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Congressman Steven Horsford: IRS BEHAVIOR IS INEXCUSABLE

For Immediate Release
May 22, 2013

Tim Hogan, 202-577-6066

*Watch Discussion*

Washington, D.C. – Today, during a Committee on Oversight and Government Reform hearing, Representative Steven Horsford (NV-4) questioned IRS officials about misconduct in scrutinizing certain 501(c)(4) organizations and discussed how to reform policy to close loopholes so that rules may be enforced clearly and fairly.

Below is a transcript of Representative Horsford’s discussion with IRS officials:
Congressman Steven Horsford
I agree with a number of my colleagues here today that the behavior of the IRS has been inexcusable in regard to this situation. You know, no group or person should be inappropriately scrutinized because of their political affiliation, and the bottom line, unfortunately, is that this is not the first time that this has happened. Focusing on groups because of their political beliefs was wrong when the IRS did it to Greenpeace, it is wrong when the IRS did it to the NAACP, and it’s wrong now when they’ve done it to these 501(c)(4) applicants. Regardless of which party holds power, this behavior has to stop.
What I’d like to focus on is how we can reform this process so that it never happens again. Following up on the Ranking Member and Representative Speier’s line of questioning, the Inspector General’s report found that the IRS employees in Cincinnati “lack knowledge of what activities are allowed by tax-emption organizations.” It explained in the report that “we believe this could be due to a lack of specific guidance on how to determine the primary activity of an IRC 501(c)(4) organization”. state that IRC 501(c)(4) organizations should have social welfare as their “primary activity”; however the regulations do not define how to measure whether social welfare is in an organization’s primary activity.
So Mr. Schulman, as the past Agency head, in judging whether a 501(c)(4) has conducted an impermissible level of political activity, the IRS applies a wide-ranging, multi-factor “facts and circumstances” test. Is that correct?
Douglas Schulman, Former IRS Commissioner
Yes, first of all I’m not an expert in 501(c)(4) law and the details of how individual applications are reviewed but yes, I mean broadly they look, the IRS looks to see if political activity is the primary activity, which would disqualify an organization from being the 501(c)(4) and the inquires done, or at least should be done, is broadly done on a facts and circumstances basis.
Congressman Steven Horsford
Ok, well someone who is an expert, Professor Ellen April, has explained that the IRS’s facts and circumstances test “reached broadly, gives discretion to the administrators, and leaves many organizations and their advisors with little certainty on how to conduct their activity day to day.”
So Mr. George, do you believe a clearer bright line test for what is a permissible level of political activity would be helpful to IRS specialists?

Well again, I’m going to have to preface my response by saying that the Secretary has delegated tax policy to the Assistant Secretary for Tax Policy. There’s no question that clarity in the law and how to implement it would certainly help anyone who is trying to apply the law in this instance.
Congressman Steven Horsford
Has your office made that recommendation?
J. Russell George, Treasury Department Inspector General for Tax Administration
We have, and one of the recommendations in this report is that the Internal Revenue Service worked with the Department of the Treasury for clarity in this area, sir.
Congressman Steven Horsford
Well, I think it’s imperative, particularly since “primary activity” isn’t even the standard; it is, according to the federal law, “exclusively.” “Exclusively” is stated twice in 501(c)(4)(a) of the federal tax code. It is state nowhere “primary activity” and that is what the standard is that’s being used by the IRS, and that standard is not even clearly defined. So this is a major loophole that must be addressed.
Mr. Wolin, are you intending to revisit these regulations so the taxpayers are on notice of what legal requirements are, and how auditors can enforce the rules fairly?
Neal Wolin, Deputy Treasury Secretary
Congressman, the IG’s report makes clear that additional guidance in this area is necessary and we will work with the new acting Commissioner to do just that. This is very old guidance, it’s in a very complicated area, but we will endeavor to make sure that we can provide as much clarity as possible.
Congressman Steven Horsford
Well, again, I would just hope based on what the Chair and the Ranking Member indicated with the new Commissioner coming in, you’re right, for years, we’ve had this ambiguity. Tax and campaign finance experts have urged the IRS and the Treasury Department to better define electoral advocacy beyond the ambiguous facts and circumstances test, and to set clear limits for how much political advocacy is too much, but the agencies have failed to respond. So I hope that based on the leadership of this Committee, within our oversight and reform role, this is a reform policy that cannot wait. Because it did not just happen to this group, or set of groups, it’s happened before and it must stop. Thank you Mr. Chairman.


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