Friday, June 7, 2013

Testimony of Washington’s Involvement in 501(c)(4) Scandal

As indicated by some of the stories appearing under titles posted in today’s TaxProf blog, which continues its broad coverage of the IRS scandal(s) (thank you, Paul Caron!), testimony is emerging from the congressional hearings that at least one IRS attorney in Washington was heavily involved in the process of targeting conservative groups applying for recognition of exemption under Internal Revenue Code section 501(c)(4).  One significant story appears here in ABC News.  Here are some of the more poignant excerpts of the coverage:

Gary Muthert, an IRS agent there [in the Cincinnati office], said his local supervisor told him in March 2010 to check the applications for tax-exempt status to see how many were from groups with "tea party" in their names. The supervisor's name was blacked out in the transcript.

"He told me that Washington, D.C., wanted some cases," Muthert said of his supervisor.

Muthert said he came up with fewer than 10 applications. But after checking some of the group's websites, he noticed similar groups with "patriots' or "9-12 project" in their names, so he started looking for applications that mentioned those terms too.

Over a two-month period, Muthert said he found about 40 applications that mentioned tea party, patriots or 9-12 project — the latter being groups which aspire to reinstill a post-9/11 spirit of unity in the country. …

Muthert said his supervisor told him that someone in Washington wanted to see seven of the applications, so Muthert prepared the files. …

Elizabeth Hofacre, also an agent in the Cincinnati office, told investigators she was in charge of processing applications from tea party groups — once they were selected by other agents — from April 2010 to October 2010. Hofacre said her supervisor in Cincinnati, whose name was blacked out in the transcript, told her to handle the applications.

But, she said, an IRS lawyer in Washington, Carter Hull, micromanaged her work and ultimately delayed the processing of applications by tea party groups.

Hull is a lawyer in the division that handles applications for tax-exempt status. But, Hofacre said, his interest in the cases was highly unusual.

"It was demeaning," she said. "One of the criteria is to work independently and do research and make decisions based on your experience and education, whereas on this case, I had no autonomy at all through the process."

This testimony comes from the very people with whom many tax professionals (inside and outside of government) empathize.  The IRS is underfunded.  The exempt organizations division is overburdened.  There are indeed limits on the political activities of section 501(c)(4) entities, and it is not only appropriate but also imperative for agents to engage in the difficult process of determining, in a politically neutral manner, whether entities that plan to engage in them – be they tinted red or blue – will satisfy the admittedly ambiguous criteria for exemption.  The determination agents' jobs are hard enough.  I believe that we would do these agents a real injustice by dismissing their testimony or failing to follow where it leads.

Although much commentary on the controversy has, in my opinion, from the beginning been tainted by partisanship and is becoming even more so (again, in my opinion), we must not ignore the facts.  The facts stand apart from the political and policy implications that we draw from them.  We do not yet know all of the facts, but we should continue to welcome them.  Once we have all of the facts, we can then decide what to make of them.  Opinions, of course, will vary.  Nonetheless, the real facts may cause us all to revise the stories we are telling ourselves about the nature and significance of the whole affair.     


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