IRS, Congress Point Fingers About Who is to Blame for Scandal

Top reform proponents say IRS scandal won't spur change.

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Senators from both sides of the aisle were eager to pile on the pair of former Internal Revenue Service chiefs who appeared before them Tuesday during a committee hearing investigating the scandal that involved the targeting of conservative political groups. But the IRS officials put the blame back on Congress.

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Former IRS commissioner Douglas Shulman, who headed the agency during the time lower-level officials were unfairly scrutinizing conservative political groups seeking a tax-exempt status, told lawmakers on the Senate Finance Committee the laws and regulations dictating the criteria for granting the status were vague and in need of congressional clarification.

"I actually don't think it's fair to blame the IRS for not fixing [the ambiguity]," he said. "The IRS can give input, but this is actually something that if Congress decides it should be changed, Congress should either clarify or it should be done in regulation."

 

Treasury Department Inspector General Russell George, who authored a scathing audit of the IRS practice of using keywords such as "tea party," "patriot" and "9/12" to select groups for additional scrutiny agreed with Shulman that IRS officials had been put in a difficult position.

"The way the law has been interpreted by the IRS over the course of a number of decades – I, in all candor, don't know whether that was done as the result of court decisions or simply internal policies – but further explanation is needed," he said in response to questioning by Sen. Bill Nelson, D-Fla.

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The lawmakers and former tax officials both acknowledged that the 2010 Supreme Court decision on Citizens United helped create the rush for political groups to seek the 501(c)(4) tax-exemption status. That's because it paved the way for unlimited corporate spending in political campaigns, but under the regulations set up for such groups following the court decision the donors have to be disclosed. That led to groups seeking anonymity to take advantage of the 501(c)(4) designation, which exists as a "social welfare" group but allows for anonymous donations and campaign spending.

"Clearly a Mack truck is being driven through the 501(c)(4) loophole," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. Baucus directed the IRS to begin scrutinizing the proliferation of 501(c)(4) groups in 2010, prompting outcry on the right he was part of a concerted effort to punish conservatives who had been taking advantage of the designation.

But lawmakers pushed back on the notion that they bear responsibility for the confusing campaign finance law.

Sen. Ron Wyden, D-Oregon, said while the "lines have blurred" between Super PACs, blatantly political spending groups that have to disclose their donors, and 501(c)(4)s, which are supposed to be "social welfare" organizations that can spend a portion of their money on political activity but don't have to reveal their donors, the onus was on the IRS to clarify who counted as what.

[READ: IRS Targeting Scandal Rooted in Campaign Finance Politics]

"There's an incentive for people to chose their tax status based on whether they want to hide their donors," he said. "The lines blurred and you don't seem to have done anything about it and I want to know why not."

Shulman, who was appointed to head the IRS by President George W. Bush, said it was a difficult task for the IRS – whose main job is to process the nation's tax receipts and returns – to also make determinations about whether or not the political activities of thousands of groups seeking tax-exemptions crossed a vague threshold.

"This is a place where Congress should look because from where I sit, the IRS is given a very, very, very difficult task of trying to go in and figure out [that] you can do some political activity, but you can't do too much," he said. "The confusion and break down that you saw happen in the Cincinnati office is inexcusable, but I would also posit that part of it was because of the very difficult task given to these people."