[EL] More (good and bad) on IRS EO "Advocacy Project"

[BZall at aol.com]

I, like John Pomeranz and others on this list, was in the room when Lois  
Lerner made her remarks. Lois' Lerner's full response to Celia Roady's 
question  is reprinted in this morning's EO Tax Journal. _www.eotaxjournal.com_ 
(http://www.eotaxjournal.com)  (subscribers), and  apparently Paul Streckfus 
has now permitted the transcript to be put on Rick's  blog. Paul, who writes 
EOTJ, told me that he thought the Q&A was a "set-up,"  a sentiment widely 
shared by those in the room; Celia, for her part, told me  that she didn't 
expect that response to her question, so if it was a set-up, it  wasn't done 
well.  
 
I have extensive experience dealing with the "Advocacy Project," both  
directly and as a member of an informal group of lawyers that has been tracking  
and discussing this since last year. Remember that Commissioner  Shulman 
testified in March 2012 that IRS was not targeting conservative  
organizations; the question was triggered by numerous instances that suggested  such 
targeting. That may have been true in March 2012, but it was not true  shortly 
thereafter. 
 
My first note with the name "Advocacy Project" is dated June 11, 2012,  
following an extensive series of inquiries into the transfer of  a 1024 from 
Richmond to Cincinnati. The application, filed in 2011,  was for a pretty 
straightforward c4, but elicited a series of requests for  more information 
(I've done a lot of these applications, so unlike some of  the comments in the 
media, I fully respect the need for additional information  in some cases; 
often, however, these involve nonsense questions  designed solely to toll the 
statutory requirement for IRS  activity within 270 days). Sample actual 
question from this request for  more information: "Describe and provide 
supporting documents regarding to the  situation(s) where you may involve in 
campaigning for candidates for elective  public office." The answer: the 
organization "has  not had any involvement in campaigning for candidates for public 
office and  foresees no such activities in the near future." 
 
This group did not have Tea Party, Patriot, or any similar term either  in 
its name or anywhere else on the application. Nevertheless, the application  
was transferred to Cincinnati. The group did use the word "advocacy" in its 
 explanation of proposed activities: "public education and advocacy 
materials."  It also referred to attending motor sports races, which apparently has 
 conservative connotations (unfounded in my view). That was apparently the  
trigger for transfer. "Some answers showed issues that required transfer to 
 another group in Cincinnati." In this case, the agent was instructed  to 
transfer the file ("I don't know what issues."), so this was something that  
managers not in Cincinnati were directed to do. This was not just 
"low-level"  "line staff" in Cincinnati screening applications coming in. 
 
During a conversation eight days later, a "staff assistant" in  Cincinnati 
told me that no one was "working the case," that there would be  additional 
questions in another letter in "another six or so weeks," and that  she had 
no additional information. Contrary to the usual IRS practice, she would  
not tell me her group number. She said there was no such group. 
 
My notes from conversations with a more senior IRS agent on August 22,  
2012, support Lois's remarks in some ways. The agent called to apologize for 
the  extensive delay in this application, explaining that the case was still 
not  assigned (any application that goes beyond the usual screening is 
required to be  assigned to a particular IRS specialist for further work), and it 
would not be  assigned for many "months into 2013." Unlike the prior agents, 
he said there was  no need for additional questions. He said, and this is 
what Lois echoed, that  there have been a "larger number of cases since 
Citizens United." 
 
The prediction that it would be "months into 2013" before anyone was  
assigned to this group's 1024 has proven accurate; no one has yet been assigned  
as of May 2013. That, by the way, was a big omission in Lois's remarks. She 
left  the impression that many such applications have been resolved; an 
informal (and  clearly incomplete) poll indicates no such breaking of the 
logjam. 
 
It was nice to have her report on four things they have done to fix the  
problem (Higher level managers now must approve any new "consolidation list;"  
organizations who received inappropriate questions have been given more 
time to  respond and more flexibility in responding; they have "sorted the 
cases" so  those with few issues will be closed quicker; and they will be 
looking much more  at the "primary activity" of the organizations receiving 
special scrutiny rather  than their association with particular individuals). But 
those steps are both  incomplete and troubling in themselves. 
 
But, as my experience, and Cleta Mitchell's show, this is a lot broader  
than the media has reported so far. Rick has reprinted Cleta Mitchell's  
letter explaining that this issue is much broader than Lois's comments  
addressed. 
http://electionlawblog.org/wp-content/uploads/05-10-2013-Letter-to-IRS-re-Exempt-Organizations.doc.  Our informal luncheon group of election and 
tax-exempt organization lawyers has  been following this Advocacy Project for a 
year, trying to get more information  and pooling resources. I had 
discussions with others yesterday over IDRs (the  basic IRS subpoena for information 
during audits) that are being triggered by  the words "Tea Party" or 
"Patriot." One lawyer told me their IDR #1 (the first  letter you get from the IRS 
announcing your audit and giving you an extensive -  in this case, seven 
pages of single-spaced requests - list of materials you must  provide) had those 
words in it. 
 
I agree with John Pomeranz's recommendation on this list that liberal  
organizations should get involved in the call for answers and remedies. This,  
like the IRS illegal (yes, it's a strict liability felony) disclosure of  
conservative organizations' confidential information, taints the whole process  
in a way that leads to more long-term damage to than any short-term 
partisan  benefit would warrant. Another lawyer last night told me that earlier 
this week  he defended the IRS to a client as non-partisan and simply 
processing; he had to  go back to that client and explain that, yes, he was wrong, 
and it looked pretty  clear from the IRS letter the group got that they were 
part of this problem. 
 
One example: given this problem and the lack of any resolution, I will be  
much more reluctant to recommend that a c4 file a 1024 with the IRS. There 
is no  advantage and more risk. Remember that a c4 gets its nonprofit status 
from its  formation under state law; the IRS simply "recognizes" the c4's 
exemption (check  the difference in titles between the 1023 and 1024 forms). 
The recent IRS  "clarification" that organizations must file 1024s within 27 
months of formation  or lose retroactivity won't really affect that; still 
no downside for an  organization in most cases. 
 
But we have been down this road before. I worked with the late Bill  
Lehrfeld on very similar claims (mostly audit selection) during the Clinton  
Administration. Those claims were vigorously denied by the IRS, which got a  
congressional report to back them up. But the report was based on investigation  
that was, at best, incomplete ("Please fill out this questionnaire to show  
us why you have been selected by the White House for audit." "Um, we don't  
have access to the White House or IRS records; that's what we thought you  
on the Committees were going to do." "No, we aren't."). So that left a 
lingering  bad taste that exploded with this revelation. The IRS does not have 
any friends,  only a few defenders, and it has fewer of those today than 
yesterday. 
 
The real question is how we fix this process. This echoes the continuing  
discussions over the FEC "deadlock," as discussed on this list recently as 
part  of the "push poll" discussion. No one wants a dysfunctional agency, but 
no one  wants an agency where a majority can oppress the minority. 
Disclosure, the  mantra of some on this list even here, can't be the answer in the 
tax area,  where the statute protects confidentiality; the Supreme Court's 
wobbly support  of disclosure in other areas (such as campaign finance) doesn't 
yet provide the  government with sufficient interest to justify the First 
Amendment chill on  association that would generate (see, e.g., Taxation With 
Representation of  Washington v. Regan, concurrence). Even extending the 
IRS's  criminal liability for disclosing information improperly wouldn't work 
here,  where, if you believe the IRS explanation (which may be at least 
partially true,  in that low-level employees did make the selections, but under 
what management  and direction?), the system worked, just in the wrong way. 
 
Unlike earlier such programs under Nixon and Clinton, this problem is  
probably more based in confirmation bias and public education failures. It may  
be that the situation is at least partly the way Lois described it, but if 
so,  the problem is not that there were certain selected words that should 
not have  been used. It is that those who selected the words did not 
understand the import  of the selections. It is not "insensitivity" at work here, at 
least not to the  political ramifications; it is an inability of the IRS to 
select criteria for  determining inappropriate action based on viewpoint. A 
typical First Amendment  dilemma.
 
We don't solve First Amendment questions by looking at viewpoint, and  
rarely by content. Here the IRS is trying to make a content choice, and got  
burned by looking at viewpoint in the guise of particular actions or terms  
thought to connote one when they actually went to the other. 
 
This should be a reform that everyone can get behind. 

Barnaby Zall 
Of Counsel 
Weinberg, Jacobs & Tolani,  LLP 
10411 Motor City Drive, Suite 500
Bethesda, MD 20817
301-231-6943  (direct dial) 
bzall at aol.com  
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