What newly released docs tell us about the IRS and how It handles dark money groups

 

By Kim Barker and Theodoric

Meyer

ProPublica, April 9, 2014, 11:52 p.m.

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:

1.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.

2.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.

3.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.

4.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.

5.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.

———

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