with the FOIA request. The IRS may be overwhelmed with FOIA requests, but the law only gives the IRS a certain amount of time to comply.
Lois Lerner is now accused of sending files from her business email address to her personal email address. Eliana Johnson discussed this on CNBC’s Kudlow Report:
Ms. Johnson notes that this appears to be quite intentional targeting, and those involved knew it was wrong. One certainty at this point, the meme that this was a case of bad judgment or it was four rogue agents in Cincinnati is dead.
In a remarkable admission that is likely to rock the Internal Revenue Service again, testimony released Thursday by House Ways and Means Committee Chairman Dave Camp reveals that an agent involved in reviewing tax exempt applications from conservative groups told a committee investigator that the agency is still targeting Tea Party groups, three months after the IRS scandal erupted
If the transcript shown in the Examiner post is correct, there’s likely to be a huge blow-up on this scandal when Congress reconvenes.
Ten days off in a row should have been enough…but it wasn’t. In any case, here are some of the posts that the tax blogosphere had that might be of interest:
Jason Dinesen asked, “What’s the upside of preparer regulation for Enrolled Agents?” While at the National Association of Enrolled Agents annual meeting, I asked that question, too. The NAEA officials all swore it was a wonderful thing. The only thing I can deduce is that the RTRP program should lead to more Enrolled Agents. That said, I remain opposed to the RTRP program.
Jason Dinesen’s client who went through a nearly 28-month identity theft nightmare with the IRS finally received her tax refund.
The IRS released a draft of Form 8960. What’s that? It’s the new ObamaCare 3.8% Investment Tax. It does appear that the IRS smartly didn’t link the form to Other Income (as I previously noted, gambling income is not subject to this tax). As Paul Neiffer reported, there are only 33 lines to calculate this tax. As I tell my friends, I have lifetime employment…for all the wrong reasons.
Two pieces of news on the IRS scandal this week. First, TIGTA announced that four politicians’ tax returns were improperly accessed though only one of these was done deliberately. That case was referred to the US Department of Justice for prosecution, but the DOJ refused to do so. It appears that case involved former Tea Party candidate for US Senate Christine O’Donnell. Now, am I so cynical to think that the DOJ refused to prosecute whomever looked at the records because O’Donnell is a member of the Tea Party and the current Administration isn’t exactly enamored by the Tea Party? Yes, I am.
For those who say this is meaningless, it’s not. This is huge news. It’s been clear from the start that someone ordered this. It was never rogue agents in Cincinnati. It’s almost certainly, given the nature of what happened, someone with a political slant. Sure, it could have been someone high-up at the IRS who didn’t like the Tea Party. It’s far more likely that a political appointee would make this decision. Again, the IRS Chief Counsel is such a person.
Peggy Noonan’s commentary is also must reading. She noted that the trail goes to the Chief Counsel’s office. She also notes the change in how the scandal has been characterized by Democrats:
Rep. Trey Gowdy, a South Carolina Republican, finally woke the proceedings up with what he called “the evolution of the defense” since the scandal began. First, Ms. Lerner planted a question at a conference. Then she said the Cincinnati office did it—a narrative that was advanced by the president’s spokesman, Jay Carney. Then came the suggestion the IRS was too badly managed to pull off a sophisticated conspiracy. Then the charge that liberal groups were targeted too—”we did it against both ends of the political spectrum.” When the inspector general of the IRS said no, it was conservative groups that were targeted, he came under attack. Now the defense is that the White House wasn’t involved, so case closed.
For those who think the IRS scandal has ended, it hasn’t. It’s clearly linked to Washington, not Cincinnati. The only question now is who did the ordering.
The more that comes out of Washington, the more I’m beginning to think that IRS management is deliberately dragging their feet in revealing information. We still don’t know what happened, but there have been developments this week.
Meanwhile, from Austin (via Indianapolis) comes more unflattering news about the IRS. “IRS hit with audit for mismanagement and fraud,” reads the headline. It appears that there may be multi-billion dollar fraud coming from the ITIN unit in Austin. Another TIGTA report is due this summer. This sentence is probably making another set of IRS managers queasy:
“The IRS is not doing something as simple as requesting sufficient documentation,” Inspector General Russell George told WTHR this spring. “It’s very troubling.”
I’ve had dealings with the ITIN unit. I represented one taxpayer who had to resubmit data on his child three times (twice with the Taxpayer Advocate’s help). Eventually, my client received the ITIN for his child. As to what happened to the first two sets of data we submitted, who knows. My client wasn’t an illegal alien; based on reading this article, had he been (or his child) no documentation would have been required.
My next post will be dealing with the National Taxpayer Advocate’s recommendations for 2013. I will deal with one tangentially here: The IRS needs more money. That’s just not going to happen this year. There is no chance of the House approving a budget increase for the IRS. There’s a better chance of the Cubs winning the World Series this year. Republicans are upset, and the Administration (both the White House and the IRS Administration) have given the appearance of dragging their feet on revealing details.
•Did someone nudge IRS employees to hassle certain groups or did agency officials spontaneously decide to do that?
•Inspector General George has testified that in June 2012, five months before the election, he told top Treasury Department officials of his probe into IRS targeting. Did his news, with its potential to rock the presidential campaign, stop atop Treasury — or did it make its way even higher in the administration?
•At multiple points in 2012, why did top IRS officials repeatedly mislead Congress by not disclosing — in response to highly specific questions — that the agency was targeting conservative groups?
The IRS hasn’t had a good week in some time…and this past week wasn’t any better.
Former Maryland Governor Bob Ehrlich writes on “Why the IRS scandal is worse than the others.” It’s an excellent read.
Meanwhile, we’ll see if those truly involved–they’re in Washington, not Cincinnati–come forward during the coming week. I suspect the Obama Administration is hoping this scandal will blow over. It won’t.
Another week has gone by, and some Democrats want the world to believe that the IRS scandal is resolved. It’s not. Here’s the news I’ve seen over the last week.
Some sophisticated Democrats who’ve worked in executive agencies have suggested to me that the story is simpler than it seems—that the targeting wasn’t a political operation, an expression of political preference enforced by an increasingly partisan agency, its union and assorted higher-ups. A former senior White House official, and a very bright man, said this week he didn’t believe it was mischief but incompetence. But why did all the incompetent workers misunderstand their jobs and their mission in exactly the same way? Wouldn’t general incompetence suggest both liberal and conservative groups would be abused more or less equally, or in proportion to the number of their applications? Wouldn’t a lot of left-wing groups have been caught in the incompetence net? Wouldn’t we now be hearing honest and aggrieved statements from indignant progressives who expected better from their government?
She’s right, of course. To date, no progressive organizations have come forward. None. Incompetence doesn’t pass the smell test.
So where does that leave us? I think we’re weeks (at best) and months (more likely) from finding the answer to the question: Who in Washington ordered this scrutiny. There is no doubt in my mind that this is the primary question that must be answered in this scandal.
There is a secondary question: Who at the IRS violated federal law and disclosed confidential information from conservative groups’ 501(c)(4) applications to progressive groups (such as Pro Publica)? It clearly was done–Pro Publica has admitted it. I expect individuals from Pro Publica to face a subpoena and be required to disclose that information.
Meanwhile, the Administration appears to wish that this scandal would just vanish. That definitely isn’t going to happen. Sooner or later the answers will come out. And it’s clear to any reasonable observer that the answers lie in Washington, not Cincinnati.
A lot has happened with the IRS scandal. A week has gone by, and there haven’t been any new Congressional hearings (because Congress was out of session last week). That will change this week. The White House is still stating the scandal isn’t political, and that it’s some number (2, 4, or 88) “low-level” IRS employees. Let’s look at what we really know, and don’t know, and what conclusions we can accurately draw.
First, CBS and McClatchey both noted that this scandal goes beyond organizations applying for 501(c)(4) status.
“The administration is still — their paid liar, their spokesperson, picture behind,” Issa said on CNN’s State of the Union this morning, where the set has a picture of Carney behind host Candy Crowley, “he’s still making up things about what happen[ed] and calling this local rogue.”
“The reason that Lois Lerner tried to take the fifth [amendment] is not because there’s a rogue in Cincinnati,” he added. “It’s because this is a problem that was coordinated. in all likelihood, right out of Washington headquarters.”
What this means, though, is that policy was spread over five groups. This isn’t just something that happened with one or two people in one group, or even a “rogue” GM. Somebody set a policy for an entire office, and made sure at least five Groups got the word. That could only have happened in writing, and must have come from at least two levels above the GM. The level above is a Branch Chief, and Branch Chiefs don’t make policy either. Neither does the level above that. Again, I don’t know exactly how Exempt Organizations is structured, but in CI, a Branch Manager (the Assistant Special Agent in Charge) wouldn’t have more than four groups. Policy comes from DC.
So let’s look at the possible sources of the scandal. They are:
Two or four ‘rouge’ IRS agents in Cincinnati decided to implement this policy; or
One or more mid-level managers in Cincinnati, Laguna Niguel, El Monte, and elsewhere implemented this policy; or
A high-level employee in Washington decided to implement this policy; or
The policy came from the White House.
Let’s look at each of these and see if we can determine if they’re still plausible.
1. Two or four ‘rogue’ IRS agents in Cincinnati implemented this policy. I put the chance of this at zero. There were too many IRS employees involved in offices throughout the country. Employees in Cincinnati forwarded information to Washington…and the policy wasn’t stopped. It fails both the smell test and the real world test. In all my dealings with the IRS bureaucracy one thing that has been emphasized is the rigidity of policy. Sooner or later my manager would scold me to high heaven if I were to do this. Additionally, those low-level employees have stated that the direction for this came from Washington. The current excuse being peddled by the White House is clearly wrong.
2. One or more mid-level managers in Cincinnati, Laguna Niguel, El Monte, and elsewhere implemented this policy. This also can’t be correct for the same reasons as above. Mid-level IRS managers don’t make policy, they implement it. Additionally, the policy existed nationally. The answer is not mid-level managers.
3. A high-level employee in Washington decided to implement this policy. High level employees at the IRS do make policy. Thus, let’s examine the structure of the Tax Exempt & Government Entities division of the IRS.
The IRS provides a web page noting how it is structured. At the top is the Commissioner of the IRS (currently Daniel Werfel is the Acting Commissioner). Underneath him are two Deputy Commissioners: Deputy Commissioner for Services and Enforcement (DCSE) and Deputy Commissioner for Operations Support. It’s DCSE where we need to go, as here there are nine reports, including the Commissioner of Tax Exempt and Government Entities Division (TEGE). The DCSE? Well, it’s listed as former IRS Acting Commissioner Steven T. Miller, the Acting Commissioner for Tax Exempt and Government Entities is Michael Julianelle. (You can see the top-level of the IRS Organization Chart here.)
As you might remember, Ms. Lerner took the Fifth when testifying before Congress. She made a statement where she said she wasn’t guilty of anything. That might be true. However, if she didn’t implement the policy, her bosses had to order her to do so. It could not have been at a level below hers. Indeed, I suspect it was done above her level…but that’s just a suspicion.
4. The policy came from the White House. Today, there is absolutely no evidence of this. But the IRS is part of the Executive Branch. Could this have been ordered from the White House? Certainly. (Note that when I say “from the White House” I do not mean it had to be President Obama. It could have been the President, the Secretary of the Treasury, the White House Chief of Staff, etc.)
The reason there are suspicions that this comes from above the IRS is the reports of individuals who filed the 501(c)(4) applications receiving scrutiny in other ways. The individuals were subject to audits (from another division of the IRS), scrutiny by the Bureau of Alcohol, Tobacco, and Firearms, the Department of Labor, etc. It is theoretically possible that these are all coincidences. Today, there’s no proof that these are not coincidences. But it sure feels improbable to me.
I’m reminded of one of my favorite lines in literature. Sir Arthur Conan Doyle wrote, “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” I think we can safely eliminate the first two possible causes (listed above). That leaves just two possible sources of the policy. Having dealt with the IRS for fourteen years, I can safely state that given that this policy was in force for over two years, there is no chance it was started by low-level employees or mid-level managers. It’s impossible.
[My thanks to my good friend Randy for inspiring me on this post.]
NBC News reported that they were shown proof that others besides two (or four) rogue Cincinnati IRS employees were involved in the scandal. The entire story should be read, as it appears to put an end to the first explanation of the scandal as offered by the IRS.
Jay Sekulow, an attorney representing 27 conservative political advocacy organizations that applied to the Internal Revenue Service for tax-exempt status, provided some of the letters to NBC News. He said the groups’ contacts with the IRS prove that the practices went beyond a few “front line” employees in the Cincinnati office, as the IRS has maintained.
“We’ve dealt with 15 agents, including tax law specialists — that’s lawyers — from four different offices, including (the) Treasury (Department) in Washington, D.C.,” Sekulow said. “So the idea that this is a couple of rogue agents in Cincinnati is not correct.”
So what are the big questions? Why did the IRS scrutinize “conservative” and “tea party” applications? It’s clear the orders came from Washington. Who ordered it? The IRS employees in Cincinnati were most likely just following the orders from Washington. Someone came up with the idea to have this scrutiny.
A friend of mine asked me if this scandal will still be talked about on August 1st. Given how the IRS, some IRS employees, and the Administration are currently acting–deny, evade, and possible lies–this scandal will still be talked about on August 1, 2014. If the truth comes out voluntarily by the end of June, the scandal would likely blow over.
