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IRS Controversy Revives Questions About Tax-Exempt Issues


It's MORNING EDITION from NPR News. Good morning, I'm David Greene.


And I'm Steve Inskeep.

We're going to spend some time this morning, examining tax examiners at the IRS. The Internal Revenue Service is under fire for paying extra attention to conservative groups that were seeking tax exempt status. The groups had names suggesting they were linked with the Tea Party.

GREENE: Now, social welfare organizations can claim tax exemptions; political groups are treated differently.

INSKEEP: And recent court rulings have made it harder than ever to define the difference. The IRS actions led to a political firestorm and our coverage starts with NPR's Brian Naylor.

BRIAN NAYLOR, BYLINE: The IRS first began singling out requests for tax exempt status from groups with Tea Party or patriot in their names in the spring of 2010. NPR obtained portions of a report by the Inspector General of the Treasury Department, which has been investigating the IRS's actions. It says by June of that year, over 100 applications from groups that mentioned government spending, government debt or taxes, or that included statements criticizing how the country is being run, were sent to a, quote, "designated team of specialists."

These specialists have been described as career employees operating out of the IRS's Cincinnati office. Last Friday, Lois Lerner, director of the IRS section on tax-exempt organizations, apologized for their actions.

LOIS LERNER: They didn't do this because there was any political bias going on. They did it because they were working together, this was a streamlined way for them to refer to the cases, and they didn't have the appropriate level of sensitivity about how this might appear to others. And it was just wrong.

NAYLOR: The groups under scrutiny were applying for 501(c)(4) tax-exempt status, as that part of the tax code is known. It's reserved for so-called social welfare groups. These are often formed to lobby for causes, but can also conduct a limited amount of political activity. How much is vague under the law, and has been a point of conflict with these organizations.

Paul S. Ryan, of the Campaign Legal Center, says his group has been after the IRS to look into these (c)(4)'s for some time.

PAUL S. RYAN: There are some big fish on the IRS's plate now - groups like Crossroads GPS, American Action Network; and on the Democratic-leaning side, League of Conservation Voters; groups that collectively spent hundreds of millions of dollars in 2012 to influence the elections. They're the types of groups that we've been urging the IRS to look at. And we've been given no indication by the IRS that they have been dedicating resources to scrutinizing these bigger fish.

NAYLOR: The IRS sent long and complex questionnaires to the targeted groups, asking for information on everything from their social media presence to its donors. It's not clear how high up the IRS chain the decision to focus on the applications from conservative groups went. Then-IRS commissioner Douglas Shulman appeared before a House hearing back in March 2012. He denied such groups were being singled out.

DOUGLAS SHULMAN: There's absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)(4) status.

NAYLOR: But according to the inspector general's report, several months earlier, the IRS's acting director of rules and agreements did know of the targeting. By January 2012, the IRS broadened its criteria to look at, quote, any political action type organizations involved in limiting or expanding government, educating on the Constitution and Bill of Rights or social economic reform.

Paul S. Ryan, of the Campaign Legal Center, hopes the controversy over the IRS's past practices does not discourage it from providing needed oversight of tax-exempt groups across the political spectrum.

RYAN: What we need is an IRS that is enforcing existing tax laws rigorously, but doing so without political bias, without partisan bias or any ideological bias. But we need strong enforcement of these laws.

NAYLOR: Ryan says it will be tragic if the IRS backs away from such enforcement now.

Brian Naylor, NPR News, Washington. Transcript provided by NPR, Copyright NPR.