Welcome to this afternoon’s hearing on the Internal Revenue Service’s Exempt Organizations Division.

In May, the Treasury Inspector General for Tax Administration released an audit exposing the Internal Revenue Service’s practice of targeting applicants for tax-exempt status based on name and policy position. The audit confirmed what many feared – that the IRS was treating applicants differently based on their beliefs by subjecting them to endless delays and intrusive information requests.  Today we want to bring that disinfecting sunshine to the audit branch of the IRS as well.

Since the release of the Inspector General’s report, the Ways and Means Committee has sought to determine the extent of the targeting and who was responsible.  Additionally, we are working to ensure that the IRS is addressing the failures or wrongdoing that led to the targeting, and making progress to restore public trust in the agency.  

To date, Committee staff has interviewed a total of 25 IRS officials and is reviewing roughly 300,000 internal IRS documents. And while the investigation is far from over, it is now possible to make some provisional findings:  

• We now know that – and this is new – in May of 2010, Lois Lerner, the former head of the Exempt Organizations Division, currently on paid administrative leave, was told that Tea Party cases were being held pending guidance from D.C.
• We now know that Lois Lerner took a special interest in the Tea Party based on an email sent to colleagues in February of 2011 saying that the “Tea Party Matter” was “very dangerous,” and in a follow-up email suggesting how to deny the applications.
• We now know more about the 298 applications that were put on hold.  From Committee review of each individual case, investigators discovered that two hundred forty-eight or 83 percent were right leaning and 29 or 10 percent were left leaning.  Of the right leaning groups, only 45 percent have been approved, while 70 percent of the left leaning groups have been approved.  One hundred percent of the groups with “Progressive” in their name were approved.
• We now know that of all the groups that were inappropriately subject to demands to divulge their donors, 89 percent were right leaning.
• We now know that, four months after the audit’s release, there continues to be confusion in Cincinnati about how to handle so-called advocacy cases.

Investigations often take unexpected turns – this one is no exception.  In the fall of 2010, Lois Lerner explained to a group of Duke University students that following the Citizens United decision, 501(c)(4) organizations were getting involved in political activity.  She said, “[E]verybody is screaming at us, ‘fix it now before the election….”  But Lerner explained, “I won’t know until I look at their 990s next year whether they have done more than their primary activity as political or not, so I can’t do anything right now.”  

To date, the investigation’s focus has been on IRS’ handling of applications for organizations seeking exemption.  Lerner’s remarks – “I can’t do anything right now” – raise questions over the role of the Examinations unit, which handle form 990s (annual form filed by exempt organizations).  Since spotting the issue, the Committee has begun to pursue a new branch of the investigation:  whether Lerner used the Exempt Organizations (EO) Examinations unit to target right leaning groups.

The Committee has discovered that among the hastily approved applications for exempt status in the early summer of 2012, a large number were flagged for IRS surveillance by Washington, D.C.  Of those flagged, more than eighty percent of the groups were right leaning.  The IRS surveillance program, called a “Review of Operations,” is conducted by the EO Examinations unit in Dallas and involves the monitoring of a group’s activity.  The consequence of being in the program is that surveillance can lead to an audit.  

Additionally, we discovered that, through a process approved by Lerner, EO Examinations itself flags groups for surveillance based on complaints received from inside and outside the agency.  Ninety-four percent of all organizations flagged for surveillance by the Examinations unit were right leaning.  Most startling, of the organizations referred for audit from this process, 100 percent were right leaning.    

To highlight the question of whether the examinations process is unbiased, the IRS informed the Committee two weeks ago that it had suspended both the surveillance orders from D.C. and the audits pending further review.

Four months after Lois Lerner’s apology for the targeting, there are many questions outstanding.  And frankly, there are not nearly enough answers.  What is clear is that the IRS faces a long road to recover its reputation.  And the only way to get there is through transparency and accountability.  

With that, I recognize the distinguished Ranking Member from Georgia, Mr. Lewis for an opening statement.

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