TIME Campaign Finance

IRS to Rubber-Stamp Tax-Exempt Status for Most Charities After Scandal

Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C.
Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C. Alex Wong—Getty Images

IRS head touts "efficiencies," but some groups fear fraud

Amid ongoing controversy over its scrutiny of nonprofits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other noncharitable groups from misusing the tax code.

As of July 1, any group that pays a $400 fee and declares on a three-page online form that it has annual income of less than $50,000, total assets of less than $250,000 and is in compliance with the tax-code requirements of a charity will automatically be allowed to accept donations that are tax-deductible for the donors. Previously the groups had to fill out a detailed 26-page form, submit multiple supporting documents and provide a narrative description of their intended activities.

In an interview with TIME, IRS commissioner John Koskinen said the change would result in “efficiencies [that] will translate into a faster and better review” of bigger nonprofits, while clearing a 66,000-application backlog that has resulted in yearlong waits for groups seeking to start a charity. He said the new short form comes with 20 pages of instructions that make clear the requirements and limitations of being a charitable organization. Koskinen said that on the new short form, “people certify that they’ve gone through the instructions” under penalty of perjury.

The IRS rejected the idea of the new Form 1023-EZ in 2012, but using an expedited process this year, adopted the new procedure on the recommendation of a small team composed largely of frontline workers from the scandal-plagued division of exempt organizations, according to the IRS.

Some charitable groups worry the IRS has opened the door to abuse of tax-exempt status that will undermine the credibility of legitimate nonprofits, which are allowed to accept deductible donations under section 501(c)(3) of the tax code. “The Form 1023-EZ will increase opportunity for fraud,” said Alissa Hecht Gardenswartz, president of the National Association of State Charity Officials, and will make it harder “to protect charitable assets from fraud and abuse and to ensure that charitable assets are used for the purposes represented to the public.”

Others worry that charities, nominally barred from political activity, will come to serve the same purpose as the powerful nonprofit organizations known as 501(c)(4)s, whose donations cannot be deducted from taxes. This could give an added tax benefit to donors who have recently funneled hundreds of millions of dollars into independent political campaign spending. “What we’ll see is the so-called dark political money that flowed into the (c)(4) world is going to begin to flow into the (c)(3) world,” says Marcus Owens, who was the director of the exempt-organizations division at the IRS from 1990 to 2000, and is now in private practice at the law firm of Caplin & Drysdale.

The change will result in approximately 40,000 to 50,000 fewer (c)(3) applications for the exempt-organizations division to review each year, Koskinen says. The division, whose main office is in Cincinnati, has been at the center of the IRS scandal over alleged political scrutiny of right-wing 501(c)(4) groups under then-head Lois Lerner. That scandal centers on shortcuts the office developed to identify (c)(4) groups for further screening, including screens for groups with the names that suggested an association with the Tea Party movement.

The current legal interpretation of tax regulations allows so-called (c)(4)s to engage in political activities as long as they don’t spend more than 50% of their money on politics. In the 2010 Citizens United ruling by the Supreme Court, those same groups earned the ability to buy campaign ads in federal elections, and tax laws allowed them to conceal the identity of their donors. Since the ruling, the number of applications to become a (c)(4) has doubled, to around 1,000 per year, Koskinen says. In the 2012 campaign, (c)(4)s spent approximately $300 million dollars on politics, according to the Center for Responsive Politics.

Much of that money was spent attempting to motivate voters by advertising positions on specific issues that divide candidates. Owens, the former IRS official, says such activity can be cast under the mission of a (c)(3) devoted to educational, religious or other permitted activities, opening the possibility of deductible dark money. “The candidate links to the issue, and then the tax-exempt organization’s job is to find the voters and make sure they know the message and hear it loud and clear up to election day,” says Owens. “That’s what the (c)(4)s were doing, but that kind of activity could be just as easily in a (c)(3), but it would have the added advantage of having tax deductibility attached to it,” Owens says.

Democratic defenders of the IRS and the exempt-organizations office say both have been deprived of resources, as the overall IRS budget was cut by nearly $950 million, or around 7.8%, from 2010 to 2013, according to the nonpartisan Government Accountability Office. In an April 2014 report, the GAO found the cuts had been offset through savings and efficiencies, and by reducing, delaying or eliminating services. Koskinen says budget cuts didn’t play a role in the change in charity rules. “Obviously we are resource-constrained everywhere across the agency,” he says, but “we would want to do this anyway.”

While charity groups agree the old process for receiving tax-exempt status was too cumbersome, they and others worry that now organizations with no true charitable purpose will seek to become charities. “It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card,” says Tim Delaney, president and CEO of the Council of Nonprofits. As a result, Delaney says, bad actors “will be able to operate in the name of the charity, and the IRS will never be the wiser because they’re not looking at the underlying documentation.”

Koskinen says such worries are overblown. “There’s a faith that if someone has been forced to do more paperwork they’re going to be less nefarious,” he says. He says that to prevent potential abuse, the IRS will take samples of applications to see what percentage are being filled out incorrectly, and will monitor the number of applications to see if it spikes suspiciously as a result of the new rules.

Owens says the IRS may not be able to differentiate between truly small charities and those that knowingly plan to grow beyond $50,000 in annual income. “I haven’t seen any mechanism where the IRS would be legally able to go after an organization that applied within the EZ process but then fortune shined on them,” Owens says. He also says that because of outdated software, the IRS won’t be able to track active charities back from its master file to their originating documents. An IRS official speaking on background acknowledged the software problem.

Charities complain that the change was made with little consultation from their representative lobbying organizations. The IRS sped its enactment this year by routing the change through the White House’s Office of Management and Budget for public comment under the Paperwork Reduction Act, rather than through the normal public-comment process at the IRS, nonprofit officials contend. “I just wish the IRS had used a more inclusive process from the beginning,” says Delaney of the Council of Nonprofits.

The IRS studied a simplified tax-exempt form in 2012 but rejected the idea. The group that looked at the idea, made up of outside lawyers and experts in tax-exempt organizations, said that filling out the longer form forced groups to better understand the requirements of being a charity. The group said it “may also be easier to embezzle from a small charity,” so they should be subject to more, not less, oversight.

TIME Department of Justice

Ted Cruz: Holder Must Appoint IRS Special Prosecutor or Expect to Be Impeached

Eric Holder
Attorney General Eric Holder testifying on Capitol Hill in Washington, Jan. 29, 2014. J. Scott Applewhite—AP

Sen. Ted Cruz (R-Texas) added that the Justice Department is “the most partisan” in its history.

Attorney General Eric Holder must appoint a special prosecutor to investigate IRS targeting of conservative groups or expect to face impeachment proceedings, Sen. Ted Cruz (R-Texas) said on the chamber floor Thursday.

“When an Attorney General mocks the rule of law, when an Attorney General corrupts the Department of Justice by conducting a nakedly partisan investigation to cover up political wrongdoing that conduct by any reasonable measure constitutes high crimes and misdemeanors,” said Cruz. “Attorney General Eric Holder has the opportunity to do the right thing. He could appoint a special prosecutor with meaningful independence who is not a major Obama donor.”

The donor Cruz is referring to is Justice Department prosecutor Barbara Bosserman, who has given $6,750 to the Democratic Party and President Obama over the past ten years, according to the Washington Post. Bosserman has been chosen to lead the Justice Department probe into the IRS.

Cruz and other conservatives are dismayed that the Justice Department has yet to indict anyone 13 months after the IRS admitted that it targeted nonprofit political advocacy groups with the terms “tea party” or “patriot” in their names from 2010 to 2012.

Finance Committee Chairman Sen. Ron Wyden (D—Ore.) took to the floor after Cruz’s speech to object to the call for a special prosecutor, saying that there have been five IRS investigations either concluded or ongoing and another could add “significant cost” to the taxpayer. He also said the call was “premature” given that his committee’s report, conducted with Sen. Orrin Hatch (R-Utah) and his staff, is “almost finished.”

The House of Representatives has impeached only one cabinet official in its history, Secretary of War William Belknap in 1876. He was acquitted in his Senate trial.

TIME IRS

IRS Commissioner on Email Scandal : ‘Nobody’s Hiding Anything’

The agency head also hinted at the idea that emails from Lois Lerner, the former head of the agency's tax-exempt status department, might be retrievable

IRS Commissioner John Koskinen defended his office’s conduct in the scandal over the tax agency’s alleged targeting of conservative groups Monday, after it admitted losing a trove of emails at the center of a congressional probe.

The IRS said that more than two years worth of e-mails disappeared as a consequence of a hard drive crashing in 2011. When asked by a CNN reporter about the missing emails and the crashed hard drive, Koskinen said: “I spent three weeks trying to restore it back in 2011, we’ve got 24,000 mails from that period so nobody’s hiding anything.”

Koskinen has been at the center of a House Ways and Means Committee investigation into how and why the Internal Revenue Service applied additional scrutiny on applications for tax-exempt status of political action groups. Last week, the IRS informed congressional investigators that it could not recover two years of emails from Lois Lerner, the former head of the agency’s tax-exempt status department.

Lerner was directly involved in questioning the tax-exempt status of conservative political groups applying for tax-exempt status, documents showed. The House Ways and Means Committee has urged prosecutors to pursue criminal charges against Lerner, who has repeatedly refused to testify on Fifth Amendment grounds. But evidence suggests that liberal groups were also targeted by IRS investigators, and a congressional probe has so far failed to show a connection to the White House.

Koskinen suggested on Monday that many of Lerner’s emails might still be retrievable from other computers within the IRS. “Even though her hard drive crashed, didn’t mean that their hard drive crashed so they have those emails.”

The IRS claim that it had lost the electronic correspondence sparked outrage among congressional investigators, as they were hoping that the emails would shed light on whether anyone outside the tax agency was involved in the alleged targeting of conservative groups. “We are simply not going to accept the IRS claim that these documents are not recoverable,” said House Ways and Means Chairman Dave Camp.

Koskinen agreed Monday to testify to two House committees about the e-mails.

 

TIME Congress

Lerner’s Lost Emails: Republicans Press Obama Administration on Tea Party Scrutiny

Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013.
Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013. J. Scott Applewhite—AP

"We are simply not going to accept the IRS claim that these documents are not recoverable," says House Ways and Means Chairman Dave Camp

On June 13, 2011, a colleague of former IRS official Lois Lerner sent out a blast email of the sort familiar to many office workers: “Lois’ hard drive has crashed on her computer and will be without email,” the message read, according to documents released last week by the IRS. But if computer crashes are common in the modern workplace, this particular one is getting the attention of Congressional investigators looking into Lerner’s role in alleged politically motivated scrutiny of right-wing political organizations by the IRS.

That’s because in an age where every teenager is taught that sent emails live forever somewhere in the electronic ether, Lerner’s hard-drive crash apparently managed to obliterate all record of her written electronic communications from Jan. 1, 2009, to April 2011 with anyone outside the IRS. That fact, reported Friday by the IRS to Congress, has infuriated Republicans in the Senate and House.

“Today’s admission by the IRS that they cannot produce Lois Lerner’s emails is an outrageous impediment to our investigation,” the Senate Finance Committee’s top Republican Orrin Hatch said in a statement released Friday. “Even more egregious is the fact we are learning about this a full year after our initial request to provide the Committee with any and all documents relating to our investigation,” Hatch said.

Now Hatch and his GOP counterpart in the House, Ways and Means Chairman Dave Camp, are demanding even more digging for emails on the Administration’s part. On Monday, Camp wrote President Obama to request any emails Lerner sent to anyone at the White House during the period covered by her hard-drive crash; and he similarly requested any emails she sent to Treasury, Justice, the EPA, the Federal Election Commission and the Occupational Safety & Health Administration.

In the normal course of government business it would be unusual for a midlevel bureaucrat at the IRS would be in touch with the executive office of the President. But then in the normal course of business it would be unusual for a hard-drive crash to wipe all records of emails ever sent from the computer, anywhere.

The IRS explained the developments in its Friday letter to Congress by saying that before 2013 the agency’s policy was to daily back up emails on tapes that were saved for six months and then over-written. Josh Earnest, the incoming White House press secretary, on Monday called speculation of foul play “indicative of the kinds of conspiracy that are propagated around this story.”

Democrats say the GOP’s attempt to find a political motivation in the IRS’s handling of applications for non-profit status from right wing groups is itself a politically motivated enterprise by Republicans seeking to rile up their base ahead of midterm elections. The Democrats point to a May 2013 email from the head of investigations for the IRS inspector general’s office to colleagues finding “there was no indication” that the slow down in processing Tea Party non-profit applications “was politically motivated.”

Republicans are having none of it. Wrote Camp to Obama on Monday: “We are simply not going to accept the IRS claim that these documents are not recoverable. We will demand the President live up to his promise to work “hand in hand” with Congress to get the facts. He can do so by quickly ordering his White House and key agencies to immediately conduct an exhaustive search for all Lois Lerner emails. There needs to be an immediate investigation and forensic audit by an independent special investigator.”

— With additional reporting by Zeke Miller / Washington

TIME

80 Years of Federal Revenue in One Chart

What’s the federal government’s largest source of income? Individual American citizens.

Income taxes—including taxes that are automatically withheld from paychecks—accounted for 47 percent of all federal revenue in 2013.

Payroll taxes, which are paid by employees and employers and are earmarked mostly for Social Security and Medicare, accounted for the second largest piece of the pie, at 34 percent. Workers and employers each contribute 6.2 percent of the employee’s wages for Social Security, and 1.45 percent of the wages for Medicare.

Corporate taxes—a 15-35 percent marginal tax rate on a company’s profits—were the third largest source of federal revenue, at about 10 percent.

 

FY2013

According to the graph below, the tax landscape for individuals has stayed relatively steady as a percentage of total federal revenue since 1944, typically sitting in the mid 40’s, and sometimes dipping down into the thirties. Income taxes reached their highest percentage (50 percent) as a piece of the overall pie in 2000 and 2001.

But the tax landscape was a lot different before World War II. In 1934, the earliest year with complete data from the White House Office of Management and Budget, individual income taxes accounted for 14 percent of the tax pie, while payroll taxes accounted for 1 percent, corporate taxes 12 percent, excise taxes 46 percent, and other taxes 27 percent.

FY1934Revenue

Income taxes were a small piece of the pie in 1934, because the tax—enacted into law in 1913 by the 16th amendment—predominantly applied to high income earners, and exemptions were high.

During WWII, exemptions were reduced and tax rates were increased to help fund the war. Coupled with overall increases in income, income taxes as a percentage of government revenue sharply increased.

According to records from the IRS, the biggest increase came in 1943-1944. Personal exemptions decreased from $1,200 to $1,000 for married couples, tax rates for the lowest earning bracket (<$2,000) rose from 19 to 23 percent, and tax rates for the highest earning bracket (>200,000), rose from 88 to 94 percent.

Although U.S. income taxes have increased, they are about average as a percentage of GDP when compared to other OECD countries.

While income taxes rose as a percentage of federal revenue from 1943-1944, corporate income taxes did the opposite, shrinking from 40 percent of the overall pie, down to 34 percent.

Also unlike income taxes, which have stayed relatively steady as a percentage of federal revenue since 1944, corporate taxes have shrunk, reaching their lowest levels as a percentage of the tax pie—6 percent—in 1983.

In comparison to other OECD countries, U.S. corporate taxes as a percent of tax revenue (2.3 percent) fall below average (3 percent).

This article was written for TIME by Kiran Dhillon of FindTheBest.

TIME Taxes

IRS Gave $1 Million in Bonuses to Employees Who Didn’t Pay Taxes

The IRS paid $1 million in bonuses to employees who owed back taxes and another $1.8 million in bonuses to workers facing disciplinary problems

The federal agency in charge of tax collection has been awarding bonuses to employees who have not been paying their taxes on time, according to a new report by J. Russell George, the Treasury inspector general for tax administration.

The report reveals that the Internal Revenue Service gave a total of $1 million in bonuses to 1,150 workers who owed back taxes between October 201o and December 2012. The IRS paid out an additional $1.8 million in bonuses to workers facing other kinds of disciplinary problems over the same period, including improper use of government credit cards, drug use, threats of violence and unemployment-benefits fraud, according to the Associated Press.

George said the bonuses don’t violate federal rules but are inconsistent with the agency’s mission to enforce tax regulations. “These awards are designed to recognize and reward IRS employees for a job well done, and that is appropriate, because the IRS should encourage good performance,” George said in a press release. “However, while not prohibited, providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration.”

Despite the apparent contradiction highlighted by bonus program, the employees of the Treasury Department, which includes the IRS, still have better tax compliance than other federal agencies. Just 1.1% of Treasury workers owed back taxes in 2011, compared with 3.2% of federal workers overall, the AP reports. The tax-delinquency rate for the general public was 8.2% that year.

TIME

Don’t Forget to Do Your Taxes

Congress Focuses On IRS Delay In Disclosing Groups' Scrutiny
The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., May 15, 2013. Bloomberg/Getty Images

You have until midnight to get your taxes done.

It’s Tax Day! As of the end of last week, the IRS had received nearly 100 million returns, or about three-quarters of all the returns it expects to get this season. So if you haven’t filed yet, you’re in the minority. Still if you have procrastinated and are owed a refund, it won’t hurt to file late. Tax payers are only hit with penalties if you owe the government money.

It is still a smart idea to file for an extension; about 12 million taxpayers have requested extensions. The average refund is $2,792, up 1% from last year. Here are a few tips, tricks, and useful articles for the longest day of the year at the IRS:

Free Cookies! Free Massages! Here Are All the Best Tax Day Freebies

Are Taxes Fair? If You Answer Yes, You’re Probably Poor

Here’s How Shady Tax Preparers Plan to Steal Your Money

The IRS’ Last-Minute Tax Tips

10 Tax Audit Red Flags

Make the Most of Tax Write-Offs

TIME

Here’s How Shady Tax Preparers Plan to Steal Your Money

Congress Focuses On IRS Delay In Disclosing Groups' Scrutiny
The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., May 15, 2013. Bloomberg/Getty Images

Fraud among fly-by-night, seasonal tax preparers who open up shop in vacant storefronts and trailers costs taxpayers billions of dollars each year. It has prompted the IRS to seek to regulate tax preparers by requiring education courses and examinations

Every tax season, Elmer Kilian takes out a wooden homemade shingle that says E.H. KILIAN’S TAXES and puts it out in front of his house in rural Wisconsin. The 82-year-old Korean War veteran has prepared locals’ taxes on his dining room table for the last thirty years, helping around 100 people in the town of Eagle file to the IRS, from the local grocer to the neighbor down the street. He charges $40 for a basic filing and a little extra for the frills.

Kilian is one of more than 600,000 paid tax preparers who are virtually unregulated by the IRS. Many are as scrupulous as Kilian is, but fraud among fly-by-night, seasonal tax preparers who open up shop in vacant storefronts and trailers costs taxpayers billions of dollars each year. “It’s not just one or two bad apples. It’s pervasive,” says Chi Chi Wu, an attorney for the National Consumer Law Center. “And these problems persist.”

Fraud has prompted the IRS to seek to regulate tax preparers like Kilian by requiring education courses and examinations, an effort to protect taxpayers as well as the IRS’ own tax income. At a Senate Finance Committee hearing this week, IRS Commissioner John Koskinen urged Congress to give the IRS the right to regulate tax preparers, saying that regulation “will translate into improved overall tax compliance.”

Many lawmakers agree. At the hearing, Senator Ron Wyden, Democrat of Oregon said that an “absence of meaningful oversight of much of the tax preparer industry is harming too many citizens who can least afford it.”

Tax preparers say they can’t afford to be carefully regulated and that burdensome regulations will force them to close their businesses. “Licensing regulations are protectionist and anti-competitive,” Dan Alban, an attorney for the Institute for Justice says. “The high costs of complying with licensing regulations would drive out tens of thousands of preparers.”

Of the nearly 150 million taxpayers in the United States, around 79 million use paid preparers. There are three larger commercial chains (H&R Block, Jackson Hewitt and Liberty Tax Service), some smaller chains, and thousands of independent preparers and seasonal pop-up shops. Around 42 million Americans use third-party preparers pay their taxes through unregulated preparers, who can file taxes without education or certification.

Seasonal tax preparers set up shop in used car dealerships and empty storefronts and often commit a wide array of improprieties, from overcharging customers to inventing child dependents, church donations, and falsifying income—increasing taxpayers’ refunds, and their own cut on the deal.

In 2011, Adama Laine needed some help paying his taxes. An immigrant from the Ivory Coast and nursing assistant at the VA hospital in Seattle, Laine contacted a fellow French-speaker to help him file. The tax preparer promised him a $9,000-refund, Laine says, and charged him a fee of 10% of his refund. But the tax preparer faked his children’s college education for a tax credit, inflating Laine’s refund by $5,500. In 2013, Laine, who is a single father, was shocked to receive a notice that he owed the IRS thousands of dollars, as well as interest and penalties.

Laine returned to the tax preparer who had cheated him, only to find the preparer escaped culpability by signing Laine’s tax forms “self-prepared”—making Laine ultimately responsible, even though he hadn’t filled out the forms. “What am I supposed to do? I have a lot of bills on my head I need to pay. I’m a single dad with three kids. I can’t just pay six grand right now,” Laine says. “I didn’t mean to cheat.”

It’s impossible to measure exactly how many tax preparers are committing fraud, but a U.S. Government Accountability Office study published Tuesday showed that undercover site visits to 19 tax preparers in the 2014 tax season yielded only two correct tax refund amounts. In other words, fully 17 out of 19 filed their taxes incorrectly and inflated tax refunds by amounts up to nearly $4,000.

Similar results were discovered by advocacy groups who have conducted several rounds of undercover testing of tax preparers since 2008. Four out of nine undercover testers were encouraged to engage in tax fraud in a 2011 test, and a 2008 test of 17 paid tax preparers yielded a 25-percent fraud rate.

Federal investigations have succeeded in toppling a litany of high-profile cheating tax preparers.

Instant Tax Services, based in Dayton, Ohio, was the fourth-largest tax-preparation firm in the country when it was officially shut down by the Justice Department in 2013. The company ran about 150 franchises and prepared 100,000 tax returns each. It was responsible for defrauding customers and charging hidden, exorbitant fees on a mass scale. According to a federal court, the tax harm caused by Instant Tax Service franchisees in five cities in a single tax-filing season was between $10 million and $25 million. A lengthy investigation barred the company from practicing.

In addition to Instant Tax Services, Mo’ Money Taxes of Memphis, franchises of the popular Jackson Hewitt tax service, and many individual businesses accused of encouraging fraudulent tax returns and charging taxpayers deceptive fees have been barred from tax preparation after prosecutions by the Department of Justice.

But while punitive enforcement has been successful, attempts by the IRS to regulate tax preparers in order to prevent fraud before it happens has come up short. Beginning in the 2011 filing season, the IRS required paid tax preparers to obtain ID numbers, and launched a tax return competency test in November 2011. Tax preparers were also required to take education courses. A Federal court halted the program last year in the case Loving v. Internal Revenue Service, arguing the IRS doesn’t have the authority to regulate tax preparers.

Supporters of the ruling said regulation would run legitimate seasonal tax preparers like Mr. Kilian of rural Wisconsin out of business.

Alban, who was one of the attorneys on the case who argued the IRS had overstepped its bounds, says that not only would expensive mandatory courses be prohibitive for legitimate mom-and-pop tax shops, but they’d be ineffective. “You can’t do anything about fraud until after it happens,” Alban says. “Some folks might actually prefer a less scrupulous preparer. There’s not a lot you can do about that upfront.”

Kilian says the ruling is a victory for him. If he has to take classes and a test, he says he’ll be forced to raise his fees by 200 percent and likely go out of business. “If somehow it ends up being required that we go to school and pass the test, I believe I’ll retire out of preparing taxes because I couldn’t end up making any money on it,” Kilian adds.

For now, legislators are focusing on simplifying the tax code, an initiative both the regulators and the anti-regulators support as a means to reduce ways cheaters can find loopholes. “The complexity of the tax code creates an environment where confusion and errors flourish,” Senator Wyden said this week. “Congress isn’t blameless on this issue, and that’s one reason why it’s time to rewrite the code to make filing easier.”

 

TIME Congress

House Republicans vs. Lerner: Questions About the IRS Targeting Scandal

A TIME guide to the controversy over IRS targeting

A panel of House Republicans voted on Thursday to hold former IRS official Lois Lerner in contempt of Congress, citing her refusal to answer questions about the agency’s targeting of conservative organizations for special scrutiny.

The 21-12 vote by the House Oversight and Government Reform Committee, which has been probing the alleged abuse since the scandal erupted last spring, broke along party lines: each of the panel’s Republicans voted to censure Lerner, while the Democrats on the committee opposed the resolution. The vote comes a day after Republicans on a separate committee formally requested the Department of Justice to open a criminal investigation of Lerner.

Like most political dramas, the ongoing outrage over the agency’s targeting of conservative groups sits at the intersection of legitimate concern and political opportunism. Since it can be difficult to separate one from the next, here is TIME’s handy guide to the so-called IRS scandal and the woman who has been made its public face:

Who is Lois Lerner?

Lerner, 63, used to run the IRS division in charge of reviewing applications from groups seeking tax-exempt status. Last May, she revealed at a legal conference that the IRS had inappropriately flagged conservative groups for special review, slowing down their application process. Republicans were incensed. Lerner was placed on paid leave as the brouhaha intensified. She retired in September.

What did Lerner do?

According to Republicans, Lerner used her position as head of the relevant IRS division to improperly influence the agency’s policy, singling out conservative groups—including influential outfits like Karl Rove’s Crossroads GPS—for special scrutiny. According to an investigation conducted by the House Committee on Ways and Means, 83% of the roughly 300 organizations whose applications for tax-exempt status were snarled held conservative views. While the division of Exempt Organizations was pursuing conservative groups like Crossroads, it appeared to ignore the actions of left-leaning counterparts like Priorities USA.

The panel alleges that Lerner displayed “extreme bias” toward conservative groups while “turning a blind eye” toward similar liberal organizations, made misleading statements during a Treasury Department investigation of the matter and may have disclosed confidential taxpayer information. Documents disclosed during the probe show that Lerner made a remark (perhaps in jest) in a January 2013 email about finding at a job at a top liberal social-welfare organization.

What does Lerner say about this?

Lerner was the first person to publicly acknowledge that the IRS behavior was “inappropriate.” Since then, she hasn’t said much. Called for testimony before the House Oversight Committee last May, she made an opening statement in defense of her actions. “I have done nothing wrong,” she said. Then she invoked the Fifth Amendment, and has since refused to testify.

Why is she being held in contempt?

Republicans argue that Lerner’s decision to speak in her own defense, albeit briefly, last year waives her Fifth Amendment privileges. Lawyers are split on whether this interpretation of the Fifth Amendment is accurate. But the GOP decided to hold her in contempt of Congress for refusing to comply with a subpoena.

What happens next?

The matter could go before the full House, which would be expected to approve a resolution holding Lerner in contempt.

Will she face criminal charges?

It’s unclear. It is unlikely the Department of Justice will be inclined to prosecute Lerner. It has rarely done so in the past. Democrats believe the campaign against Lerner is a partisan witchhunt, and U.S. Attorney General Eric Holder—who was held in contempt by the House in 2012 in connection with an investigation into the so-called Fast and Furious case—seems particularly unlikely to cave to the Congressional GOP. Congress could also ask a judge to enforce the subpoena. But it would be a time-consuming process that would almost certainly outlast this Congress.

Alternately, House Republicans could resort to a dusty gambit known as “inherent contempt” to put Lerner in jail. According to a Congressional Research Service report:

Under the inherent contempt power the individual is brought before the House or Senate by the Sergeant-at-Arms, tried at the bar of the body, and can be imprisoned or
detained in the Capitol or perhaps elsewhere. The purpose of the imprisonment or other sanction may be either punitive or coercive. Thus, the witness can be imprisoned for a specified period of time as punishment, or for an indefinite period (but not, at least by the House, beyond the end of a session of the Congress) until he agrees to comply.

In other words, Lerner could theoretically be held until January 2015. Republicans have not publicly ruled out the inherent contempt option, but it seems highly unlikely. The last such case appears to have been in 1935.

So what’s the likeliest option?

House Republicans continue making political hay of the issue in the run-up to November’s elections, in an attempt to highlight what they say is the Obama Administration’s systematic abuse of power. Lerner stays silent. The issue goes nowhere—but doesn’t go away. And the much-needed crackdown on political groups masquerading as social-welfare organizations becomes ever more unlikely.

TIME Congress

Republicans Vote to Hold Former IRS Official in Contempt

Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013.
Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013. J. Scott Applewhite—AP

Lois Lerner has plead the Fifth Amendment to accusations her IRS division targeted conservative groups for tax special scrutiny

House Republicans voted Thursday to hold in contempt of Congress the former IRS official at the center of a scandal over the tax agency’s alleged targeting of conservative groups.

House Oversight and Government Reform Committee voted along party lines to approve a resolution recommending Lois Lerner be held in contempt of Congress. Lerner, who oversaw the IRS division in charge of vetting applications for groups seeking tax-exempt status, came under fire when she admitted the agency had given scrutiny to requests from conservative political groups. The ensuing scandal briefly buffeted President Barack Obama in the early days of his second term, but ultimately fizzled without evidence of a connection to the White House and with revelations that liberal groups were also given scrutiny. Republicans have sought to keep the issue alive, though, and committee chairman Darrell Issa (R—Calif.) has sought to compel Lerner to testify about the matter, rejecting her claim to Fifth Amendment protections.

“We need Ms. Lerner’s testimony to complete our oversight work to bring the truth to the American people,” Issa said Thursday. “Why did she do certain things and who else was involved? … The American taxpayers certainly don’t get to plead the Fifth and escape all accountability when the IRS audits them.”

Rep. Elijah Cummings (D-Md.), the committee’s ranking Democrat, again decried Republicans for what he called a political witch hunt.

“Today this committee is trying to do something even Joe McCarthy did not do in the 1950s, something almost unprecedented,” Cummings said before the vote.

The outcome of Thursday’s vote was all but predetermined, as Issa’s GOP-controlled committee has been divided along the issue along stark partisan lines. The full House will have to vote on the contempt citation, but even if that passes it’s unclear if Attorney General Eric Holder would take any action.

The tax-writing House Ways and Means Committee sent a letter Wednesday recouting Lerner’s alleged crimes and insisting the Justice Department has “a responsibility to act, and Lois Lerner must be held accountable.”

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