Beginning in March 2010, the IRS more closely scrutinized certain organizations applying for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code by focusing on groups with certain words in their names.[34] These words were generally associated with the political right in the US, an ideological screen. In May 2010, some employees of the "Determinations Unit" of the Cincinnati office of the IRS, which is tasked with reviewing applications pertaining to tax-exempt status, began developing a spreadsheet that became known as the "Be On the Look Out" list.
The list, first distributed in August 2010, suggested intensive scrutiny of applicants with names related to the Tea Party movement and other conservative causes. Eventually, IRS employees in at least Cincinnati, Ohio; El Monte, California; Laguna Niguel, California; and Washington, D.C.[35] applied closer scrutiny to applications from organizations that:[36][37][38]
referenced words such as "Tea Party," "Patriots," or "9/12 Project" in the case file;
outlined issues in the application that included government spending, government debt, or taxes;
involved advocating or lobbying to "make America a better place to live";
had statements in the case file that criticized how the country is being run;
advocated education about the Constitution and the Bill of Rights;
were focused on challenging the Patient Protection and Affordable Care Act known by many as Obamacare;
questioned the integrity of federal elections.
Over the two years between April 2010 and April 2012, the IRS essentially placed on hold the processing of applications for 501(c)(4) tax-exemption status received from organizations with "Tea Party," "patriots," or "9/12" in their names. While apparently none of these organizations' applications were denied during this period,[Note 2] only 4 were approved.[40] During the same general period, the agency approved applications from several dozen presumably liberal-leaning organizations whose names included terms such as "progressive," "progress," "liberal," or "equality."[40][41] (However, the IRS also targeted several progressive- or Democratic-leaning organizations for increased scrutiny, leading to at least one such organization, called Emerge America, being denied tax-exempt status.[39])
Media Trackers, a conservative organization, applied to the IRS for recognition of tax-exempt status, and received no response after waiting 16 months. When the organization's founder, Drew Ryun, applied for permanent tax-exempt status for an existing tax-exempt organization with what he said was a "liberal-sounding name" ("Greenhouse Solutions"), that application was approved in three weeks. Ryun has stated he believes that Greenhouse Solutions benefited from its name (although the quick approval might also be due to the fact that Greenhouse Solutions was already operating as a nonprofit and was already on-file with the IRS.)[42] Catherine Engelbrecht, founder of conservative group True the Vote, filed a lawsuit claiming that her organization's tax-exempt status was unfairly delayed for three years, and alleging that she and her family's small manufacturing business were targeted for retaliatory investigations by the IRS, OSHA, the ATF, and the FBI.[43][44][45]
The Washington Post reported that an IRS watchdog report found that some IRS employees were, in the words of the Post, ignorant about tax laws, defiant of their supervisors and blind to the appearance of impropriety.[46]
An investigation by the New York Times reported that several organizations targeted for scrutiny by the IRS engaged in activities that could be construed as political. The Ohio Liberty Coalition, whose application was delayed in excess of two years, sent emails to their members regarding Mitt Romney presidential campaign events and handed out Romney "door hangers" while canvassing neighborhoods. Former IRS officials and tax experts say this type of behavior would provide a "legitimate basis" for additional scrutiny. Ohio State University law professor Donald Tobin said: "While some of the I.R.S. questions may have been overbroad, you can look at some of these groups and understand why these questions were being asked.[47]
On June 9, 2013, Congressman Elijah Cummings (D-MD) released portions of an interview transcript wherein an anonymous IRS manager who described himself as a "conservative Republican", told Congressional investigators that it was he who had initiated the targeted reviews, without any involvement from the White House, and that the extra scrutiny was not politically motivated. Cummings asserted that the "case was solved", and it was time to move on.[48][49][50] In an appearance on CNN's State of the Union, Cummings said, "Based upon everything I've seen, the case is solved. And if it were me, I would wrap this case up and move on".[48] Congressman Darrell Issa (R-CA) responded in a statement, "The testimony excerpts Ranking Member Cummings revealed today did not provide anything enlightening or contradict other witness accounts. The only thing Ranking Member Cummings left clear in his comments today is that if it were up to him the investigation would be closed."[49]
Examples of questions from the IRS
Some flagged organizations were required to provide further documentation that Rep. Bill Flores called "overreaching and impossible to comply with."[51] Documentation requested varied among different groups but, in some cases, included copies of any contracts or training material the groups may have exchanged with Koch foundations.[52] Some organizations were asked what books their members were reading, as well as what they had posted on social networking websites, according to Politico.[53] Organizations were informed that if they did not provide the information sought, they would not be certified as tax-exempt.
The Coalition for Life of Iowa, a pro-life group, was asked to "Please explain how all of your activities, including the prayer meetings held outside of Planned Parenthood are considered educational as defined under 501(c)(3). Organizations exempt under 501(c)(3) may present opinions with scientific or medical facts. Please explain in detail the activities at these prayer meetings. Also, please provide the percentage of time your group spends on prayer groups as compared with other activities of the organization."[54]
Another question asked of some unidentified applicants was:
Provide the following information for the income you received and raised for the years from inception to the present. Also, provide the same information for the income you expect to receive and raise for 2012, 2013, and 2014.
a. Donations, contributions, and grant income for each year, which includes the following information:
1. The names of the donors, contributors, and grantors. If the donor, contributor, or grantor has run or will run for a public office, identify the office. If not, please confirm by answering this question No.
2. The amounts of each of the donations, contributions, and grants and the dates you received them.
3. How did you use these donations, contributions, and grants? Provide the details. If you did not receive or do not expect to receive any donation, contribution, and grant income, please confirm by answering None received and/or None expected.[8]
The Tennessee organization Linchpins of Liberty, which mentored high school and college students, was asked the following:
23. Has any person or organization provided educational services to you? If yes, provide the following:
a) The name of the person or organization.
b) A full description of the services provided.
c) The political affiliation of the person or organization.
24. Provide all details regarding training you have provided or will provide. Indicate who has received or will receive the training and provide copies of the training material.[55]
Another unidentified applicant was asked to "Please provide copies of all your current web pages, including your Blog posts. Please provide copies of all of your newsletters, bulletins, flyers, newsletters or any other media or literature you have disseminated to your members or others. Please provide copies of stories and articles that have been published about you.[56]
Allegations of document leaks
The National Organization for Marriage has alleged that the IRS intentionally leaked its 2008 tax return, including donor lists an act prohibited by federal law.[57][58] In a lawsuit filed on May 15, 2013, NOM alleged that, in the words of chairman John C. Eastman, "This wasn't a low-level error in judgment; it was a conscious act to reward a prominent Obama supporter while punishing an opponent."[59][60] However, former NOM chairwoman Maggie Gallagher stated on May 10, 2013 that an IRS employee had been duped into releasing the documents by someone who fraudulently claimed to work for NOM.[61]
During the period in which the applications were being scrutinized, the Cincinnati office of the IRS violated policy by releasing nine confidential pending applications from conservative groups to ProPublica, an investigative reporting organization.[10] ProPublica had made a records request to the office seeking only completed applications, which are public information.
Gift tax enforcement
In 2011, audit letters were sent to five donors to a now-defunct conservative 501(c)4 group, Freedom's Watch, which were involved in the 2008 election cycle.[citation needed] The goal of the audit was to assess whether or not gift taxes needed to be paid on these donors' donations to Freedom's Watch.[62] The Congressional Research Service said that the audit was legally well-founded, as tax law exempts only 501(c)(3) and 527 groups from gift taxes.[63] However, Ari Fleischer, a board member of the group, alleged that the group was being singled out.[62] According to tax experts, the IRS had not been enforcing that law, but tax lawyers had advised their clients that they might owe the tax, leading to a situation where some paid and some didn't.[63] The audit appeared to indicate a new emphasis on enforcing the law, but political opposition from Republicans in Congress led to the IRS dropping the audit and publicly announcing that it would not levy gift taxes on contributions to 501(c)4 groups.[63][62] Inspector General J. Russell George's report recommended that the IRS create clearer rules and conduct more training for employees on 501(c)4 issues, including gift tax exemptions.[63]