WASHINGTON, DC — Today, House Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL) delivered the following opening statement during a hearing on the Internal Revenue Service’s audit selection process and internal controls within the Tax Exempt and Government Entities division. This hearing comes on the same day a report released by the Government Accountability Office (GAO) found that the audit selection process is at risk of abuse and improper targeting based on people’s beliefs.
“Welcome, everyone. Today we’re going to review a new report from the independent Government Accountability Office, or GAO, about how the IRS decides to audit tax-exempt organizations.
“Two years ago, we learned that the IRS was targeting conservative organizations that were applying for tax-exempt status. The Exempt Organizations division, under Lois Lerner’s direction, had a checklist of reasons to select certain groups for extra scrutiny. That checklist included criteria such as whether an organization’s application referred to conservative buzzwords like ‘Tea Party,’ or ‘Patriots,’ or if the groups criticized how the country was being run. Targeted groups were subjected to intrusive and burdensome questionnaires. An Iowa pro-life group was outrageously instructed to tell the IRS about their prayers. Many of these groups had to wait for years to get an answer from the IRS on their applications—if they got one at all. We’re here today because some of those groups, in addition to all of that scrutiny, also got audited.
“To date, the IRS has basically tried to assure this committee and the American people that this won’t happen again simply by saying ‘Lois Lerner doesn’t work here anymore.’ But after we learned about the targeting of non-profit applicants, this committee asked GAO to review whether the problem was much bigger than that. We asked: can the IRS target tax-exempt groups in the audit process?
“GAO released that report today. It says:
The control deficiencies GAO found increase the risk that [the Exempt Organizations unit] could select organizations for examination in an unfair manner—for example, based on an organization’s religious, educational, political, or other views.
“GAO found many examples where the IRS failed to follow its own internal controls or document audit selection decisions. Failure to document is a real problem because where there is no documentation, there is no way to know if an audit was commenced based on merit or bias. There is also no way to hold someone accountable for bad acts.
“I’m deeply concerned about how the IRS decides which organizations to audit in the first place. Many times when a non-profit organization is audited, it’s because a computer program flags problems with an organization’s paperwork. But about 20 percent of audits are set in motion because the IRS gets a complaint about an organization. These so-called referrals can come from an individual, from the news media or even from someone’s political adversary.
“When the IRS receives a complaint, an employee looks to see if there is a likely tax violation. There are only five IRS employees who serve as these gatekeepers of the audit process, and they each cover only one issue area. The gatekeeper reviewing political activity complaints has been there since 2009. That means that for the past 6 years, only one person in the entire IRS has been reviewing political activity referrals to decide if they should move on in the audit process.
“If one of these gatekeepers decides there is audit potential, the complaint is sent to a referral committee with disturbingly lax standards. What’s worse, over 25 percent of audits GAO reviewed that were started because of a complaint had no description of the allegation in the file—that is, one in four audits GAO looked at had no explanation of the reason for the audit. In some instances, GAO found that entire case files were missing. This means no one can go back and determine if the audit was begun for a fair reason, or an unfair reason.
“It is stunning that in response to these findings, the IRS said that ‘although the report states that a hypothetical risk exists that returns could be selected unfairly, the draft report did not find any evidence that this has happened.’
“As we will show today, that’s just not true. The Inspector General tells this committee they have referred multiple cases of improper audit selection to the Justice Department for criminal prosecution in 2014 alone. There’s nothing hypothetical about that.
“And I’ll remind my colleagues that in 2013, after the Inspector General concluded the IRS unfairly targeted groups applying for non-profit status, the IRS response was very similar. They said, ‘[W]e have not found evidence of intentional wrongdoing by IRS personnel.’
“To the contrary, this Committee uncovered evidence showing Ms. Lerner acted in defiance of internal controls that were supposed to prevent any one IRS employee from blocking a group’s application or sending them to audit. Ms. Lerner was not only familiar with these internal controls, but these were policies she created and spoke of publicly as a way of commending the agency’s impartiality. The evidence shows that Ms. Lerner maliciously and intentionally bypassed these controls, reaching into her division and directing specific organizations be subjected to audit, something IRS rules said she could not do.
“It is disappointing that over two years later, it is still possible that the IRS can select groups for adverse treatment based on their personal political, religious, or educational beliefs. There isn’t proper documentation of allegations or decisions to audit; there are a handful of gatekeepers with sweeping authority and broad discretion; and there is a broken referral committee process.
“The IRS has been entrusted with powerful authority to review and audit organizations, and with that comes a very serious responsibility to the American people. The IRS must acknowledge these problems and take concrete action to ensure a Lois Lerner 2.0 situation cannot happen. This committee will continue to work to reform this broken system and ensure the IRS treats all Americans fairly and equally.”