IRS targeted conservative groups, official says

WASHINGTON — The Internal Revenue Service improperly singled out conservative groups for extra scrutiny of their applications for nonprofit status, a top agency official said Friday, setting off calls for investigations into an organization already under fire for its handling of secret political spending by nonprofits.

Employees at the agency's Cincinnati nonprofits office, while screening a flood of applications from so-called social welfare groups last year, set aside about 75 containing the words "tea party" and "patriot" for more detailed review, said Lois Lerner, IRS director of exempt organizations. The groups also were asked to supply additional information that the IRS does not usually ask for, such as donor lists.

"That's absolutely inappropriate and not the way we should do things," Lerner said in a conference call with reporters. She described the actions as improper shortcuts taken by lower-level employees. A White House spokesman said the moves should be investigated and "action taken" if Lerner's report is confirmed.

Republicans in Congress vowed aggressive investigations, saying the admission confirmed their suspicions that the IRS under President Obama was unfairly targeting nonprofits aligned with conservatives.

"This kind of political thuggery has absolutely no place in our politics," said Sen. Mitch McConnell (R-Ky.), the Senate minority leader, who called for a government-wide review to ensure such practices are not underway elsewhere. "Make no mistake: An apology won't put this issue to rest."

Democrats similarly expressed outrage. "It's completely inappropriate for the IRS or any other federal agency to single out certain organizations based upon their politics," Sen. Mark Begich of Alaska said.

Lerner first revealed the improper screening Friday morning in response to a question at an American Bar Assn. conference.

Next week, the Treasury inspector general for tax administration plans to issue a report that concludes conservative groups were selectively scrutinized, according to sources familiar with the investigation.

The examination found that conservative groups whose applications contained such words as "tea party" and "patriots" were subjected to improper questionnaires and delays, said a GOP aide who asked for anonymity to discuss the unreleased report. The report was requested by the House Oversight and Government Reform Committee.

"The fact that Americans were targeted by the IRS because of their political beliefs is unconscionable," Rep. Darrell Issa (R-Vista), the committee chairman, and Rep. Jim Jordan (R-Ohio), a subcommittee chairman, said in a statement. "The committee will aggressively follow up on the IG report and hold responsible officials accountable for this political retaliation."

The controversy has its roots in the torrent of political spending that followed the Supreme Court's Citizens United decision in 2010, which allowed corporations to spend unlimited sums on elections. That also meant that social welfare organizations under section 501(c)4 of the tax code could raise enormous sums and spend the money on politics. Unlike political committees, such groups are not required to disclose their donors.

These nonprofit advocacy groups, including the conservative Crossroads GPS, the liberal Patriot Majority USA and the pro-business U.S. Chamber of Commerce, spent at least $309 million on the November election, not including millions more spent on politically related activities that do not have to be reported.

The political role played by these groups is restrained only by an IRS rule that they not make politics their "primary purpose." But the agency has not issued clear rules on where that line should be drawn.

Campaign reform advocates have been calling on the IRS' nonprofit division to be more aggressive about enforcing that requirement — even as conservatives have accused the agency of harassment.

On Friday, Lerner struggled with questions about when she learned about the actions and would not say when she informed higher-ups. She also wouldn't discuss whether employees had been disciplined. "Sometimes people do things because they don't understand the rules or don't think about it," she said.

Lerner said the employees had received 3,400 applications for social welfare groups in 2012, more than double the number the agency received in 2010.

In trying to figure out which might be engaging in political activity — and thus deserving of a closer look — Lerner said employees started to review like-sounding groups.

"What they should have done is based it on their activities," said Marcus Owens, former director of the IRS' nonprofit division. "The IRS has a long-standing policy of not characterizing taxpayers by their name."

He said the workers also made a mistake in asking for the groups' donor lists, which aren't relevant to whether they deserve nonprofit status.

Owens said the IRS, strapped for resources, had been pushing more decision-making authority to that field office. "This is what happens when you do that," he said, dismissing suggestions of a partisan attack.

The chief counsel for the American Center for Law and Justice, which has represented 27 of the targeted tea party groups, said the IRS requested such information as membership lists, resumes of board members and details of conversations group members might have had with members of Congress.

"It's clear they had no right to this information, which tells me that it was partisan and that it was coordinated," said Jay Sekulow, the chief counsel. Fifteen of the groups have been approved for tax-exempt status, Sekulow said, adding that he planned to demand that the rest be approved immediately.

Another attorney for conservative groups said the full story probably hadn't come out.

"The IRS is supposed to treat all taxpayers evenhandedly, and now they admit they didn't," said Jason Torchinsky, a campaign finance lawyer who represents several of the largest 501(c)4 groups. "I find that very disturbing. If they are essentially admitting, 'We screwed up' on some of these, who knows what they haven't admitted?"

Owens and other advocates of tougher enforcement said the latest controversy would make it tougher for the IRS to rein in political spending by these groups.

"This certainly won't make matters better," said Paul Ryan, executive director of the Campaign Legal Center. "But I have a hard time seeing how the agency could be doing less than what it's already doing."

wes.venteicher@latimes.com

joseph.tanfani@latimes.com

David Lauter, Lisa Mascaro, Melanie Mason and Jim Puzzanghera in the Washington bureau contributed to this report.

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