IRS Documents Show How the Renegade Tax Agency Used Donor Lists to Steer Audits
Judicial Watch has released more blockbuster documents from the Internal Revenue Service (IRS) that confirm that the IRS used donor lists of tax-exempt organizations to target those donors for audits. The documents also show that IRS officials specifically highlighted how the U.S. Chamber of Commerce may come under “high scrutiny” from the IRS. We forced these records out through a Freedom of Information lawsuit seeking documents about the selection of individuals for audit-based application information on donor lists submitted by Tea Party and other 501(c)(4) tax-exempt organizations.
In a letter dated September 28, 2010, then-Democrat Senate Finance Committee Chairman Max Baucus (D-MT) informs then-IRS Commissioner Douglas Shulman: “I request that you and your agency survey major 501(c)(4), (c)(5) and (c)(6) organizations …” In reply, in a letter dated February 17, 2011, Shulman writes: “In the work plan of the Exempt Organizations Division, we announced that beginning in FY2011, we are increasing our focus on section 501(c)(4), (5) and (6) organizations.”
Sure enough, in 2010, after receiving Baucus’ letter, the IRS considered the issue of auditing donors to 501(c)(4) organizations, alleging that a 35 percent gift tax would be due on donations in excess of $13,000. The documents show that the IRS wanted to cross-check donor lists from 501(c)(4) organizations against gift tax filings and commence audits against taxpayers based on this information.
A gift tax on contributions to 501(c)(4)s was considered by most to be a dead letter since the IRS had never enforced the rule after the Supreme Court ruled that such taxes violated the First Amendment. The documents show that the IRS had not enforced the gift tax since 1982.
But then, in February 2011, at least five donors of an unnamed organization were audited.
The documents show that Crossroads GPS, associated with Republican Karl Rove, was specifically referenced by IRS officials in the context of applying the gift tax. Seemingly in response to the Crossroads focus, on April 20, IRS attorney Lorraine Gardner emails a 501(c)(4) donor list to former Branch Chief in the IRS’ Office of the Chief Counsel James Hogan. Later, this information is apparently shared with IRS Estate Gift and Policy Manager Lisa Piehl while Gardner seeks “information about any of the donors.”
One of the most disturbing bits of information pulled from the documents concerns the U.S. Chamber of Commerce, which sometimes works to support the free-enterprise system in the face of heavy-handed regulatory policies.
Emails to and from Lorraine Gardner point to a bias against the Chamber. An IRS official (whose name is redacted) emails Gardner on May 13, 2011, a leftist blog post responding to the IRS targeting of political and other activities of 501(c)(4), (5) and (6) organizations: “The U.S. Chamber of Commerce is a 501(c)(6) organization and may find itself under high scrutiny. One can only hope.”
The subject line of the email highlights this anti-Chamber of Commerce comment: “we are making headlines notice the end regarding 501(c)(6) applicability enjoy.” This critical comment is forwarded to other IRS officials and shows up attached to another Gardner IRS email chain with the subject line “re: 501(c)(4)” that discusses a pending decision about a tax-exempt entity.
In early May, once the media began reporting on the IRS audits of donors, IRS officials reacted quickly. One official acknowledges the issue “is a biggy”when a reporter from The New York Times contacts the IRS on May 9.
On May 13, 2011, former IRS Director of Legislative Affairs Floyd Williams discusses compliance with “interest” from Capitol Hill: “Not surprisingly, interest on the hill is picking up on this issue … with Majority Leader Reid’s office, has suggested the possibility of a briefing for the Senate Finance Committee staff on general issues related to section 501(c)(4) organizations. I think we should do it as interest is likely to grow as we get closer to elections.”
Later that day, then-Director of the Exempt Organizations Lois Lerner weighs in with an email that confirms that she supported the gift tax audits. Lerner acknowledges that “the courts have said specifically that contributions to 527 political organizations are not subject to the gift tax–nothing that I’m aware of that about contributions to organizations that are not political organizations.” Section 501(c)(4) organizations are not “political organizations.” Read More: http://www.judicialwatch.org/press-room/weekly-updates/obama-irs-audit-abuse/