Relatively inexperienced IRS managers could take the reins of gatekeeping panels with significant sway over dark money groups under the terms of a memo sent to agency managers last week and obtained by OpenSecrets Blog. The panels determine whether non-profits involved in political activity are called out for audits.
Effective July 17, a team of three IRS employees will make up Political Activities Referral Committees (PARCs), which are tasked with “[recommending] referrals for audit in an impartial and unbiased manner,” according to the memo. To refer an audit takes a majority vote of the three committee members. Those three will be selected from a pool of manager-level employees (civil service grade GS-14 equivalents) at random.
That means the PARCs will likely consist of workers with little experience administering exempt organizations, said Marcus Owens, a Washington, D.C.-based lawyer and former head of the IRS Exempt Organizations division.
“I analogize it as, an airline deciding to select their pilots at random from their employees,” said Owens, who stressed the agency previously made certain the managers tasked with audit referrals had meaningful experience.
Panel members will be drawn from the Examinations and Rulings & Agreements units of the division, and the number of PARCs will be determined by the “volume of political activities referrals,” the memo said. The IRS didn’t respond to detailed questions from OpenSecrets Blog.
Owens, who reviewed the memo, said he believes the move is designed to cut down on the allegations of bias among the IRS managers who previously referred organizations for an audit. In 2013, the IRS division became embroiled in controversy when allegations arose that IRS officials with that duty, overseen by Lois Lerner, were unfairly targeting conservative groups.
If the new random process is to diffuse the idea that there was bias, Owens said, “Now, there’s a bias toward inexperience.”
It’s a change that should be “stopped in its tracks,” said Cleta Mitchell, a political law expert at Washington, D.C. law firm Foley & Lardner who often represents conservative clients.
“The IRS targeting was in no small part brought about by IRS agents not understanding the difference between lobbying and political activities,” she said. “I’m very disturbed that they appear to be codifying that thinking for purposes of determining audit targets.”
The change comes at a time of competing interests for the IRS. Last year, the agency’s chief wanted to address the growing issue of “dark money” spent by politically active nonprofits (mainly 501(c)(4) social welfare groups) in elections (spending tracked by OpenSecrets.org) with new rules that have been significantly delayed. Others call it out for targeting conservative non-profits that engage in that kind of activity.
Political activity review boards aren’t a new idea for the IRS: In 2004 and 2006, the agency established a task force called the Political Activities Compliance Initiative to look at impermissible politicking by 501(c)(3) charities. According to a 2006 report, the initiative found that in three out of four cases reviewed, “improper political intervention by [charity] organizations was substantiated.” The initiative used Internet research to investigate claims of direct, prohibited contributions to political candidates from charities and examined churches where officials allegedly endorsed candidates from the pulpit.
Unlike the new Political Activities Referral Committee, however, the 2006 Initiative’s referral committee consisted of three employees with “extensive [Exempt Organizations Division] tax law experience.”
Back then, groups that didn’t disclose their donors laid out about $5 million for political expenditures that were required to be reported to the Federal Election Commission, and most of that was attributable to 501(c)(6) trade associations. The type of dark money spending that’s the norm today — cash passed through various nonprofit organizations, mainly 501(c)(4)s, and then used for political ads — hardly existed.
In the 2012 presidential election cycle, dark money groups reported to the FEC that they spent about $309 million. That doesn’t include significant, but unreported, expenditures by the organizations on “issue ads,” which are often thinly-veiled endorsements of or attacks on candidates.
IRS officials will likely announce the change tomorrow. A House Ways and Means Committee oversight subcommittee hearing, which will address “the Internal Revenue Service’s audit selection process and internal controls within the Tax Exempt and Government Entities division,” is set for Thursday.