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IRS tax-exempt scrutiny cast a wide net

  • Article by: JONATHAN WEISMAN
  • New York Times
  • July 4, 2013 - 9:11 PM

– In 2010, a tiny Palestinian-rights group called Minnesota Break the Bonds applied to the Internal Revenue Service for tax-exempt status. Two years and a lot of prodding later, the IRS sent the group’s leaders a series of questions and requests almost identical to the ones it was sending to Tea Party groups at the time.

What are “the qualifications and experience” of Break the Bonds instructors? Does the group “present a sufficiently full and fair explanation of the relevant facts” about the Palestinian territories? Provide copies of pamphlets, brochures or other literature distributed at group events. Provide a template of petitions, postcards and any other material used to influence legislation.

The controversy that erupted in May has focused on an ideological question: Were conservative groups singled out for special treatment based on their politics, or did the IRS equally target liberal groups?

Less about ideology

But a closer look at the IRS operation suggests the problem was less about ideology and more about how a process telling reviewers to “be on the lookout” for terms was applied to any group that mentioned certain words in its application.

Organizations approached by the New York Times based on specific “lookout list” warnings, like advocates for people in “occupied territories” and “open source software developers,” told similar stories of long waits, intrusive inquiries and bureaucratic hassles that pointed to no particular bias but rather to a process that became too rigid and too broad. The lists often did point to legitimate issues: partisan political campaign organizations seeking tax-exempt status, or commercial businesses hoping to cloak themselves as nonprofit groups.

Even IRS officials say lookout list warnings were often pursued in a ham-handed or overly rigid way. Last month, the acting IRS commissioner, Daniel Werfel, formally ordered an end to such lists after discovering that they were still in use. Sylvia Schwarz, a co-director of the Break the Bonds group, shrugged at the IRS treatment. She was used to rough scrutiny in a country that tilts against the Palestinians, she said.

But the same questions, asked of conservative organizations, led to the dismissals of top IRS officials, prompting criminal and congressional investigations, scarring the reputation of the nation’s tax collection agency and eliciting charges that the White House had used the agency to pursue its political opponents.

More complicated

Two months of investigation by Congress and the IRS has produced new documents revealing a more complicated narrative, with many organizations reviewed: “progressive” organizations, medical marijuana purveyors, groups formed to carry out President Obama’s health care law and “open source software developers.”

According to the Treasury inspector general for tax administration, the IRS received 199,689 applications for tax-exempt status between 2010 and 2012. In 2012 alone, the agency received 73,319, of which about 22,000 were not approved in the initial review process. The inspector general looked at 296 applications flagged as potentially being from political groups. That means most of the applications pulled aside in those years had nothing to do with politics, just as most of the red flags thrown up by the IRS lookout lists were not overtly political.

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