WASHINGTON - The Internal Revenue Service apologized to Tea Party groups and other conservative organizations Friday for what it now says were overzealous audits of their applications for tax-exempt status.
Lois Lerner, the director of the IRS division that oversees tax-exempt groups, acknowledged that the agency had singled out nonprofit applicants with the terms “Tea Party” or “patriots” in their titles in an effort to respond to a surge in applications for tax-exempt status between 2010 and 2012.
She insisted that the move was not driven by politics, but she added, “We made some mistakes; some people didn’t use good judgment.
“For that we’re apologetic,” she said on a conference call.
Republicans seized on the acknowledgment, demanding more information and adding it to their growing list of missteps by President Barack Obama’s administration that they say prove political interference, from hiding the terrorist origins of the attack in Benghazi, Libya, to the demand for disclosure of donors to conservative “super PACs.”
The flagging of such groups was “inappropriate action that we would want to see thoroughly investigated,” White House spokesman Jay Carney said in Washington. “We certainly find the actions taken on this to be inappropriate.”
Sen. Mitch McConnell of Kentucky, the Republican leader, called for “a transparent, government wide review aimed at assuring the American people that these thuggish practices are not under way at the IRS or elsewhere in the administration against anyone, regardless of their political views.”
The apology and the ensuing reaction could be a turning point for the IRS, which has been caught between congressional Democrats pressing the agency to protect tax-exempt status more aggressively from overtly political groups and conservative groups claiming harassment.
Campaign finance watchdogs have said for years that 501(c)(4) tax exemptions were widely abused by conservative and liberal groups whose primary purpose is to influence elections, not to promote “social welfare,” as tax-exempt status mandates.
But Lerner said the examinations of the Tea Party groups were not a response to such pressure. She portrayed it more as a bureaucratic mix up. Between 2010 and 2012, applications for 501(c)(4) tax exemptions nearly doubled, to more than 2,400. As the agency has done in the past, it centralized the processing of the surge at its Cincinnati office, where about 300 were flagged for further examination.
Staff members at that office singled out the terms “Tea Party” and “patriot,” she said, but not out of political bias; it was “just their shortcut.” Only about a quarter of the 300 cases flagged for scrutiny were Tea Party-related, she said, but she called the singling out of those groups “absolutely inappropriate and not the way we should do things.”
Lerner said no disciplinary action had been taken against the low-level employees she said were responsible. She said, however, policy changes had been made to ensure that similar episodes would not happen again. For instance, high-level IRS officials must now approve efforts to lump similar applications or audits into one centralized location for processing.
To the conservative groups and their defenders, the acknowledgment confirmed their worst accusations. In early 2012, numerous Tea Party-affiliated groups came forward to charge the IRS with harassment for demanding that they fill out extensive - and intrusive - questionnaires before their tax-exempt applications could be approved. The questionnaires demanded detailed membership lists, donors, contact information, logs of activities and other information about the groups’ intentions.
Many of those groups found representation with the conservative American Center for Law and Justice and its outspoken lead lawyer, Jay Sekulow, who accused the IRS of “McCarthyism” intended to stifle conservative speech.
The center called the apology “a significant victory for free speech.”
But the leader of one of the groups that cried foul, the Kentucky 9/12 Project, said he had received no such admission from the agency. Eric Wilson, the group’s director, said he had never complied with the IRS questionnaire.
Nonetheless, the IRS sent the group a one-paragraph letter April 1 granting nonprofit status, with no explanation for the protracted process and no regrets, he said.
Another national anti-tax Tea Party group rejected Lerner’s apology.
“The IRS has demonstrated the most disturbing, illegal and outrageous abuse of government power,” said Jenny Beth Martin, national coordinator for the Tea Party Patriots, said in an e-mailed statement. “This deliberate targeting and harassment of Tea Party groups reaches a new low in illegal activity and overreach.”
Organizations that had been pressing for more aggressive enforcement of tax-exemption laws reacted with alarm. Lisa Gilbert, the director of Public Citizen’s Congress Watch division, said the IRS should not be targeting any particular political ideology. She said, however, that questioning applicants for tax exemption to determine whether they were primarily political was entirely proper and should be more widely pursued.
“We don’t think it’s inappropriate to ask questions,” she said. “Tax-exempt groups are abusing their tax status to pursue political agendas.”
Under current law, tax-exempt 501(c)(4) organizations are supposed to be “primarily” engaged in social-welfare work. In practice, groups like the conservative Crossroads GPS and the liberal Priorities USA appear to spend much of their efforts trying to sway elections.
By being categorized as nonprofit groups under Section 501(c)(4) of the tax code, organizations don’t have to disclose their donors even when engaging in political activity. Spending by groups that don’t identify their contributors has increased since the U.S. Supreme Court, in its 2010 Citizens United decision, removed limits on independent spending by corporations and labor unions.
Nonprofit groups spent $1 billion in 2012 on campaigns, with more than two-thirds benefiting Republican candidates, according to the Center for Responsive Politics, a Washington- based research group that tracks campaign spending. That was triple the $300 million they spent in 2008.
The advocacy group Citizens for Responsibility and Ethics in Washington is suing the IRS and petitioning the agency to ban nonprofit organizations from political spending because it says the law requires such groups to be “operated exclusively” for social welfare activities.
Last year, Senate Democrats began pressing the IRS to target such groups more aggressively. As the Tea Party questionnaires surfaced, the agency released a statement that said, “To be tax-exempt as a social welfare organization described in Internal Revenue Code section 501(c)(4), an organization must be primarily engaged in the promotion of social welfare. The promotion of social welfare does not include any unrelated business activities or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”
But pressure will now come from the other direction. Rep. Charles Boustany Jr., the chairman of the House Ways and Means Subcommittee on Oversight, demanded more information, a possible prelude to hearings.
Sen. Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee, rejected the apology as insufficient, demanding “ironclad guarantees from the IRS that it will adopt significant protocols to ensure this kind of harassment of groups that have a constitutional right to express their own views never happens again.”
House Majority Leader Eric Cantor said the House would investigate the IRS for targeting the groups. “The IRS cannot target or intimidate any individual or organization based on their political beliefs,” Cantor, R-Va., said in a statement.
Information for this article was contributed by Jonathan Weisman of The New York Times and by Jonathan D. Salant, Roxana Tiron, Derek Wallbank, Kathleen Hunter and Julianna Goldman of Bloomberg News.
Front Section, Pages 1 on 05/11/2013