05/16/13: A big breakdown at the IRS

This op-ed appeared in The Virginian-Pilot on the date shown.

AS A FORMER employee of the Internal Revenue Service, I lean toward defending the agency or, at least, giving it the benefit of the doubt. By and large, IRS employees are hard-working, dedicated public servants employed by perhaps the most despised agency in the government. But, as is true everywhere, a few bad apples can spoil the whole bunch.

Reading the report of the Treasury Inspector General for Tax Administration (available at http://goo.gl/JqY41) didn’t change my opinion.

A few rogue employees instituted a policy that resulted in processing delays for organizations with the political names. Once discovered, the criteria were changed to eliminate the references. But the group was persistent and changed the criteria back.

When this second change was brought to the attention of the higher-ups, the criteria were again changed to remove the references, along with a requirement that changes to the so-called “Be On the Lookout” list criteria be approved by upper management.

The report rightly cites IRS management for lack of oversight. The timeline of events related to the identification and processing of the cases is outright damning. Unit reorganizations, with managers coming and going, led to confusion among the staff, with resulting delays in processing applications.

Part of the confusion was a lack of training. I was appalled to read that employees “lacked knowledge of what activities are allowed” by organizations seeking tax-exempt status under Internal Revenue Code 501(c)(3) and 501(c)(4). The training I received by the agency on tax law was extensive. It seems that has changed, as many of the responses to the recommendations include training.

Of the nine recommendations in the report, I consider No. 8 to be the most significant. In it, the inspector general’s office recommends “guidance on how to measure the ’primary activity’ of … 501(c)(4) social welfare organizations” be developed.

The Treasury Department, of which IRS is a bureau, has the responsibility to interpret the tax laws. As the report notes, Treasury Regulations — the official interpretation of the Code — state that 501(c) (4) organizations “should have social welfare as their ‘primary activity’ ” but fail to define how to measure it.

There is no excuse for not having clear guidance on this. The influx of applications — the IRS says they doubled in number — in the wake of the U.S. Supreme Court’s landmark Citizens United ruling should have been anticipated.

It is not as if the case just popped up out of nowhere. At the very least it should have been on the agency’s radar once the Supreme Court agreed to hear it. At that time, somebody should have been looking at the regulations and the Internal Revenue Manual, which provides guidance to employees.

This was an unforced error. The lack of oversight — both of employees and issues — is egregious. Another reorganization is in order and, to the extent possible, some heads need to roll.

And the agency needs to reinforce the things my on-the-job instructor taught me all those years ago: that the awesome power given to it should be wielded only to determine what is correct under the law.

The hard-working, dedicated public servants deserve nothing less.