Tax Law

Justice Department will investigate IRS after official admits some conservative groups targeted


Updated: A disclosure on Friday about the flagging of tea party and patriot groups for extra scrutiny in their applications for tax-exempt status has led to a promise of congressional investigations and a report that the targeting was not confined to just one city.

There was yet another development on Tuesday, when Attorney General Eric Holder announced he was launching an investigation of the Internal Revenue Service to see if any criminal laws were broken. The Washington Post and Reuters have stories.

The issue came to light at a meeting on Friday of the ABA Section of Taxation. Lois Lerner, who heads the IRS unit that oversees tax-exempt groups, said low-level workers in Cincinnati flagged the groups with “tea party” and “patriot” in their names. The groups were applying for 501(c)(4) status as “social welfare” groups, and they do not meet the standard if they are “primarily engaged” in political activity.

Now the Washington Post is reporting that IRS officials in Washington, D.C., and two IRS offices in California were involved in investigations of conservative groups seeking tax-exempt status, “making clear that the effort reached well beyond the branch in Cincinnati that was initially blamed.” The story is based on documents obtained by the newspaper.

The story says the IRS sent queries to conservative groups asking about their donors, and officials in El Monte and Laguna Niguel sent similar questionnaires to tea party groups. Two Senate panels said they will investigate, while a House committee called IRS officials to testify.

The New York Times, meanwhile, has another take on the controversy. Its story says the IRS singled out mostly local tea party organizations for extra scrutiny even as it failed to respond to complaints that large groups like those founded by Karl Rove and former Obama administration aides violated tax-exempt guidelines by spending tens of millions of dollars on political advertising. The large groups claim they are engaged in issue advocacy rather than political advocacy, which means investigations of their status would be conducted by the IRS rather than the Federal Election Commission.

In March the IRS began sending out questionnaires to about 1,300 tax-exempt groups, including some 501(c)(4)s, in a claimed effort to get a better picture of how such groups operate, the Times says.

In a separate story, the New York Times DealBook blog explains that the primary benefit of achieving status as a social welfare organization is that the donors are kept secret.

Related coverage:

ABAJournal.com: “Resolution seeks disclosure of secret campaign donations made through nonprofits and super PACs”

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