Originally published on Forbes.com.
When I look at the report of Darrell Issa’s Committee on Oversight and Government Reform issued on the eve of Christmas Eve, I can’t help but think of the story of the kid with parents concerned about his excessive optimism. Their therapist, who must have been quite malevolent, suggested that on Christmas morning, there be no presents under the tree and a stocking filled with horse dung. That Christmas morning, the house was filled with the delighted shrieks of the young fellow as he ran around the house looking for the pony that Santa Claus must have brought.
The Highlights
Well the report is derived from 1.3 million pages and 52 transcribed interviews. That’s quite a few stockings full of, well you know. Still no pony. The press release, which presumably has the juiciest bits includes:
Employee 1: “It appears that the org is funneling money to other orgs for political purposes. However, I’m not sure we can deny them because, technically, I don’t know that I can deny them simply for donating to another 501(c)(4). . . . Any thoughts or feedback would be greatly appreciated.”
Employee 2: “I think there may be a number of ways to deny them. Let me talk to Sharon tomorrow about it and get some ideas from her as well. . . . This sounds like a bad org. :/ . . . This org gives me an icky feeling.”
and
“These organizations mostly concentrate on their activities on the limiting government, limiting government role, or reducing government size, or paying less tax. I think its different from the other social welfare organizations which are (c)(4) .”
and
Quoting an e-mail from a top deputy to Lois Lerner: “This line in particular stood out: ‘We suspect we will have to approve the majority of c4 applications.’ That’s an interesting posture.” Emphasis of “have to” is employee’s own.
It’s Just Not Watergate
The pony being sought is named Watergate or maybe Watergate Jr. George Will, whose career commenced around the time of Watergate, in February 2014 argued that there have been three major scandals Watergate, IranContra and the IRS Scandal. On the other hand, John Dean, whose career as a public servant was terminated by his Watergate involvement finds comparisons between Watergate and the IRS scandal silly.
I do have to say that Watergate did have many exciting and colorful items that are totally missing from the IRS scandal – burglary, illegal wiretapping, oodles of cash, hush money -. According to Wikipedia 69 government officials were charged with crimes and 48 were convicted in Watergate. I have had a challenge out for a while to determine what exactly Lois Lerner could be indicted for and it is not entirely clear (Best answer so far is 26 USC 7213(a) which would make her Lois, the discloser). I don’t think that the Watergate investigators would have gotten excited about somebody calling George McGovern “icky”.
The Missing Pony
If only there were tapes of all the conversations in the Obama White House. I managed to dream up the conversation that should have been taped for the most avid believers in the scandal narrative, but have deemed it to be not Forbes worthy and banished it to my alternative blog, with a readership that may well number in the scores. Of course Issa’s committee can’t conjure up conversations, so they have taken another approach, which places blame squarely on the President without the President specifically ordering anybody to do anything.
The case that the report makes for White House involvement is similar to King Henry II’s involvement in the murder of Archbishop of Canterbury Thomas Becket in 1170. King Herny said something like:
“What sluggards, what cowards have I brought up in my court, who care nothing for their allegiance to their lord. Who will rid me of this meddlesome priest?”
Essentially the report asserts that President Obama’s rhetoric prompted the IRS to behave like Henry II’s idiot knights.
President Obama’s rhetoric against conservative-oriented groups – rhetoric parroted by Democrats in Congress and the national media – influenced how the IRS engaged with these groups. From his bully pulpit, the President repeatedly delegitimized the lawful political activities of conservative-oriented tax-exempt entities, prompting the IRS to view these groups with skepticism. When a Cincinnati screener identified the first Tea Party application, he wrote to his supervisor: “Recent media attention to this type of organization indicates to me that this is a ‘high profile’ case.” As the application continued to be elevated up the IRS, another employee called it a “potentially politically embarrassing case” and pointed out the “ecent media attention to this type of organization.” One IRS employee called the Tea Party a “loud group.” Even Lois Lerner, the head of the Exempt Organization Division, echoed the President’s view that conservative tax-exempt groups were a threat to democracy, calling the Tea Party applications “very dangerous.” (Emphasis added)
Lawful Political Activities?
I added that emphasis, because that is what at the heart of whether there is a scandal or not and what type of a scandal it is. The report makes the case that what the Tea Party and other 501(c)(4) dark money groups were up to was perfectly OK.
For decades, the IRS has interpreted the law to mean that a § 501(c)(4) group must be primarily engaged in social welfare activities.35 However, under § 501(c)(4), an organization could still lawfully engage in political speech. A § 501(c)(4) group may engage in unlimited issue advocacy – that is, activities in support or opposition of a public policy issue – and a limited amount of political campaign intervention. The IRS makes this determination using an informal 51 to 49 percent ratio and a “facts and circumstances” test to assess whether a group is primarily engaged in social welfare. Under the IRS’s long-held interpretation, a § 501(c)(4) group’s primary purpose may be social welfare even if the group engages in a significant amount of political campaign intervention.
I’m going to try your patience here with another historical analogy. I’m skirting Godwin’s Law, by bringing up Admiral Doenitz and one of the counts against him at the Nuremberg trials. Doenitz, contrary to the Naval Protocol of 1936, ordered U-Boats to sink merchant ships without warning and not hang around to rescue survivors. No time was added to Doenitz’s sentence for that charge, because, in part, of the testimony of Admiral Nimitz that the United States Navy practiced unrestricted submarine warfare in the Pacific from Day 1.
I think you can make a case that dark money is a bit like submarines. You are running for Congress to solve the problems created by the minions of darkness. All of a sudden. there are a flurry of ads saying that you mistreat your pets. The ads are funded by Americans For Goodness and Light and because it is a 501(c)(4), it does not have to disclose that the money is really coming from the prime minions of darkness. That makes it harder to fight back.
Now if both sides were doing it equally, it would be possible for the IRS to approach the matter in an even handed manner. As it turns out, unlike the remarkably similar activities of the Kriegsmarine U-boats in the Atlantic and the US Navy submarines in the Pacific, “dark money” is more of a conservative thing . According to Open Secrets in the 2010 election cycle conservative non-disclosure spending was $119.9 million and liberal non-disclosure spending was $10.7 million. In the 2012 election cycle it was $265.5 million conservative versus $33,6 million liberal. The gap starts closing in 2014 but remains wide with $192.8 million conservative and $54 million liberal.
That makes it impossible for IRS action or non-action to not have political effect. Now if we had really wise leaders, they would have gotten together and said that the country needs good tax administration and the Republicans would have agreed to ease up on pushing the envelope so much and the Democrats would not have pressed the IRS to worry so much about a matter that was not contributing to the tax gap. Probably too much to ask for. Instead we’ve got “Winning isn’t everything. It’s the only thing.”
Read The Report
Possibly without intending to, the report makes both sides of the argument. If heavy political activity by 501(c)(4) organizations is a fine and lawful thing, then the IRS was wrong to take the issue up at all. If on the other hand, there is a serious legal issue, then the Service arguably failed by taking it up halfheartedly. The committee report expresses outrage about steps that were considered, but never taken – like exemplary prosecution of 501(c)(4) groups that lied on applications about intended political activity.
One of the problems faced in trying to enforce the rules is that a 501(c)(4) could ramp up for a campaign and fold its tents before it ever had to file Form 990. Lois Lerner had proposed sending out some sort of notice, base on the application for an Employer Identification notice.
As Fish and Lerner articulated, the “mere fact” that the IRS was “doing anything” would be “huge” to showing that the agency was taking action on politically active 501(c)(4) organizations and those groups would not “feel so comfortable” engaging in political speech. Publicized IRS action would also assuage the prominent Democratic politicians and media voices who had forcefully lobbied the IRS to crack down on 501(c)(4)s groups engaged in political speech.
A “soft notice” like that is the type of thing that the under-resourced IRS has been forced to resort to in many instances of chronic non-compliance.
The report implicitly admits that the argument that many of the groups were not primarily political is on the thin side.
The IRS’s targeting of conservative-oriented tax-exempt applicants stifled their rights to constitutional speech during the 2012 presidential election. Two years earlier, some of the very same conservative groups were active in the 2010 campaign cycle, which resulted in a Republican-controlled House of Representatives. President Obama called the 2010 election a “shellacking.” The conservative gains in the House of Representatives in 2010 were widely attributed to the grass-roots Tea Party movement, which emerged in opposition to the policies of the Obama Administration.
The other implication of the report is that the IRS should simply have ignored allegations that 501(c)(4) groups were breaking the law and not have investigated at all. If you are willing to acknowledge that there might have been a law being broken or an envelope being pushed past the breaking point, the notion that you had one bureaucrat who became zealous about the matter is hardly surprising. In the end, she accomplished little other than slowing down some applications as each approach she brain-stormed proved unworkable. The report is highly critical of senior leadership for not more quickly unsnarling the problem once they became aware of it, but anybody who has worked with the IRS knows that once anything gets snarled, it will take a while to unsnarl it.
So I recommend that if you are interested in the matter you read the report with an open mind. Even though it strongly adopts one narrative, all the material for a different narrative is there. That is why the New York Times can headline its coverage “Probe Fails to Link IRS Scandal to White House” while Ben Shapiro’s Truth Revolt headlines “Issa Releases Damning Report On IRS Scandal” and leads with “Issa’s report contained emails which seemed to indicate there was visceral hatred of the Tea Party by IRS workers.” Frankly, even if I just strongly disliked someone, I could come up with something better than calling them “icky”.
One Great Recommendation
The report has several recommendations about how to fix the broken IRS. One recommendation really stands out.
Removing the IRS as a regulator of political speech for social-welfare groups;
Whether political spending needs to be regulated is something that I am willing to remain agnostic on. Involving the IRS in the matter, however, is clearly a disaster for sound tax administration.
Note
I’m happy to have comments from any point of view. I will take your comments much more seriously if I see evidence that you actually read the entire report or most of it anyway rather than making a response based on sound bites.