Congress expands inquiry into IRS handling of conservative groups

WASHINGTON — Congressional investigators are broadening their inquiry into the Internal Revenue Service's mishandling of groups seeking tax-exempt status, indicating that they plan to examine how the agency dealt with a wide swath of nonprofit applications during the last three years.

The Senate Finance Committee on Monday requested that the agency turn over a list of all charities, social welfare organizations, unions and trade groups targeted for extra scrutiny, as well as copies of all requests the IRS sent those groups for information about donors, volunteers and political activities since Feb. 1, 2010.

The letter to Steven Miller, the acting IRS commissioner, from Chairman Max Baucus (D-Mont.) and ranking Republican Orrin G. Hatch of Utah, shows that the committee — one of three investigating the IRS — plans to look beyond the screening of advocacy groups seeking tax-exempt status under section 501(c)4 of the tax code.

An inspector general's report found that some 501(c)4 applications by conservative groups were singled out for extra review and that the groups were sent intrusive requests for additional information.

"Targeting applicants for tax-exempt status using political labels threatens to undermine the public's trust in the IRS," the senators wrote. "Lack of candor in advising the Senate of this practice is equally troubling."

In all, Baucus and Hatch requested information on 41 topics, including any communications between IRS employees and President Obama or other White House officials on the matter.

The Senate panel is set to hold a hearing Tuesday and has called as witnesses Miller, who has resigned, as well as former IRS Commissioner Douglas Shulman and J. Russell George, the Treasury inspector general for tax administration, whose critical audit was released last week.

As the controversy spilled over into another week, Obama spokesman Jay Carney acknowledged that the top White House lawyer learned last month that the inspector general's investigation had found that the IRS targeted conservative groups for special attention. On Sunday, Obama political advisor Dan Pfeiffer had said White House officials were not informed about the report's conclusions before it was released.

Carney said the Treasury Department told White House Counsel Kathy Ruemmler on April 24 that the report was nearly done and would say the IRS flagged groups by using political terms, such as "tea party."

Ruemmler then informed Chief of Staff Denis McDonough and other members of the senior staff, Carney said. He said there were subsequent communications between Ruemmler's and McDonough's offices and their counterparts at Treasury to talk about the timing of the release and potential findings of the audit.

But Ruemmler decided the president did not need to be informed, Carney said, because the report was not yet complete.

Carney said the White House did not interfere with the investigation before its release.

"The cardinal rule," he said, "is that you do not intervene in an independent investigation, and you do not do anything that would give such an appearance.... And that's the doctrine we followed."

Campaign finance reform advocates and congressional Democrats have complained that the IRS failed to examine the activities of social welfare organizations that had become major political players, even as agents in Cincinnati were inappropriately flagging conservative groups.

But on Monday, Crossroads GPS, the behemoth conservative advocacy group that has assailed Obama's administration, said it believed it was also caught in the IRS dragnet.

The organization, which was co-founded by GOP strategist Karl Rove, applied to be recognized as a tax-exempt social welfare group in September 2010 and still has not been approved by the IRS. Its application, which is supposed to remain confidential unless the group's status is approved, was released by the IRS to the investigative website ProPublica in December 2012 in response to a public records request.

"From everything we know — the criteria used by the IRS to target conservative groups, the timing, the still outstanding application after nearly three years, the leaking of the application from the Cincinnati office and other factors — Crossroads was one of the targeted groups," spokesman Jonathan Collegio wrote in an email.

Collegio declined to comment on whether the organization had received the type of extensive questionnaires requesting donor lists and other information that went out to many of the groups the IRS was examining to determine whether they were too involved in political activity to qualify for tax-exempt status.

An IRS spokesman said federal law prohibited the agency from discussing or commenting on any particular taxpayer situation or case.

Crossroads' lack of approval as a 501(c)4 social welfare group has not curtailed its activities. Unlike charities, social welfare organizations are not required to get prior IRS approval to operate.

Along with its sister "super PAC," Crossroads GPS raised at least $300 million in the 2012 election cycle, the vast majority of which went to television ads lacerating Obama and Democratic congressional candidates. The groups also played significant roles in the 2010 midterm election.

It seems unlikely that the IRS would have been unaware of those political activities, which received substantial media attention. And Crossroads told the IRS in its September 2010 application that it might engage in independent political expenditures, a criteria the agency used to flag organizations for review to see whether they were violating IRS regulations that prohibit tax-exempt groups from making politics their primary purpose.

In all, 471 groups that sought tax-exempt status had been pulled for additional scrutiny since 2010, the agency told a House committee.

As of May 9, the IRS had approved more than 175 organizations, including dozens of tea party groups, according to a list it released last week. Crossroads GPS was not on the list.

matea.gold@latimes.com

christi.parsons@latimes.com

Lisa Mascaro and Melanie Mason in the Washington bureau contributed to this report.

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