Finance Committee Releases Bipartisan IRS Report

Committee Concludes Two-Year Investigation into the IRS’s Treatment of Tax-Exempt Organizations

WASHINGTON – Finance Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (D-Ore.) today released the Committee’s bipartisan investigative report detailing their investigation into the Internal Revenue Service’s (IRS) treatment of organizations applying for tax-exempt status after the Committee voted to report out the findings in a closed executive session. As required by law, members were briefed by Committee staff with 6103 authority to review private taxpayer information in a number of closed-door briefings on the findings and recommendations of the report before the vote.

“This bipartisan investigation shows gross mismanagement at the highest levels of the IRS and confirms an unacceptable truth: that the IRS is prone to abuse,” Hatch said. “The Committee found evidence that the administration’s political agenda guided the IRS’s actions with respect to their treatment of conservative groups. Personal politics of IRS employees, such as Lois Lerner, also impacted how the IRS conducted its business. American taxpayers should expect more from the IRS and deserve an IRS that lives up to its mission statement of administering the tax laws fairly and impartially – regardless of political affiliation. Moving forward, it is my hope we can use this bipartisan report as a foundation to work towards substantial reforms at the agency so that this never happens again. ”

“The results of this in-depth, bipartisan investigation showcase pure bureaucratic mismanagement without any evidence of political interference,” said Wyden. “Groups on both sides of the political spectrum were treated equally in their efforts to secure tax-exempt status. Now is the time to pursue bipartisan staff recommendations to ensure this doesn’t happen again.”

Bipartisan findings of the report include:

During the years 2010 to 2013, IRS management failed to provide effective control, guidance and direction over the processing of applications for tax-exempt status.

Top IRS managers did not keep informed about the applications involving possible political advocacy and thereby forfeited the opportunity to provide the leadership that the IRS needed to respond to the legal and policy issues presented by these applications.

Lois Lerner, who headed the Exempt Organizations Division, became aware of the Tea Party applications in early 2010, but failed to inform her superiors about their existence. While under Lerner’s leadership, the Exempt Organizations Division undertook no less than seven poorly planned and badly executed initiatives aimed at bringing the growing number of applications from Tea Party and other groups to decision. Every one of those initiatives ended in predictable failure and every failure resulted in months and years of delay for the organizations awaiting decisions from the IRS on their applications for tax-exempt status.

The Committee also found that the workplace culture in the Exempt Organizations Division placed little emphasis or value on providing customer service.
- Few if any of the managers were concerned about the delays in processing the applications, delays that possibly harmed the organizations ability to function for their stated purposes.

The Committee made a number of recommendations to address IRS management deficiencies as follows:

The Hatch Act should be revised to designate all IRS, Treasury and Chief Counsel employees who handle exempt organization matters as “further restricted.” “Further restricted” employees are precluded from active participation in political management or partisan campaigns, even while off-duty.

The IRS should track the age and cycle times of applications for tax-exempt status to detect backlogs early in the process and allow management to take steps to address those backlogs.

The Exempt Organizations Division should track requests for assistance from both the Technical Branch and the Chief Counsel’s office to ensure the timely receipt of that assistance.

A list of over-age applications should be sent to the Commissioner on a quarterly basis.

Internal IRS guidance should require that employees reach a decision applications no later than 270 days after the IRS receives that application. Employees and managers who fail to comply with these standards should be disciplined.

Minimum training standards should be established for all managers within the EO Division to ensure that they have adequate technical ability to perform their jobs.

Issuance of the report was delayed for more than a year after the IRS belatedly informed the Committee that it had not been able to recover a large number of potentially responsive documents that were lost when Lois Lerner’s hard drive crashed in 2011.

By failing to locate and preserve records, making inaccurate assertions about the existence of backup data, and failing to disclose to Congress the fact that records were missing, the IRS impeded the Committee’s investigation. These actions had the effect of denying the Committee access to records that may have been relevant and, ultimately, delayed the investigation’s conclusion by more than one year.

A table of contents, a timeline beginning on page 284 and the appendices beginning on page 375 can be found in Part 1 of the Committee’s report here.

Continuation of the Committee’s report can be found below:

Part 2 here.

Part 3 here.

Part 4 here.

A summary of Chairman Hatch’s additional views can be found here.

A summary of Ranking member Wyden’s additional views can be found here.

Background:

On May 20, 2013, the leaders of the Senate Finance Committee sent a detailed, 41-question document request to the Internal Revenue Service (IRS) seeking information about the alleged targeting by the IRS of certain social welfare organizations applying for tax-exempt status based on those organizations’ presumed political activities. That letter marked the beginning of a bipartisan investigation by the Committee into the IRS’ activities related to the review of tax-exempt applications and related issues raised by the Treasury Inspector General for Tax Administration (TIGTA) in his May 14, 2013, report.

In June 2014, the Committee learned that Lois Lerner had experienced a hard drive failure in 2011, which raised questions about the IRS’s ability to produce all the documents necessary to complete the Senate Finance Committee investigation. As a result, Chairman Hatch and Ranking Member Wyden asked TIGTA to investigate the matter. Specifically, TIGTA looked into: 1) what records the IRS lost; 2) if there was any attempt to deliberately destroy records, or otherwise impede congressional and federal investigations; and 3) whether any of the missing information can be recovered.

TIGTA provided their findings to the Committee on June 30, 2015.

Upon completing the report, Committee investigators had interviewed more than 32 current and former IRS and Treasury employees and reviewed nearly 1.5 million pages of documents.

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