SUMMARY: The IRS faces a time crunch to implement changes under the new tax law. Nina Olson, the National Taxpayer Advocate at the IRS, joins Lisa Desjardins to describe how the agency is getting up to speed and the resources available to taxpayers.
SUMMARY: Republicans pushed ahead on their plan for a tax overhaul, with two major developments. The House Ways and Means Committee passed its sweeping tax bill, while the Senate released their own version. Lisa Desjardins sits down with Judy Woodruff to discuss how the two bills compare, which GOP senators aren't yet convinced and how Democrats are reacting.
SUMMARY: IRS Commissioner John Koskinen has been a lightning rod for Republican lawmakers who have called for his impeachment and criticized the agency he's been running since 2013. As one of the last Obama administration holdovers, he'll complete his term this Sunday. Koskinen sits down with Judy Woodruff to discuss the strains on the IRS and President Trump's controversial tax returns.
SUMMARY: The IRS is facing tougher scrutiny than ever from Congress. Last week, lawmakers repeatedly pressed IRS Commissioner John Koskinen on why the agency wasn't moving faster to improve cybersecurity, after hackers were able to breach its computers last year. Koskinen joins Judy Woodruff to discuss their challenges.
JUDY WOODRUFF (NewsHour): This is the day that the tax man cometh, or, more accurately, the day when millions of Americans will finish filing their taxes.
The Internal Revenue Service is never popular again. But this year, it's facing ever tougher scrutiny, especially from Republicans in Congress. Last week, lawmakers repeatedly pressed IRS Commissioner John Koskinen on why the agency wasn't moving faster to improve cyber-security. The IRS has acknowledged hackers were able to breach its computers last year and swipe sensitive information about hundreds of thousands of taxpayers.
John Koskinen joins me now.
Mr. Koskinen, thank you for being with us.
JOHN KOSKINEN, IRS Commissioner: Delighted to be here.
JUDY WOODRUFF: What is it going to take to restore the confidence of the American people in the IRS?
JOHN KOSKINEN: Well, I think what we have to do is first demonstrate to them that it's a fair system, that, if you hear from us, it's because of something in your return, not because who you voted for, what party you belong to, what church you go to.
Also, I think they have to understand that security of our data is a high priority. Our systems are secure. The problem has been that criminals organized around the world have a vast amount of personal information available to them. And so they are increasingly successful as masquerading as taxpayers.
So, when they have gotten into some of our applications, it's because they had already stolen the information somewhere else and could in fact pretend very effectively that they were the taxpayer.
JUDY WOODRUFF: So, when members of Congress after the IRS, come after you and say, why aren't you able to prevent this kind of thing, do you say it is just not doable?
JOHN KOSKINEN: No, I say that we need to and are continuing to increase the levels of security, the authentication we require of taxpayers before they have access to significant applications that we're developing and continuing to roll out.
JUDY WOODRUFF: And that's it?
JOHN KOSKINEN: And that's it.
Well, and I think we have taken down the applications — two applications that were accessed by criminals masquerading as taxpayers. And we will bring them back up with higher levels of authentication. But, unfortunately, while it makes it more difficult, if not possible for the criminals to get through, it will be a little more difficult for the taxpayers to get through as well.
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JUDY WOODRUFF: You mentioned adequate funding. It’s something, I think, many Americans look at the IRS and they say, well, why do you need more money? You already have so much. And, you know, why can’t you make do with what you have?
JOHN KOSKINEN: Well, our budget was cut for five years in a row from 2010 to 2015 by over $1 billion, which meant that we have lost 15,000 to 17,000 employees over that time frame.
So, while we need to be more efficient and are working to do that, at some point — we have 10 million more taxpayers than we had — at some point, you actually begin to destroy the effectiveness of the agency. So whether it’s taxpayer service, taxpayer enforcement, or even protection of the database, as we continue to struggle for funding, we continue to be at risk.
JUDY WOODRUFF: And what does that mean for the American people?
JOHN KOSKINEN: Well, it means that we estimate we are collecting $4 billion or $5 billion a year less than we would if we had 5,000 revenue agents, officers and criminal investigators we used to have five years ago.
The very richest are able to quietly shape tax policy that will allow them to shield billions in income.
The hedge fund magnates Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen have much in common. They have managed billions of dollars in capital, earning vast fortunes. They have invested large sums in art — and millions more in political candidates.
Moreover, each has exploited an esoteric tax loophole that saved them millions in taxes. The trick? Route the money to Bermuda and back.
With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means.
In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune.
All are among a small group providing much of the early cash for the 2016 presidential campaign.
Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.
The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to IRS data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.
The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.”
Some of the biggest current tax battles are being waged by some of the most generous supporters of 2016 candidates. They include the families of the hedge fund investors Robert Mercer, who gives to Republicans, and James Simons, who gives to Democrats; as well as the options trader Jeffrey Yass, a libertarian-leaning donor to Republicans.
Mr. Yass's firm is litigating what the agency deemed to be tens of millions of dollars in underpaid taxes. Renaissance Technologies, the hedge fund Mr. Simons founded and which Mr. Mercer helps run, is currently under review by the IRS over a loophole that saved their fund an estimated $6.8 billion in taxes over roughly a decade, according to a Senate investigation. Some of these same families have also contributed hundreds of thousands of dollars to conservative groups that have attacked virtually any effort to raises taxes on the wealthy.
In the heat of the presidential race, the influence of wealthy donors is being tested. At stake is the Obama administration’s 2013 tax increase on high earners — the first substantial increase in two decades — and an IRS initiative to ensure that, in effect, the higher rates stick by cracking down on tax avoidance by the wealthy.
While Democrats like Bernie Sanders and Hillary Clinton have pledged to raise taxes on these voters, virtually every Republican has advanced policies that would vastly reduce their tax bills, sometimes to as little as 10 percent of their income.
At the same time, most Republican candidates favor eliminating the inheritance tax, a move that would allow the new rich, and the old, to bequeath their fortunes intact, solidifying the wealth gap far into the future. And several have proposed a substantial reduction — or even elimination — in the already deeply discounted tax rates on investment gains, a foundation of the most lucrative tax strategies.
“There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities who served as chief economic adviser to Vice President Joseph R. Biden Jr. “That’s why these egregious loopholes exist, and why it’s so hard to close them.”
The Family Office
Each of the top 400 earners took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled.
Instead, much of their income came from convoluted partnerships and high-end investment funds. Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities.
The well-paid technicians who devise these arrangements toil away at white-shoe law firms and elite investment banks, as well as a variety of obscure boutiques. But at the fulcrum of the strategizing over how to minimize taxes are so-called family offices, the customized wealth management departments of Americans with hundreds of millions or billions of dollars in assets.
Family offices have existed since the late 19th century, when the Rockefellers pioneered the institution, and gained popularity in the 1980s. But they have proliferated rapidly over the last decade, as the ranks of the super-rich, and the size of their fortunes, swelled to record proportions.
“We have so much wealth being created, significant wealth, that it creates a need for the family office structure now,” said Sree Arimilli, an industry recruiting consultant.
Family offices, many of which are dedicated to managing and protecting the wealth of a single family, oversee everything from investment strategy to philanthropy. But tax planning is a core function. While the specific techniques these advisers employ to minimize taxes can be mind-numbingly complex, they generally follow a few simple principles, like converting one type of income into another type that’s taxed at a lower rate.
Mr. Loeb, for example, has invested in a Bermuda-based reinsurer — an insurer to insurance companies — that turns around and invests the money in his hedge fund. That maneuver transforms his profits from short-term bets in the market, which the government taxes at roughly 40 percent, into long-term profits, known as capital gains, which are taxed at roughly half that rate. It has had the added advantage of letting Mr. Loeb defer taxes on this income indefinitely, allowing his wealth to compound and grow more quickly.
The Bermuda insurer Mr. Loeb helped set up went public in 2013 and is active in the insurance business, not merely a tax dodge. Mr. Cohen and Mr. Bacon abandoned similar insurance-based strategies in recent years. “Our investment in Max Re was not a tax-driven scheme, but rather a sound investment response to investor interest in a more dynamically managed portfolio akin to Warren Buffett's Berkshire Hathaway,” said Mr. Bacon, who leads Moore Capital Management. “Hedge funds were a minority of the investment portfolio, and Moore Capital’s products a much smaller subset of this alternative portfolio.” Mr. Loeb and Mr. Cohen declined to comment.
Organizing one’s business as a partnership can be lucrative in its own right. Some of the partnerships from which the wealthy derive their income are allowed to sell shares to the public, making it easy to cash out a chunk of the business while retaining control. But unlike publicly traded corporations, they pay no corporate income tax; the partners pay taxes as individuals. And the income taxes are often reduced by large deductions, such as for depreciation.
For large private partnerships, meanwhile, the IRS often struggles “to determine whether a tax shelter exists, an abusive tax transaction is being used,” according to a recent report by the Government Accountability Office. The agency is not allowed to collect underpaid taxes directly from these partnerships, even those with several hundred partners. Instead, it must collect from each individual partner, requiring the agency to commit significant time and manpower.
The wealthy can also avail themselves of a range of esoteric and customized tax deductions that go far beyond writing off a home office or dinner with a client. One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.
Many of these maneuvers are well established, and wealthy taxpayers say they are well within their rights to exploit them. Others exist in a legal gray area, its boundaries defined by the willingness of taxpayers to defend their strategies against the IRS. Almost all are outside the price range of the average taxpayer.
Among tax lawyers and accountants, “the best and brightest get a high from figuring out how to do tricky little deals,” said Karen L. Hawkins, who until recently headed the IRS office that oversees tax practitioners. “Frankly, it is almost beyond the intellectual and resource capacity of the Internal Revenue Service to catch.”
The combination of cost and complexity has had a profound effect, tax experts said. Whatever tax rates Congress sets, the actual rates paid by the ultra-wealthy tend to fall over time as they exploit their numerous advantages.
From Mr. Obama’s inauguration through the end of 2012, federal income tax rates on individuals did not change (excluding payroll taxes). But the highest-earning one-thousandth of Americans went from paying an average of 20.9 percent to 17.6 percent. By contrast, the top 1 percent, excluding the very wealthy, went from paying just under 24 percent on average to just over that level.
“We do have two different tax systems, one for normal wage-earners and another for those who can afford sophisticated tax advice,” said Victor Fleischer, a law professor at the University of San Diego who studies the intersection of tax policy and inequality. “At the very top of the income distribution, the effective rate of tax goes down, contrary to the principles of a progressive income tax system.”
And while the lobbying clout of the wealthy is most often deployed through industry trade associations and lawyers, some rich families have locked arms to advance their interests more directly.
The inheritance tax has been a primary target. In the early 1990s, a California family office executive named Patricia Soldano began lobbying on behalf of wealthy families to repeal the tax, which would not only save them money, but also make it easier to preserve their business empires from one generation to the next. The idea struck many hardened operatives as unrealistic at the time, given that the tax affected only the wealthiest Americans. But Ms. Soldano's efforts — funded in part by the Mars and Koch families — laid the groundwork for a one-year elimination in 2010.
The tax has been restored, but currently applies only to couples leaving roughly $11 million or more to their heirs, up from those leaving more than $1.2 million when Ms. Soldano started her campaign. It affected fewer than 5,200 families last year.
“If anyone would have told me we’d be where we are today, I would never have guessed it,” Ms. Soldano said in an interview.
Some of the most profound victories are barely known outside the insular world of the wealthy and their financial managers.
In 2009, Congress set out to require that investment partnerships like hedge funds register with the Securities and Exchange Commission, partly so that regulators would have a better grasp on the risks they posed to the financial system.
The early legislative language would have required single-family offices to register as well, exposing the highly secretive institutions to scrutiny that their clients were eager to avoid. Some of the IRS’s cases against the wealthy originate with tips from the S.E.C., which is often better positioned to spot tax evasion.
By the summer of 2009, several family office executives had formed a lobbying group called the Private Investor Coalition to push back against the proposal. The coalition won an exemption in the 2010 Dodd-Frank financial reform bill, then spent much of the next year persuading the S.E.C. to largely adopt its preferred definition of “family office.”
So expansive was the resulting loophole that Mr. Soros's $24.5 billion hedge fund took advantage of it, converting to a family office after returning capital to its remaining outside investors. The hedge fund manager Stanley Druckenmiller, a former business partner of Mr. Soros, took the same step.
The Soros family, which generally supports Democrats, has committed at least $1 million to the 2016 presidential campaign; Mr. Druckenmiller, who favors Republicans, has put slightly more than $300,000 behind three different G.O.P. presidential candidates.
A slide presentation from the Private Investor Coalition’s 2013 annual meeting credited the success to multiple meetings with members of the Senate Banking Committee, the House Financial Services Committee, congressional staff and S.E.C. staff. “All with a low profile,” the document noted. “We got most of what we wanted AND a few extras we didn’t request.”
A Hobbled Monitor
After all the loopholes and all the lobbying, what remains of the government’s ability to collect taxes from the wealthy runs up against one final hurdle, the crisis facing the IRS.
President Obama has made fighting tax evasion by the rich a priority. In 2010, he signed legislation making it easier to identify Americans who squirreled away assets in Swiss bank accounts and Cayman Islands shelters.
His IRS convened a Global High Wealth Industry Group, known colloquially as “the wealth squad,” to scrutinize the returns of Americans with incomes of at least $10 million a year.
But while these measures have helped the government retrieve billions, the agency’s efforts have flagged in the face of scandal, political pressure and budget cuts. Between 2010, the year before Republicans took control of the House of Representatives, and 2014, the IRS budget dropped by almost $2 billion in real terms, or nearly 15 percent. That has forced it to shed about 5,000 high-level enforcement positions out of about 23,000, according to the agency.
Audit rates for the $10 million-plus club spiked in the first few years of the Global High Wealth program, but have plummeted since then.
A Very Quiet Defense
Having helped foster an alternative tax system, wealthy Americans have been aggressive in defending it.
Trade groups representing the Bermuda-based insurance company Mr. Loeb helped set up, for example, have spent the last several months pleading with the IRS that its proposed rules tightening the hedge fund insurance loophole are too onerous.
The major industry group representing private equity funds spends hundreds of thousands of dollars each year lobbying on such issues as “carried interest,” the granddaddy of Wall Street tax loopholes, which makes it possible for fund managers to pay the capital gains rate rather than the higher standard tax rate on a substantial share of their income for running the fund.
The budget deal that Congress approved in October allows the IRS to collect underpaid taxes from large partnerships at the firm level for the first time — which is far easier for the agency — thanks to a provision that lawmakers slipped into the deal at the last minute, before many lobbyists could mobilize. But the new rules are relatively weak — firms can still choose to have partners pay the taxes — and don’t take effect until 2018, giving the wealthy plenty of time to weaken them further.
Shortly after the provision passed, the Managed Funds Association, an industry group that represents prominent hedge funds like D. E. Shaw, Renaissance Technologies, Tiger Management and Third Point, began meeting with members of Congress to discuss a wish list of adjustments. The founders of these funds have all donated at least $500,000 to 2016 presidential candidates. During the Obama presidency, the association itself has risen to become one of the most powerful trade groups in Washington, spending over $4 million a year on lobbying.
The political challenge for the agency became especially acute in 2013, after the agency acknowledged singling out conservative nonprofits in a review of political activity by tax-exempt groups. (Senior officials left the agency as a result of the controversy.)
Several former IRS officials, including Marcus Owens, who once headed the agency’s Exempt Organizations division, said the controversy badly damaged the agency’s willingness to investigate other taxpayers, even outside the exempt division.
“IRS enforcement is either absent or diminished” in certain areas, he said. Mr. Owens added that his former department — which provides some oversight of money used by charities and nonprofits — has been decimated.
Groups like FreedomWorks and Americans for Tax Reform, which are financed partly by the foundations of wealthy families and large businesses, have called for impeaching the IRS commissioner. They are bolstered by deep-pocketed advocacy groups like the Club for Growth, which has aided primary challenges against Republicans who have voted in favor of higher taxes.
In 2014, the Club for Growth Action fund raised more than $9 million and spent much of it helping candidates critical of the IRS Roughly 60 percent of the money raised by the fund came from just 12 donors, including Mr. Mercer, who has given the group $2 million in the last five years. Mr. Mercer and his immediate family have also donated more than $11 million to several super PACs supporting Senator Ted Cruz of Texas, an outspoken IRS critic and a presidential candidate.
Another prominent donor is Mr. Yass, who helps run a trading firm called the Susquehanna International Group. He donated $100,000 to the Club for Growth Action fund in September. Mr. Yass serves on the board of the libertarian Cato Institute and, like Mr. Mercer, appears to subscribe to limited-government views that partly motivate his political spending.
But he may also have more than a passing interest in creating a political environment that undermines the IRS Susquehanna is currently challenging a proposed IRS determination that an affiliate of the firm effectively repatriated more than $375 million in income from subsidiaries located in Ireland and the Cayman Islands in 2007, creating a large tax liability. (The affiliate brought the money back to the United States in later years and paid dividend taxes on it; the IRS asserts that it should have paid the ordinary income tax rate, at a cost of tens of millions of dollars more.)
In June, Mr. Yass donated more than $2 million to three super PACs aligned with Senator Rand Paul of Kentucky, who has called for taxing all income at a flat rate of 14.5 percent. That change in itself would save wealthy supporters like Mr. Yass millions of dollars.
Mr. Paul, also a presidential candidate, has suggested going even further, calling the IRS a “rogue agency” and circulating a petition in 2013 calling for the tax equivalent of regime change. “Be it now therefore resolved,” the petition reads, “that we, the undersigned, demand the immediate abolishment of the Internal Revenue Service.”
But even if that campaign is a long shot, the richest taxpayers will continue to enjoy advantages over everyone else.
For the ultra-wealthy, “our tax code is like a leaky barrel,” said J. Todd Metcalf, the Democrats’ chief tax counsel on the Senate Finance Committee. ”Unless you plug every hole or get a new barrel, it’s going to leak out.”
SUMMARY: Bad news for taxpayers this year: If you have questions for the Internal Revenue Service, getting through is going to take longer. If you're waiting for a refund, you may face a delay. The IRS attributes this to five years of federal budget cuts, which have led to a hiring freeze and a lack of resources. Judy Woodruff interviews Commissioner John Koskinen about these problems and oversight of the IRS.
GWEN IFILL (NewsHour): As Tax Day approaches, the Internal Revenue Service has an unusual warnings for taxpayers: Not everyone who calls the IRS help center will be able to reach an agent, which could result in refund delays this year.
The agency blames budget cuts. But critics say the IRS should blame itself.
Judy Woodruff sat down recently for this conversation with the IRS commissioner.
JUDY WOODRUFF (NewsHour): And we are joined by the man in charge, Commissioner John Koskinen of the Internal Revenue Service.
Welcome to the NewsHour.
JOHN Koskinen, Commissioner, IRS: Thank you.
JUDY WOODRUFF: So, let me just start this interview by citing a couple of numbers we have on taxpayers’ experiences with the IRS this year.
We know that, last year, 70 percent of the people who tried to get through with a question were successful. This year, that’s down to fewer than 40 percent. The average wait time for taxpayers trying to get through to the IRS with questions shot up from 10 minutes last year to 24 minutes this year.
What has happened?
JOHN KOSKINEN: The short answer is that Congress cut our budget and we have fewer people available to answer the phone.
JUDY WOODRUFF: Flesh that out for us. How much of a budget cut? What does that mean and how many…
JOHN KOSKINEN: Well, over the last five years, our budget has been cut by $1.2 billion.
In December of this year, the last $350 million of that cut was provided. We only had nine months left in the year, so we had to take difficult choices across the board. One of them was, 70 percent or more of our budget is personnel. So, had to immediately say we wouldn’t hire any new personnel.
We also had to not hire for as long a period of time as many seasonal workers that we bring in during the tax season, because that’s the busiest time of the year. And we didn’t hire our couple thousand temporary employees we normally would hire.
And those are all decisions we knew would have a negative impact on taxpayer services. We had warned the Congress about it, but we had no choice.
A congressional hearing examining how the Internal Revenue Service lost thousands of emails sought by investigators turned into a shouting match on Friday, with Republicans on the panel accusing the I.R.S. commissioner of lying.
“Sitting here listening to this testimony, I don’t believe it,” Representative Paul D. Ryan, Republican of Wisconsin, told the commissioner, John Koskinen, at a hearing of the tax-writing Ways and Means Committee. “That’s your problem. No one believes you.”
Mr. Ryan, echoing the sentiment of many Republicans in Congress, described the missing emails associated with seven I.R.S. employees as part of a pattern of denial and obstruction by the I.R.S. over the last year as the agency answers accusations that it mistreated conservative political groups seeking tax exemptions.
Mr. Ryan, his voice rising, said that now “you don’t have the emails. Hard drives crashed. You learned about this months ago. You just told us. And we had to ask you on Monday. This is not being forthcoming. This is being misleading again. This is a pattern of abuse.”
Mr. Koskinen, maintaining a measured tone, replied that in his “long career,” “That’s the first time anybody has said they do not believe me.”
As he tried to continue, Mr. Ryan stopped him: “I don’t believe you.”
After a series of interruptions, Representative Sander M. Levin of Michigan, the top Democrat on the panel, said: “Will you let him answer the question?”
“I didn’t ask him a question,” Mr. Ryan said.
“Yes, you did,” Mr. Levin replied.
Throughout the three-hour hearing, Democrats on the committee raised objections to the chairman, Representative Dave Camp of Michigan, about the way Republicans were treating Mr. Koskinen. They also called the panel’s inquiry a “witch hunt” meant to create the appearance of a conspiracy during an election year.
Some of them, instead of asking their own questions, gave their time to Mr. Koskinen to respond to the Republicans’ accusations.
Given that time, Mr. Koskinen disputed the contention voiced by Mr. Ryan and others on the committee that the delay in notifying investigators about the computer crashes, and the fact that the agency notified the Treasury Department weeks earlier, was indicative of a cover-up.
Mr. Koskinen submitted as evidence an email exchange from 2011 between the agency’s technology staff and Lois Lerner, the former I.R.S. official at the center of the inquiry, in which she sought to have her messages restored.
He said that Ms. Lerner’s computer crash and the effort to retrieve her lost messages had occurred before the agency was notified that Congress was receiving complaints from conservative political groups that they were being unfairly scrutinized, undercutting the notion that emails were deliberately destroyed.
Mr. Koskinen also pointed to a report by an inspector general of the Treasury Department, the parent agency of the I.R.S., which concluded that while agency employees had acted improperly, there was no evidence of political motivation or outside influence.
Democrats on the committee said the committee’s inquiry was missing a larger point: that political groups of all kinds were effectively getting subsidies from taxpayers as “social welfare groups,” even though they were actually engaged in campaigning for political candidates.
Over the last week, the I.R.S. has said that thousands of emails of interest to investigators had been destroyed because of computer crashes. Those employees included Ms. Lerner, who has been accused of orchestrating a politically motivated effort to hold up applications for tax exemption from Tea Party groups before the 2012 election.
Republican lawmakers responded to the disclosure incredulously, questioning whether the emails were truly unrecoverable and accusing the agency of a Nixonian cover-up. They have also suggested that the disappearance of the emails violated federal record-keeping laws.
During the hearing, Mr. Camp demanded that the I.R.S. hand over the damaged hard drive for forensic examination. He also questioned the agency’s contention that the missing emails were not recoverable because they had been overwritten on backup drives, in keeping with the agency’s former policy of reusing computer equipment to save money.
“I find it hard to believe, and I don’t believe that the I.R.S. went through every possible exercise to recover these documents,” Mr. Camp said.
On Monday, Mr. Koskinen is scheduled to appear before another panel — the House Oversight Committee, chaired by Representative Darrell Issa of California — to answer questions about the missing emails.
Ms. Lerner, who quit in September as the head of the agency’s division on tax-exempt organizations, was cited for contempt by the Republican-led House last month after refusing to answer lawmakers’ questions.
Some Republicans have called for a special prosecutor to investigate the I.R.S.’s suspected misconduct. So far, the Justice Department has declined to appoint one or to act on a criminal referral on Ms. Lerner’s contempt citation.
After intense criticism from both ends of the political spectrum, the Internal Revenue Service has delayed indefinitely proposed rules that would have imposed new limits on social welfare nonprofits, which have pumped hundreds of millions of dollars from anonymous donors into recent elections.
The agency said yesterday it would postpone a hearing on the proposal it released in November defining more clearly what constitutes political activity for such groups, and would revise the plan to reflect some of the more than 150,000 comments it triggered.
Officials put no timeline on the process, disappointing those who had hoped the new regulations might kick in before this year's mid-term elections.
"I think it's unfortunate that new rules will be delayed even further and that we're going through another election cycle" without them, said Paul S. Ryan, senior counsel with the Campaign Legal Center.
Others called the delay a prudent step that would give the IRS an opportunity to get a crucial change right.
"They're not going to put out some slapdash rule just to check it off their list," said John Pomeranz, a Washington lawyer who works with nonprofits that spend money on politics. He doesn’t expect the agency to finish the rules any time soon. “I think we’ll be lucky if they’re in place for the 2016 election.”
Social welfare nonprofits have poured money into politics since the Supreme Court's Citizens United decision in 2010, which allowed corporations, unions and nonprofits to spend unlimited money on elections.
Social welfare nonprofits spent more than $256 million in the 2012 cycle alone, according to the Center for Responsive Politics. Campaign finance watchdogs have viewed their rise with concern, fearing the influence of so-called "dark" money from secret donors, and had called for more oversight from the IRS.
Under IRS regulations, the groups can spend some of their resources on politics, but must devote themselves mostly to social welfare to keep their nonprofit status. But the rules defining what is and isn't politics are murky.
Late last year, the IRS moved to clarify the issue, but its proposal came under fire from both the left and the right.
Conservatives complained that the rules would stifle political speech. The American Civil Liberties Union chafed at a provision in the proposed rules that would prevent nonprofits from backing ads that even mentioned politicians in the two months before a general election.
"We have no doubt that the Service is acting with the best of intentions, but the proposed rule threatens to discourage or sterilize an enormous amount of political discourse in America," the ACLU said in its written response to the proposal.
The plan was also criticized for impeding nonpartisan election work such as voter registration drives and get-out-the-vote efforts.
The IRS, still facing fallout from accusations that it singled out the applications of conservative nonprofits for special scrutiny in the run-up to the 2012 election, decided it would make revisions.
"Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation," the agency said in statement.
The Government Integrity Fund spent most of its money on election ads, despite IRS rules prohibiting a social welfare nonprofit from doing so.
To see how easy it is for a dark money group to ignore the Internal Revenue Service, look no further than the loftily named Government Integrity Fund.
The Fund, an Ohio nonprofit, spent more than $1 million in 2012 on TV ads attacking Ohio Sen. Sherrod Brown and praising his Republican opponent, Josh Mandel. Now the Fund's tax return, which ProPublica obtained from the IRS this week, indicates that the group spent most of its money on politics — even though IRS rules say nonprofits like the Fund aren't allowed to do that.
The Government Integrity Fund was founded in May 2011 and applied later that year for IRS recognition of its tax-exempt status, swearing under penalty of perjury that it would not engage in politics but would instead "promote the social welfare of the citizens of Ohio." Within two months, the IRS had recognized the group.
It then devoted much of its resources to backing Mandel's unsuccessful bid to unseat Brown. As previously detailed by ProPublica, the Fund was linked to a former top Mandel staffer.
The Fund's return highlights the ways such nonprofits, known as dark money groups because they are not required to disclose their donors, can skirt IRS rules designed to limit their political activities. Such groups are playing an increasingly prominent role in elections, spending more than $256 million on election activity in 2012.
Dark money groups can spend money on politics as long as they can persuade the IRS that their primary purpose is social welfare. This can lead to quite creative accounting on tax forms, with groups describing ads that should qualify as political under IRS rules as "education" or "issue advocacy."
On the Government Integrity Fund's latest tax return — for 2012 — the group told the IRS it spent $5.2 million overall. Of that, $2 million went to two super PACs — mostly the Fund's sister super PAC, the Government Integrity Fund Action Network — which then used the money to pay for different ads than the ones the Fund bought. According to the filing, this $2 million made up all of the Fund's political spending in 2012.
But that didn't include an additional $1.08 million the Government Integrity Fund spent on TV ads praising Mandel and attacking Brown in the spring and summer of 2012, which ProPublica reported on in September 2012. (The spending was tallied by Brown consultants. The lawyer listed on the Fund's incorporation papers confirmed that the group spent more than $1 million on the ads.)
If the Fund had categorized the additional money it spent on the ads as political, almost 60 percent of its expenditures would have gone toward elections — which would seem to violate IRS rules that say a social welfare nonprofit's primary purpose can't be politics.
"Josh Mandel served our country with two tours in Iraq," one ad said. "Now he's fighting for taxpayers, fighting for our future." Another slammed Brown, contrasting his performance in 2012 with that of his younger self. "Young Sherrod Brown voted more for Ohio," it said. "Today's Sherrod Brown — he just votes the party line. Where did the young Sherrod go?"
The ads stopped short of telling people how to vote, but three nonprofit experts who reviewed them for ProPublica said they all qualified as election ads under IRS rules.
"There's no question," said Brian Galle, a Boston College associate professor of law who has written about political activity by nonprofits. "It's not even close. They're blatantly political advertisements."
The Fund now appears to be inactive. Its website is no longer operating. The Fund's president, Thomas Norris, who signed its tax return, did not respond to requests for comment.
"I think they existed solely to help Josh Mandel," said Justin Barasky, the Brown campaign's communications director, this week.
Unraveling what the Government Integrity Fund spent in 2012 wasn't possible until recently because the group didn't file its tax return until January of this year, when it was two months overdue. The long wait highlights one of the major problems with regulating dark money groups and their spending: The IRS typically doesn't look at these groups until a tax return is filed, often more than a year after an election has been decided.
Even with the return in hand, several aspects of its operations remain confusing.
In one spot, the group says $4.6 million of its $5.2 million in expenditures were made as grants "and similar amounts paid." But it doesn't identify which groups received the grants, as the IRS requires, or what the "similar amounts paid" might have gone toward. At the end of the form, the group says only $1.1 million went toward grants — again, without saying who received the grants — with the rest of the $4.6 million going to its sister super PAC and what it classifies as "public education."
The group offers no details on what the $1.5 million attributed to education included — mathematically, though, it would have to include the ads it bought related to the Brown-Mandel race.
Experts scoffed at the idea that the ads qualified as education.
"There's no way you can claim these are education. If this is public education, then everything is public education," said Donald Tobin, a law professor at Ohio State University who specializes in the intersection of tax and campaign finance law. "These are clearly designed to be political ads to benefit or oppose a candidate. And that's not social welfare activity."
The Fund attributes its remaining expenses mainly to fundraising fees paid to three companies. No records could be found for two of the three companies. And, according to the return, none of them raised any money for the group.
The nonprofit is not alone in how it categorizes its ad spending, as detailed in past ProPublica stories. For example, one group, the Coalition for American Values Action, told the IRS it spent $508,491 in 2012, almost all of it for the " creation of videos to educate Americans on various issues that affect their lives," and said it spent nothing on politics. Yet it actually donated more than three-quarters of its money to a political action committee that bought election ads.
It's an open question how vigorously the IRS, which doesn't comment on individual taxpayers like the Fund, will pursue groups for irregularities. The agency has revoked the nonprofit status of only one social welfare nonprofit, a liberal group, and its affiliates since the Supreme Court's Citizens United decision in 2010 paved the way for dark money groups to pour hundreds of millions of dollars into outside election ads.
Experts on nonprofits say the IRS has taken an even more hands-off approach since top officials admitted the agency had targeted applications from conservative groups for extra scrutiny, sparking a scandal and investigations.
The IRS has proposed new regulations to curtail political spending by social welfare nonprofits, but the agency has acknowledged that there's virtually no chance the regulations will be in place by this year's midterm election.
"This kind of nonsense just shows that the IRS should remain committed to a meaningful set of reforms, even if they can't get them done in time for this election cycle," said Galle, the law professor.
A GOP-led House committee voted Wednesday to seek criminal charges against former IRS official Lois Lerner, who used to run the IRS division in charge of tax-exempt groups. In a party-line vote, the committee accused Lerner of unfairly targeting the applications of conservative groups and misleading the Treasury inspector general, which was auditing the IRS based on allegations of bias against conservative groups.
Though the committee referred Lerner to the Justice Department for prosecution, it will likely have little practical effect, as the Justice Department is already investigating the Internal Revenue Service and Lerner. But the documents released by the committee do shed some light on the inner workings of the IRS's Exempt Organizations division and how it approached applications of social welfare nonprofits, also known as dark money groups because they spend money on elections without reporting their donors. The influence of such groups has skyrocketed since the Supreme Court's 2010 Citizens United decision.
Here are the top five takeaways ProPublica found from the documents:
- The IRS planned to deny the application of Crossroads GPS.
Crossroads GPS spent more than $90 million from unknown donors to elect conservatives in the 2010 and 2012 elections, far more than any other dark money group. By the beginning of 2013, the IRS was planning to deny the group's application, the documents show.
After applying to the IRS in September 2010, Crossroads started spending, and campaign-finance watchdogs started complaining. An IRS panel considered taking a deeper look at Crossroads twice — in November 2010 and June 2011 — but rejected the idea both times. One reviewer in November 2010 said that Crossroads was a "for-profit entity," a mistake Lerner later wrote that she found "most disturbing."
By June 2012, the IRS created a spreadsheet on Crossroads to analyze the group's TV ad costs and track whether the ads were political or issue advocacy. A description of the group's website in an IRS spreadsheet said it "appears to be an anti-Obama Administration website; however there are educational materials on site."
In late 2012, Crossroads' application was released to ProPublica in response to a public-records request — even though it wasn't supposed to be made public. The application showed that Crossroads told the IRS that its political spending "will be limited in amount."
The IRS received 25 referrals on Crossroads GPS between 2010 and 2012, the documents show — a referral is a complaint about a nonprofit, and can include a formal request for investigation or simply a news article.
On Jan. 2, 2013, an IRS spokeswoman, Michelle Eldridge, emailed Lerner and other IRS officials about questions from ProPublica over Crossroads' application. "I recommend that we just let this one sit and wait out the deadline," she wrote.
In an email two days later, Lerner wrote that she had read through allegations from campaign finance watchdogs about Crossroads, adding that they "were really damning."
By Jan. 9, 2013, the IRS was drafting a denial letter to Crossroads, the documents show. There was no more significant action until May 2, 2013, when a call was made to discuss the "draft denial letter."
Then on May 8, 2013, documents indicate that the IRS was also looking at "the draft denial of a similar case."
From May 13 until May 17, 2013, the IRS continued "working on draft of letter." By May 30, 2013, the first working draft of the denial was finished and sent for review.
But by that point, the IRS had come under scrutiny for revelations that it had targeted Tea Party groups for extra review. There's no proof that the letter to Crossroads was ever sent.
In an emailed statement Wednesday, Crossroads GPS President Steven Law said the group was still waiting to hear final action from the IRS on its application. Like the House Ways and Means Committee, Law accused Lerner of improperly singling out Crossroads for extra review.
"Crossroads GPS submitted its application to the IRS for formal recognition of its non-profit status when the group was formed in 2010," Law said. "It is now apparent that Ms. Lerner was directly and improperly involved in targeting our application, which may explain why we are still awaiting final action."
Meanwhile, Lerner's lawyer, William Taylor, said that Lerner had done nothing wrong. "She did not interfere with the rights of any organization to a tax exemption," he said in a statement.
- The IRS also planned to deny the applications of other conservative groups that had spent on elections after telling the IRS they wouldn't do so.
Crossroads GPS wasn't the only dark money group facing denial before the IRS controversy blew up.
In response to a public-records request in late 2012, the IRS had also sent ProPublica the pending applications for five other conservative social welfare nonprofits that had told the IRS that they wouldn't spend money on politics but then did so. The groups were Americans for Responsible Leadership, Freedom Path, Rightchange.com II, America Is Not Stupid and A Better America Now.
ProPublica wrote about the groups on Jan. 2, 2013. Nikole Flax, the chief of staff to the acting IRS commissioner at the time, forwarded the story to Lerner and two other IRS officials on the afternoon it was published in an email with the subject line, "latest article."
The same day, Lerner asked to set up a meeting to talk about the groups' applications.
The Ways and Means Committee found that four of the five groups had been subjected to heightened scrutiny, and three were audited, though it's not clear which ones. The IRS recognized both America Is Not Stupid and A Better America Now last year. Americans for Responsible Leadership was also recognized in October 2013 — despite spending almost $10 million on elections in 2012 and paying a record-breaking fine in California for violations of election laws.
In January 2013, Lerner also indicated more social welfare nonprofits would be denied. On Jan. 31, she emailed the chief of the IRS office of appeals, saying that in the next few months her office believed appeals would "get a lot of business" regarding denials of social welfare applications.
"I told them (the appeals group) this is a place where we have worked very hard to be consistent and have all our cases worked by one group, and suggested they (sic) might want to do something similar," Lerner wrote, adding that her office was being audited because of allegations of political bias in these cases. "If I were you, this is definitely something I'd want to be aware of and have a high level person overseeing and reporting regularly (sic) to me. You were in TEGE (the Tax Exempt/Government Entities division) long enough to understand how dangerous what we do can be."
The documents included spreadsheets of the application status of various groups, including one providing aid in Pakistan and another trying to set up a medical marijuana dispensary as a charity. One spreadsheet indicated that a Tea Party group could be approved as a social welfare nonprofit but not as a charity.
But of all the groups listed in a 2011 spreadsheet as being flagged for review, only Emerge America and its affiliates ended up being denied. Those groups trained Democratic women to run for office.
- The IRS really is not equipped to police elections — and knows it.
In the documents Wednesday, Lerner acknowledges how poorly the IRS monitors these groups, which are allowed to spend money on elections as long as they can justify they primarily work to benefit the community at large.
At one point, on Jan. 7, 2013, she wrote an email complaining that the IRS was not following up with groups that hadn't filed their tax returns, or Form 990s. She wrote that if the IRS only opened audits on groups that filed tax returns, "that's a big hole in the system."
"Then you have newspapers telling us what the orgs (sic) are doing, but we never look," she wrote. "If the org has been around log (sic) enough to owe us a 990 and they aren't filing to hide what they are alleged to have done, it should be our job to go out and get the 990 and then determine whether the allegations — that are very strong — are true."
"My level of confidence that we are equipped to do this work continues to be shaken," she wrote in another email. "I don't even know what to recommend to make this better."
Officials from two campaign-finance watchdog groups, Democracy 21 and the Campaign Legal Center, said Wednesday that they had met with Lerner and other IRS officials in early January 2013 over their allegations that several social welfare nonprofits, including a liberal group and a nonpartisan one, were overly political. They said Lerner refused to talk about individual taxpayers.
"We left the meeting extremely frustrated because neither Ms. Lerner nor her colleagues revealed anything," said Paul S. Ryan, senior counsel for the Campaign Legal Center. "I would use the word 'frustrated' in general in our attitude toward the IRS." He later added, "The IRS hasn't done anything" to enforce restrictions on political spending with these groups.
- Most new liberal groups don't apply to the IRS.
Social welfare nonprofits don't have to be recognized by the IRS, because donations to them are not tax-deductible. They just have to incorporate as social welfare nonprofits in their state of choice.
Conservative groups typically have applied for recognition anyway, possibly because their donors want the IRS seal of approval.
One of the most active liberal dark money groups, Patriot Majority USA, has been recognized by the IRS. But other liberal groups have taken advantage of the loophole. Often, they incorporate, never apply to the IRS, spend money on elections and then fold after filing a tax return or two.
The newly released documents show that one of the most prominent liberal dark money groups, Priorities USA, never applied to the IRS for recognition.
Liberal dark money groups have been much less active in elections than conservative ones since the Citizens United decision. About 85 percent of the anonymous money spent in 2010 and 2012 came from conservative groups. Priorities USA, despite being run by top liberal operatives, reported spending nothing on federal elections in 2012.
- Lerner may have considered applying to work at a leading liberal social welfare nonprofit.
On Jan. 24, 2013, she emailed two senior IRS officials, asking if Organizing for Action — the nonprofit formed from the leftovers of President Barack Obama's campaign organization — had applied for IRS recognition.
One of the officials, Holly Paz, told Lerner she wasn't sure.
Another IRS official, Sharon Light, said she thought it likely that OFA would follow Priorities USA's path and not apply. "But maybe not," she added. She noted that while OFA would be run from Chicago, it would also have a Washington office.
"Oh — maybe I can get the DC office job!" Lerner emailed back.
It is unclear whether she was joking.
JUDY WOODRUFF (Newshour): And we look at new rules on same-sex marriage and the equality of tax benefits. The issue has long been an important and practical concern in the financial lives of many couples.
Today, the Treasury Department and the IRS announced that legally married same-sex couples can file joint returns and will receive the same tax benefits as straight couples, no matter where they live in the U.S. The change comes as the federal government continues to implement this summer's Supreme Court ruling that struck down the federal Defense of Marriage Act.
Brian Moulton is the legal director for Human Rights Campaign. The group works on behalf of civil rights matters of importance to the LGBT community.
We're now almost a month since the original admission by the IRS that it targeted tea party groups for special scrutiny. Since then, despite the strenuous efforts of Republican investigators, no evidence whatsoever has emerged to tie the White House to the targeting.
That means that if you're a Republican looking to profit from the story, you've got to keep it vague. Suggest that the targeting reflects on Obama in some way, without quite saying how. That's the approach taken by Lenny Curry, the chair of the Florida GOP, in this candid memo to his state's members of Congress, urging them to seize the "opportunity" offered by the story. Curry writes:
You can employ the IRS scandal to conduct oversight of the legislative branch, scrutinizing the investigation and ensuring no stone is left unturned. The Obama administration needs to be held accountable for its involvement. As the National Journal’s Ron Fournier put it, “… [Obama] and his advisors face a credibility crisis” in midst of this “perfect storm of controversy.” I encourage you to thoughtfully and methodically shine a light on this corrupted corner of government.
He adds: “We need to play big, bold hardball now. This is an opportunity where good politics and good policy intersect well.”
(Curry, remember, is the guy who compared purging voter rolls to stopping drunk drivers, and who acknowledged that his state's purge was kicking legitimate voters off the rolls, but said it should continue anyway.)
You see a similar approach from Republican members of Congress, who have warned darkly about an Obama administration "culture of intimidation," while carefully avoiding specifics about just how the President is implicated.
Also complicating Republican efforts to make political hay out of the story, Several of the tea party groups that received what they saw as burdensome requests for information from the IRS in fact had close ties to GOP politics.
Exhibit A on that: Karen Kenney, a southern California tea party activist who testified before Congress Tuesday about receiving letters from the IRS "that read like the chilling words from the 1950s: 'Are you now or have you ever been...'" As we reported last month, Kenney ran in 2010 for an internal GOP position, and has spoken at least twice since 2011 at the San Fernando Valley Republican club, in her capacity as a local Tea Party leader. So maybe not so surprising that the IRS would ask some questions when her group applies for non-political status.
SUMMARY: New York Times columnist David Brooks and Washington Post columnist Ruth Marcus discuss the week's top political news with Judy Woodruff, including President Barack Obama's speech on refining the fight against terrorism, controversies at the IRS and the Justice Department and the devastating tornadoes in Oklahoma.
SUMMARY: A Senate Finance Committee hearing on the targeting of conservative groups by the Internal Revenue Service turned its focus to former IRS commissioner Douglas Shulman, who led the agency until last fall. Judy Woodruff has more, including testimony from his successor Steven Miller and the Treasury Department inspector general.
MAN: What you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God.
KWAME HOLMAN (Newshour): Steven Miller, the man forced out as acting head of the IRS, began by acknowledging failures.
STEVEN MILLER, Former Internal Revenue Service Commissioner: I want to apologize on behalf of the Internal Revenue Service for the mistakes that we made and the poor service we provided.
The affected organizations and the American public deserve better. Partisanship or even the perception of partisanship has no place at the IRS. It cannot even appear to be a consideration in determining the tax exemption of an organization.
KWAME HOLMAN: But, at the same time, Miller asserted IRS staffers didn't act out of political motivation when they gave special scrutiny to tea party and other groups on the political right.
STEVEN MILLER: I think that what happened here was that foolish mistakes were made by people trying to be more efficient in their workload selection.
The listing described in the report, while intolerable, was a mistake, and not an act of partisanship.
The Internal Revenue Service is not exactly an “independent agency,” as President Obama claimed during a May 13 press conference. In fact, it is a bureau of the Treasury Department, an executive agency within the federal government. And it is the president who nominates the head or chief executive of the IRS, and who has the authority to remove the individual in that post at his or her will.
Obama spoke of the agency’s supposed independence as he responded to questions about the IRS’ admission that it investigated conservative political groups enjoying tax-exempt status during the 2012 election cycle.
Obama, May 13: If, in fact, IRS personnel engaged in the kind of practices that had been reported on and were intentionally targeting conservative groups, then that’s outrageous and there’s no place for it. And they have to be held fully accountable, because the IRS as an independent agency requires absolute integrity, and people have to have confidence that they’re applying it in a non-partisan way — applying the laws in a non-partisan way.
Jay Carney, the White House press secretary, had previously called the IRS “an independent enforcement agency with only two political appointees,” during a press briefing on May 10. But as the New York Times and the Wall Street Journal have both pointed out, the IRS is not a completely “independent agency.”
Not even the USA.gov Web page on “Independent Agencies and Government Corporations” lists the IRS. And that’s the site to which the White House’s own Web page on “Federal Agencies & Commissions” directs visitors.
The Commissioner of Internal Revenue heads the IRS and is nominated by the president and confirmed by the Senate. And, in its own words, the IRS says that it was “organized to carry out the responsibilities of the secretary of the Treasury under section 7801 of the Internal Revenue Code.” Plus, the commissioner reports to the secretary of the Treasury via the deputy secretary.
At least one way that federal law attempts to remove partisanship from the IRS is through the use of five-year terms for its commissioner that overlap the four-year presidential election cycles. And as Carney indicated, the only other political appointee in the agency besides the commissioner is the IRS chief counsel, who “provides legal guidance and interpretive advice to the IRS, Treasury and to taxpayers.”
The law also prohibits the president, Vice President and members of their executive office staff from requesting “directly or indirectly, any officer or employee of the Internal Revenue Service to conduct or terminate an audit or other investigation of any particular taxpayer with respect to the tax liability of such taxpayer.”
But federal law also says that the IRS commissioner can be removed from the position “at the will of the president.” That can’t be done to the heads of some other actual “independent” agencies without a reason.
For example, the chairman of the National Labor Relations Board — which is listed on the USA.gov Web page — can “be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” Likewise, members of the Federal Reserve Board, another independent agency, can only be removed “for cause.” And the law outlining the organization of the Federal Maritime Commission says that the president may only “remove a Commissioner for inefficiency, neglect of duty, or malfeasance in office.”
Obama proved this very point on May 15, when he said that he had directed Treasury Secretary Jack Lew to review the matter and then Lew requested and accepted the resignation of the acting IRS commissioner, Steve Miller. It has been reported that Miller was aware of the agency’s targeting of conservative political groups and chose not to disclose it to members of Congress.
Obama added that the administration would “put in place new safeguards to make sure this kind of behavior cannot happen again,” and that the Treasury secretary would “ensure the IRS begins implementing the [Treasury Inspector General for Tax Administration's] recommendations right away.”
To catch you up on the last 24 hours in politics; President Barack Obama canned the man at the helm of the Internal Revenue Service, released 100 pages of emails between intelligence analysts and State Department officials following the attacks in Benghazi, Libya, and asked a Senate Democrat to reintroduce a bill to help reporters protect the identity of their sources.
In other words, a whole lotta damage control.
"Americans are right to be angry about it, and I am angry about it," Mr. Obama said Wednesday evening in a four-minute statement from the East Room of the White House. He was referring to the swelling scandal at the IRS, which put extra layers of scrutiny on conservative organizations seeking tax-exempt status.
"I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives," he said.
Earlier in the day, Attorney General Eric Holder told members of the House Judiciary Committee that the Justice Department would conduct a full investigation into the IRS' conduct.
"The facts will take us wherever they take us," Holder said. "This will not be about parties. This will not be about ideological persuasions. Anyone who has broken the law will be held accountable."
The administration's response came as lawmakers ramped up their demands for answers.
"My question isn't about who's going to resign. My question is, who is going to jail over this scandal?" House Speaker John Boehner, R-Ohio, declared at a morning news conference.
Amid the mounting pressure, Mr. Obama huddled late Wednesday with Treasury Secretary Jack Lew, who asked for and received the resignation of acting IRS commissioner Steven Miller.
"This has been an incredibly difficult time for the IRS given the events of the past few days, and there is a strong and immediate need to restore public trust in the nation's tax agency," Miller wrote in a memo distributed to agency employees. "I believe the Service will benefit from having a new Acting Commissioner in place during this challenging period."
Miller said he will officially depart the IRS when his assignment ends early next month. The 25-year agency veteran is scheduled to appear Friday before the House Ways and Means Committee to answer questions about the IRS' actions. On Tuesday, the Senate Finance Committee will get the next bite at the apple, and the House Oversight and Government Reform Committee will hold a hearing Wednesday.
NPR condensed the treasury inspector general's report into "10 Things We Learned," one of them being that the IRS sat on some applications for as long as three years and expected applicants to respond to its requests for information within three weeks.
For his part, Mr. Obama will take questions at noon Thursday during a Rose Garden event with Turkish Prime Minister Recep Tayyip Erdogan. The NewsHour will live-stream the news conference.
On Benghazi, Mr. Obama is attempting to put to rest the evolution of talking points about whether the events on Sept. 11, 2012, were a terrorist attack -- a story that has involved the press as well.
ABC News' Jonathan Karl had a big scoop Friday, reporting the talking points had been revised 12 times over the course of a few days. But CNN's Jake Tapper, formerly with ABC, reported Tuesday that reading the emails contradicts that report.
That's one reason the White House aimed to let people see for themselves. The emails, already given to congressional investigators, are posted in full here.
The Washington Post's Scott Wilson and Karen DeYoung have a helpful explainer. From the piece:
According to the e-mails and initial CIA-drafted talking points, the agency believed the attack included a mix of Islamist extremists from Ansar al-Sharia, a group affiliated with al-Qaeda, and angry demonstrators.
White House officials did not challenge that analysis, the e-mails show, nor did they object to its inclusion in the public talking points.
But CIA deputy director Michael Morell later removed the reference to Ansar al-Sharia because the assessment was still classified and because FBI officials believed that making the information public could compromise their investigation, said senior administration officials, who spoke on the condition of anonymity to describe the internal debate.
Those officials said Wednesday that the e-mails capture a fairly routine conversation between agencies over how to talk about a major event.
What was most challenging in this case, senior administration officials said, was doing so within days of the attack as intelligence agencies working in a volatile environment were trying to piece together what happened.
The New York Times has more on the internal divisions the emails lay bare. Politico writes that the email chains "suggest it was the State Department that was most concerned about taking the blame for the attack."
Then there is the matter of the Justice Department's seizure of phone records from the Associated Press as part of an investigation into leaks about a failed terror plot last year.
Holder told lawmakers Wednesday that he had recused himself from the probe early on because he was one of the officials who had access to the information that was leaked. But he pledged to review the matter once the investigation was completed.
"I do think that at the conclusion of this matter, and when I can be back involved in it, that given the -- the attention that it has generated, that some kind of after-action analysis would be appropriate," Holder said.
The Justice Department's decision to subpoena the records has drawn criticism from lawmakers and news organizations about the impact on 1st Amendment protections. In response, the Obama administration announced Wednesday that it would support a new media shield law that would provide greater protections to reporters seeking to keep their sources confidential.
SUMMARY: President Barack Obama announced that acting commissioner of the IRS Steven Miller would be stepping down, calling the political targeting scandal "inexcusable." Jeffrey Brown delves into the latest developments and lingering questions with Josh Gerstein for Politico and Paul Streckfus, creator and editor of EO Tax Journal.
SUMMARY: Republicans stepped up demands for action against the IRS for targeting conservative political groups, the day after the Treasury Department released a report saying the IRS used inappropriate criteria in assessing tax-exempt status. Gwen Ifill reports on Attorney General Eric Holder's testimony in a House Judiciary hearing.
JEFFREY BROWN (Newshour): The nation's capital was alive with talk of scandal today, starting with the revelations about the Internal Revenue Service. Questions grew over reports of overzealous enforcement aimed at groups on the political right.
The day began with new disclosures about what the IRS had done and who knew about it. The Washington Post reported the targeting of conservative groups was not limited to the agency's Cincinnati office, as the IRS initially said. Instead, The Post said agency officials in Washington and at least two other offices were also involved.
That prompted new calls by Republicans for more information. Senate Minority Leader Mitch McConnell demanded full transparency.
SEN. MITCH MCCONNELL, R-Ky.: So this morning, I'm calling on the president to make available completely and without restriction everyone, everyone who can answer the questions we have as to what's been going on at the IRS, who knew about it and how high it went, no stonewalling, no more incomplete answers.
JEFFREY BROWN: President Obama on Monday said singling out conservative groups for tax scrutiny would be -- quote -- "outrageous."
And at the White House today, Press Secretary Jay Carney said again the president is determined to get to the bottom of the scandal.
A conservative group misleads taxpayers on the Affordable Care Act and the Internal Revenue Service’s future role in enforcing it. Americans for Tax Reform posted a “projected” IRS tax form on its website that claims to “help families and tax specialists prepare” for new tax provisions under the health care law. But ATR makes several false claims:
- The group claims taxpayers will have to disclose “personal identifying health information” to the IRS to prove they have insurance. It quotes an IRS official who said taxpayers will report their “insurance information.” But the official also said the agency will not collect “any personal health information.”
- ATR says employers must offer preventative coverage that includes “abortion and hair loss treatment.” That’s not true. The law requires smaller insurance plans to cover preventative services, but states decide if those services include abortion. Even then, each state must have at least one plan that does not cover abortion.
- The group says failing to comply with the law could result in “interest against your property.” The law specifically bans the IRS from filing liens and levies against persons who fail to pay the tax for lacking insurance.
- ATR claims taxpayers can apply for a waiver from the health care law. That’s false. The government has given temporary waivers to some companies — not taxpayers — regarding one provision of the law, which involves benefit caps.
ATR says it created the tax form — just days before the presidential election — as a ”service to the public.” Our public service is to correct the record.
Not Getting Personal
Starting in 2014, the health care law requires most Americans to have insurance or pay a tax, although exemptions will apply based on income and other factors. The IRS will require most taxpayers to prove they’re covered or they must pay a tax on their 2014 tax returns.
The IRS hasn’t issued exact procedures for how taxpayers will prove they have insurance. But that hasn’t stopped ATR from making misleading statements.
In an introduction to the tax form and in the instructions, ATR claims the IRS will require Americans to disclose:
- “Personal identifying health information”
- “The nature of their health insurance”
- “Insurance card information”
ATR bases its claim on a snippet of congressional testimony from then-IRS deputy commissioner Steven Miller in September. ATR quotes from Miller’s prepared remarks, in which he stated that “taxpayers will file their tax returns reporting their health insurance coverage and/or making a payment.”
But Miller explicitly stated that the IRS will not collect “any personal health information.”
Miller, Sept. 11: Taxpayers will get a form at the end of every year from their insurer to use when they prepare their tax returns. It is important to note that the information that insurers provide to the IRS will show the fact of insurance coverage, and will not include any personal health information.
In most cases, taxpayers will file their tax returns reporting their health insurance coverage, and/or making a payment, and there will be no need for further interactions with the IRS.
Douglas Shulman, who recently stepped down as IRS commissioner, also addressed privacy concerns. He told Congress in August that the IRS will verify whether or not a taxpayer has insurance. But he said the agency will not ask for personal information (See part 2, minute 40:00).
U.S. Rep. Danny K. Davis, Aug. 2: There are also individuals who … claim that the Internal Revenue Service is going to have access to individuals’ private health information. Is that a need in order to enforce the provisions of the act?
Shulman: No. Absolutely not. What we will know is and ask for based on the law is: ‘Do you have health insurance coverage? If so, for how many months? And what is the name of the insurance company?’…
I think it’s been way overstated our role in health care. We are basically going to facilitate the financial transactions that make this whole law work. But we’re not going to have access to private individual health care information except for the fact of coverage.
Shulman said the IRS will match the information a taxpayer submits to what his or her insurer reports (see minute 9:00).
He also explained in a speech at the National Press Club in 2010 that taxpayers will attach a form to their tax return that insurers will send to them.
Shulman, April 5, 2010: When someone files their return, the insurance company will send us a little box that is checked, a yes-no question, that says, ‘Do they have coverage or not?’ They’ll send it to the individual. The individual will attach it to their return, and they’ll send it to us. Think it’s just like a 1099, where you get information reporting about the interest that you have on the bank account.
We will run matching programs around that. And if somebody doesn’t have coverage, they’ll either have paid the penalty that they owe, or they’ll get a letter [from] us saying that you owe this amount.
The IRS hasn’t officially announced procedures for how taxpayers will prove they have insurance. None is listed on the IRS’s web page dedicated to Affordable Care Act tax provisions. But the IRS proposed in April the types of information insurers must submit to the IRS in 2015 — and they don’t include personal health details.
The agency proposed asking insurers for the following:
- The name, address and Social Security Number or Tax Identification Number of the taxpayer and any dependents.
- Dates the insurer provided coverage.
- Whether the insurance is considered “qualified” under the law, which means it covers a number of broadly defined health benefits, among other requirements.
- Whether the individual bought insurance through an affordable insurance marketplace, known as a health insurance exchange.
- Whether the individual is eligible for tax credits and other assistance to help pay for coverage.
Abortion Coverage Required?
ATR claims employers must offer preventative coverage that includes “abortion and hair loss treatment.” That’s not true.
The law requires preventative coverage in insurance plans sold to small businesses and individuals. But the states define what that coverage is.
Some states already have laws banning abortion coverage — although some extend exemptions in cases of rape, incest or to save the life of the mother. Others states have chosen to include voluntary abortion coverage in plans offered to small businesses and individuals. But even then, the health care law requires those states to offer an additional plan that does not cover abortion.
ATR’s tax form asks taxpayers if their employer offers “affordable qualifying coverage.” And the instructions for this question claim that a qualified plan “must include necessary preventative coverage such as contraception, abortion, and hair loss treatment.”
It’s true the ACA specifically requires most health insurance plans to pay for contraception for women, coverage that at least 26 states mandated to some extent before the health care law. And it’s true the law includes new coverage requirements for preventative services. But those requirements apply to new insurance plans sold to individuals and small businesses that have 50 or fewer employees. The requirements do not apply to large employers, which make up about 70 percent of the insurance market.
The act’s intent is to make coverage sold to individuals and small businesses as comprehensive as typical employer-based plans. So, the law requires the smaller plans to cover 10 broadly defined “essential health benefits,” one of which is “preventative and wellness services.”
The ACA allows the states to define what those preventative services are in “benchmark” insurance plans.
The benchmark plans in Kansas, Kentucky and Utah, for example, do not cover voluntary abortion beyond at least one of the exceptions for rape, incest or to save the mother’s life. In fact, those states — and five others — outlawed private and public insurance from covering voluntary abortions before the ACA became law.
And 20 states have banned insurers from covering abortion in plans sold on exchanges, the affordable insurance marketplaces that states and/or the federal government are supposed to set up under the health care law.
States including California, Colorado and New York have picked benchmark plans that cover “voluntary” or “elective” abortions.
California’s plan, for example, requires a $30 copay for a “voluntary termination of pregnancy.”
But as we’ve written before, the law requires that at least one plan sold on a state exchange not include abortion coverage beyond the standard exceptions. (The law also bars federal subsidies from directly paying for a voluntary abortion.)
None of the benchmark plans in the six states mentioned above covers cosmetic hair loss treatment.
No Liens or Levies
The form also claims that “failing to comply with the Obamacare Tax Mandate could result … in interest against your personal property.” That’s not true.
As we’ve written before, the IRS cannot file a tax lien (a legal claim against such things as homes, cars, wages and bank accounts) or a levy (seizure of property or bank accounts).
The law specifically states on page 151 that the government cannot “file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or … levy on any such property with respect to such failure.’’
But as we noted, the law leaves room for the IRS to issue penalties and to sue to recover the unpaid tax, just as it does now for overdue taxes.
Waiver Whopper
The form’s instructions page also claims that taxpayers “can apply to the Secretary of the Department of Health and Human Services for a waiver from Obamacare.”
We’ve addressed similar claims before. The fact is HHS gave temporary waivers to companies — not individual taxpayers — pertaining to one provision of the law.
The health care law will gradually eliminate the annual and lifetime dollar limits placed on insurance benefits. The law raises the limits each year until 2014, when health plans can no longer place a cap on benefits.
HHS has granted waivers to more than 1,200 companies, particularly restaurants with low-income and part-time employees. The waivers allowed companies such as McDonald’s to temporarily continue to provide bare-bones insurance coverage to some workers.
The waivers, which affect nearly 4 million people, expire in 2014.
