Finance Committee's Report on Its Investigation of the IRS

Floor Speech

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Mr. WYDEN. Mr. President, I want to thank the distinguished chairman from Utah. As Members will see from the views I am going to articulate, we have some strong differences about how the facts ought to be interpreted, but we worked very closely together to ensure that there would be one bipartisan compilation of the underlying facts. The two of us certainly agree that there is evidence of vast bureaucratic bumbling at the IRS.

I will also say that a review of 1.5 million pages of emails and documents and interviews with more than 30 IRS officials does not point to a single shred of political interference. I think as colleagues look at particularly the majority views and the minority views--set them aside for a moment; the fact is, the facts of the report show that no order--no order was ever given to target political groups.

I am very pleased that we now have a bipartisan report that was conducted here in the Congress. That is why the bipartisan findings are especially important. As I have stated, the findings contain absolutely no evidence to support the narrative that has been advanced by other committees and some in the media that tea party groups were targeted by the IRS because of their political views.

My own view is that groups on the progressive side and groups on the conservative side--both of them were handled in a fashion that was unacceptable. Both were handled badly. So as we kind of get into these issues--as I say, I think it was a very thorough and professional effort that was conducted to get at the facts. I want to kind of set the stage with some background.

Under our Federal tax laws, people can establish various types of tax-exempt groups. There are different rules for each type. Under Section 501(c)(4), an organization can be established as a social welfare organization. One of the rules for these social welfare organizations is they have to be operated exclusively for social welfare purposes. That has been interpreted since 1959 to mean, among other things, that the organization can engage in some political campaign activity, but that cannot be its primary activity. There is no precise meaning of ``primary'' for this purpose, and exactly what constitutes ``political campaign activity'' is similarly unclear.

Another type of tax-exempt organization is established under section 527. A 527 organization can engage in an unlimited amount of political campaign activity, but there is an important distinction because a 527 organization has to disclose the identity of its donors.

Finally, the type of tax-exempt entity Americans are most familiar with--501(c)(3)s are not allowed to engage in any political campaign activity.

So now, with that as some legal background, let's unpack the events we looked at.

In February of 2010, the IRS Exempt Organizations Determinations Office, located in Cincinnati, began processing the first application for 501(c)(4) status from a tea party group. Before long, the office was--as one IRS employee was quoted as saying, they were inundated with applications from tea party groups, other conservative groups, and some progressive-leaning organizations. The additional Republican views estimate that a total of 547 applications were the focus of our investigation; 65 percent were from tea party or conservative groups; 19 percent were from progressive organizations. To the IRS employees in the tax-exempt organizations division, these applications raised questions about whether the organizations were planning to engage in more political campaign activity than the 501(c)(4) law allowed.

We also tried to assess the cause of the surge in applications, and I think it would be fair to say no one really knows what was behind that. It may have been related to the Supreme Court's Citizens United decision in January of 2010 which knocked down some of the key limits on political campaign spending. It may have been related to the rise in citizen activism embodied in the tea party movement, the Occupy movement. In any event, there was a surge in applications.

Now let's fast forward to May of 2013. At the conclusion of her remarks at an American Bar Association conference, the Director of the IRS tax-exempt organizations division, Lois Lerner, disclosed that IRS employees had selected 501(c)(4) applications by groups with terms like ``tea party'' and ``patriot'' in their name for further reviews. She stated that the IRS employees had done so simply because the applications had those names in the title. Lerner described this process of selecting cases for review because of a particular name as ``wrong,'' ``insensitive,'' ``inappropriate.''

A few days later, the Treasury Inspector General For Tax Administration, who is known as TIGTA, released a report finding that the IRS ``used inappropriate criteria that identified for rebuke Tea Party and other organizations applying for tax-exempt status based on their names or policy positions instead of indications of potential political campaign intervention.''

At the time of these disclosures from the IRS and the inspector general, there was a very serious concern that the singling out of conservative groups by name may have been a consequence of political bias or motivation on the part of IRS employees, possibly at the direction of political appointees at the IRS, the Treasury Department, or the White House. Although the inspector general report found no evidence of political bias or targeting by the IRS, this was obviously a serious matter.

The then-chairman of the Finance Committee, Chairman Baucus, and the then-ranking member of the committee, now our chairman, Senator Hatch, began an in-depth, bipartisan investigation to assess the facts. The investigation continued after I became chairman of the committee, and it has gone forward under Chairman Hatch this year. So our bipartisan inquiry has been underway for more than 2 years. In the course of the investigation, the bipartisan committee staff has reviewed more than 1.5 million pages of documents and interviewed 32 witnesses.

At the committee's request, the inspector general has undertaken several related but separate investigations. The results of the investigation are in the report the Finance Committee submitted to the Senate today. That consists of a bipartisan report prepared by the committee staff and represents the views of Chairman Hatch and myself; additional views of Chairman Hatch's prepared by the majority staff, which I will refer to as the additional Republican views; and my own additional views, prepared by the minority staff, which I will refer to as the additional Democratic views.

In total, the principal parts of the report are 318 pages long, plus a 90-page chronology of events and another 5,000 or so pages of attached exhibits.

I certainly hope the report is going to clear away some of the smoke and cut through some of the rhetoric to ensure that all sides can see what really happened. The report also makes a series of recommendations, including bipartisan recommendations, about how to initiate reforms going forward.

I would like to now describe the main conclusions that I draw from the report. First and foremost, the IRS's handling of this matter was an unmitigated bureaucratic disaster. There were some extenuating circumstances.

The Citizens United decision had opened the floodgates to millions of dollars flowing into political activities, with 501(c)(4) organizations seeming to be one of the favored vehicles. As a result, the IRS was facing a dramatic increase in the number and complexity of applications for 501(c)(4) status. At the same time, the IRS was working with vague regulatory standards that have not been updated since 1959. So the staff at the IRS exempt organizations division has one tough job. They were racing against a late-model Mustang in a 1959 jalopy.

Even taking that into account, the IRS handled the situation badly. Essentially, the IRS froze. The bipartisan report shows that for more than 2 years, officials in the tax-exempt organizations division in both Cincinnati and Washington failed to develop a good system for processing 501(c)(4) applications that seemed to present issues about the group's potential involvement in political campaign activity.

During that time, the IRS staff and managers tried a variety of different approaches. They asked one of their experts on tax-exempt organization law to focus on two test cases--in effect, models. That took more than 8 months, and nothing really came of it.

Then they set up task forces, and they tried what has come to be known as the infamous BOLO or ``be on the lookout'' list. They tried to get more information from applicants by asking a long list of detailed questions. This approach actually backfired because of the volume and the inappropriate nature of the questions.

The bumbling and the bureaucratic paralysis just went on and on. By my count, there were seven different efforts over more than 2 years to figure out how to handle these applications, and the first six were for naught. By December 2011, a total of 290 applications for 501(c)(4) status had been set aside for further review. Two of these applications have been successfully resolved, not 202. It wasn't until the late spring of 2012--more than 26 months after the first tea party application had arrived in Cincinnati--that the IRS finally started to get its act together, setting up a triage group that was able to work through the backlog of applications more quickly.

This process could and should have been handled better. Senior IRS leadership should have recognized or been made aware of the problem and should have stepped in much earlier to develop a system that provided fair and expeditious processing of these applications.

In light of all of this, the bipartisan report concludes that ``between 2010 and 2013, the IRS failed to fulfill its obligation to administer the tax law with integrity and fairness to all.''

At a time of rising political activity and under increased political scrutiny and pressure after the Citizens United decision:

Senior IRS executives, including Lerner, failed to properly manage political advocacy cases with the sensitivity and promptness that the applicants deserve. Other employees in the IRS failed to handle the cases with a proper level of urgency, which was symptomatic of the overall culture within the IRS where customer service was not prioritized.

These are all findings of the bipartisan report.

Further, and I wish to make this clear, most of the applications caught up in this mismanagement were tea party or other conservative groups, including in some cases small and relatively unsophisticated groups who didn't have the resources to engage in a protracted review with the IRS. And I think we ought to make no mistake about it--these groups deserve much better treatment from their government.

If there is any good news in all of this, the Democratic view notes that there have been some positive steps. Four key employees in the IRS who failed to manage properly have been removed from their positions, the backlog of applications has largely been eliminated, and all but 10 of the applications have now been resolved.

The bipartisan report recommends several further steps that should be taken. It makes 16 recommendations, including such reforms promulgating objective criteria to trigger special review, prohibiting requests for donor lists, creating a position in the taxpayer advocate dedicated to assisting applicants for tax-exempt status, and improving the system for tracking resolution of pending applications, with a target of resolving applications within 270 days.

Now let me turn to this question of political influence. Beyond the indisputable gross management, another important focus of our investigation was to deal with these speculative charges and issues with respect to political influence. When the original inspector general report was issued in 2013, there was a concern that it looked like most of the groups that were caught up in all of this were conservative-leaning groups, such as those with ``tea party'' in their names. In light of this, there was concern that we might be looking at something that was much worse than bureaucratic bungling. The concern was that there might have been an attempt to exert inappropriate political influence over the process of reviewing applications for tax-exempt status by disfavoring certain applications because of their perceived political views.

In my view, that would constitute a grave and completely legitimate concern not just for Republicans, not just for conservatives, but for every American. Among the fundamental principles underpinning our system of government are equal treatment for all and an inviolate right to freedom of speech and expression. Both of these principles are especially important when it comes to the IRS, which has great power that must be exercised in an evenhanded fashion. Of perhaps equal importance to an evenhanded exercise of its authority, it is incumbent on the IRS to take great care to ensure against any perception that it is acting because of bias, political or otherwise.

In the committee's investigation--which, as Chairman Hatch has noted, went for more than 2 years--the bipartisan staff carefully reviewed the evidence, and in contrast to the bipartisan analysis and recommendations I have just described, in this instance, the Democratic and Republican views have come to different conclusions. The additional Democratic views conclude that there is absolutely no evidence that there was an attempt to exert political influence. The additional Republican views--in contrast, in the 120 pages--are trying to make the case that there somehow, someway, must have been political interference involved but without identifying any direct evidence, documentary or otherwise, to support the case.

I wish to explain first by laying out the basic facts and then by responding to the main points in the additional Republican view.

First, on the facts, according to the report, the staff found no evidence of involvement by the White House or by Treasury Department political officials. None. The staff found no evidence that any political appointee in the Obama administration was involved in the review of applications or in the establishment of standards for their review. None.

As a side note, during most of the relevant period, the IRS Commissioner was Mr. Douglas Shulman, who was appointed by President Bush, and the principal official responsible for the management of the relevant IRS activities, Lois Lerner, was a career civil servant who was named to her position as Director of the tax-exempt organizations division by IRS Commissioner Mark Everson, who also was appointed by President Bush.

In addition to finding no emails, no memos, and no other documents indicating there was an attempt to exert political influence, the report indicates that the staff asked every IRS employee who was directly involved in the review of the applications whether there had been any attempt to exert political influence over the handling of applications or whether

they saw anyone else processing applications in a politically biased way. The staff asked 25 people. Every single one of them said there was no political bias.

In addition, the inspector general audit that spurred the investigation also found no evidence of targeting or political bias. Let me repeat that because there have obviously been some misconceptions. The 2013 inspector general audit found no evidence of political bias in 501(c)(4) processing. This is discussed further in the committee's report, including an email from the deputy inspector general at the office stating: ``There was no indication that pulling these applications was politically motivated.'' There is an email from the inspector general chief counsel stating that the tea party was not targeted. The inspector general himself testified before our committee that no political motivation was found, and his office further stated that no relevant communications were found coming from the White House or Treasury.

Further, although more conservative-leaning than progressive-leaning groups were affected, several progressive organizations were subject to the same kind of gross mismanagement, long delays, and inappropriate information requests that were experienced by the conservative organizations. The bipartisan report notes that terms such as ``progressive'' and ``ACORN,'' as well as terms intended to capture the various Occupy Wall Street groups, were included with ``tea party'' and ``9/12'' on the IRS BOLO list. Again, ``progressive'' appeared on the same BOLO list as ``tea party'' from day one. The report also shows that progressive groups were subject to mismanagement, delays, and intrusive questions from the IRS.

I also would like to respond to several other particulars to the additional Republican views. Notwithstanding the plain fact that there is no evidence of any attempt to exert political influence over the process, the additional Republican views strive over the course of 120 pages to make the case that somehow, someway, somewhere, there was something sinister going on. This is done through a combination of innuendo, speculation, and unjustified inference.

The additional Republican views make much of the fact that the head of the tax-exempt organizations division and the principal person responsible for the management issues involved, Lois Lerner, appears to have been a Democrat with liberal views about some issues. Much is also made of the fact that the President and some congressional Democrats wanted to impose tighter restrictions on campaign spending. Put these two facts together--say, Republicans--and it becomes clear in their view that the fix was in.

However, the actual evidence to support this theory is nonexistent. For example, the Republican views quote an email from Ms. Lerner's husband in which on election day he told her he had written in the names of Socialist Labor candidates on his ballot. They quote an email from Ms. Lerner--an email she wrote--celebrating Maryland's approval of same-sex marriage. And they note what they apparently consider to be particularly suspicious: that in the 1.5 million pages of documents, the Republican staff found no instance in which Ms. Lerner, members of her family, or her friends ``expressed positive sentiments about the Republican Party, a specific Republican candidate, or the Tea Party.''

So what we have is that Ms. Lerner's husband voted for Socialists, she is a Democrat, she supports same-sex marriage, and she apparently doesn't have a lot of Republican supporters among her family. You just have to ask yourself, what is this supposed to prove? There is no evidence that any of these views were brought to the actual review of the application process, and that, to me, is what is paramount.

Granted, the Republican views also quote various other emails in which Ms. Lerner expresses support for President Obama or is critical--sometimes harshly so--of the Republican Party and specific Republican officials. To my mind, this is pretty much irrelevant chitchat. It is gossip. It is coffee-shop talk, locker-room talk. As the Democratic views puts it, ``There is no evidence that Lois Lerner allowed her political belief to affect how she carried out her duties as a manager of the Exempt Organizations office.''

The Republican views also highlight Ms. Lerner's views about the Supreme Court Citizens United decision. It is pretty obvious she didn't like it. She thought it threatened to unleash a flood of unregulated money in the Federal campaign. The Republican views even suggests that it was somehow nefarious that Ms. Lerner was closely following the Citizens United decision.

All of this tells us nothing. She was the head of the IRS division responsible for applying the law regarding the appropriate level of political campaign activity undertaken by 501(c)(4) organizations. It would be odd, in my view, if she weren't closely following Citizens United. It was an important decision with major implications for political campaign spending.

It is not surprising to me that she didn't like the decision. Eighty percent of Americans felt the same way. I am one of them.

The Republicans also were exercised that President Obama, various congressional Democrats, and the Democratic Party in general opposed the Citizens United decision and supported tighter limits on campaign spending. No question that is true. But the Republican views make a remarkable leap. They say:

Overall, it is apparent that the need for an explicit Presidential directive to target the Tea Party and conservative organizations was rendered unnecessary by the White House's frequent public statements condemning political spending. Government agencies were acutely aware of the President's wishes and responded accordingly.

So said the majority in their views.

Now, just think about that. Just kind of put your arms around that. The President wanted to limit campaign spending. So the Republicans on the committee would have us conclude that various relatively low-level career government officials, without any direct intervention whatsoever from the White House, from the Treasury Department or from anybody else in a position of political authority, just sprang into action and engaged in a conspiracy of some sort to harass conservative groups. I guess it was almost conspiracy by osmosis. I find these extraordinary leaps to just defy logic.

Federal civil servants are allowed to have a political opinion. The President of the United States and Members of Congress are allowed to express their views about the campaign finance system. Certainly some of Ms. Lerner's personal emails were in poor taste, and it may have been bad judgment for someone in her position to be sending emails to her friends on her office computer expressing political opinions, but the only pertinent question here--the only pertinent question--is whether the political views of Ms. Lerner or other officials influenced the evenhanded administration of the law. Although the majority points to numerous embarrassing emails from Ms. Lerner, they cannot point to even a single one where she directed or encouraged employees to exercise political bias.

The majority views also make another argument. They assert that significantly more conservative-leaning groups than progressive-leaning groups were affected by the dysfunction at the IRS and that this, in and of itself, proves there was a bias against conservatives. This is a more serious argument, but when you unpack this one, it, too, falls short. As I have said before, it appears from the report that most of the groups affected were conservative, but progressive groups were affected too. The bipartisan report indicates that progressive was on the BOLO list, along with ACORN and other terms such as ``Occupy'' that were considered to indicate progressive or Democratic-leaning political engagement.

The report also shows the IRS conducted workshops directing employees to look for terms such as ``progressive'' and ``Emerge'' as well as ``tea party.'' Again, these groups suffered from the same sort of delays and intrusive questions that tea party and other conservative groups suffered from.

Nonetheless, Republicans on the committee insist the fact that more conservative than progressive groups were caught up in the IRS dysfunction necessarily means there was bias. However, this inference can be only drawn if there were equal volumes of applications coming into the IRS from conservative and progressive groups. There is just no evidence this was the case.

Moreover, there is good reason to believe that in the wake of Citizens United, the increasing volume of applications--particularly applications that raised serious issues about involvement in political campaign activity--came primarily from conservative-leaning groups. Independent watchdogs have determined that 80 percent of political campaign spending by 501(c)(4)s was supported by conservatives, and the IRS staff said they were inundated with tea party applications. If that is the case, it would be unsurprising that most of the delays and other problems included conservative groups. They were mostly the ones who were applying.

Again, I am not trying in any way to justify the poor treatment received by conservative groups, but the report found no evidence that the typical conservative application was any more likely to be mistreated than the typical progressive application, and without such evidence it iUnknowns inappropriate to infer there was bias.

A third argument the Republican views assert, which also falls short, is that there was a double standard: on one hand the treatment of the conservative groups caught up in the 501(c)(4) dysfunction and on the other hand the treatment of some nonprofit groups supported by Democratic Senators. The Republican views cite three cases in which Democratic Senators asked that the review of applications for tax-exempt status be expedited and where that apparently was done. They contrast the relatively quick resolution of these cases to the delays experienced by tea party and other conservative applicants for 501(c)(4) status.

On the face of it, the facts the three cases relied on do not support the Republican inference there was a double standard. In the first place, according to the information in the report, the three groups supported by Democratic Senators had applied for 501(c)(3) status, under which they can engage in no political activity. Further, in two of the three cases there is nothing in the report indicating the cases were particularly difficult or controversial.

In the Democratic views, it is noted the third case was a request for the expeditious consideration of an application for tax-exempt status by the One Boston Foundation in order to facilitate fundraising and assistance to those who were the victims of the Boston Marathon terrorist attacks in April of 2013. In that case, it appears from public reporting there was an unusual legal issue and that in part at the request of various public officials, the IRS did in fact cut through some redtape and resolve the issue so this organization could get up and running quickly.

As far as I know, there are no allegations that the One Boston Foundation was anything remotely like a political organization, and I am not aware of any partisan or other controversy surrounding

it. I was surprised by the Republican views that apparently thought it was inappropriate or unfair for public officials to encourage the IRS to help get the organization up and running or that the IRS did anything wrong by handling this case well. To put it more pointedly, I was surprised this was considered to be in any way relevant to our investigation.

As the bipartisan report makes clear, the IRS took far too long to review 501(c)(4) applications from tea party and other groups, and it subjected many of the groups to unnecessary delay and inappropriate questioning, but the fact that the IRS was able to handle a few very different cases reasonably well does not show a double standard. In effect, the Republican views compare apples and oranges.

Before closing, I want to briefly address several other matters covered in our report. The first is the crash of Lois Lerner's hard drive in 2011 which resulted in the loss of some emails that may have been relevant to our inquiry.

Senator Hatch and I learned about the hard drive crash in June 2014, just before we were originally planning to release the committee's report. The two of us immediately asked the inspector general to investigate to determine whether there was evidence of intentional wrongdoing and whether any of the lost emails could be recovered from other sources.

The inspector general conducted a thorough investigation, which took more than 1 year. Here is what the inspector general found, as explained in the report: Although we do not know why her hard drive crashed, there is no evidence it was crashed intentionally. The inspector general was able to recover about 1,300 additional emails, and the inspector general found that some potentially relevant backup tapes had been unintentionally mishandled and then destroyed, contrary to the document retention policy the IRS put in place after our investigation began. These findings have led to a significant amount of criticism about the current IRS Commissioner, Mr. John Koskinen.

Before closing, I want to make a couple of points in response to the criticism of Commissioner Koskinen. First, it is important to remember that the principal problems we have been talking about--in other words, Chairman Hatch and I have been talking about these issues here for probably close to an hour regarding the IRS handling of applications for section 501(c)(4) status--all occurred before Mr. Koskinen came on board as IRS Commissioner in December of 2013. In fact, during the entire period covered by the original 2013 inspector general investigation, the IRS Commissioner was Mr. Doug Shulman, as I stated, appointed by President Bush. Although Mr. Koskinen inherited these problems, he did not create them.

Second, looking at how the IRS handled the hard drive crash, I do think Mr. Koskinen waited too long to inform the Committee on Finance and that the senior IRS leadership could have done a better job keeping track of the backup tapes. That said, there is zero evidence that these mistakes were politically motivated, and there is no reason to believe the potential loss of some of Lois Lerner's emails compromised the investigation.

We recovered thousands of emails covering this period from the relevant people corresponding with Ms. Lerner. Even taking the potential loss of some emails into account, the bipartisan report concludes that ``the large volume of information we have received gives us a high degree of confidence in the accuracy of the conclusions reached during our investigation.''

Looking forward, Commissioner Koskinen is a skilled and experienced leader. I am confident he is going to work closely and cooperatively with Chairman Hatch, with myself, with Democrats and Republicans on the Committee on Finance to continue to improve the operation of the IRS Exempt Organizations Division.

We also asked the inspector general to investigate four other cases in which there have been allegations of political motivation by the IRS. One involved a White House official who referred to a specific company when criticizing the use of tax loopholes. The question was whether he had received inside information from the IRS, and of course that would be a serious violation of the law.

The other cases involved conservative groups that unfortunately had some of their confidential tax information inappropriately made public. These cases have generated intense congressional interest and lawsuits. The underlying concern, similar to the concern about the handling of the 501(c)(4) applications, was the serious and legitimate worry as to whether there had been an effort to exert political influence over the IRS--in effect, to use the IRS as a weapon against conservatives.

Here, based on the information in the report, the inspector general's investigations have led to clear conclusions. The inspector general investigation of the White House official found he did not receive any confidential information from the IRS. He apparently was just shooting from the hip, which may be bad judgment, but it is not a crime. In the three cases where confidential taxpayer information was inappropriately disclosed, it was because of unintentional mistakes by low-level IRS employees, some of whom have been subject to administrative discipline.

These mistakes were regrettable, and the staff has made bipartisan recommendations to prevent them from recurring, but the bottom line is that in each of these cases there was no effort to exert political pressure.

In summary, our report tells a regrettable story. Many applicants for tax-exempt status were treated badly. They were treated in an unacceptable way, and they deserved better service from their government, but in the end this is a story about gross bureaucratic dysfunction. It is not about an attempt to exert political influence over or inject political bias into how the IRS does its job.Unknown

Further, the main culprits are gone, the system has been improved, the committee has made a series of bipartisan recommendations to improve it further, and I think it is fair to say that both Democrats and Republicans on the Senate Committee on Finance--Chairman Hatch has worked very closely with me on this--are committed to making sure nothing like this vast bureaucratic bungling ever happens again.

So we here in the Senate have more to do. We are going to have to do some hard thinking about one of the underlying issues, which is the money and politics, including in the context of tax-exempt organizations that are not supposed to be engaged primarily in political activity.

As part of this--and I respect the views of Chairman Hatch and others who may disagree--I think the Congress has to come up with better standards. We ought to set--again, in a bipartisan way--to overhaul the 1959 regulatory jalopy. Just put our arms around that one. Here we are in the digital world with so many changes in our country, and we still have the basic 1959 approach to regulating these issues. We ought to establish rules of the road that fully respect First Amendment rights and also give all organizations--be they progressive, conservative or in between; whatever they are--better guidance about what they can and cannot do given their tax-exempt status.

My own view is, when it comes to money and politics, we really can't get enough transparency. I hope we will be able to work on those issues in the future. In fact, the last time we had a bipartisan bill here was in the last Congress, when Senator Murkowski, our colleague from Alaska, joined me on a bill that said all major spending from everywhere--wherever you were; progressive, conservative--essentially had to be disclosed. So my own view is that we need more transparency, not less.

Mr. President, I have some brief remarks to make on another subject, unless our chairman wants to make further comments. I will yield on this topic and let the chairman comment. Then after the chairman is done speaking, I will ask unanimous consent--and be certainly no more than 10 minutes on another subject--to speak after the chairman has had a chance.

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