Critics see no progress after IRS scandal

WASHINGTON — More than six months after a top Internal Revenue Service official acknowledged the agency inappropriately scrutinized the applications for tax exemption by tea party and other conservative groups, the scandal has faded from the headlines and moved to Congress’ back burner.

But it’s unclear how much has changed inside the IRS to fix the underlying problems that led to the targeting.

Some argue the agency has taken significant steps to revamp a flawed review process that left certain groups waiting years for approval and subjected others to intrusive, burdensome questioning.

“A great deal has changed at the IRS to prevent this from happening again,” said Rep. Elijah Cummings, D-Md., the top Democrat on the House Oversight and Government Affairs Committee, one of three congressional panels to investigate the matter. Cummings cited leadership changes, better training for managers and screeners, and a streamlined application processes, among other things.

But where some see progress, others only see superficial tweaks.

Here’s a rundown of what’s changed — and what hasn’t:

IRS’ top ranks purged

The Obama administration has installed new leadership in key posts at the agency. Lois Lerner — who as the director of the IRS’s exempt organizations division became the public face of the scandal — has resigned. And the IRS’s commissioner, Steven Miller, is gone.

“The IRS has removed five of its most senior managers,” said Rep. Sander Levin, D-Mich., the top Democrat on the House Ways and Means Committee, another panel investigating the matter.

But not everyone thinks the leadership turnover at the IRS has translated Tea party activists protest in Washington this summer. Congress is still investigating how the IRS singled out some conservative political groups . J. SCOTT APPLEWHITE/AP into a better review process.

Marcus Owens, a Washington-based tax attorney and former director of the IRS’s exempt organizations division, said he fears the IRS unit has been weakened by the departures of senior staff. Seasoned lawyers such as Holly Paz, who served as a senior technical manager, helped create the legal standards that front-line agents followed, he said. But Paz left and was replaced by a non-lawyer, Owens said.

With her and others out, “that’s a lot of new faces in new roles, with a lot of backlog facing them from the get-go,” Owens said.

Ban on watch lists

One of first steps by the new IRS commissioner, acting chief Danny Werfel, was to ban the use of watch lists — also known as BOLOs, for “Be On the Look Out” lists. Such lists were used by workers in the Cincinnati field office to flag certain applications.

An inquiry by the Treasury’s internal watchdog concluded Cincinnati-based IRS employees used “inappropriate” criteria — by targeting applications from groups with words such as “tea party,” “patriot,” and “9/12” in their names — to send applications into a lengthy review process. Werfel said officials later discovered the use of other BOLOs, some with terms describing liberal groups.

The IRS chief subsequently barred the use of all such watch lists. Now, screeners in Cincinnati are instructed to make assessments based on a group’s activities and purpose.

New review process

Werfel said in September that he’s moved “aggressively” to improve screening and bolster training for IRS employees charged with reviewing applications for tax-exempt status. He said the IRS has issued new instructions to screeners on the best ways to determine the extent of an organization’s political campaign intervention.

But the IRS has not detailed what specific guideposts have taken the place of the BOLOs. And there’s some indication that the new guidance isn’t all that clear.

One IRS worker told investigators that he was giving all applications from political advocacy groups a secondary screening, no matter what. Without the BOLOs, “we really don’t have any direction,” this Cincinnati agent, whose name was not released, told the panel’s staff.

Old rule still in place

The law governing certain tax-exempt groups — those organized under the 501(c)(4) section of the IRS code — states that they should be “operated exclusively for the promotion of social welfare.” But in 1959, the IRS issued a rule saying such organizations could participate in other activities as long as it was not their “primary” activity.

The switch from requiring such groups to operate “exclusively” for social welfare to making that their “primary” purpose opened the door for such groups to become involved in politics. And the IRS has never given its screeners a clear definition of “primary.”

“There’s no bright-line test,” Paz told congressional investigators — a complaint echoed by others.

Critics say that until the rule is changed or clarified, the underlying problem will remain, with IRS workers struggling to measure a group’s political activity without a good sense of how much is too much.

“The problems here ... are not going to be solved by training workers in Cincinnati, even though that’s fine,” said Fred Wertheimer, president of Democracy 21, a campaign finance reform advocacy group. “The solution to this problem is a clear, bright-line test that properly implements a statute that says c4s should engage only in social welfare (activities).”