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Lerner to Invoke the Fifth, Former IRS Commissioner Describes 'Dismay'

Douglas Graham/CQ Roll Call
From left, Treasury Inspector General for Tax Administration J. Russell George is sworn in along with Miller and Shulman before testifying at Tuesday’s Senate Finance Committee hearing.

“Once the smoke of the current controversy clears, we need to examine the root of this issue and reform the nation’s vague 501(c)(4) tax laws,” Finance Chairman Max Baucus, D-Mont., said. “Neither the tax code nor the complex regulations that govern nonprofits provide clear standards for how much political activity a 501(c)(4) can undertake. The code does not even provide a clear definition of what qualifies as political activity.”

Democrats were divided about whether the ambiguity surrounding 501(c)(4) organizations required a legislative fix or could be improved through new regulations. Some argue there is no problem with the current law, which says that the groups must “exclusively” promote the public welfare, and say the fault lies with regulations that allow 501(c)(4) organization to only be “primarily” engaged in social welfare activities. But Baucus and others say the law is too vague, in part because of the grey area between social welfare and political activity.

But Republicans say the attention on the regulation is a distraction from what they call a major political scandal.

“What everyone thinks of how the Treasury rule implementing the (c)(4) standards has been developed over the decades, how it is written, has absolutely nothing to do with the IRS decision to use ideology as a basis for imposing unnecessary, inappropriate, and extra screening on people seeking 501(c)(4) status,” Sen. Patrick J. Toomey, R-Pa., said.

Despite two rounds of questions directed at Shulman, Miller and Treasury Inspector General for Tax Administration J. Russell George, Tuesday’s testimony shed little new light on who was responsible for targeting conservative groups and what their motivations were.

Shulman said Miller told him in May 2012 that IRS employees in a Cincinnati office had been screening tea party groups. But he said that he took no further action because he had been told that the practice had stopped and that the IG had begun its audit.

“I don’t recall telling anyone about it because, I think this is not the kind of information, once TIGTA starts looking at it, that should leave the IRS,” Shulman said.

Miller, repeating what he said at a May 17 Ways and Means hearing, said IRS officials had tried to punish someone in the Cincinnati office thought to be responsible for the screening criteria, but that it was subsequently determined that the person was probably not to blame for the list in question.

Miller, Shulman and George all said they did not know who developed the screening criteria, although Miller acknowledged that “bad management” was partly to blame and Shulman said he did not know why, once mid-level officials learned of what was happening at the Cincinnati office, they did not tell senior managers about it sooner.

While Shulman and Miller were testifying, Treasury Secretary Jacob J. Lew addressed the controversy at a Senate Banking Committee hearing on the Financial Stability Oversight Council.

Lew said he had taken swift action at President Barack Obama’s request to carry out a thorough review. He said he intends to make sure that those who acted “inappropriately” are held accountable.

He will also examine failures within the IRS system. Lew said that Daniel Werfel, who will take over as acting IRS commissioner on Wednesday, will report back to him within 30 days with his assessment.

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