What We've Learned About the Cincinnati Team at the Heart of the IRS Scandal
The IRS' office of Exempt Organizations sounds like a terrible place to work. Piling on to the critical report from a Treasury Inspector General, at least four sweeping media assessments this weekend show a department that is overwhelmed, underfunded, and poorly managed.
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The New York Times, the Los Angeles Times, the Washington Post, and ProPublica all researched the evolution of the small group of Cincinnati-based employees that unethically (and perhaps illegally) isolated the tax-exempt applications of Tea Party groups for additional scrutiny. What they found doesn't appear to be the image of big government run amuck, as charged by Senator Mike Lee earlier this week; instead, it's an organization trying to do politically tricky work while it struggled to cut costs — and failing.
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The scandal unfolded in four parts.
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Part 1: Tax-exempt work is moved to Cincinnati to save money.
The ProPublica story provides the best explanation for why the group was located in Cincinnati at all.
The city had a history of being able to hire people at low federal grades, which in 1995 paid between $19,704 and $38,814 a year — almost the same as those federal grades paid in New York City or Chicago. (Adjusted for inflation, that's between $30,064 and $59,222 now.) …
So in 1995, the Exempt Organizations division started to centralize. Instead of field offices evaluating applications for nonprofits in each region, those applications would all be sent to one mailing address, a post-office box in Covington, Ky. Then a central office in Cincinnati would review all the applications.
Nor did the IRS splurge on a fancy office for the team. The Post describes a fourth-floor office with an "open, L-shaped layout of small, plain cubicles. (Office norms discourage the decoration of cubicle walls.)" The Times also reports that the group was the least popular assignment in an unpleasant place.
Inside the agency, the unit was considered particularly unglamorous. “Nobody wants to be a determination agent,” said Jack Reilly, a former lawyer in the Washington office that oversaw exempt organizations. “It’s a job that just about everybody would be anxious to get out of it.”
Part 2: Tax-exempt applications increase, while resources to deal with applications keep shrinking.
By 2010, when the group began flagging applications that included the words "Tea Party," the group was only a tiny part of the massive IRS tasked with a big job. The Post:
Nationwide, about 900 of the IRS’s nearly 100,000 employees deal with tax-exempt organizations. Cincinnati’s determinations unit handled about 61,000 applications last year. In recent years, office culture in Cincinnati has been defined by constant reorganization to offset a voluminous workload: Regulations in the Pension Protection Act of 2006 triggered a wave of reapplications, and between 2009 and 2012, the annual number of 501(c)(4) aspirants nearly doubled, to 3,357. Many had a political tinge that complicated the determinations process.
The Times points out that the change in tax code that threatened the existence of hundred of thousands of groups, spurred "tens of thousands" to reapply. This is a key point: these employees handled every applicant for tax exempt status, and applicants for 501(c)(3) status, which results in the ability to accept tax-exempt donations, comprised a larger, more sensitive pool.
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At the same time that the office was being flooded, both a key training tool — a series of explanatory articles called Continuing Professional Education — and a spot-check of performance had already ended, in an effort to be more "efficient." ProPublica:
In 2003, the saturation reviews and post reviews ended, and the public list of criteria that would get an application referred to headquarters disappeared, Owens said. Instead, agents in Cincinnati could ask to have cases reviewed, if they wanted. But they didn't very often. … By the end of 2004, the Continuing Professional Education articles stopped.
The Treasury Inspector General's reported detailed one consequence of the lack of training for staff. For a period of about a year, all processing of questionable applications stopped while the group waited for a determination of what levels of political advocacy were permitted for (c)(4) applicants. That's the sort of training that the CPE articles were meant to provide.
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In the end, the easiest thing to do was approve them all. ProPublica notes that, of 24,196 501(c)(4) applications between 1998 and 2009, 77 were denied. Until someone decided to start paying closer attention.
Part 3: An employee starts streamlining applications.
The Times notes that the process began in 2010 with a single person.
For months, the Tea Party cases sat on the desk of a lone specialist, who used “political sounding” criteria — words like “patriots,” “we the people” — as a way to search efficiently through the flood of applications for groups that might not qualify for exemptions, according to the I.R.S. inspector general. “Triage,” the agency’s acting chief described it.
The Los Angeles Times agrees, blaming "one specialist."
The crux of the investigation by Congress and the administration will be why that employee started to flag those applications — and why, as the inspector general notes, it soon became an office-wide practice. Was it an attempt to streamline the workflow? Or was it politically motivated behavior meant to target Tea Party groups? So far, it appears to be the former; the Los Angeles Times points out that "[n]o evidence yet suggests that the IRS agents in Cincinnati had a political agenda." The Times spoke with a former IRS supervisor, who said that "[t]he specialists, hunched over laptops on the office’s fourth floor, rarely discussed politics."
Part 4: Management in Washington is slow to catch and correct the mistake.
It wan't until July 2011 that Lois Lerner, the group's Washington-based director, learned of the problem. As The Times and the inspector general's report indicate, management revised the criteria triggering closer inspection of applications. But:
… a midlevel official in Washington temporarily overseeing the Cincinnati office told a supervisor there that the guidance was “too lawyerly.” The guidelines were revised several times, as new specialists and lawyers joined the effort.
By January 2012, employees in Cincinnati, apparently without consulting senior officials, chose new keywords, including “educating on the Constitution” and “social economic reform/movement.” That month, the specialists in Cincinnati and elsewhere began sending out increasingly exhaustive, sometimes intrusive questionnaires.
By the time Lerner curtails the practice, it's too late. The questionnaires are for many groups the first time they've heard about their applications in months. It triggers blowback from conservative organizations which ultimately and indirectly prompts the inspector general's report. For months, upper-level managers obscure the problem — including in testimony before Congress — until Lerner spoke at a conference two weeks ago, shortly before the inspector general's report was released.
Photo: Acting head of the IRS, Steven Miller, testifies before Congress on Friday. (AP)
