The Damage in the Wake of the Non-Scandal at the IRS

Posted in: Tax and Economics

What happens when one political party decides to declare war on the nation’s tax collection agency? No politician has ever found it politically expedient to be a champion of the Internal Revenue Service, so the Republicans long ago decided that they could enact stealth tax cuts for the richest Americans by vilifying the IRS and making it much more difficult for the agency to catch tax cheats.

This did not, of course, stop the Republicans from also enacting regressive and damaging tax “reform,” the most recent and shameless example of which was signed by Donald Trump in December 2017. Even so, Republicans have found it useful for decades to gin up hatred of the IRS. Attacking the IRS, in fact, can reasonably be described as a “beta version” of the Republicans’ Trump-inspired attacks on “the deep state”—a meme in which government employees who insist on obeying the law rather than joining a cult of personality are deemed to be subversive.

Inevitably, of course, people do sometimes make mistakes, and when the IRS made one a few years ago, the Republicans were all too ready to pounce. In what became instantly (but incorrectly) known as “the IRS scandal,” in 2013 we learned that some IRS employees had violated some important protocols but that their misdeeds had already been discovered and discontinued.

That should have been the end of it, but of course it was not. This was simply too politically useful to Republicans, who have spent years as well as millions upon millions of taxpayer dollars turning a non-scandal into a conservative cause célèbre.

I have reluctantly been writing about the non-scandal ever since it first made news. My first column was published on May 16, 2013, and I wrote what I had hoped would be my final two columns about it this past October 9 and 16. After writing those and literally dozens of columns in between, how do I find myself writing about this yet again?

The answer is that the way the non-scandal is being wound down is instructive, and we are now seeing ever more clearly the damage that comes from attacking an essential agency of government.

The Anatomy of the Non-Scandal

Readers who wish to read a non-opinion news article summarizing the IRS non-scandal would be well served by reading a Washington Post piece by Robert O’Harrow, Jr. that ran in December 2017. For those who do not wish to dive into that full article, I will summarize the facts briefly here.

The IRS must review applications from groups that wish to claim various types of tax-exempt status. Although most people are familiar with so-called 501(c)(3) organizations, commonly known as charities, there are several other types of organizations that are tax-exempt (although donations to them are not tax deductible) for other reasons. The story here revolves around applications for 501(c)(4) status, or what are commonly known as social welfare organizations.

In early 2013, one of the Treasury Department’s inspectors general issued a report saying that the IRS had used inappropriate methods to screen applications for 501(c)(4) status. Because such groups are prohibited from spending the majority of their funds on political activities, IRS screeners thought that it made sense to sort applications first by looking at groups whose names seemed obviously political.

We now know (as I wrote in my October 9, 2017 column) that the screeners used search terms that implicated both right-wing and left-wing groups—terms like “tea party,” “patriot,” and “9/12,” but also “occupy,” “green,” and similarly suggestive words. Such groups’ applications for 501(c)(4) status were then subjected to more exacting scrutiny, to determine whether they truly met the legal standards for social welfare (that is, mostly non-political) groups.

Even though this might have seemed like a sensible approach, it was wrong, amounting to having a government agency make decisions on the basis of apparent political views rather than on the law. The inspector general’s report made clear that, although it took some time to fix the problem, the non-lawyers at the IRS who had come up with the screening idea had been set straight, and there was no ongoing violation of the proper procedures for processing applications.

Importantly, at the time that the inspector general’s report was going to be released, a relatively senior IRS official gave a speech at a public conference at which she acknowledged the misconduct, made clear that the problem had been solved, and apologized for what had happened.

Lois Lerner might have hoped that her actions were going to defuse any potential problems, but instead it turned her into a villain in the eyes of conservatives. She was fired from her job at the IRS and subsequently endured public pillorying and even death threats.

Ever since, Republicans have been claiming that this is all a huge political scandal. Importantly, however, they are not merely saying that some IRS employees did something wrong. After all, everyone—including the IRS itself—readily admits as much. Republicans, instead, are absolutely certain that this was a political hit job orchestrated by Barack Obama’s minions.

In various columns that I have written about the non-scandal, I have noted that this would have been one of the least effective ways to politically damage one’s opponents ever conceived. If Obama wanted to harm his detractors, slowing down tax-exempt applications by small local conservative groups would not show up on the top-100 list of ways to do it. The very idea is laughable.

Even so, Republicans were immediately convinced that Obama and his people were using the IRS’s screening of social welfare groups as a political weapon. Congressional Republicans then launched multiple taxpayer-funded investigations that turned up nothing again and again. Somehow, however, the story would not die.

Again, O’Harrow’s piece in The Post runs through the full story from beginning to end. He laudably refuses, however, to fall into a lazy both-sides-have-a-point narrative, even while accurately reporting on the Republicans’ over-the-top claims about the non-scandal. (Example: He quotes a Republican activist’s congressional testimony to the effect that the IRS “is so corrupt and so rotten to the core that it cannot be salvaged.”)

Now almost five years later, the IRS scandal might (in the words of “The Wizard of Oz”) be not merely dead but really most sincerely dead. Nothing was ever found beyond what the inspector general told us from the very beginning.

All along, the Republicans as a back-up argument have tried to claim that there definitely was damning evidence that had been cleverly hidden or destroyed, but such claims merely move the story from a testable accusation to a non-disprovable conspiracy theory.

The Death Rattle of a Non-Scandal: The IRS Admits What It Already Admitted

Despite the continued failure by Republicans or their infrastructure of conservative groups to prove that there was a scandal, many of those groups sued the IRS to try to extract information that they were certain would expose the nefarious misdeeds that, in their fevered imaginations, the Obama administration must surely have committed.

In what one can only hope will be the last gasp of this legal dead end, the IRS recently settled a case with a right-wing group that had sued in federal court. The IRS’s only concession in the settlement was to admit that its employees had done what they did and then to apologize for it.

The Consent Order in the US District Court for the District of Columbia, issued on January 21 of this year, states in paragraph 40 that “[t]he IRS admits that its treatment of Plaintiff during the tax-exempt determinations process … was unnecessary [and] wrong. For such treatment, the IRS expresses its sincere apology.”

That really is the entirety of what the IRS conceded in its settlement. This is actually rather humorous, because the very same consent order had already noted in paragraph 5 that on May 13, 2013, Lois Lerner had “apologized for the delay in processing many of those [501(c)(4)] applications [and] acknowledged that the IRS requested information from those applicants that was too broad, unnecessary, and inappropriate.”

So after initially requesting monetary damages and declaratory and injunctive relief, the plaintiffs settled for a repeat of the IRS’s original apology. One can almost see a balloon deflating as one reads the consent order.

But these conservatives are nothing if not persistent, and they decided to declare victory even though their years in court had yielded nothing. An article in the hyper-conservative Washington Times, noting that former Attorney General Eric Holder had said that the IRS should not have apologized (again) for its error, claimed that the consent order “singled Ms. Lerner out as having approved of the intrusive behavior and yet hidden the practices from her supervisors in Washington.”

This is notable for two reasons. First, the consent order said no such thing. At all. Second, if the court actually had reached that conclusion, that would make the non-scandal even less of a political issue.

After all, if the real story is that a single rogue employee (who was quickly fired) had concealed evidence of her wrongdoing from higher-ups at the IRS and the Obama administration, then there could not have been a political conspiracy by Democrats to “target” these tiny conservative political groups.

Right-wingers’ relentless vilification of this one former government employee, then, has twisted their minds so completely that they cannot keep their own story straight. Was it a political hit job, or was it one evil liberal abusing her power? Actually, it was neither. It was, as we have known all along, an unfortunate mistake that was corrected. Nothing more.

The Enduring Damage of the Non-Scandal

Why does all of this still matter? Even though the Republicans’ pursuit of the non-scandal at the IRS turned up nothing politically relevant, they continue to act as though everything that they asserted has been definitively proved. One would be hard-pressed to find a Republican officeholder who is willing to say that the political conspiracy claims have all gone nowhere.

This fingers-in-their-ears denial by Republicans has consequences here and now, because the IRS continues to receive inadequate funding from Congress to do its job. Republicans do seem to have figured out that the IRS does need new funding to implement their terrible 2017 tax law, but otherwise the IRS continues to be the Republicans’ favorite whipping boy, with the agency’s budget having been cut by 20 percent over the past several years even as its responsibilities have increased.

The underfunding of the IRS does not merely cause problems for the agency as it tries to fulfill its most obvious responsibilities in providing taxpayer service (answering phones, providing information and forms on its website) and rooting out tax cheating. It also prevents the IRS from carefully screening new applications from groups that wish to qualify for exemption from taxes.

The O’Harrow article from The Post that I noted above points out that the IRS has now essentially given up on policing all but the most egregiously ineligible applications for tax-exempt status. This might be great for groups that want to pretend to be legitimately tax-exempt organizations, but it is terrible for groups that actually deserve that status. As O’Harrow notes:

Tim Delaney, president and chief executive of the National Council of Nonprofits, said his 25,000 members rely on federal regulators to look out for abusive practices and maintain the public’s trust in nonprofits. Many of them worry about the weakening of the division, he said.

“If bad actors are allowed into the sector or if even just a few charitable nonprofits are turned into partisan pawns, that erases the trust that charitable nonprofits need to advance nonpartisan public policy solutions,” Delaney said.

This is very much like the problems that legitimate businesses face when they have to compete with scurrilous operators. Honest used car dealers, for example, understand that they do not benefit when dishonest dealers enter the market, because even though one might think that the good people would be more than happy to compete against bad people, the public ends up deciding that every dealer is presumptively dishonest.

In the nonprofit world, as Delaney notes, this is an even bigger problem, because the public is not buying a product but giving money to groups who promise to do good. If the IRS is not screening out the bad actors, few people will have the inclination or resources to separate the deserving from the undeserving. The whole sector becomes tainted.

In the end, then, the Republicans had a lot of fun pumping up a non-scandal until it became a defining tribal belief. The consequences are dire not just for honest taxpayers but for legitimate charitable groups and the people who would like to support them. Trashing the IRS turns out not to have been such a great idea. Who would have guessed?

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