[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
IRS ABUSES: ENSURING THAT TARGETING NEVER HAPPENS AGAIN
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2014
__________
Serial No. 113-135
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia PETER WELCH, Vermont
THOMAS MASSIE, Kentucky TONY CARDENAS, California
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan Vacancy
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on July 30, 2014.................................... 1
WITNESSES
Mr. David Keating, President, Center for Competitive Politics
Oral Statement............................................... 5
Written Statement............................................ 8
Mr. Hans A. Von Spakovsky, Manager, Election Law Reform
Initiative, and Senior Legal Fellow, Edwin Meese III Center for
Legal and Judicial Studies, The Heritage Foundation
Oral Statement............................................... 16
Written Statement............................................ 18
Ms. Cleta Mitchell, Partner, Foley & Lardner LLP
Oral Statement............................................... 26
Written Statement............................................ 29
Mr. James Sherk, Senior Policy Analyst in Labor Economics, The
Heritage Foundation
Oral Statement............................................... 37
Written Statement............................................ 39
APPENDIX
The Hon. Michael R. Turner, a Member of Congress from the State
of Ohio, written statement..................................... 74
The Hon. Gerald E. Connolly, a Member of Congress from the State
of Virginia, written statement................................. 75
The Hon. Matthew Cartwright, a Member of Congress from the State
of Pennsylvania, written statement............................. 77
Staff Report ``Making Sure Targeting Never Happens: Getting
Politics Out of the IRS and Other Solutions.................... 78
Oversight.house.gov Majority Staff Report, April 7, 2014......... 101
Screening Workshop Notes, July 28, 2010, submitted by Rep. Davis. 148
Statement for the record from Prashant K. Khetan, Senior Counsel. 151
IRS ABUSES: ENSURING THAT TARGETING NEVER HAPPENS AGAIN
----------
Wednesday, July 30, 2014
House of Representatives,
Committee on Oversight and Government Reform,
Washington, D.C.
The committee met, pursuant to call, at 9:34 a.m., in Room
2154, Rayburn House Office Building, Hon. Darrell E. Issa
[chairman of the committee] presiding.
Present: Representatives Issa, Mica, Turner, Jordan,
Chaffetz, Walberg, Lankford, Meehan, Gowdy, Farenthold,
Woodall, Massie, Collins, Meadows, Bentivolio, DeSantis,
Maloney, Norton, Tierney, Connolly, Kelly, Davis, Cardenas and
Horsford.
Staff Present: Richard A. Beutel, Senior Counsel; Molly
Boyl, Deputy General Counsel and Parliamentarian; Lawrence J.
Brady, Staff Director; David Brewer, Senior Counsel; Sharon
Casey, Senior Assistant Clerk; Drew Colliatie, Professional
Staff Member; John Cuaderes, Deputy Staff Director; Adam P.
Fromm, Director of Member Services and Committee Operations;
Linda Good, Chief Clerk; Tyler Grimm, Senior Professional Staff
Member; Mark D. Marin, Deputy Staff Director for Oversight;
Laura L. Rush, Deputy Chief Clerk; Jessica Seale, Digital
Director; Andrew Shult, Deputy Digital Director; Peter Warren,
Legislative Policy Director; Rebecca Watkins, Communications
Director; Tamara Alexander, Minority Counsel; Portia Brown,
Minority Counsel; Aryele Bradford, Minority Press Secretary;
Jennifer Hoffman, Minority Communications Director; Juan
McCullum, Minority Clerk; Dave Rapallo, Minority Staff
Director; Donald Sherman, Minority Chief Oversight Counsel; and
Katie Teleky, Minority Staff Assistant.
Chairman Issa. The committee will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
The Oversight Committee exists to secure two fundamental
principles. First, Americans have a right to know that the
money Washington takes from them is well spent; and, second,
Americans deserve an efficient, effective government that works
for them. Our duty on the Oversight and Government Reform
Committee is to protect these rights. Our solemn responsibility
is to hold government accountable to taxpayers because
taxpayers have a right to know what they get from their
government. It is our job to work tirelessly in partnership
with citizen watchdogs to deliver the facts to the American
people and to bring genuine reform to the Federal bureaucracy.
This is our mission.
Today's hearing continues the committee's oversight of the
IRS and its targeting of conservative applicants for tax-exempt
status. The committee continues to conduct a thorough and
comprehensive investigation of the IRS' targeting.
From this oversight work, we know a great deal about the
IRS' targeting. We know that in 2010, as the President traveled
the country criticizing the Supreme Court's decision in
Citizens United, the IRS began systematically scrutinizing and
delaying tax-exempt applications.
We know Lois Lerner talked about the political pressure on
the IRS, ``to fix the problem.'' Again, to fix the problem
caused by Citizens United. We know that Lois Lerner called
conservative tax-exempt applicants, ``very dangerous,'' and
ordered them through a multitier review. And we know that
conservative tax-exempt applicants faced enhanced scrutiny,
extensive delays, and inappropriate questions and requests from
the IRS.
While there is much the committee knows about the IRS
targeting, there is still much more work to be done, and for
that reason, the committee continues its oversight. Today,
however, we start the discussion of steps that can be taken to
restore confidence in the IRS and ensure that targeting never
occurs again.
Our mission on the Oversight and Government Reform
Committee is to make government work better for the American
people. We meet today for that reason, to make the IRS work
better for the American taxpayer.
Our investigation has made it clear that one reform is
absolutely critical to improving the IRS. We must get politics
out of the IRS. To accomplish this, yesterday we issued a new
staff report outlining 15 significant potential long-term
reforms to stop abuse and get politics out of the IRS. Here are
some of the ideas.
First, the IRS should not be in the business of regulating
political speech. When there is no--regulating political speech
when there is no impact on tax revenue. This process is where
targeting happened. Other Federal agencies exist to regulate
political campaigns and their elections, and this is not the
IRS' job.
This committee found it very frustrating to have to
repeatedly remind Members on the dais here that 501(c)(4)s, in
fact, get no tax deduction, no special tax treatment, and that
all contributions are post-tax. And yet the IRS took special
interest in who their contributors were, even though they were
paying for it with money after they had paid their taxes. And
Congress should consider changing that law.
Second, the current structure of the IRS as a single-
director agencies allowed freedom to people like Lois Lerner
and the Exempt Division to grow and gain power. It also
allowed--also created the circumstances under which White House
was informed of Lois Lerner's lost emails months before
Congress and the public knew.
If Congress created a bipartisan, multimember commission,
it would create assurances that the IRS truly is an
independent, nonpartisan agency.
Third, TIGTA, the special IG for--Treasury IG covering IRS,
and the IRS knew that groups had been targeted from May of
2012, but did not take immediate action to help the aggrieved
parties. This was wrong, and this is the kind of inappropriate
behavior that, again, affects the outcome of elections.
We must examine the current structures of the Treasury
Inspector General for Tax Administration and the IRS' Oversight
Board to ensure that they are living up to their oversight
responsibilities not only to know, but to take action.
Our report notes 15 problems and offers 15 solutions for
Congress to discuss. I am sure there are more good reforms and
more good reform ideas that should be part of the discussion,
and I expect some Members to raise concerns with aspects that
we have already suggested.
Our investigation must also continue, because we clearly do
not have the full knowledge of what happened. We don't even
have a significant portion of the emails from the most
important figure in this investigation.
Serious debate and discussion about reforming a failed
agency and getting politics out of the IRS is a good and
worthwhile exercise, even though there may not be any clear
consensus for those major reforms today. Last week the
committee took bipartisan steps on some of these measures.
As we develop future ideas, I hope we will continue to work
in a bipartisan spirit. Our witnesses today will help us to
explore the other steps that Congress can take to improve the
accountability of the IRS. With an agency like the IRS, reform
will not be accomplished overnight. This is an important
process that will continue into the future and expand to many
other committees and stakeholders.
But this is a process we must start today. And from that
standpoint, I want to welcome our witnesses, and I look forward
to hearing their testimony.
Chairman Issa. And I would now recognize the distinguished
gentleman from Illinois Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Unfortunately, the ranking member Mr. Cummings could not be
here today, and I am substituting or sitting in for him.
Today is the twelfth hearing our committee has held on the
IRS investigation over the past year. We have held six hearings
on this topic in just the last 6 weeks. The IRS Commissioner
has testified three times before our committee and a fourth
time before the Ways and Means Committee in just the past
month.
The same is true for the organizations testifying here
today. Representatives from all three groups, True the Vote,
The Heritage Foundation, and the Center for Competitive
Politics, testified before the committee in February of this
year. I welcome our witnesses here today, or perhaps I should
say welcome them back.
Some may say our efforts are duplicative. It makes no
sense, for example, to require IRS witnesses to submit to
transcribed interviews with the Oversight Committee first and
then force them to appear again before the Ways and Means
Committee, but that is what these two committees on which I
serve are doing.
Unfortunately, one person who is not here today is
Inspector General Russell George. The title of today's hearing
is ``IRS Abuses: Ensuring that Targeting Never Happens Again.''
So it would have made sense to hear from the official who
issued the report in 2013 that first identified inappropriate
criteria used by IRS employees to screen tax-exempt
applications. He could have told us how the IRS is doing in
terms of implementing the recommendations in his report. Last
week Ranking Member Cummings requested that the committee
invite the inspector general, but he's not here today.
Other people who are not here include progressive groups
that were singled out. On April 17, 2014, Chairman Issa stated,
``There is simply no evidence that any liberal or progressive
group received enhanced scrutiny because its application
reflected the organization's political views.'' But the
committee has obtained substantial evidence that IRS employees
treated progressive groups in a manner similar to conservative
groups. For example, a ``be on the lookout'' list, or BOLO
list, from 2010 directed IRS screeners to look for ``ACORN
successors.'' Another directed IRS employees to screen for,
``progressives.''
A PowerPoint presentation from 2010 included images of a
donkey and an elephant, and it instructed IRS screeners to look
for the terms, ``progressive'' alongside, ``Tea Party.''
And a training presentation listed successors to ACORN as
examples of organizations to watch for.
Witnesses also confirmed that progressive groups were
subjected to extended reviews and delays. He stated that I am--
during a transcribed interview with committee staff on October
29, 2013, a senior technical advisor in the Exempt
Organizations Division testified that progressive emerge groups
were subjected to multitiered reviews that included
consolidating cases and working with attorneys in the Office of
Chief Counsel. During a hearing before the committee on July
18, 2013, the inspector general testified that he did not
become aware of documents relating to progressive groups until
after his audit was complete. He stated, ``I am disturbed that
these documents were not provided to our auditors at the
outset, and we are currently reviewing this issue.'' It is now
more than a year later and we still have not heard his update,
and we will not hear today.
Finally, late last night, the chairman issued a Republican
staff report with new recommendations for the IRS. This report
was not provided to committee members in advance, so we did not
have an opportunity to review it or offer our opinions.
The primary recommendation is to eliminate the position of
IRS Commissioner, one of only two political appointees in the
entire agency, and replace it with a board full of political
appointees. Personally, I was surprised by this recommendation
because it seems to contradict the Republican narrative for
this investigation. If you believe there is too much political
activity at the IRS, I don't see how increasing the number of
political appointees would help.
I also wonder, given the committee's focus on
overpoliticized and dysfunctional boards at the Nuclear
Regulatory Commission and the Chemical Safety Board, why this
model is best for the IRS.
With that, Mr. Chairman, I thank the witnesses very much
for being here and look forward to their testimony.
Chairman Issa. Thank you.
Members may have 7 days in which to submit their opening
statements.
I now ask unanimous that the aforementioned majority
report, ``Making Sure Targeting Never Happens Again: Getting
Politics Out of the IRS and Other Solutions,'' be placed in the
record. Without objection, so ordered.
Additionally, I will add the previously published April 7,
2014, Committee on Oversight report, ``Debunking the Myth of
the IRS Targeting Progressives.'' Without objection, both will
be ordered in.
I might note for the record that we asked repeatedly for
the minority to submit a witness. If they wanted the IG to be
their witness, they certainly could have had them.
Today we welcome our witnesses. Mr. David Keating is
president of the Center for Competitive Politics. Thank you.
The Honorable Hans von Spakovsky----
That's right.
--is the manager of Election Law Reform Initiative and a
senior legal fellow at The Heritage Foundation.
Miss Cleta Mitchell is a partner at Foley & Lardner, LLP.
And Mr. James Sherk is the senior policy analyst in labor
economics at The Heritage Foundation.
Thank you all for being here.
Pursuant to our committee rules, would you please rise to
take the oath. And, yes, please raise your right hands.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing
but the truth?
Please be seated.
Let the record reflect that all witnesses answered in the
affirmative.
In order to allow time for discussion, please try to limit
your testimony to 5 minutes. Your entire written statement will
be made part of the record.
We'll begin with Mr. Keating.
WITNESS STATEMENTS
STATEMENT OF DAVID KEATING
Mr. Keating. Mr. Chairman and members of the committee,
thank you for the invitation to speak to you today, and thank
you also for the investigative work you've done on this very
important topic.
While the investigations here and elsewhere are still
ongoing, and we don't know the full extent of what happened, we
do know enough to make some recommendations already to ensure
that nonprofit groups are never targeted again.
I think the most important of these recommendations is to
get the IRS out of the speech police business as soon as
possible. Given the importance of First Amendment rights and
the effect of tax compliance on revenue collections, the IRS is
perhaps the last agency that we could envision as the speech
police. As a revenue-collecting agency, the IRS has proven that
it's in incompetent at regulating political speech, and that in
term undermines its primary function of collecting tax revenue.
Its continued worked in this area could cost the government
tens or even hundreds of billions of dollars in tax revenue if
lack of trust in the IRS causes tax compliance to fall by even
a tiny amount.
Now, in fairness to the career staff of the IRS, this is
very difficult work. As I like to tell people, campaign finance
law is extremely complicated. It makes the tax law seem like a
model of simplicity and clarity. Imagine, if you will, if we
gave the Federal Election Commission the job of writing a tax
regulation or enforcing the tax law. Well, the FEC would
probably make a hash of it, too.
The IRS is simply not equipped, it doesn't have the
culture, and it doesn't understand First Amendment
constitutional rights. And the most important case in this area
was the landmark Buckley v. Vallejo discussion. In that ruling
the Supreme Court said the supposedly clear-cut distinction
between discussion, laudation, general advocacy, and
solicitation puts the speaker in circumstances wholly at the
mercy of the varied understanding of his hearers and
consequently whatever inference may be drawn as to his intent
and meaning. Such a discussion offers no security for free
discussion. In these conditions it blankets with uncertainty
whatever may be said. It compels the speaker to hedge and trim.
Now, this is exactly the problem with the IRS guidance
today for nonprofit organizations. This advocacy places
nonprofit groups in, ``circumstances wholly at the mercy of the
varied understanding of his hearers''; in this case, IRS
agents.
Now, the Court's solution was simple and elegant, and it
essentially said that political advocacy was defined as
communications that in express terms advocate the election or
defeat of a clearly identified candidate.
Shortly after this ruling, the Federal Election Commission
came up with regulations to implement the decision. The IRS did
nothing. Nothing. And as a result, it didn't recognize the
Buckley decision, and it didn't modify its guidance in any way
to reflect it.
Congress recently, and I'm talking about in the last 15
years, has tried to move the IRS more into the area of
political regulation, and this has embroiled the IRS in
political fights the Service should avoid.
Given the history of the agency from the 1930s through the
1970s, where there was considerable history of Presidents of
both parties attempting to use the IRS to attack political
enemies, the Service has long been prickly, and justifiably so,
about being dragged into political wars.
Now, I'm concerned that this distrust of the IRS could lead
to a fall of tax compliance. If tax compliance fell just 1
percentage point, the government could lose 170 billion in tax
collections over the next 10 years.
And that is why we think the solution is pretty simple, and
that is to get the IRS out of speech police business. We
already have agencies in all 50 States, and we have the Federal
Election Commission to regulate speech. And, in fact, the IRS'
own National Taxpayer Advocate Nina Olson wrote in her report
last year, it may be advisable to separate political
determinations from the function of revenue collection. Under
several existing provisions that require nontax expertise, the
IRS relies on substantive determinations from an agency with
programmatic knowledge.
We already have such an agency. As I said, it is the
Federal Election Commission. If the FEC decides a group
conducts excessive political activities, it can force, and
indeed has forced, such groups to register and report to the
FEC. If they are a political committee, then they automatically
become a 527 organization and are no longer a social welfare
business, trade, or union.
So I think that's the most important change that could be
made. The IRS could and should do it on its own, and that is
getting out of the speech police business. And that's the only
solution I believe that can guarantee a similar scandal will
not occur again. It will protect against a decline in tax
compliance and help restore the agency's reputation.
Chairman Issa. Thank you.
[Prepared statement of Mr. Keating follows:]
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Chairman Issa. Mr. von Spakovsky.
You know, and I grew up in a neighborhood with a lot of
those names. I should be better. But if your name was
Jazbinski, I'd have been much more skilled in saying it.
Thank you. Please. You are recognized.
STATEMENT OF HANS A. VON SPAKOVSKY
Mr. von Spakovsky. Thank you. Mr. Chairman, I appreciate
the invitation to be here today for your first hearing on how
to fix the problems at the IRS, and that is how to prevent the
IRS from abusing its tremendous power.
In May of last year, Lois Lerner, as everyone knows,
revealed that the IRS has been targeting Tea Party and other
conservative organizations. This was apparently made public
just before the public release of an inspector general report
that detailed the, ``inappropriate criteria,'' used by the IRS
to identify/review the applications of conservative
organizations for tax-exempt status under 501(c)(4) of the
Internal Revenue Code. These reviews, again quoting the IG
report, ``resulted in substantial delays in processing'' of
their applications, and they were also subjected to voluminous
requests for totally irrelevant documents and information.
This represents one of the most dangerous actions that can
be taken by a government agency, abusing its power to target
disfavored individuals and disfavored organizations. What is
worse is that the IRS seems to have learned nothing from this
effort to regulate political speech, which is outside its
statutory mandate, instead of sticking to its mission, which is
collecting tax revenue. In fact, the IRS recently proposed new
regulations that would, in essence, implement the inappropriate
criteria that the IRS used in its unlawful targeting scheme.
And, unfortunately, as we all know, the IRS has a history of
abusive behavior, starting with Franklin Delano Roosevelt, who
used the power of the agency against a host of political rivals
and business opponents.
Now, I've got six recommendations that I will make very
quickly, although there are certainly others that we can
discuss.
First of all, I highly recommend the IRS be made an
independent agency run by a multimember commission. When
compared to other Federal agencies like the FEC or the SEC, the
IRS lacks the safeguards needed to assure citizens that tax
regulation enforcement will not be used to stifle political
opposition of the party in power.
Specifically, for example, the FEC is an independent
agency. And unlike the Treasury Department and the IRS, it is
not directly accountable to the party controlling the White
House.
Additionally, the FEC has a bipartisan makeup of six
Commissioners, instead of just one. Since it takes four votes
to carry out any action, it requires the consensus of both
parties represented there to take any action. This reassures
the public that the agency's policies, regulations, and
enforcement decisions are based on the legal and factual merits
rather than on partisan and ideological considerations. The IRS
lacks both of these important institutional safeguards.
The second recommendation is to place a time limit on the
IRS' review of applications or eliminate the IRS review
requirement entirely. The investigations revealed that at one
point for 27 months the IRS did not approve a single tax
exemption application from a Tea Party organization.
This kind of years-long delay can be obviated with a time
limit placed on the IRS for review, such as 60 days. That
exemption could be granted then automatically if the IRS does
not respond within 60 days, and you could even give the IRS the
ability to extend that period once if it makes a written
request for relevant information.
Alternatively, organizations could be automatically granted
tax-exempt status as soon as they submit a basic application to
the IRS. That would prevent the type of manipulation that
occurred. If the IRS later obtains evidence that an
organization is abusing its tax-exempt status, it can then
conduct an investigation or an audit, just as it does for any
other taxpayers when a problem arises. But there is no logical
reason why the IRS should conduct a review of newly formed
organizations just starting their activities.
Third, the IRS should only be allowed to take into account
political speech or activity that consists of express advocacy.
Now, I actually agree with Mr. Keating that they ought to get
out of this business entirely, but that is also something that
should be considered.
Also, the IRS has completely misinterpreted the definition
of the promotion of social welfare. And this is my fourth
recommendation. As you know, in order to be a 501(c)(4), what
the law says is you must be operated exclusively for the
promotion of social welfare. The IRS has wrongly interpreted
that term to exclude all political activity. However, in a
democracy, political involvement and participation are within
the definitions of social welfare.
If you want to promote social welfare, it requires advocacy
in the election process, given the broad and extensive scope of
modern government. In today's America, you can't promote social
welfare without interacting with government officials and
legislators, as well as promoting the election of candidates
with positions on issues that particular organizations believe
are important in achieving their goals for promoting social
welfare.
I also think IRS employees should be held personally liable
for certain violations of the law, which is not currently the
effort.
And, finally, the IRS should be prohibited from using
campaign finance reports or public disclosures of a taxpayer's
political donations at the FEC as the basis for commencing an
IRS investigation.
Thank you.
[Prepared statement of Mr. von Spakovsky follows:]
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Mr. Mica. [Presiding.] Thank you.
I now recognize Ms. Mitchell, partner with Foley & Lardner.
Welcome, and you are recognized.
STATEMENT OF CLETA MITCHELL
Ms. Mitchell. Thank you, Mr. Chairman, members of the
committee. I want to thank you for conducting this hearing, but
I also want to thank the committee and the chairman--I'm sorry
he's not here for me to personally thank--and to thank the--
this committee, because you've been determined and dogged and
relentless in trying to get to the truth. And from those of us,
and particularly my clients, who were on the receiving end of
the IRS targeting, I can tell you that the IRS was determined
and dogged and relentless in the denial of the First Amendment
rights of hundreds of citizens groups and thousands of law-
abiding, patriotic Americans.
So my--my sympathy for the poor IRS being subjected to all
of this investigation is not very--not very high.
You've asked us for recommendations about ensuring this
targeting never happens again, and I come before you today as
somebody who has represented clients before the IRS many--for
many years before the targeting started, represented clients
during the targeting, and now represent clients in suing the
IRS in three different lawsuits that are cases that have arisen
from this unlawful targeting.
And I want to say, first of all, that I believe that the
IRS is such a corrupt and rotten and broken agency that it
cannot be salvaged. And, frankly, for that reason, I would urge
the Members of Congress to support Representative Jim
Bridenstine's bill, House Joint Resolution 104, which would
repeal the 16th Amendment, abolish the income tax, and, by
definition and extension, abolish the IRS, because I don't
think this agency can be saved.
But knowing that that takes a little while, in the
meanwhile I have 10 recommendations I'm going to go through
quickly, which are things that Congress needs to do to
reinstate the rule of law at the IRS, because that's what has
been lost through all of this is an abiding by the IRS of the--
with the rule of law.
First of all, I believe that IRS employees should be
prohibited from being unionized. They should not be in a
political organization that gives 94 percent of its
contributions to Democrats, including 11 members of this
committee, all Democrats. No Republicans have received any
contributions from this union.
I think, number two, that we should eliminate the
application process for all 501(c) organizations other than
(c)(3)s. There's absolutely no reason for organizations to go
through this ``Mother may I?'' with the Federal Government to
find out whether they can operate as a tax-exempt organization.
They do not receive the tax-deductible contributions. Contrary
to what I hear constantly from Members of Congress at these
hearings--it makes me--makes my head spin--contributions to a
501(c)(4) organization are not tax deductible to the donor, and
there's no reason for organizations from any 501(c) category,
all 29 of them-- there's no reason for them to have to get
permission from the government to operate.
Number three, define by statute that political activities
are social welfare activities. We should be encouraging, not
discouraging, the people from participating in political
activities, and citizens organizations have a--have a right and
a duty to do that.
Number four, repeal the tax that is imposed on political
expenditures by 501(c) organizations. It is a hateful
violation, in my view, of the First Amendment to tax citizens
groups for the exercise of their First Amendment rights.
Number five. This one needs a lot of work. Congress has got
to take section 26 U.S.C. 6103, which was enacted by Congress
to protect taxpayers from unlawful inspection, release of their
tax information. The IRS has turned it on its head and now uses
6103 as a basis for denying the rights of citizens and
taxpayers, denying Congress access to information about
misdeeds by the IRS. We need to give taxpayers a private right
of action and opportunity to recover treble damages from
individual IRS employees who violate their 6103 rights.
We need to repeal--number six--repeal the requirement that
organizations must--must reveal to the IRS their donors. That
is a terrible law, and it has given rise already. The first
inkling we had of IRS targeting of conservatives was when we
saw the IRS going after donors to a conservative group and
tried to impose a gift tax on them. There is no public interest
and no public policy imperative for citizens to have to
disclose to the government who their donors are. These are not
public documents, and they should not be subject to being
disclosed to the IRS.
Number seven, as Hans said, we must--and I think the
committee should expand its investigation and ask and
investigate, because I'm absolutely convinced that the IRS has
used campaign finance reports and, in particular, donors to the
Romney Presidential campaign or super PAC as the basis of
conducting personal IRS tax audits, and I think that that
should be illegal. But this committee needs to get to the
bottom of that particular situation, because I have heard too
many stories from too many people from all over the country to
not think that that--that something is afoot there.
We need to give a--number eight--a private right of action
to citizens to be able to go--to file lawsuits and to recover
damages for the violation of their constitutional rights by
Federal employees. Just as they can today against State and
local employees, that should be extended to Federal employees.
Number nine, we have to reaffirm, Congress should reaffirm
that the laws that Congress has enacted to protect taxpayers
and citizens from an overreaching Federal Government in fact
apply to the IRS. I have listened and watched and read the IRS
say that things like the Administrative Procedures Act, the
Regulatory Flexibility Act, the Paperwork Reduction Act don't
apply to them. And we've seen that the IRS has completely
disregarded its statutory obligations under the Federal Records
Act and the Federal Information Security Management Act, and
they're making a joke out of FOIA, because now they either
don't answer your questions, make you sue them, or they lie.
And finally, that we should make a law, 18 U.S.C. Section
1001 makes it a crime for any citizen to make a false statement
to a Federal agency, agent, or investigator. Well, I believe
that the IRS, and its employees and Federal employees should be
held to the same standard when they lie to us.
The IRS Commissioner came--Doug Shulman came before this
committee in March of 2012 and told this committee that there
was no targeting of conservative groups, and that was a lie.
And what has happened to him? And I--Lois Lerner has lied.
Other members of the IRS, they have lied, and I think that they
should be subject to the rule of law, and all the laws that
Congress has enacted that apply to everybody else ought to
apply to the IRS. Thank you.
Mr. Mica. Thank you for your testimony.
[Prepared statement of Ms. Mitchell follows:]
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Mr. Mica. We will now turn to our final witness, Mr. James
Sherk. He is the senior policy analyst in labor economics at
The Heritage Foundation. Welcome. And you are recognized, sir.
STATEMENT OF JAMES SHERK
Mr. Sherk. Representative Mica, Representative Davis, and
committee members, thank you for the invitation to testify.
My name is James Sherk, and I--though I work at The
Heritage Foundation, my testimony this morning should not be
construed as an official position of The Heritage Foundation.
This morning I want to explain to you that the law makes it
very difficult to fire Federal employees, and that this
shelters workers who engage in misconduct. Congress should
streamline the firing procedures to discourage employees at the
IRS and at other agencies from abusing their positions.
There are three facts about the current civil service
system that Congress should understand. The first fact is that
trying to fire a Federal employee takes years of effort.
Agencies can remove workers; however, even after severe
misconduct, doing so takes incredible time and effort. An
agency must show that a reasonable person would more likely
than not conclude that the evidence justifies a firing.
Gathering the evidence to show this can take months. Then the
agency must give the employee 30 days' advance notice before
removing them. During this time they cannot hire a replacement
and must pay the employee. If the employee during this time
alleges that their supervisor is firing them for exposing
misconduct, they can ask for a whistleblower investigation,
during which time they also cannot be fired, even if it's a
completely baseless investigation.
After all this, the agency can remove the employee;
however, the employee can appeal their firing to the Merit
Systems Protection Board, or MSPB. In 2013, this initial appeal
took an additional 3 months. If the employee loses this appeal,
they can then file a second appeal to the MSPB headquarters in
Washington. In 2013, this second appeal took an average of over
9 months. If the MSPB rules against the employee again, they
can appeal then to the EEOC or to the Federal courts.
In total, it can take several years to fire employees for
even flagrant misconduct. For example, it took the Treasury
Department 5 years to fire Lester Erickson for lying to
investigators during an internal misconduct investigation.
For many managers, successfully removing a problem employee
becomes a full-time job in its own right, and doing nothing is,
unfortunately, often the path of least resistance. An Office of
Personnel Management study found that managers feel it takes
``heroic'' efforts to remove problematic employees.
The second fact is that this causes Federal employees to
rarely lose their job, sheltering those who abuse their
position. Most Federal agencies are not run by heroes; they are
run by managers trying to operate the government. An OPM survey
found that only 8 percent of managers with poorly performing
employees attempted to remove them, less than 1 in 10. And of
those who attempted to do so, over three-quarters reported that
their efforts had had no effect whatsoever. So, unsurprisingly,
the statistics show that Federal employees rarely get fired.
OPM data also shows that last year the Federal Government
fired less than 10,000 workers out of its 2.1 million-man
workforce for discipline or performance reasons. Almost half of
those firings occurred among new hires in the probationary
period. Last year the government fired just one-quarter of 1
percent of tenured employees with 2 or more years of
experience.
Now, employees who engage in misconduct know how hard it is
to remove them. The Office of Personnel Management reports that
many managers stated in their agencies, ``The unwritten policy
was to avoid any situation that could lead to an appeal or
lawsuit.''
In other words, managers frequently let misconduct slide.
For example, at Housing and Urban--at the Department of Housing
and Urban Development, an employee spent over one-third of his
time over the course of 5 years conducting private business
deals using his official email account. One of those business
deals involved providing a lap dancer to a private party. HUD
officials did not even try to fire him.
And this system also shelters the IRS employees who target
Americans for their political views. IRS employees have the
same notice and appeals process as other government workers.
Consequently, IRS managers had and still have strong incentives
to ignore employees targeting Americans for their political
beliefs. It would take heroic efforts to remove employees
engaging in such conduct.
Now, the third fact is that Congress can fix these problems
by reforming America's civil service laws. Ideally Congress
should return to the spirit of the original Pendleton Act,
which regulated the hiring of Federal employees to prevent a
political spoils system while allowing managers to remove
employees at will. Congress should return to this policy and
make Federal employees at will while still preventing patronage
and nepotism appointments in the hiring process.
Barring such reform, Congress should at least streamline
the firing process so it takes less time and effort. Congress
can take several steps to do so, such as allowing Federal
managers to immediately suspend employees without pay when
they've engaged in misconduct, and then providing the due
process after their suspension.
Congress should also eliminate the ability of Federal
employees to appeal their dismissal through multiple forums.
They should have to pick one.
Congress should also extend the probationary period from 1
to 3 years to give managers more time to vet employees and
remove those likely to cause problems later.
And to encourage good behavior, Congress should transform
the current seniority-based step increases into performance-
based raises.
Thank you. I appreciate the opportunity to explain that the
law makes it very difficult to fire Federal employees, and that
this shelters workers who engage in misconduct.
[Prepared statement of Mr. Sherk follows:]
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Mr. Mica. Thank you, Mr. Sherk and the other witnesses, for
their testimony.
Ms. Mitchell, unfortunately you seem to be very wavering in
whether you think we should do something about the IRS. But all
humor aside, it sounds like you represented some people who
also were targeted, and maybe could you tell us a little bit
more about again about what you've seen and people--the other
thing, too, is these people, if you're defending them, you're
the attorney. Who's absorbing the cost? What's this doing to
their lives?
Now, we're here to look at a remedy, but I think it's also
important to look at the impact. And you are by far one of the
most forward-speaking people about the damage that has been
done by IRS that we've had before our committee. So would you
mind commenting?
Ms. Mitchell. I'm happy to do that, Mr. Chairman.
I testified in February before Mr. Jordan's subcommittee. I
told the story, but this wasn't the full committee.
I first--I represent people who apply for tax-exempt
status. And I've been doing this for many years. I've been
dealing with IRS Exempt Organizations Unit for many, many
years, representing groups seeking tax-exempt status of various
kinds, (c)(3), (c)(4), (c)(6)s. And it used to take--prior to
the onset of this scandal, to get a 501(c)(4) application
reviewed and processed would take 3 to 4 weeks.
I had an application for--I first began to realize
something was going on at the IRS in early 2010, because I had
a client--we applied for tax-exempt status for 501(c)(4) group
in the fall of--October of 2009, and IRS cashed the check,
because you do have to pay for this privilege, and then we
didn't hear from them again until June of 2010. And this was
very unusual. This had never happened before.
And in early 2010--and then, you know, I have another
application that we file----
Mr. Mica. How long before--you said 2010. How long before
were you handling these kinds of cases?
Ms. Mitchell. Oh, decades.
Mr. Mica. So----
Ms. Mitchell. Yeah, I mean, this wasn't----
Mr. Mica. This was quite a departure from----
Ms. Mitchell. It was a total departure.
Mr. Mica. Total departure.
Ms. Mitchell. It was a total departure.
And, by the way, that organization that filed for tax-
exempt status in October 2009 did not get its 501(c)(4) tax
status granted until July of last year, and only after this
committee--the scandal broke and this committee began this
work.
So, I mean, I've represented a number of organizations that
applied for tax-exempt status during that period and were
associated with--they were conservative or Tea Party groups.
They were groups that were opposing Obamacare. And I really do
believe, frankly, that that one is one of the triggers. We
don't know all the information that you know and that your
investigators know, but I think one of the criteria that the
IRS was looking at was whether these organizations were
opposing Obamacare as a matter of policy.
And now you have a situation, I think it goes to the--my
colleagues' testimony, which is that when you have an agency
that now not only is collecting taxes, but is the agency that
is enforcing Obamacare, and now it's regulating political
activities, you're mixing things that should not be mixed in an
agency that is set up to collect revenue.
Mr. Mica. Did you have any progressive groups also come to
you with----
Ms. Mitchell. Well, you know, it doesn't really work that
way. The fact is--you gotta choose. You're gonna for play for
USC or Notre Dame; you can't play for both. And people have
lawyers who--or, in our case, the University of Oklahoma or
Oklahoma State. I see my Congressman from Oklahoma City, which
is where I'm from.
Mr. Mica. Your future Senator.
Ms. Mitchell. My future Senator. Yes.
But, you know, Republicans have lawyers, and Democrats have
lawyers. You know, they represent them because--and same with--
--
Mr. Mica. Were you aware of--I mean, the accusation is
that----
Ms. Mitchell. I'm well aware of that.
Mr. Mica. --that this was also a targeting towards
progressive groups?
Now, I just asked the staff, there was one of the principal
promotions--what was the name of it? Organizing for Action. I
think it was approved in 73 days, and 27 months there was a
freeze on conservative groups. It doesn't appear to us that the
other side was targeted.
Ms. Mitchell. They were not----
Mr. Mica. Let me say this, too. If you were targeting
progressives, if this was all about progressives or liberals,
the ceiling would be coming down----
Ms. Mitchell. Yes, it would.
Mr. Mica. --and there would be riots in the street.
Ms. Mitchell. Mr. Chairman, if you look at the documents, I
mean, I know that this is something that the minority members
of this committee and the House keep saying, but it simply
isn't borne out by the facts.
If you look at the documents, frankly, that have been
posted by Congressman Levin on the Democratic--the Democrats--
the minority pages of the Ways and Means Committee, he has
posted a lot of documents from the IRS, and he posted it to
stand for the proposition that progressives were referenced
just the same as Tea Party groups in these monthly reports.
And I've read the training materials to which Mr. Davis
refers, but if you read what they said in the training, and you
look at what the instructions were, here's what the
instructions were for progressive groups: You look at those.
Yes, they were on a BOLO list, but if you found them, what the
instructions said was there are some progressive groups who
have applied for 501(c)(3) status; it is more appropriate to
tell them to be (c)(4)s.
If you look at what it said for the Tea Party groups, it
said, send them all--basically quarantine them in a--in a
special unit in Cincinnati. And that's the difference. Yes,
they looked at them, but they looked and got different
treatment depending on whether they were progressive or Tea
Party. If they were Tea Party, they literally were quarantined
for a period of years. The progressive groups were looked at to
make sure they'd applied for the right status, and then they
got their tax status. That's the difference.
And in the case of many of these conservative groups and
Tea Party groups, there's one--the Tea Party of Albuquerque
still hasn't gotten its tax-exempt status. And there are many
of these small groups, when they got these letters from the IRS
saying, tell us everyone who has spoken at your meetings, tell
us everybody who is on your board, every--who are your
volunteers; how many volunteers do you have; what are their
names; who attended your meetings; do you have transcripts of
who spoke, of everything they said when they spoke to you; tell
us everywhere where your president spoke in the last year and
where she plans to speak in the next 2 years. These are
impossible questions, and a lot of these groups when they got
these very burdensome letters from the IRS saying things like,
did you have candidate debates? Did you do voter registration?
And I had people saying, were we not supposed to do candidate
debates? Are we not supposed to conduct voter registration?
Because they think if the government's asking them those
questions, that maybe they were doing something wrong.
And so what did they do? They started backing away. Many
times groups just went away because they couldn't get
contributions because they didn't have their tax status. And
it--it had the desired chilling effect, and that viewpoint
discrimination caused injury to hundreds and hundreds of
organizations nationwide.
Mr. Mica. And gagged a particular viewpoint prior to a
national election.
Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Seems to me that the logical place to start this discussion
is with the report issued by the inspector general in May of
last year. And it is my understanding that Mr. Cummings did ask
that the inspector general be a part of this hearing.
That the inspector general found that IRS employees in
Cincinnati developed what he called inappropriate criteria for
screening applications for attempt status. He also identified
serious deficiencies by IRS managers. He found that Lois Lerner
was not aware that these employees were using these criteria
for a full year. He also found that even though she ordered an
immediate stop to them, the employees used different,
inappropriate criteria anyway.
Since then the committee has obtained evidence that
progressive groups were also singled out in similar ways, being
listed expressly in so-called ``be on the lookout,'' or BOLO,
lists, receiving lengthy questionnaires, facing long delays,
and sometimes being denied. I agree that no groups,
conservative or progressive, should be singled out based on
inappropriate criteria.
In his report, the inspector general made nine
recommendations for reform at the agency. Ms. Mitchell, let me
ask you, in your opinion, how do you think the IRS is doing in
implementing these recommended reforms?
Ms. Mitchell. Congressman, I have to tell you in all
honesty I think the application process is completely broken.
It is Humpty-Dumpty. It is off the wall, and it cannot be put
back together again.
What the IRS has done subsequent to the TIGTA report is to
make matters worse.
Mr. Davis. Well, then, let me ask our witness----
Ms. Mitchell. Can I give you an example what they've done?
Mr. Davis. Yes.
Ms. Mitchell. Because this--they issued those regulations
the day after Thanksgiving, which had clearly been in process
for many months, if not years. I think this committee released
an email from Ruth Madrigal from the Treasury Department to
Lois Lerner that was dated, I want to say, maybe even 2011.
And they--so they'd been working on regulations off plan,
not in public view, which they sprung on the American people
over the Thanksgiving holiday and gave us until February 28 to
issue comments. And there were over 160,000 comments. I want to
tell you that some of us worked pretty darn hard to get those
comments filed. And what those regulations would have done
would have codified the egregious, horrible principles that
were in all of those, ``development letters'' that were sent to
the conservative groups.
But since that----
Mr. Davis. My time is running so just----
Ms. Mitchell. One other thing.
Mr. Davis. Let me just ask the other witnesses what their
opinions are.
Mr. Keating. Well, I think one of the recommendations was
for the IRS to come up with clearer rules. And I think the IRS,
as Cleta indicated, their proposed rulemaking was horrible.
We did a study of all the comments filed, and the
opposition was almost unanimous. And you had groups, left and
right, business and labor unions, were unanimous in their
criticism of the agency's rules.
So I don't think the IRS gets it, I don't think they
understand the First Amendment, and that's why I think the key
recommendation is the IRS should get out of the speech police
business.
And this is something that the National Taxpayer Advocate
and independent voice inside the IRS, Nina Olson, she actually
has a background in low-income taxpayer compliance and
advocacy, and she came to the same conclusion, and I think it
is something the IRS should do.
Mr. von Spakovsky. Congressman Davis, I'll just make one
comment on that. And to show you just how confused the IRS was,
these new regulations they proposed, they were all, in essence,
to have what their definition would be of campaign-related
activity. Well, their definition of campaign-related activity
would completely conflict with the Federal Election
Commission's definition of campaign-related activity. So things
that the FEC thinks are just fine and are not campaign related,
the IRS would say, no, no, those are campaign related, which
would put all kinds of organizations in this untenable
position.
And these regulations were so bad that I and seven other
former FEC Commissioners wrote an extensive public comment
pointing out all of the basic errors and mistakes that the IRS
had made with these proposed new regulations.
Mr. Davis. Let me just hear from Mr. Sherk.
Mr. Sherk. Representative, would it take an act of Congress
for the IRS to be able to streamline their firing procedures. I
mean, there's some internal agency regulations, but the core of
it is mandated by Congress. And Chapter 43 and Chapter 75 of
Title V of the U.S. Code, and unless Congress acts, they can't
do much to make it easier to remove people quickly for
misconduct.
Mr. Davis. Thank you very much, Mr. Chairman. And I assume
we are going to come back. And I have got some other questions
I'd like to raise on that.
Chairman Issa. [presiding.] So we've had 12 hearings, and
you still have questions. I appreciate that, Mr. Davis.
Mr. Jordan.
Mr. Jordan. I thank the chairman.
And I want to thank our witnesses for being here today,
but, more importantly, for all the work they have done in
helping let the American people know what the Internal Revenue
Service was up to, what they did, how they harassed people and
targeted people for exercising their most fundamental right,
their right to speak out in a political fashion against--
against their government.
Let me just dispel one thing; 104 to 7. Those are the
numbers. One hundred four conservative groups we know were
targeted, harassed, delayed, delayed, delayed. Seven
progressive groups were put on a different list, as Ms.
Mitchell pointed out, put on a different list, got their (c)(4)
status, and never received anything close to the same kind of
treatment. So this idea that it's wrong, it's false, it is just
simply not borne out by the facts.
The idea that the IRS is involved in way too many things.
Of course. Mr. von Spakovsky, they're not the FEC, for goodness
sake. They can't enforce election law. They shouldn't be
involved in healthcare law. Of course.
And the rule that Mr. Keating just brought up. We had a
hearing several months ago where we had the ACLU, Tea Party
Patriots, Motorcycle Association of America, and Home School
Legal Defense Association, all opposed to the rule. Now, when
you have the ACLU, and the Tea Party, and home schoolers and
Harley riders all against the same thing, you know that they--
this is unbelievable.
The thing I want to get to the question, just get your
responses. I know we have people with a background--there's
another hearing going on. That's why you see a lot of Members
over at the other hearing dealing with the special prosecutor
resolution that passed Congress with 26 Democrats, I might
point out. Every single Republican, 26 Democrats supported a
resolution saying what the Justice Department is doing in their
investigation here warrants an outside special counsel. So I
want to get your thoughts on that.
And let me just--let me just prompt you with one thing. Two
weeks ago we had James Cole, Deputy Attorney General, the
number two guy at the Justice Department, James Cole, sitting
right where you all are sitting, and we asked him a pretty
basic question: When did you learn, when did the Justice
Department learn that the Internal Revenue Service had lost
Lois Lerner's emails? And his response shocked us all. He said,
we learned when it was reported in the press that they had been
lost, even though, sitting at that same table a week ago, Mr.
Koskinen told us he knew in April, and his chief counsel knew
in February. And the Justice Department learns June 13th, when
the rest of America learned, that they had lost Lois Lerner's
emails.
So I want your thoughts on do we need a special--I'll just
go right down the list, but particularly Mr. von Spakovsky and
Ms. Mitchell, who I know have had a background in dealing with
this. But let's start with Mr. Keating.
Mr. Keating. I think that would be advisable. I think I
first suggested that--I wasn't the first to suggest, but I
first suggested that last year shortly after the scandal broke.
Mr. Jordan. Thank you.
Mr. von Spakovsky, if I'm correct, you worked in the
Justice Department.
Mr. von Spakovsky. I did. And I, frankly, was astonished at
Cole's answer for this reason. In May of last year is when
Attorney General Eric Holder announced that he was opening up a
criminal investigation of this. Well, I was involved in
investigations with the Justice Department. The first thing you
would do if you have the FBI as your investigator situation
like this is go and seize all of the documents and information
the way the FBI does when they're investigating a private
organization. A year and a half later, they clearly had not
done that and didn't even know that all of the evidence they
were supposedly supposed to be looking at, all those emails,
didn't exist.
Mr. Jordan. And when we asked that specific question, did
you get a court order, did you get a warrant, did you go in--
did you go to Lois Lerner's office, did you grab all the
documents, did you get her computer, of course they hid behind,
well, there's an ongoing investigation. We can't comment.
But based on witnesses we have had in depositions and
transcribed interviews, it sure seems like they haven't. And
based on what--the response, it sure looks like they haven't.
Mr. von Spakovsky. No, I don't think they've taken the most
basic steps you would take in a real investigation.
Mr. Jordan. Yes. Ms. Mitchell.
Ms. Mitchell. I don't think there's any question that there
should be a special prosecutor. You know, the problem is that
the longer they wait, the harder it is to conduct an authentic
investigation because of the spoliation of evidence, et cetera.
We filed a motion in our civil suit. True the Vote sued the
IRS and a number of individual IRS employees for the denial of
its First Amendment rights in the consideration of its
application. And so we filed 3 weeks ago a motion for a
preliminary injunction asking the court to conduct an
evidentiary hearing into what has happened. And that motion is
pending. We had a hearing, and we are waiting. And the judge
ordered the IRS to file three declarations that are supposed to
be first-person, authentic evidence. And, you know, and the
Justice Department told the court that this is in the civil
case.
Mr. Jordan. Yeah. Mr. Sherk, yeah.
Ms. Mitchell. But they didn't know until they read it in
the paper.
Mr. Sherk. It certainly seems that such an investigation
would be warranted. But even if you had a special prosecutor
who brought charges against the IRS, individual IRS employees,
it would still take the agency months to remove them, and in
many cases be collecting pay.
Mr. Jordan. Mr. Chairman, if I--are we giving a little
extra time here, Mr. Chairman?
Chairman Issa. If no one objects.
Mr. Jordan. Okay. Well, I'll wait for the second round. I
don't want to do that. I know we have got----
Chairman Issa. The gentlelady from Illinois Ms. Kelly.
Ms. Kelly. Thank you, Mr. Chair.
Mr. Sherk, in April our chairman made this statement:
``There is simply no evidence that any liberal or progressive
group received enhanced scrutiny.'' Do you agree with that
statement?
Mr. Sherk. I'm an expert on the firing procedures, and
Federal workforce. I would defer to the others on the panel who
have more expertise on the specifics of the targeting.
Ms. Kelly. So you have no opinion?
Mr. Sherk. I would certainly give the other chairman always
the benefit of the doubt, and I would assume it would be
accurate. But if you'd like to talk to me about ways we can fix
the--how--the civil service laws, I'd be happy to answer those
questions.
Ms. Kelly. Well, I'd like to go through some of the
evidence our committee has obtained during our investigation.
These should be simple yes-or-no answers. First, we received a
copy of a so-called BOLO list from November 2010 that directs
IRS employees to screen for progressives. It states, ``Common
threat is the word progressive. Activities appear to lean
toward a new political party. Activities are partisan and
appear anti-Republican.''
Were you aware of that document?
Mr. Sherk. I'm aware to the extent I've heard it discussed
at this hearing, that there was differential treatment between
the two groups. But again, my focus and expertise is on labor
policy and on the Federal civil service laws.
Ms. Kelly. Well, let me go on. Another BOLO list from
August 2010 directs IRS screeners to look specifically for
ACORN successors. Were you aware of that document?
Mr. Sherk. I was not aware of that, although, as
Representative Jordan pointed out, it was something like 104 to
7 was the differential treatment between groups on the right
and groups on the left.
Ms. Kelly. So there were probably more Tea Party groups
that applied, so you probably would have some differences.
A BOLO list from February 8, 2012, includes an entry for
Occupy organizations. Were you aware of that document?
Mr. Sherk. No, I was not, but I wasn't looking for it.
Again, I was looking into Federal firearm procedures.
Ms. Kelly. Yes or no is fine.
A PowerPoint presentation from 2010 includes images of a
donkey and an elephant and instructs IRS screeners to look for
the terms ``progressive'' alongside ``Tea Party'' when
reviewing tax-exempt applications. Were you aware of that
document?
Mr. Sherk. That's not something I looked into because,
again, my expertise is on the Federal civil service laws.
Ms. Kelly. Thank you.
Notes from an IRS screening workshop in 2010 list emerged,
``groups'' alongside ``patriot,'' and 9/12 organizations. Were
you aware of that document?
Mr. Sherk. Again, as with all your questions----
Ms. Kelly. You can just say yes or no.
Mr. Sherk. No, I was not, Representative.
Ms. Kelly. Progressive groups were sent lengthy
questionnaires almost identical to the ones sent to Tea Party
groups, and they also had to wait years to receive tax-exempt
status. For example, a Palestinian rights group in Minnesota
received inquiries that were almost identical to those sent to
conservative groups and waited more than 2 years for final IRS
tax-exempt status approval.
Were you aware of those questionnaires? Just yes or no.
Mr. Sherk. No, I was not, Representative.
Ms. Kelly. Thank you.
How about witness testimony? Our committee interviewed
witnesses who testified that progressive groups went through a
multiyear, multitiered IRS review process similar to that used
for conservative groups. For example, during a transcribed
interview with committee staff on October 29, 2013, a senior
technical adviser in that Tax-Exempt Government Entities
Division explained that, like Tea Party organizations, emerge
cases were grouped together and subjected to a lengthy
multitiered review.
Were you aware of that testimony?
Mr. Sherk. No, I was not, Representative.
Ms. Kelly. Many people point to the number of Tea Party
cases that were screened as evidence of bias, but the simple
fact is that there were many, many, many more tax-exempt
applications during this timeframe from Tea Party groups. And
it's really time for us to stop politicizing this issue. People
on both sides of the aisle in this room, we don't want bias and
discrimination and wrongful treatment against any group. We
just want to get to what the fact of the matter is and make
sure that each group is treated fairly.
And I might add that the IG said that he was not aware of
the BOLOs for screening progressive groups before his audit was
released. That's why the report was skewed. And I wish the IG
was here to actually answer questions about this.
I yield back.
Chairman Issa. I thank the gentlelady. You have only your
ranking member to complain to for not asking for the IG.
Is there anyone else who would like to answer that question
or comment, since Mr. Sherk, quite frankly, was probably the
worst person as far as, A, looking at those questions?
Ms. Mitchell.
Ms. Mitchell. Mr. Chairman, I've seen most of those. I've
reviewed most of those reports to which the Congresswoman was
referring. And those training materials from July of 2010
specifically state progressive does not equal Tea Party. That's
in the outline. That's in the minutes of that training session.
And what they--and, yes, they were looking for that term. They
were looking for the term and given different instructions as
to what to do if they saw it.
And I'll give you an example. There's an organization
called Progress Texas----
Chairman Issa. The gentlelady might want to remain. This is
still your time and answers to your questions.
Ms. Kelly. Right. But I've stayed long, and I have another
committee that I have to go to.
Chairman Issa. I understand.
Continue, please.
Ms. Mitchell. There is an organization called Progress
Texas, and in a report that was leaked to USA Today in
September of last year, this was a November 2010, maybe 2011,
report of the IRS, and it was a sensitive case report. And it
had, I think, 162 cases on it. And it did have some progressive
groups, but what happened was Progress Texas, when it had the
comments about Progress Texas, it said, seems to have anti-Rick
Perry propaganda. And within 6 months, they had their tax-
exempt status, their (c)(4) status, compared to my client, King
Street Patriots from Houston, where it said, likely approval.
You know when they got their 501(c)(4) status? November. I'm
sorry, December of 2013. They just got it. And we got another
round of questions last August after the scandal broke.
So, yes, progressive groups--the word ``progressive'' was
on some of those reports, but what the IRS employees were
instructed to do when they saw that term was totally different
from what they were instructed to do when they saw a Tea Party,
9/11 or other conservative group.
Chairman Issa. I thank the gentlelady for making the
answers complete, and I hope MSNBC will broadcast both.
We now go to the gentleman from Oklahoma Mr. Lankford.
Mr. Lankford. You are an optimist on that, Mr. Chairman.
I do have a couple follow-up questions. The specific goal
of this hearing is to be able to determine how do we keep this
from happening again. Now, there's several comments that have
been made, and I appreciate all of your written statements and
your oral statements as well to be able to walk through this.
Probation changes. Mr. Sherk, you mentioned this, as well,
change in the probation, extending that. You made a brief
comment on that. I'd like for you to expand on that. From 1 to
3 years for new employees so we can deal--if there's a problem
early, we can discover it early. What's the difference on
trying to be able to deal with discipline for an employee in
their probation status versus once they've been there?
Mr. Sherk. Thank you, Representative.
For the first year in most agencies, in some agencies it
extends to 2 years, employees are called basically
probationary, and they can be fired almost at will. There's
only two reasons you can't fire them during the probationary
period. One is for political discriminations; you can't say
you're a Republican, you're a Democrat, get out of the Federal
service. And the second is on the basis of marital status. For
any other reason beyond those two, they can be fired, and
fairly large numbers of them are. Again, if you look at the
figures for terminations, for layoff in performance in the
Federal Government for last year, almost half of them came from
employees with less than 2 years of experience.
Mr. Lankford. Okay. So is that something you'd recommend
governmentwide, or are you recommending that simply for the
IRS?
Mr. Sherk. I'd recommend it governmentwide. Give the
managers more time to review the employees and get rid of
people they think might cause problems later.
Mr. Lankford. Okay. Thank you very much.
Ms. Mitchell, thanks for being here, as well. We can speak
Okie to each other back and forth off the dais as well.
But the second recommendation, ``Eliminate the application
process for exempt organizations other than 501(c)(3) entities.
Stop the Mother, may I.''
Ms. Mitchell. Yes.
Mr. Lankford. Can you go into greater detail why that would
matter? There are lots of folks coming in that say, if they're
going to be tax exempt, they're, ``getting Federal funds, and
so they should be limited.''
Ms. Mitchell. Well, that is simply not true, and it
demonstrates a lack of understanding of how the process works
and the end result when you get a letter of determination from
the IRS. And I recall that when this committee had then-IRS
Commissioner Shulman appear before it in March of 2012, and
when he lied to the committee and said there was no targeting
when there was, the other thing that he said at that hearing
was, well, you know, 501(c)(4) organizations don't even have to
have a letter of determination from the IRS in order to operate
as a 501(c)(4). So but if they submit themselves to our
jurisdiction, we can ask them whatever we want, which I thought
was a pretty arrogant comment, frankly.
But anything else you do, and if you want to open any kind
of entity, if I want to open a flower shop, if I, you know, am
going to be my mother's estate executor, I have to open a bank
account, I file a form with the IRS, I tell the IRS what it is
that the entity is going to be, and then I just start
operating. And I file the correct tax return, and the IRS deals
with it after the fact.
And one of the problems here with the 501(c)(4) screening
process that they employed was that they started trying to
conduct program audits during the review process, the
application review process. They completely abandoned their
published rules and application and all.
501(c)(3) is the only organization, the only type of
entity, that offers a benefit to the donor that you give money
to it, and you get a tax deduction. Every other 501(c) group
is--as the chairman pointed out, receives contributions after
tax. So there's no reason to have all of this process in the
first place. Just get rid of it.
Mr. Lankford. Right. What about the publication of donors
and submitting the list of donors to the IRS?
Ms. Mitchell. Every tax-exempt organization has to file a
Schedule B with its Form 990 tax return in which it must
disclose to the IRS all donors of $5,000 or more. Now, that is
not a public schedule. The public is not entitled to it. It is,
by law, confidential. So the only people you're telling the
information to is the IRS.
And since, as I said, for all organizations other than
(c)(3)s--I mean, I would probably get rid of it for (c)(3)s,
because I don't really see the point--but if they can make an
argument that they're in a different category because
contributions are deductible, but there's no public policy
reason to tell the government who has given of their after-tax
dollars to an exempt organization.
Mr. Lankford. Are they cross-referencing that to the
individual's tax returns?
Ms. Mitchell. Well, there's no reason to because they don't
get any tax benefit.
Mr. Lankford. Okay. So that is the question, then, of why
you gather that. That limits the authority, that IRS typically
functions in the gray areas of the law, and that's where they
have the greatest amount of power.
You had also started a comment earlier telling a story
about the new rulemaking, and you were giving an example that
we had run out of time on. Can you finish that story briefly?
Ms. Mitchell. The day that--thank you, Congressman. The day
that the comments closed was February 28 of 2014, and at last
count I think it's over 160,000 comments. The following
Tuesday--that was on a Thursday. The following Tuesday, March
4, the IRS issued new guidance for reviewing applications for
exempt status for 501(c)(4)s. Guess what's in that guidance? It
is all of the questions--many of the questions that they were
trying to include in their new definition of candidate-related
political activities are now in their guidance as to the kinds
of development letters and questions that every 501(c)(4)
organization can anticipate receiving from the IRS if you file
an application for (c)(4) status going forward.
I just will tell you from a practitioner's point of view, I
think it is malpractice if I ever submit another one of those
applications to the IRS until we get rid of it. So I just think
the whole process is completely broken, and it just needs to be
eliminated.
Mr. Lankford. Okay. I yield back.
Chairman Issa. Thank the gentleman.
We'll go to the gentleman from Nevada Mr. Horsford.
Mr. Horsford. Thank you, Mr. Chairman, and to the ranking
member.
Thank you to the witnesses who are here today.
Let me begin by saying, as I have said before, I think,
this is probably over our fifteenth hearing or something like
that on this issue. I am not a----
Chairman Issa. The gentleman wasn't here, but it was noted
by the ranking member it's the twelfth.
Mr. Horsford. Okay. Twelve, fifteen, they all kind of run
together when it's the same regurgitated issues with no
resolution. I'm not a defender of the IRS; I'm a defender of my
constituents who want there to be accountability. I believe
that there was wrongdoing by individuals, staff-level
individuals, and part of this committee's oversight and
government reform function should be to get those facts and to
address those concerns. I am not here nor do I care about how
this hearing plays with MSNBC or FOX News, because it's the
constituents back home and their opinion that matters to me
most.
So I have one question for each of you, and I would ask you
to be brief so I can tackle another issue that I'd like to put
on the record, and that is this title is ``IRS Abuses: Ensuring
that Targeting Never Happens Again.''
So what is one concrete suggestion that this committee
should act on in order for the targeting that did occur, the
IRS wrongdoing that did occur can be addressed? Each of you, if
you could limit your comments, one suggestion.
Mr. Keating. Well, my one suggestion would be to do what
Nina Olson, the National Taxpayer Advocate, the independent
ombudsmen inside the IRS, recommended, and that is to get the
IRS out of the business of making political determinations
about speech. And this is something I think the committee
should encourage the IRS to do, it already has the authority to
do, and it has other agencies to make these determinations, and
the IRS wouldn't have to do anything further.
Mr. Horsford. Thank you.
Mr. von Spakovsky. Congressman, I have to agree with that,
and that is something that all organizations--I don't care
whether they're conservative, liberal or moderate, all of them
should want that the IRS not be looking at and analyzing the
speech and activity they engaged in to determine whether they
think it's political or not.
Mr. Horsford. So is your point that some other entity
should perform that function and that determination?
Mr. von Spakovsky. No. It's just that the IRS has the wrong
definition that it uses when it looks at 501(c)(4)s. I detailed
this in my testimony, but basically they've misinterpreted the
law in a way they shouldn't be doing to use that against
organizations, and they simply should not be doing that.
Mr. Horsford. Thank you.
Ms. Mitchell. Well, when you have 10 children, I've just
recommended 10 things, I've got to pick my favorite. So if you
want to be sure that there's no targeting of citizens groups,
you eliminate the process of having to ask the IRS for
permission to operate as a citizens group. Just eliminate that
application process altogether, and then you won't get into a
fight about whether it was progressives or Tea Party because
you take away the power of the IRS to make that determination
in the first place.
Mr. Sherk. I would reform our civil service laws to return
to the spirit of the original Pendleton Act in which you
regulate the hiring to prevent a political spoils system, while
leaving the government fairly free to fire people for
misconduct and firing without this extensive appeals process
afterwards.
Mr. Horsford. Thank you.
You know, I respect people's suggestions, and, again, I
want to hear and listen to what those suggestions should be.
And we have now had some 45 transcribed interviews, some 250
employees from the IRS, some 700,000 pages of documents, and
the IRS, at taxpayer expense, has spent over $18 million
responding to congressional inquiries, but yet we have not, as
a committee, taken action on anything, but we continue to have
these hearings where allegations about White House involvement
is alleged, you know, from the very beginning when the chairman
first started this process, when the inspector general first
issued his report.
It was Chairman Issa who went on national television and
said, ``This was the targeting of the President's political
enemies, effectively, and lies about it during an election
year.''
Hal Rogers, the chairman of the Committee on
Appropriations, stated.
Chairman Issa. The gentleman's time is expired, but please
continue--
Mr. Horsford. Thank you.
``Of course, the enemies list out of the White House that
IRS was engaged in shutting down or trying to shut down the
conservative political viewpoint across the country, an enemies
list that rivals that of another President some time ago.''
But after this exhaustive investigation, the committee has
obtained no evidence to support these accusations. And so,
again, I have asked the chairman respectfully, and to my
Members on the other side who I have talked with, you know,
let's get to the place where we can fix what is broken so that
there is no longer targeting and this never happens again,
because there are some of us who have that concern and want to
get to that point. But we don't think that it should involve
conspiracies and accusations that are unfounded, not after $18
million of taxpayer investment has been wasted.
I yield back my time.
Chairman Issa. I thank the gentleman.
I might note for the record that long before I made those
statements, I suggested that the White House would be well
served to hire accountants rather than attorneys, but they
didn't take my advice on that either.
Mr. Meadows, would you like to be next up? The gentleman is
recognized.
Mr. Meadows. Thank you, Mr. Chairman.
I will be very brief, but, Ms. Mitchell, I want to come
back to you on a couple of areas, because one thing that was
troubling to me as we went through 12 hearings was that the IRS
early on said that if you were applying for a 501(c)(4) status,
that there was a waiver, kind of an exemption, that you really
didn't have to apply. And out of the people that you've
represented or the ones that you know that have been
represented that were caught up in this targeting, how many of
them were notified by the IRS that there was this exemption;
that if it went over I think it's 270 days, that, you know,
one--how many of them were notified by the IRS?
Ms. Mitchell. Well, for--actually for a 501(c)(4)
application, this is what I'm saying, that you don't have to
have a letter of determination----
Mr. Meadows. Right.
Ms. Mitchell. --from the IRS in order to function as a
501(c)(4) organization. However, if you want to raise money
from the public----
Mr. Meadows. Right.
Ms. Mitchell. --and you--you have to file charitable
registrations in 38 States, and those States all require a
letter from the IRS or a copy of your application that you're
trying to get one, which is why they've got to eliminate the
process. So--but the 270-day threshold only applies to
501(c)(3)s. Once you apply as a (c)(4) or (5) or (6) or (7) or
(8) or (9), you are at the mercy of the IRS to decide when it's
going to issue your letter. And you don't have any statutory
right to pursue a civil remedy in court.
In the case of True the Vote, the IRS and the Department of
Justice filed on the day their answer was due in our lawsuit.
They said, oh, we decided to give you your (c)(3) status.
Mr. Meadows. So are you telling me when Mr. Shulman came
here to this particular body and said that there was these
waivers and they really didn't have to do that, that that was,
at best, disingenuous, what----
Ms. Mitchell. Well, what he was saying, as I understood his
testimony at the time--and as I said, I thought it was very
arrogant where he said that, well, these groups don't have to
come to us for a letter, which is technically true; but if they
do, then we can ask them whatever we want to. That was the
position that he took before this committee. And I thought at
the time that that was actually--that ignored the rule of law--
--
Mr. Meadows. Right.
Ms. Mitchell. --because there are standards, and there are
application and instructions, and they shouldn't be able to go
beyond the four corners of that.
But there's one other exemption waiver thing that I think
that you might also be recalling. You will remember that when
Interim Commissioner Werfel went before Ways and Means in June
of last year, he told the Ways and Means Committee--and they
sent letters to all of those whose applications were still
pending, that had not--all the Tea Party groups who had not
gotten their exempt status waiting for all this period of time,
hundreds of them, and several of my clients. And they received
letters from the IRS saying, if you will promise that you will
never engage in more than 40 percent political activity, and if
you will also promise--and they threw in there a ringer that
said, counting not only your program expenditures, which is
what the law says, but they threw in--as I say, they have
abandoned the rule of law--they threw in this other category of
counting volunteer activity. Well, how are you supposed to do
that? There's no standard. There's no--you know, and I told
several clients who have said, what should I do, I said, well,
I don't know how to tell you to answer that, because you're
going to have to sign under penalty of perjury from now on that
you're complying with something that has no legal definition.
Mr. Meadows. Well, what it sounds like, we talked about
banks that are too big to fail. It sounds like the IRS has
gotten too big not to fail. Would you agree with that?
Ms. Mitchell. Well, that's why my number one recommendation
is that everybody ought to sign on to Congressman Jim
Bridenstine's House joint resolution, what is it, 104, to
abolish--to repeal the 16th Amendment, abolish the income tax
and get rid of the IRS, because I think it's become the tail
wagging the dog of our country, and I think it's a detriment to
our Nation.
Mr. Meadows. All right. Mr. Sherk, let me go to you from a
labor standpoint. One of the frustrations, as a business guy, I
sometimes call the government ``the big easy,'' that once you
get here, there's no way that you get fired. Would you say that
after someone has been with the government for 2 years that the
chances of them getting fired are slim to none?
Mr. Sherk. They are incredibly minuscule. Like I said in my
testimony, once you pass that probationary period, your odds of
getting fired are one-quarter of 1 percent. So, you know----
Mr. Meadows. How does that compare to the private sector?
Mr. Sherk. So the private sector, monthly, the best we know
from the Bureau of Labor Statistics is they have a figure for
both layoffs and discharges. So both we fired you for showing
up drunk, and we fired you because we're losing business. It's
not strictly comparable to the Federal Government, because, of
course, the Federal Government doesn't go out of business in
the same way private-sector companies do. But that monthly
layoff and discharge rate is about 1.3 percent versus an annual
termination rate for performance and misconduct rate of, you
know, basically one-quarter of 1 percent. So it's--the monthly
private-sector rate is five times greater than the annual
Federal rate.
Mr. Meadows. So a fraction of the private sector?
Mr. Sherk. Exactly.
Mr. Meadows. I appreciate the patience of the chair. I'll
yield back.
Chairman Issa. I thank the gentleman.
I'll go to the gentleman from Michigan Mr. Bentivolio.
Mr. Bentivolio. Thank you very much, Mr. Chairman.
Ms. Mitchell, thank you very much for all the work you're
doing. God bless you. As a Tea Party Republican, I'm a big fan.
And since this story broke, thanks to you, about the IRS
targeting Tea Party groups and conservative groups, a number of
people have come to me back in my district saying they believe
that they've been targeted because of their political beliefs
working as a schoolteacher that's run by the Michigan
Educational Association.
Auto dealers that lost their dealership at GM and Chrysler
during the bailouts lost their dealerships not because of their
past performance, but because the dealer owners donated to
Republican groups.
And now there are churches. I'm hearing some people that
are--have to go before the IRS and explain what they're doing
in their church regarding their political activities.
Have you heard of any other groups being targeted because
of their political position?
Ms. Mitchell. Well, as I said in my testimony, I think that
this is something the committee really should investigate, and
that is, I have heard repeatedly from Romney donors across the
country that they were subject to personal income tax audits by
the IRS, or their businesses were subjects to audits. And I
just have a sense that it's too common to be--it's not
scientific. I've spoken with TIGTA about it.
I think that it's really important that the IRS answer the
one question, did you use, have you ever used campaign finance
reports and donor information to target individuals for IRS
audits? And I think they should be forced to answer that
question. And then you have to then ask, did you do it equally
to donors to the Obama super PAC as you did to the Romney super
PAC? Because I think that this committee needs to get to the
bottom of that, because I really firmly believe that that's
been going on, and I think that that should be made statutorily
illegal.
Mr. Bentivolio. Thank you very much. Once again, thank you
for all that you do.
Mr. Chairman, I yield back.
Chairman Issa. Would the gentleman yield to me?
Mr. Bentivolio. Yes.
Chairman Issa. Briefly, I just want to get one thing on the
record that we haven't talked about. And I know Mr. Horsford
was interested in the reforms, but he didn't stay to hear them
nor apparently read what we put out on the suggested reforms.
But, Mr. Keating, we already previously made clear
501(c)(4)s get no tax exempt, no--you pay with after-tax
dollars if you want to belong to that affiliated group.
What's the best way for people to understand the history of
anonymous giving to groups that represent them in some cause?
Call it political, call it ideological, but isn't there a long
history of the Court looking at people's ability to have
anonymous free speech through association so that they not be
ultimately persecuted for their attempt to bring some form of
justice? Can you give us, either of you give us some of the
history?
Mr. Keating. Well, probably the most famous case that
people are aware of is NAACP v. Alabama. And obviously, back in
the 1950s, the State of Alabama was not that keen on the types
of recommendations being made by the NAACP, and they sought to
get their membership list and presumably their donor records as
well. And this case went up to the Supreme Court, and the
Supreme Court said the State had no right to get that
information under the circumstances designed in the law.
But this is not the only case. There's another case that I
would like to cite. I believe it's Tally, but I may be getting
the name wrong. There was an ordinance passed to require labor
organizers to register or display names while they were trying
to organize, and the Court, again, said there's no right for
the government to force that kind of disclosure.
What we like----
Chairman Issa. I suspect that the tag should say ``hit me''
in the anti union movement potentially so--I mean, that clearly
you would have been sectioned out; that was a way to go after
the union movement, if they would have been allowed.
Mr. Keating. Absolutely. And, you know, what we point out
is the purpose of disclosure is to allow citizens to monitor
their government and to monitor government officials. The
purpose of disclosure shouldn't be for government to monitor
the citizens or for people to use that in coordination with the
people in power to monitor citizens or harass citizens for
their political activity.
Chairman Issa. So the history of anonymous free speech, of
the right of people to associate, and to associate in a way in
which their ideas can be put forward without retribution is, in
fact, not a conservative history; in many ways it's a
progressive history of the Court finding on behalf of the
American people that right, isn't it?
Mr. Keating. Absolutely.
Chairman Issa. Thank you.
With that, we go to Mr. Woodall.
Mr. Woodall. Thank you, Mr. Chairman.
I was just watching it on TV back in the office, and I was
so enjoying everybody's answers and solutions, and I thought I
want to come see it in person before folks leave.
I don't want to slow you down any further. You represent--
well, I came up in that big freshman class in 2010, and you
represent the pulling on the rope that so many of those Members
from both sides of the aisle--that inspiration that brought
them here. The Heritage Foundation has been the touchstone to
which folks have looked not for blame, but for opportunity to
make a change for decade upon decade. There's no one else who
has played that role better.
Ms. Mitchell, your name has come up--I won't tell you for
how many years your name has come up in my readings and
dealings. I didn't have to get any further than the first page
of your testimony where you said the secret is just to repeal
the 16th Amendment, and then we can solve these issues. You had
me right there. We were committed.
And, of course, Mr. Keating has been in this business a
while, trying to pull on the rope and make a difference.
Candidly, I'd never thought about why it was post-Watergate we
decided that the executive branch manipulation of the IRS was a
bad thing, but if Congress wanted to manipulate the IRS, maybe
that would be okay. That makes no sense whatsoever. While Ms.
Mitchell's recommendation to repeal the 16th Amendment would
solve it better, prohibiting Congress from manipulating it
would certainly make a difference.
I, too, heard Mr. Horsford ask about what the solutions
are, which is the question I would hope 435 people wanted to
ask, but if you guys are not doing what you do, we never get
around to the asking of the question. I can't tell you how many
conversations I had where folks said, oh, the IRS would just
never do that. That could never happen. This is America. This
would never happen in America.
And until somebody cares enough, Ms. Mitchell, to make sure
that grievances get heard, you think it could never happen in
America, but it does. Without the think tank, without the
watchdog groups, we are lost.
I looked at your testimony, and I thought, golly, where are
the liberal witnesses on this panel? And I thought, you know
what? This is not really a conservative or a liberal issue.
Free speech, without it neither of us could persist.
So I won't delay you any longer. Just know how much I
appreciate what it is that you do. I can't tell you how many
conversations we've had in this freshman class of 2010 that say
we want to make a difference, but it's so hard to figure out
how sometimes. You all don't have a voting card, but you have a
long list of resources and an endless amount of passion that
folks who do have voting cards look to to try to make a
difference for families back home, and I'm grateful to each one
of you for that.
Mr. Chairman, I yield back.
Chairman Issa. I thank the gentleman.
This may come as a surprise, but I never asked my first
round of questions, so I'm going to sort of finish by asking.
We made a number of suggestions in the document we put in.
It was provided to all of you. But there's more than one way to
skin a cat is an old expression. Are they equal, acceptable;
would they all be improvements is the general set of questions.
Mr. Sherk, you looked at what we did in the way of civil
service reform last week. Was that a good start?
Mr. Sherk. I think it's certainly a good start. It's moving
in the right direction. I think, though, that you need to move
beyond the SES; that a lot of the employees engaging misconduct
are not the managers, but the rank and file. And if Congress
isn't going to wholesale overhaul the civil service
protections, things like allowing people to be immediately
removed without pay instead of waiting for 30 days, things like
extending the probationary period, and really just making it--
reducing the number of appeals employees can have. That's what
really gets the agencies upset is that it's, you know, the in-
house review, okay, that's one thing, but then when it goes to
the Merit Systems Protection Board, then it goes to
headquarters, then it goes to the EEOC, then it goes to the
courts. Just pick one forum and only one set of appeals. Don't,
you know, get to relitigate it time and time again so it drags
out over a course of years, I think, would make the Federal
managers more willing to use those procedures.
Chairman Issa. Well, one of the suggestions that's been
made, and I want your opinion on it, is that people have to
choose to either be members of a union and come under that
union contract protection or civil service, but not both.
Mr. Sherk. Well, it sort of works that way now. So you can
either use your union grievance procedures, or you can use the
Merit Systems Protection Board. So to that limited extent
you've got one forum, but then at the end of the either the
union grievance, the arbitration or the MSPB, then you can
appeal to Federal courts. Then you can--if you're alleging
discrimination, you can appeal to the EEOC. And I think you
should have to pick one. If you're saying you're fired for
discriminatory reasons, appeal to the EEOC right at the
beginning. Don't go through the grievance, then go to the EEOC,
then go to the courts. Just pick one forum.
Chairman Issa. Now, on another subject, the question of
should there be one Commissioner or a board. We put that out, I
think I'd get a general agreement that you think that the
normal commission process where you have a bipartisan
commission of some sort, whether it's five with the Chairman
being the party of the President, such as the SEC and so on, or
six, such as the FEC where it's truly an equal board, you all
think that would be an improvement over the current
Commissioner who is strictly a political appointee of the
current President; is that right?
Mr. von Spakovsky. I certainly agree with that, and I speak
from experience as a Commissioner at the FEC. I mean, the whole
advantage of having a multimember commission is that the board
has to work to try to reach consensus on issues. And therefore,
if something comes up on an enforcement question, a regulatory
question, a policy question, you've got people with different
points of view raising issues about it. It's particularly
important, quite frankly, to have members of both political
parties there.
Chairman Issa. So your point would be that by having a
multimember commission, when they all agree, American
confidence is much greater than when the political appointee of
one party makes a decision?
Mr. von Spakovsky. No, that's exactly right. And frankly,
look, when they disagree--for example, look, there are rare
occasions, it's actually a very small percentage despite what
people may believe, when the FEC, which has six Commissioners,
will disagree 3 to 3. Well, if they're disagreeing on the
interpretation of a regulation, then it's probably a good thing
that regulation is not going in place, because if the six
Commissioners who are tasked with enforcing the law disagree on
what the law means, then you shouldn't be forcing that on the
public to try to comply with a confusing regulation or
confusing law.
Chairman Issa. Now, there's a suggestion that we remove the
political question entirely from the IRS, which means that, for
example, with a 501(c)(3), the question of the deductibility
would remain at the IRS; however, whether the American Heart
Association, American Lung Association, the Red Cross, whether
they crossed lines of political speech and, if so, what the
reporting requirement would shift to the FEC. Is that your
understanding?
And I said 501(c)(3) for a moment because we've only talked
about the (c)(4)s and other corporations. Would it be the same
for 501(c)(3)s in your interest, or would there be a legacy
there?
Mr. Keating. I think there has to be a difference. The
statute specifically says a 501(c)(3) can engage in no
political activity at all.
Chairman Issa. I agree with you, except that the precedent
is, yes, they can, and they do. It's been limited to, ``de
minimis.'' The American Lung Association actively supports laws
that reduce smoking, and they campaign on television supporting
the establishment of, let's just say, a vote to ban smoking in
public places. They do that. The question is to the extent that
there is any activity, who should regulate it?
And I ask that for a reason. Inevitably, free speech
becomes political by somebody's interpretation. Now, there's
not an R or a D after, you know, clean air. There's not an R or
a D after smoking and nonsmoking. I've noticed people of both
parties will choose one side or the other, so it's not
partisan, per se.
But the question is should we transfer entirely to the FEC
any and all responsibility for compliance with any and all laws
related to political activities?
Mr. Keating. Well, generally I think for any other 501(c)
organizations other than (c)(3), where there's a prohibition on
political activity, and by that I believe really means express
advocacy for or against a candidate, not for or against an
issue, I don't think there's any----
Chairman Issa. So as long as that definition is maintained,
you're comfortable with the 501(c)(3)s as they are because
their ban would be absolute, and thus it's not a judgment call?
Mr. Keating. Right, although I do think the rules there
need to be clearer as well.
Chairman Issa. All right. I appreciate that.
Let me ask one more question, and it goes sort of like
this: If we were to move political oversight to the Federal
Election Commission, consolidate in one place with one
expertise, and, Ms. Mitchell, as you said, with a consistent
definition, which would certainly be helpful, then would one of
the reforms of the IRS be, as we said earlier, a multimember
commission, or, in the alternative, if Congress in the process
felt that a Commissioner that did not serve at the pleasure of
the President, but rather, like the FBI Director or the Fed
Chairman, served a tenure that was longer than a particular
President and thus had a level of freedom, would either of
those, in your opinions, be an improvement? Not saying you're
picking favorites, but just would either be an improvement over
the present situation in which you have an overt appointee of
the President who is beholden to the President every day for
his or her appointment?
Ms. Mitchell.
Ms. Mitchell. Well, I think either of those would be an
improvement, but I would certainly caution that that reform,
absent some of these other statutory changes, will not be
sufficient to reinstate the rule of law at an agency which has
essentially gone rogue.
Lois Lerner talked about rogue agents in Cincinnati. The
agency itself has gone rogue, and there is a real need for--and
that's one of the reasons that I'm so grateful that this
committee is conducting oversight of this agency, intensive
scrutiny of this agency. Yes, it may be uncomfortable, it may
be expensive, it may be time-consuming, but this agency is out
of control, and I'm sure every member of this committee,
Democrat and Republican, has heard horror stories from
constituents about the IRS. And Congress has got to reassert
its authority over this agency because it feels as though it is
capable of completely thumbing its nose at the people's
representatives, and I don't care what party affiliation, I
would be very offended by that if I were a Member of Congress.
I certainly am as a taxpayer.
Chairman Issa. Thank you.
Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman.
If I might, just I want to make sure that the record is
clear regarding the publicly released notes regarding the July
2010 screening workshop for IRS employees. Contrary a bit to
what Ms. Mitchell has said, although it says that,
``progressive and Tea Parties are not the same and should not
be sent to the Tea Party coordinator,'' the notes direct IRS
screeners to treat Tea Party and progressive groups the same.
It says, ``Current political activities discussion focused
on the political activities of Tea Parties and the like.
Regardless of the type of application, if in doubt, err on the
side of caution and transfer to 7822. Indicated the following
names or titles were of interest and should be flagged for
review: 9/12 Project, Emerge, Progressive, We the People, Rally
Patriots, and Pink Slip Program.''
I ask that these notes be included in the record.
Mr. Collins. [Presiding.] Without objection, so ordered.
Mr. Davis. And I might also note that, you know, it's
interesting to have political ideologies and philosophies, but
I also note that the IRS Commissioner as well as the inspector
general, who were in place as these allegations surfaced, were
both President Bush appointees, which sort of would indicate to
some people that they may have had some Republican leaning,
although not necessarily so. But that would appear to be some
type of implication.
I also might note that the inspector general, while he or
she cannot change law, they can make recommendations. And this
inspector general made nine recommendations, all of which the
Internal Revenue Service has complied with and gone beyond. And
so I think it's an indication that the Internal Revenue Service
is moving progressively to try and make sure that it improves
its operation, and that whatever happened in the past is not
necessarily what is going to happen in the future and is not
what's happening now.
And I know there are people who would not like to pay
taxes, and so they'd like there not be a mechanism for which to
collect, but I doubt very seriously--we have difficulty
agreeing on very minor things around here, so I doubt very
seriously if we would reach that point.
Mr. Collins. Well, thank you, Mr. Davis. I would love to
see the fair tax, and then we can go on from that.
And I know, Mr. Woodall, would that be an amen from the
front row up there?
Mr. Woodall. Support the chair. Amen.
Mr. Davis. Well, I think we'll be working on taxation for a
long, long time. And I want to thank the witnesses for being
here, I want to thank the chairman for holding this hearing,
and I yield back.
Mr. Collins. I thank the gentleman.
At this time the chair recognizes himself for questions,
and just a few questions here. And I just have to say on the
point of, first, Mr. Spakovsky, your book, ``Obama's
Enforcer,'' you actually detailed one of my inquiries with the
non-enforcer-in-chief, I think the obstacle-in-chief a lot of
times for this administration. And I think it sort of shows--
frankly, it's very disturbing. I think it's sort of been
developed over time in many of these agencies there's just a
disdain for coming up here and having Congress do its normal
oversight role. We may disagree, but there is a role for both
to play, and I do appreciate that.
And between--and, Ms. Mitchell, I have a question. Tea
Party tax-exempt application experienced significant delays
when they were in the determination process, with some waiting
years to hear back from agencies regarding their status. These
delays cause the groups to lose support and funding and can
even cause them to disband. Therefore, you know, to me it's
worth considering proposals to streamline the IRS tax-exempt
application process by implementing a time limit to evaluate
applications.
What are the consequences of an IRS delaying applications
of these potential tax-exempt groups, and then, also, what your
thoughts on a timeline would be?
Ms. Mitchell. Well, it's very detrimental to these
organizations, and particularly most of these organizations are
not the Karl Rove-type groups. I mean, these are mom-and-pop
organizations. They're small citizens groups that operate on
very small budgets, and the cost to them of the delay meant
people thought, well, maybe they weren't legitimate, so they
couldn't raise money. For some of the larger groups who were
trying to build a network that they could help then smaller
groups, then they would run into trouble with the State
regulators because they didn't have letters of exempt status.
But my basic belief is that we should just eliminate that
application process altogether, and then you just get rid of
it. Then there's no temptation. You just let a citizens group
file, say I'm a 501(c)(4), I'm a 501(c)5, I'm a 501(c)6,
whatever, just the same way you do for any other entity in
America. To open a bank account, you get an employer ID number.
And then they file their 990s, and then the IRS can, you know,
on a random statistical basis--not on a basis of selection
based on political philosophy, but on a random basis--be able
to look at organizations, and look at their operations through
their Form 990s, and look at their programs after the fact,
after they've been operating for a few years.
But what the IRS did here through this application process,
and which they've said they're going to continue to do--this is
the part that I want everybody to understand. The IRS said on
March the 4th of this year they're going to continue to do
this. And it's in their guidance. It's not in any regulations,
and they buried it at the bottom of a newsletter that about
four of us received, and that I read at 3 o'clock in the
morning because I was waking up and couldn't sleep. And it says
they're----
Mr. Collins. Not the most open and transparent process
there.
Ms. Mitchell. No. And they're going to continue. And
they're going to try to look--the questions that they're going
to ask applicants presuppose that these are organizations that
have been operating for 2 or 3 years before they can answer the
question.
So we just need to--we need to make--here's clarity:
Abolish the process. Here's clarity: Define political activity
for all purposes for any--who--whatever agency is doing it,
whether it's the FEC or the IRS, as expressly advocating the
election or defeat of a clearly identified candidate, using
words such as ``support,'' ``oppose,'' ``elect,'' ``defeat,''
``vote for,'' ``vote against.'' If we did that, we would
clarify. That is clarity, and that's the kind of thing that we
need to have Congress do.
Mr. von Spakovsky. Yeah. No, I totally agree with that. I
think you should eliminate the IRS having to approve an
application. If Congress doesn't want to go that far, I mean,
this fall-back position is to put in a time limit. Give the IRS
60 days to approve it, and if they don't approve it in that
time, then it automatically becomes approved.
There's certainly precedent for that. A 60-day time limit,
for example, was the time limit imposed by statute and
regulation on the Department of Justice under section 5 of the
Voting Rights Act. So there's precedent for this, and that's
the way to do it.
Mr. Collins. Well, and I think that, again, is fairness for
all. Let's just make it simple. Let's make it a process. If
you're doing wrong, you're doing wrong, and you get it fixed,
and that's the catch process, not the front end that seems to
be such a problem.
One issue I think that is just stuck in the craw of most
Americans that they just don't figure out--and Mr. Woodall and
I are from Georgia, we get this question all the time-- you
know, it's why somebody either, one, can't be fired. This has
been an amazing discussion we've had in this office before, in
this hearing room before. But when Ms. Lerner left between May
2013 and September 2013, she collected full pay and benefits,
and roughly 60- to 100,000, that was her annual.
At what point does there also need to be personnel changes
or personnel issue development in the IRS and possibly a
bigger--Mr. Keating, anybody, want to tackle that in my last
little--as we finish up here?
Mr. Sherk. Well, I'd just like to say that we've got a
horrible system that makes it very difficult to remove
government employees for any reason. I think Congress quite
sensibly didn't want to have a lot of these jobs handed out on
the basis of political connections and help with the campaign,
but we've gone way overboard where you not only regulate the
hiring on a merit basis, which I think is quite reasonable, but
make it very difficult to remove employees.
I mean, I outlined if you just stay within the Merit
Systems Protection Board process, it takes an advantage of
about a year and a half from start to finish, from when a
supervisor says, I want to remove a problem employee, to when,
you know, that level of appeals are done, outside of any
appeals to the EEOC or to the Federal courts. I mean, when the
Office of Personnel Management says that managers describe the
efforts needed to remove an employee as, ``heroic,'' then I
think we know we've gone too far.
Mr. Collins. Right. I think protection needs to be there,
but at the same point, it shouldn't take an--almost literally
an act of Congress to do something.
Well, I think what we're seeing here is interesting. I
think the hearing has been, I think, something to discuss, the
fact that there are many problems here. But I think the one
thing we can all come to a conclusion, as I told the
Commissioner of IRS when he was sitting here just a little over
a week ago, I said, you've lost the trust of the American
people. It was never the highest in the world, but just by
basically what they did, but we've now lost the trust in
everything.
It doesn't matter how much work we've been, because, as my
friend Congressman Davis said, there is a tax system, there is
a collection system right now. We may not like it, we work to
change it, but this is a system, and when you've lost trust in
the very ones who are supposed to be actually enforcing that
and taking that in, that's a problem, and the people aren't
satisfied with that.
With that, I'd like to thank our witnesses for taking their
time out of their busy schedule to appear before us today. And
with that, the committee stands adjourned.
[Whereupon, at 11:27 a.m., the committee was adjourned.]
APPENDIX
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Material Submitted for the Hearing Record
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