One part of the TIGTA report that has received scant attention in the press or during congressional hearings is its findings on the accuracy of the selection process used by the IRS to identify potential political cases. For a period of time, the IRS used name-based and policy-based criteria to select applications for tax-exempt status for additional scrutiny, criteria which TIGTA asserts and the IRS agrees were “inappropriate.” Starting in May 2012, the IRS shifted to activities-based criteria for screening applications, which TIGTA agrees is an appropriate standard. As part of its report, TIGTA compared which applications would have been selected for further scrutiny (as organizations potentially involved in political campaign intervention) by using activities-based criteria to those actually chosen under the IRS’s original criteria in order to determine the accuracy of the name-based and policy-based criteria used by the IRS.
In particular, TIGTA reviewed the cases selected by the IRS to determine if the applications revealed “indications of significant political campaign intervention”—a criterion TIGTA considered appropriate under the relevant law. Among its other findings regarding accuracy of the IRS selection process, TIGTA found that 78 of the 96 organizations (82 percent) with “Tea Party”, “Patriots,” or “9/12 Project” in their names had indicators of significant political campaign activity in their application files and therefore would have been properly selected for additional scrutiny even if activities-based criteria alone had been used in the screening process.
Campaign Activity, Not Names
During the period when IRS employees in Cincinnati used named-based and policy-based criteria to screen applications, a total of 298 organizations were identified as potential political cases. The report (p. 6) revealed one category of inappropriate name-based criteria: ‘“Tea Party,’ ‘Patriots’ or ‘9/12 Project’ is referenced in case file.” Other organization names were likewise used for screening purposes, but TIGTA did not attempt to determine whether their use was appropriate (footnote 16). The TIGTA report did, however, identify three policy-based screening criteria it viewed as inappropriate: (1) “Issues include government spending, government debt or taxes”; (2) “Education of the public by advocacy/lobbying to ‘make America a better place to live’”; and (3) “Statement in the case file criticizes how the country is being run.”
What are appropriate criteria for screening applications when the IRS must distinguish between different types of speech and advocacy activities to determine whether the applicant is tax-exempt under section 501(c)(3) or (c)(4)? The TIGTA report states (p. 7): “Criteria for selecting applications for the team of specialists should focus on the activities of the organizations and whether they fulfill the requirements of the law.” What activities in particular? The standard the IRS began to use after May 2012 was expressed as “indicators of significant amounts of political campaign intervention.” And this same standard was applied by TIGTA to assess the accuracy of the IRS selections of potential political cases during the May 2010-May 2012 period. TIGTA applied this appropriate criterion to 296 of the 298 cases selected by the Cincinnati office for further review – two cases were dropped by TGTA due to inadequate documentation in the case files (footnote 27) – including the 96 with “Tea Party, Patriots, or 9/12 Project” in the applicant’s name. TIGTA’s findings are summarized in the table below:
Of the 296 applications it was able to review, TIGTA found a total of 205 had indications of significant political campaign intervention of the type that is absolutely prohibited for the applicants seeking 501(c)(3) status (which was the case with 89 of the 298 total applications reviewed by TIGTA, see footnote 31) or is limited for the remaining applicants seeking 501(c)(4) status as “social welfare organizations.” TIGTA’s findings with the 205 applications are the basis of its statement (p. 10): “In the majority of cases, we agreed that the applications submitted included indications of significant political intervention.” That is an accuracy rate of 69 percent (that is, 205/296) or, if you prefer, an error rate of 31 percent in the initial IRS screening process. For the subset of applications examined with “Tea Party,” etc. in their names (assumed here to be 95 applications with complete documentation in the case file, see below), 78 had indications of significant political activity (accuracy rate of 82 percent, error rate of 18 percent). Therefore, had the IRS used the same activity-based criteria, it would have selected 205 out of 296 cases it initially identified as potential political cases. With respect to organizations with Tea Party, etc in their name, it would have selected 78 out of 95. Putting it differently, if you accept all the assertions of the TIGTA report, the IRS incorrectly selected 91 cases out of all 296 applications for which there was adequate documentation when TIGTA conducted its study and for applications with Tea Party, etc in their name the IRS incorrectly selected 17 out of 95.
These data provide some insight into consequences for enforcement of screening applications by name and policy views. Does an overall accuracy rate of 69 percent—or 82 percent for groups with Tea Party. etc. in their name—justify their selection for additional review? Accuracy is not irrelevant to evaluating the IRS actions. If the accuracy rate had been 1 percent, the selection criteria used by the IRS employees would clearly have been an unjustified fishing expedition. If the accuracy rate had been 99 percent, the screening criteria used by the IRS would be easier to justify, or at least understand.