Sen. Carl Levin, D-Mich., released the new report.

Sen. Carl Levin, D-Mich., released the new report. Flickr user Erin A. Kirk-Cuomo

Senate Panel Faults 'Bias' of IRS Watchdog

Both liberal and conservative groups were mistreated by tax-exempt division, Levin says.

This story has been updated. 

Fifteen months after the controversy erupted over political bias at the Internal Revenue Service, a Senate panel has released a lengthy report challenging the premise of the inspector general’s audit that triggered the ongoing dispute.

The original probe of the mishandling of applications by nonprofits seeking tax-exempt status found no evidence of political bias, Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, said in releasing a June 2014 letter to that effect from J. Russell George, the Treasury inspector general for tax administration.

Levin criticized the watchdog for not having included such a statement in his May 2013 audit that Republican lawmakers seized to accuse the IRS of targeting conservatives.

“After reviewing nearly 800,000 pages of documents and conducting nearly two dozen IRS and TIGTA employee interviews, the investigation found that the IRS used inappropriate selection criteria, burdensome questions, and lengthy delays in processing applications for 501(c)(4) tax exempt status from both conservative and liberal groups” Levin said in a statement. 

The lack of bias, however, does not let IRS off the hook, Levin noted. “The report criticizes the IRS for its failure to enforce the law, which prohibits tax exempt social welfare groups from engaging in campaign activities, and lays out its shortcomings in detail.”

The 224-page Senate report, which comes with 1,700 new documents, is based on a year’s probe that included interviews with 22 current and former IRS and TIGTA personnel, as well as consultations with Federal Election Commission representatives, nonprofits and academic experts in election law and regulation of nonprofits.

“By focusing exclusively on how the IRS handled 501(c)(4) applications filed by conservative groups and excluding any comparative data on applications filed by liberal groups,” the report said, “the TIGTA audit produced distorted audit results that continue to be misinterpreted. The TIGTA audit engagement letter stated that the audit’s ‘overall objective’ was to examine the ‘consistency’ of IRS actions in identifying and reviewing 501(c)(4) applications, including whether ‘conservative groups’ experienced ‘inconsistent treatment.’ Instead, the audit focused solely on IRS treatment of conservative groups, and omitted any mention of other groups.”

Levin’s conclusion was not shared by Republican senators on the panel, led by John McCain of Arizona. “While the majority report attempts to draw similarities between the IRS’s treatment of liberal and conservative groups, the vast distinctions in treatment prove that conservative groups received the bulk of unfair and burdensome treatment,” the Republicans wrote in a dissent defending TIGTA’s audit. “The IRS failed to use its own ‘facts and circumstances’ test, leading IRS employees to focus on a group’s name or policy positions instead of the group’s potential political activities. This significant bias created a disparate impact on conservative groups.”

TIGTA J. Russell George stated that he is reviewing the Senate report, noting: 

TIGTA’s review of the treatment of groups that applied for 501 (c)(4) status is an ongoing matter; facts are still coming to light.  I firmly stand behind the audit report that we issued last year, showing the inappropriate treatment of applicants for 501 (c)(4) status, for which the IRS apologized.  It is important to remember that the IRS accepted all of the recommendations contained in our audit report.”

Separately, the conservative legal group Judicial Watch on Thursday released documents obtained under the Freedom of Information Act that it said reveal that“75 percent of the targeted nonprofit groups were conservative, just 5 percent were liberal. The IRS also “needlessly solicited donor lists from nonprofit political groups,” Judicial Watch said, releasing more emails involving resigned IRS Exempt Organizations director Lois Lerner, who has been at the center of the controversy.