News reports about how the Internal Revenue Service applied heavier scrutiny on conservative political organizations applying for tax-exempt status have pointed to a March 22, 2012, House Ways and Means oversight subcommittee hearing in which IRS Commissioner Douglas Shulman denied any wrongdoing. But that wasn't the first time lawmakers grilled him about the IRS' practices.
During a Financial Services subcommittee hearing the day before, on March 21, 2012, Georgia Republican Rep. Tom Graves also questioned Shulman about similar concerns. Shulman pushed back against allegations that the IRS was targeting groups that advocated for limited government, just as he did at the subsequent Ways and Means subcommittee hearing.
At the March 21 hearing, Graves pointed to concerns from tea party groups that the IRS had unfairly scrutinized them with burdensome questions because of their political ideology. Shulman, who was appointed to the post by President George W. Bush and whose five-year term as IRS commissioner ended in November 2012, told Graves that the agency had followed standard protocol and said allegations that specific groups were being targeted were "off."
"Can you help put any of those concerns to rest today that these groups are specifically being targeted because of their political activities or their opposition to the administration?s policies?" Graves asked, according a transcript of the exchange.
"It is a good question. I am glad you asked it because I think there has been lots of information flying around in the press, and I think it is important that people put it in perspective," Shulman said.
He went on to explain the agency's process for examining applications for nonprofit status: "When we decide to do an examination, we pride ourselves on being a non-political, non-partisan agency. We are given these complex rules that have things like political activity written into the tax code that does not allow you to do certain things or else you jeopardize your tax exemption. We have set up very clear safeguards, for determinate exams.
"This notion that we are targeting anyone, I think, is off," Shulman continued, "because these people are going through an application process that they voluntarily decided to do. It is not required under the law."
The IRS on Friday apologized for singling out conservative organizations that applied for tax-exempt status between 2010 and 2012. A forthcoming audit of IRS procedures during that time will show that the agency was made aware of the practices as early as 2011, according to copy of the report obtained by the Associated Press.
The White House and several lawmakers have called for an investigation to obtain more details.
Here's the full transcript of Graves' exchange with Schulman during the March 21 Financial Services subcommittee hearing:
Mr. GRAVES: Madam Chair, Commissioner. There has been a great deal of press in terms of the likelihood of your agency structure and form and funding of 501(c)(4) in terms of welfare organizations. This media attention specifically focused on our assets, examination of what are (c)(4) groups, who also engage in political activity, should be denied a release of their taxes. Two reasons I think that your activities are of so much interest to the press, and to everyone out there, certainly to us in Congress, first because of the timing of the inquiries, which make it appear a little bit linked to other actions, and second, is the focus, since the examinations seem to be centered on groups that are considered Tea Party groups, or those that openly oppose the Administration?s policies.
Can you help put any of those concerns to rest today that these groups are specifically being targeted because of their political activities or their opposition to the Administration?s policies?
Mr. SHULMAN: It is a good question. I am glad you asked it because I think there has been lots of information flying around in the press, and I think it is important that people put it in perspective. First, is for taxpayers to operate as a 501(c)(4) organization, they need to be primarily engaged in promoting the common good or general welfare. They are allowed to be involved in political campaign activity, but it cannot be the primary activity. Second, in order to be a (c)(4) organization, you do not need to apply to the IRS. You can hold yourself out as a 501(c)(4). You then file your 990 at the end of the year, and if we see something that either has to do with political activity or something else, we have the option to do an examination, and there is not a high chance of an examination; we run samples. Third, when we decide to do an examination, we pride ourselves on being a non-political, non-partisan agency. We are given these complex rules that have things like political activity written into the tax code that does not allow you to do certain things or else you jeopardize your tax exemption. We have set up very clear safeguards, for determinate exams. Our Chief Counsel and I are the only Presidential Appointees, and I have a five-year term, so that it goes past Presidential election cycles.
There is a committee of three career employees in our tax-exempt organization, not even based in Washington, who look at any political referrals or any allegations of political activity. Those three rotate, but they make decisions about farming out examinations to the field, so there are many safeguards built in. This work has nothing to do with election cycles and politics. And so that is, generally, what happens. But the important thing about what has been in the press in the last few weeks is not all of these organizations are being examined. They voluntarily came in and said, ??I would like to apply for 501(c)(4) status, so I would like to engage the IRS in what my activities are,?? and when you apply, you send in an application. We ask sets of questions. These people had a choice to not engage the IRS, to be 501(c)(4)s, hold themselves up as such, file a 990 after a year plus of operation, and then there would have been a much less of a chance that we would have discussions with them. So this notion that we are targeting anyone, I think, is off because these people are going through an application process that they voluntarily decided to do. It is not required under the law.
Mr. GRAVES: Has the IRS recently changed its policies with respect to these organization?s applications?
Mr. SHULMAN: No. No, when you apply as a 501(c)(3) or a 501(c)(4) you send in information. If we need more information, we do a back-and-forth with you. I think there have been press reports about the questions we ask. We also send out information that say, ??If you think you can provide us information in other ways, please let?s have a conversation.?? I think we are quite reasonable around those things.
Mr. GRAVES: The questions you ask today are the same questions you asked two, three years ago?
Mr. SHULMAN: It is facts and circumstances, and up to the examiner what they think they need to ask to get the information to determine what the activities of this organization are.
Mr. GRAVES: So back to the original question. So you did not deny that are increasing in exams or looking into these organizations, in fact you said engaging in political activities is not the primary focus, but you can come good after determining that does increase the opportunity for examination, so sounds to me like you confirmed the fact that the groups identified that the primary focus here is not the common good, but it is of a political nature.
Mr. SHULMAN: No, I think you have got that wrong. I was reciting the tax law and what are the standards we use when we look at 501(c)(4) organizations. We have been clear in our exam plan that we will look at these groups. When we see 501(c)(4)s not using their status right, we will look at it. That is our job, it is written into the tax code, and when people apply, we will make sure we try to do our best to understand what is happening.
Mr. GRAVES: What is your intention when somebody is not using it correctly?
Mr. SHULMAN: People file a 990, we get referrals from organizations about what is happening, and our examiners have a variety of ways it comes to their attention. A lot of it is on the application. They say, ??Here are my activities,?? and we will go out and do examinations.
Correction: An earlier version of this article incorrectly reported that the Financial Services subcommittee hearing was held on March 7, 2012. It was held on March 21, 2012.
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