IRS Abolishes Review Used in Gingrich Cases

Posted November 3, 2003 at 6:42pm

Four months after the Internal Revenue Service made a surprise decision to restore the tax-exempt status of two groups tied to former Speaker Newt Gingrich (R-Ga.), the tax agency quietly abolished the secretive review procedures that recommended the reversal.

The Aug. 25 decision to shut down the agency’s independent review process, which has not yet been officially announced, raises new questions about the apparent rifle-shot treatment granted to former Rep. Howard “Bo” Callaway (R-Ga.), the longtime Gingrich ally who headed the two tax-exempt groups implicated during a 1997 House ethics investigation.

Tax law experts, already harshly critical of the earlier IRS reversal, say they are troubled by the erratic, short-lived history of the independent review process, a function that few outside the IRS were even aware of until earlier this year when the restoration of tax- exempt status for the two groups was disclosed.

“We decided to disband the process because it became clear that the process did not have the intended effect. The process caused undue and unanticipated confusion,” an IRS official who asked not to be identified said Monday.

The independent review process, established in 2002, was created to provide another avenue of appeal for taxpayers involved with complex cases, according to IRS officials. Critics said it was an extraordinary process with no accountability. The decisions involving the Gingrich groups are the only matters publicly known to have been handled under the review process.

Tax law experts were surprised not only by the decision in April to reverse what was considered a settled matter but also at the procedure used, which they said has brought the integrity of the IRS into question and opened the tax agency up to charges of political motivations in its decision-making.

In addition, experts said the IRS rulings threaten to unravel the reforms of the new campaign finance law, which sought to plug sources of unregulated money from entering the political process. The restoration, which was likened to a blessing by the IRS, now makes it more attractive for political groups to operate through highly desirable charitable fronts that have the added advantage of offering donors the opportunity to claim tax deductions for their contributions.

IRS officials ended the process in much the same way as it was started, with little public notice.

“During the time that this process was in effect, there has been much less of a call for independent review than was anticipated,” the IRS official said, adding that there are already existing avenues available to review agency decisions.

The decision was made by Deputy IRS Commissioner Robert Wenzell upon a recommendation by Evelyn Petschek, who heads the IRS division regulating tax-exempt groups, the official said. The decision to eliminate the process took effect Aug. 25, but the agency has yet to issue a formal announcement of it, either by press release or an update to the Internal Revenue Manual, the official guidebook to agency procedures.

The move was reported Friday by Tax Notes, a newsletter covering the IRS. IRS officials said they did not know why there had been no formal announcement of the change or why the frequently updated manual has not yet reflected the decision.

When asked whether the controversy that erupted after the decision to restore the tax-exempt status of the Abraham Lincoln Opportunity Foundation and the Howard H. Callaway Foundation led directly to the decision to shut down the review process, the official refused to comment.

Tom Terry, the IRS official who supervised the review, declined to comment on the matter when reached by telephone in his office.

Frances Hill, a University of Miami law professor who has closely followed the Gingrich case, said elimination of the procedure benefiting the Gingrich-associated groups raises new questions about political favoritism at the IRS.

“Now it is beginning to look in fact more suspect than it did before,” she said. “Because if it existed for one case, and then was abolished, that seems to me to suggest that some organizations are more equal than others and other organizations will never be that equal again.”

Hill also criticized the agency for again shrouding the decision to shut down the procedure after it was roundly criticized for the secrecy that surrounded the review process.

“This is not the way the IRS is supposed to operate,” she said. “This is something that should have been announced to everyone. Are they administering the tax laws in an even-handed way for all taxpayers or are there special rules for special people?”

Based on extensive findings uncovered during the lengthy ethics investigation, the IRS revoked the tax-exempt status of the Abraham Lincoln Opportunity Foundation in December 1998 in a move widely considered inevitable because of the evidence showing that the charity had been used by GOPAC, a political committee chaired by Gingrich, to train Republican activists with a series of television programs and national workshops.

The ethics probe revealed how GOPAC captured and dominated the Abraham Lincoln foundation, using it to raise funds and pay costs for an ambitious cable television show featuring Gingrich. The two groups, in essence, merged, sharing the same staff, resources and office. GOPAC went as far as offering its members the chance to pay their $10,000 dues by contributing to the foundation, which provided the donors with the benefit of a tax-deductible expense.

The IRS decision to revoke the foundation’s status was upheld by the U.S. Tax Court and the 11th Circuit Court of Appeals, which had both dismissed pleas to review the IRS revocation. Separately, the IRS revoked the tax-exempt status of Callaway’s private foundation because it had improperly contributed to the foundation. That decision had financial implications for Callaway, whose foundation was found to owe more than $100,000 in back taxes and fines.

Callaway pressed members of the Ways and Means Committee to assist his effort to overturn the IRS decision, and he was granted meetings with top IRS officials to make his case.