The scandal involving the IRS’s discrimination against conservative groups seems to grow more dizzying by the day.
Acting IRS commissioner Danny Werfel on Monday told reporters that the now-infamous “Be On The Lookout” list was far broader than originally disclosed in the Treasury Department inspector general’s report. News accounts in outlets such as the Associated Press and Bloomberg News supported Werfel’s claim, indicating that terms on the list ran the gamut, politically speaking, from “tea party” to “progressive” and “occupy,” and even to groups whose applications included the word “Israel.”
A November 2010 version of the list obtained by National Review Online, however, suggests that while the list did contain the word “progressive,” screeners were instructed to treat progressive groups differently from tea-party groups. Whereas they were merely alerted that a designation of 501(c)(3) status “may not be appropriate” for progressive groups — 501(c)(3) organizations are prohibited from conducting any political activity — they were told to send applications from tea-party groups off to IRS higher-ups for further scrutiny.
That means the applications of progressive organizations could be approved by line agents on the spot, while those of tea-party groups could not. Furthermore, the November 2010 list noted that tea-party cases were “currently being coordinated with EOT” — Exempt Organizations Technical, a group of tax lawyers in Washington, D.C. Those of progressive organizations were not.
To Werfel’s account, add the testimony of Holly Paz. The highest-ranking official interviewed by the House Oversight Committee to date, Paz did not contend that the lookout list was politically inclusive. Rather, she told committee investigators that the use of the term “tea party” to flag applications was politically neutral. Paz, who served as the director of the IRS’s Office of Rulings and Agreements before she was put on administrative leave earlier this month, told committee investigators that “tea party” merely served as shorthand for an application for tax exemption from any group, conservative or liberal, that showed a potential for political intervention. “It’s like calling soda ‘coke’ or, you know, tissue ‘Kleenex.’ [Line agents] knew what they meant, and the issue was campaign intervention.”
Paz continued, “The criteria didn’t seem to limit what side of the issue,” according to an interview transcript reviewed by National Review Online. “There was a variety of different political persuasions amongst the groups that were — you know, whose applications were in this bucket of cases.”
Her testimony, however, stands in stark contrast to that of Cincinnati IRS agent Elizabeth Hofacre, who handled all tea-party cases between April and August 2010. Hofacre told investigators that she understood “tea party” to be a proxy for conservative and Republican groups; she said she sent back the applications of liberal groups for general processing.
Paz testified that she became aware of the tea-party cases in February 2010, when she recommended that the first case identified by screeners be elevated to IRS headquarters in Washington, D.C., for consideration. Later that year, she was presented with a list of 40 tea-party cases under scrutiny.
Paz insisted, however, that liberal groups were flagged in this process, too. The “lookout list” generated by officials in Cincinnati alerted screeners to flag, for example, groups that “criticize how the government is being run.” When investigators asked Paz if “groups that believe the government should be run more like Europe is run” would be included in that group, she responded, “Yes, that’s correct.”
In the course of Paz’s testimony, she also revealed much about how the IRS has responded internally to this scandal. We know that the director of Exempt Organizations, Lois Lerner, now on administrative leave, ordered what she deemed to be objectionable language on the infamous lookout list to be changed in June 2011. Yet in January 2012, it was changed back to something resembling its original, politically discriminatory form. Paz identified for investigators the three individuals responsible for making that change, and said that not only have they not been reprimanded, but that two of the three have been promoted.
Paz took part in an internal IRS investigation, completed in May 2012, that reached conclusions similar to those outlined in the Treasury Department inspector general’s report released in mid-May of this year — that the agency was improperly targeting conservative groups — but neither she nor her superiors informed Congress of those findings, which the IRS has never made public.
And by Paz’s account, the IRS has done little to correct the problems that allowed that targeting to continue unabated for almost two years. How will the agency ensure in the future that cases don’t languish for years, as those of so many tea-party groups did, and as many still are? Managers, she told the House committee, will be “exercising increased managerial oversight with regard to the timeliness of cases and holding their employees accountable.” If they are held as accountable as the employees who fiddled with the lookout list, this is not reassuring. How will the agency prevent employees from sending intrusive questionnaires, akin to the ones so many tea-party groups received? Now, according to Paz, “an assigned expert in Washington” will review all letters. That, in fact, is how the original intrusive questionnaires originated.
Lawmakers have raised eyebrows at the fact that Paz was present when members of the Treasury Department’s inspector general’s team interviewed her subordinates during the course of their investigation. In a May 23 Oversight committee hearing, chairman Darrell Issa expressed his astonishment, saying he was “shocked” to find that Paz “participated in virtually every one of the interrogations or interviews with her own subordinates.” He added: “In those, of course, one of the questions the IG had to ask was, ‘Did anyone tell you to do this?’ If that question was asked, their own superior was in the room.”
Even the ranking minority member of the committee, Elijah Cummings of Maryland — who has been calling the current investigation a “witch hunt” against the Obama administration — had harsh words for Paz. “It sounded like Ms. Paz felt like she needed to be in the room because she wanted to be able to defend herself — or the agency, I don’t know — based on what may have been said or the information gathered in that interview,” he told Inspector General J. Russell George. In her interview, Paz noted that members of the inspector general’s team were allowed a few minutes alone with interviewees at the conclusion at each interview.
Paz’s testimony was among the first heard by the Oversight committee, on May 21, but only now are reporters being allowed to review the full transcript. That signals a shift in the committee’s focus from Cincinnati employees to higher-level officials in Washington. In mid-June the committee also interviewed Carter Hull, an IRS lawyer based in Washington, D.C., who is accused of micromanaging the processing of tea-party cases and humiliating the Cincinnati employee charged with managing them.
A committee spokesman acknowledged that their strategy has been to go “bottom up” — that is, to start by interviewing employees in Cincinnati and then to move on to more senior officials in Washington, D.C. That transition is happening now.
It comes as IRS chief Danny Werfel on Monday issued his “30 day” update on the IRS’s own investigation into the matter. Cloaked in bureaucratese, Werfel’s update noted that the investigation is ongoing, and concluded vaguely that “significant management and judgment failures occurred . . . that contributed to the inappropriate treatment of certain taxpayers applying for tax-exempt status” but that “we have not found evidence of intentional wrongdoing by IRS personnel, or involvement in these matters by anyone outside of the IRS.”
The principle revelation of Werfel’s report was, in fact, that the IRS is relying on Congress’ professional investigators to conduct interviews with its employees and to get to the bottom of the issue. Far from obviating an ongoing congressional investigation, the IRS report assumes its necessity.
Issa is certainly up to the challenge, and thus far, his inquiry appears to be yielding results. “These Cincinnati employees told a story that this was very much not limited to Cincinnati,” the Oversight committee’s communications director, Frederick Hill, tells National Review Online. “In many ways it was directed by officials who worked at the IRS’s Washington headquarters.” Cincinnati witnesses, says Hill, “didn’t just make vague allegations, they had specific names, they had specific experiences, they made references to documents, to e-mails. So these appear to be highly credible accounts.”
The committee’s investigation also aims to go beyond the IRS’s report and the inspector general’s audit, each of which have placed general blame on poor management. “We need to address how the process is going to be different,” explains Hill. “Saying simply ‘better management’ raises the question: How is management going to be different and how specifically are those differences meant to address the things that went wrong?”
For the committee, that means calling people to account — something the inspector general’s report conspicuously failed to do. “We think it’s important that, where assertions are made, those assertions have names beside them,” Hill explains, “that they not be nameless and faceless.”
The ultimate goal of Issa’s investigation is to “tell the American people that we have relevant facts, that we know the truth, and that we can give them some confidence that the IRS, and the administration, and the Department of the Treasury are addressing in a smart way what went wrong in this situation,” Hill contends. At this point, the list of unanswered questions remains long and, to achieve its goals, the committee has plenty of work ahead.
— Eliana Johnson is media editor of National Review.