The Taxman’s Politics

New evidence that IRS bias may have extended to tax audits.

THE WALL STREET JOURNAL – The Obama Administration has made a two-year career of dismissing concern about IRS policies targeting conservative tax-exempt groups. That evasion just got harder. New information shows the agency may have shown similar bias in tax audits. A new Government Accountability Office report says protocols in place at the IRS Exempt Organizations unit made it possible for groups to be unfairly targeted for audit “based on the organization’s religious, educational, political, or other views.” That’s our emphasis. The report also shows a process that allowed reviewers to wield significant discretion over whether certain groups were selected for scrutiny. GAO says that once the audit targets were chosen, the process lacked transparency and documentation, including why the groups were selected. Of the audits that came in from outside referrals, the agency had no documentation for around 25% of the original complaints. This raises the possibility that some groups may have been flagged for audits by political opponents who disapproved of their tax-exempt purpose. In some cases, the GAO says the IRS never disclosed why a group was selected for audit. The IRS is dismissing the findings as hypothetical. At a House Ways and Means hearing Thursday, IRS Commissioner John Koskinen told Rep. Peter Roskam that “at this point we do not have indications that anyone improperly was selected for an exam.” But information from Treasury Inspector General for Tax Administration J. Russell George suggests IRS audit selection has already led to improperly selected audits. In fiscal years 2013 through 2015, Mr. George initiated 102 internal investigations based on complaints by tax-exempt groups and individuals who say they were unfairly targeted for audit. It’s not public how many of those 102 may have been improperly targeted. But according to the House Ways and Means Committee, 12 presented facts so egregious that the IRS referred them to the Justice Department for criminal prosecution. Not for tax evasion, mind you, but for improper conduct by IRS employees. A criminal referral is a big step, suggesting the audit selections met a high bar of evidence that IRS employees may have knowingly violated the law when choosing an audit target. Thursday’s hearing also included testimony from groups that believe they were improperly audited. Michelle Easton, president of the conservative Clare Boothe Luce Policy Institute, said the agency told her in 2011 that it was auditing her group for 2008, the same year Ms. Easton volunteered to work for Sarah Palin’s campaign for Vice President. In the “first of seven separate requests for massive amounts of documents,” Ms. Easton said, “the IRS asked for a ‘List of contributors and Amounts,’” information that is beyond proper IRS review. Another target was the Leadership Institute, which says its mission is to “increase the number and effectiveness of conservative activists and leaders in the public policy process.” Vice President Joseph Metzger said he was told his group was referred for audit by an outsider and that the IRS wanted to investigate “the institute’s use of the word ‘conservative.’” Lawyer Elizabeth J. Kingsley, who represents nonprofit groups, also testified that the rate of audits had risen sharply beginning in late 2012 and included audits of liberal groups. “My assessment,” she said in prepared testimony, “indicates that we have handled more audits in the past five years than in the preceding fifteen.” Those incidents smack of the hailstorm of federal audits that hit Catherine Engelbrecht when her True the Vote nonprofit was infuriating Washington Democrats. Our Kimberley Strassel reported in 2012 that Idaho businessman and Mitt Romney contributor Frank VanderSloot was hit with a federal tax audit not long after being called out by name in an email from President Obama’s re-election campaign. An IRS audit can impose huge burdens in time and legal expense, and an adverse report often means a group’s tax status is revoked, a killer for 501(c)s that raise money from individuals and foundations. The stigma also means that few who are audited dare to challenge the agency’s decision. Mr. Koskinen, the IRS director, has already shown through his previous stonewalling that his assurances can’t be trusted. We hope Congress keeps digging into the growing evidence of a politicized tax agency.