Cleta Mitchell, one of Washington's most respected elections attorneys, has sent out a memorandum she says demonstrates that the Internal Revenue Service is seeking to mislead Congress and the public.
Mitchell represents several conservative groups that have been targeted for scrutiny by the IRS and is counsel to the organization True the Vote, which filed suit against the IRS on Tuesday.
She said in an email:
"I have been working for more than a year to get someone to pay attention to what I perceived to be serious problems within the IRS in terms of targeting conservative organizations.
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"Despite the efforts of the House Ways & Means IRS Oversight Committee and the Senate Finance Committee inquiring of the IRS, we have now seen that the IRS was not truthful with Congress last year. It is important that we not allow the IRS dissemble, deny and obfuscate the facts.
"With the recent news that, indeed, such targeting was being employed by the IRS, I have been asked repeatedly to provide information to reporters, members of Congress, etc. I decided to put together something of a 'big picture' history overview of the reprehensible situation at the IRS."
Mitchell says she wants readers of her memo "to understand that this STILL going on! The IRS would have everyone believe that "all that was stopped in 2012." That is NOT true. Many, many organizations' applications are still locked within the IRS - attached is evidence of that.
"And most importantly," she adds, she wants readers to "know that this was not confined to a few 'low level' IRS employees in Cincinnati. That is not true. Attached is a letter I sent on Nov. 8, 2011 demonstrating that the orders were coming from Washington."
Below is the memorandum Mitchell sent to "interested parties."
After reviewing the TIGTA Report, numerous press reports and the hearing conducted on Friday, May 17, 2013 by the House Ways & Means Committee at which Acting Commissioner Steven T. Miller testified, it is apparent that a brief history and overview might be of assistance to Members of Congress and members of the media — to place into context the manner in which the IRS processed applications for exempt status prior to 2010, what has transpired during this terrible targeting period, and some reactions to the statements and misstatements and misrepresentations of Acting Commissioner Miller last week.
1. Processing of Applications for Exempt Status Prior to 2010
My law practice is as an attorney who has practiced in the area of non-profits and exempt organizations for many years. In that regard, I am well familiar with the process of assisting clients to create nonprofit organizations which meet the needs of the activities in which the clients propose to engage.
The process essentially is as follows: a group of individuals determine the types of programs and activities in which they wish to become active and, from that, I advise them as to the type of nonprofit entity that would be appropriate for those activities.
Attached to this Memorandum is a chart of entities that I provide to clients, which describes the similarities and differences between/among the various types of nonprofit organizations.
A group seeking tax exemption under Section 501(c)(3) of the Internal Revenue Code ("IRC") submits the IRS Form 1023, which outlines the mission and exempt purpose of the organization and the types of activities and programs in which it intends to engage.
A group seeking tax exemption under Section 501(c)(4) (a social welfare / grassroots lobbying organization) or a 501(c)(6) (a business league, trade association) files a Form 1024, which outlines its mission and exempt purpose and the types of activities and programs in which it intends to engage.
Prior to 2010, the time frame for review and receipt of IRS tax exempt status would typically be three months to one year for a 501(c)(3) organization and 3 to 6 months for a 501(c)(4) or (c)(6) organization.
Below is a sample of some of my clients' applications for exempt status and the processing time prior to 2010, when the IRS instituted its targeting program. The dates below provide a sense of the efficiencies of the IRS in reviewing and acting upon applications before the agency decided to inflict massive paperwork burdens on conservative applicants in 2010.
Client #1: For a client seeking 501(c)(3) exemption, the application was filed on or about May 16, 2009. A letter was received on June 8, 2009 from the IRS seeking additional information.
The response was submitted on June 29, 2009 and the letter of determination of exempt status was issued on July 15, 2009.
Client #2: For a 501(c)(4), application filed on October 5, 2007, and a letter of recognition issued on November 16, 2007.
Client #3: For a 501(c)(4) application fi ed on September 23, 2009, the letter of determination was issued on November 22, 2009.
Client #4: For a 501(c)(6) application filed on October 29, 2010, the letter of determination was issued on February 1, 2011.
Client #5: For a 501(c)(3) application filed on April 9, 2008, a letter requesting additional information was received on September 25, 2008. A response was filed on October 27, 2008 and the letter of determination of exempt status was issued on December 4, 2008.
Client #6: For a 501(c)(4) application filed on August 23, 2007, a letter of determination was issued on September 14, 2007.
Client #7: For a 501(c)(4) application filed on May 19, 2004, a letter of determination was issued on June 23, 2004;
Client #8: For a 501(c)(4) application filed on December 12, 2007, a letter of determination was issued on February 27, 2008.
Client #9: For a 501(c)(4) application filed on July 30, 2009, a request for more information was sent by the IRS on December 11, 2009. A response was filed on February 17, 2010 and the letter of determination was issued in March 2010.
By way of example of the types of questions asked by the IRS prior to the tea party targeting program, the following is taken from the request for more information received from the IRS for a 501(c)(3) applicant in 2009:
Additional information requested:
To meet the organizational test for exemption under section 5011c)(3) of the Internal Revenue Code of 1986, the organization's organizing document, Articles
of Incorporation, must be amended in the manner shown below:
Please replace all occurrences of "2004" with "1986" in Article 4.
Please replace "2004" with "501(c)(3)" and replace "501(c)(3)" with "1986" in Article 5.
a. Please contact the appropriate State agency to inquire about their amendment process. The organization may want to ask about any fees the State may require be attached to the amendment request.
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b. Submit two copies of the amendment to the appropriate State official in the State in which the organization is incorporated, requesting one copy be returned to the organization when filed and approved by the State.
c. When the copy is returned, with evidence that the State has filed and approved it, send a copy to the Internal Revenue Service.
This amendment will need to be completed before exemption can be granted.
Note. If incorporated, this 501(c)(3) language must be contained in the Articles of Incorporation of the organization. The IRS cannot accept the language in the Bylaws or any other attachment.
Please use the specified language provided. If you make any deviations, please discuss them with the Service prior to amending.
The questions were answered and within a matter of weeks, the letter of determination was issued. This type of specific request for information directed to the applicant's submission was customary prior to the onset of the conservative targeting by the IRS in 2010.
The IRS Internal Changes in 2010.
It became apparent during the course of 2010 that the IRS had changed its system for reviewing and processing applications for 501(c)(3) and 501(c)(4) recognition. The timeline for some of the clients I currently represent demonstrates that the IRS is STILL holding up the applications for exempt status recognition of dozens — if not hundreds — of conservative organizations.
Attached are examples from 4 organizations' letters received from the IRS more than a year ago.
Only one of the referenced organizations has received its letter of exempt status. All the others are still pending.
In fact, two of the organizations have been required to respond to another round of extensive questions in the fall of 2012, with no letters of determination yet received.
See Attachments #2 through #5, Organization #1, #2, #3, #4 letters from the IRS. With regard to Organization #4, note the letter I sent to the IRS (to the Washington, DC office) in June 2011. After filing the application in 2009, sending the letter in 2011 and the response to the exhaustive questions in 2012, the organization has yet to receive its recognition of exempt status.
3. Response to statements by the IRS / Acting Commissioner Steven Miller during the week of May 13, 2013.
* "The problems were resolved last year."
THIS PROBLEM IS CONTINUING. It has not been "resolved" as stated by Acting Commission Miller. It is not in the past tense. Many organizations are still awaiting responses from the IRS. What systemic changes have been put in place to ensure that the odious questions have been terminated and the applications are being processed in accordance with the historic legal standard of review rather than the unlawful intrusion into the internal workings of these conservative citizens organizations?
* "Generally, 501(c) applications are centralized for review if there are indications in the application that the organization may engage in political campaign intervention, lobbying or advocacy. This was done to sure that the legal requirements related to these applications are applied in a fair and consistent manner."
This was never done prior to 2010. The Acting Commissioner is not being truthful. These temis "political campaign intervention, lobbying or advocacy" are legal terms of art and subject to years of regulations, standards of review, cases and interpretation.
During and after 2010, the only 'centralization' that occurred was that involving conservative organizations seeking 501(c)(3) or 501(c)(4) recognition.
The ternis have legal meaning and should not have been treated in the subjective manner in which the IRS considered these applications. Here is a short overview of the differences in the terms. They are not interchangeable as the Acting Commissioner has suggested.
1. Advocacy. No legal definition and NO prohibition in Internal Revenue Code. All groups advocate in some way or another for their mission. Totally permissible for ALL exempt organizations.
2. Lobbying. IRC defines it as an expenditure to influence legislation. A c4 is permitted to spend 100 % of its funds on lobbying. A c3 is permitted to spend a portion of its funds on lobbying. In other words, lobbying is a legally permissible activity for both types of entities, just allowable in differing amounts. Most of the tea party organizations were seeking to engage in lobbing activities that are completely permissible for a c4 organization. So why were they subject to this extra scrutiny?
3. Political. IRC does not define "political" as such. The IRC definition refers to an expenditure for "partisan campaign intervention". A c4 CAN make such expenditures as long as it is NOT a majority of its expenditures in any fiscal/calendar year. In other words, it is legally permissible for a c4 to make political expenditures as long as those expenditures are a) not a majority of its program expenditures and b) the c4 reports and pays taxes on its political expenditures. Only a 501(c)(3) is prohibited from making expenditures for partisan campaign intervention. Virtually all of the organizations targeted were seeking 501(c)(4) status, which permits them to engage in some degree of political campaign activity.
To have singled out these groups was to try to keep them from engaging in legally permissible political speech and association, in violation of the First Amendment. And it is continuing.
* "I think that what happened here was that foolish mistakes were made by people who were trying to be more efficient in their workload selection" So the decision to change a system that (prior to 2010) might ask 5 to 6 short questions specifically about an application to one that consisted of dozens of questions, necessitating volumes of materials and documents to be filed with the IRS was done in order to 'be more efficient'? Acting Commissioner Miller also spoke about IRS employees 'taking shortcuts.'
This was hardly a 'shortcut' when it lengthened the process substantially, as documented in the TIGTA Report.
* The agency pinpointed two "rogue" employees in the Cincinnati IRS office as being responsible for "overly aggressive" handling of tea party requests for tax-exempt status over the past two years.
This is completely false. In 2011, at least one of the Cincinnati IRS agents assigned to handle two clients' applications advised me that the Washington, DC office was actively involved in the decisions and processing of my clients' applications for exempt status. This was memorialized in a letter to the agent, Ron Bell, on November 8, 2011. When I called him in December 2011 for an update, he advised me that the applications had been transferred to a special task force in
Washington, DC for further review. The effort by senior IRS officials to lay this scheme at the hands of a few low level' IRS employees is despicable and must not be tolerated.
Attachment # 6 — November 8, 2011 Letter to IRS Agent Ron Bell in Cincinnati.
There is much work remaining to be done to ascertain the truth of this matter. The IRS leadership continues to dissemble, deny and obfuscate.
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