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FINAL Bipartisan Staff Report.Pdf Foreword Since the inception of our Nation, the United States Committee on Finance (Committee) has conducted vigilant oversight of the Executive Branch agencies and departments under its jurisdiction. Given the significance of tax policy and its administration, the Committee has historically focused a large portion of its time and resources overseeing the activities of the Internal Revenue Service (IRS), the Executive Branch agency charged with tax matters. Two years and two months ago, the Committee became aware of allegations regarding the potential targeting by the IRS of certain tax-exempt organizations, based on the names and political views of those organizations. Serious allegations such as these strike at the very heart of the principal that the Nation's tax laws are to be administered fairly and without regard to politics of any kind. Accordingly, these allegations warranted swift Committee response in the form of an investigation - an activity the Committee is uniquely positioned to carry out as a result of its oversight authorities and responsibilities with respect to the IRS. Despite the partisan political nature of these allegations, the Committee proceeded in true bipartisan spirit and initiated a joint investigation on May 21, 2013, under the direction of former Chairman Baucus and then-Ranking Member Hatch. When Senator Wyden assumed the Chairmanship of the Committee in February 2014, he agreed to continue the bipartisan work begun by Chairman Baucus. This bipartisan cooperation has continued unabated since I became Chairman in January 2015. Accordingly, despite several changes in the chairmanship, the Committee has continued its tradition of a bipartisan investigative effort. While much has been reported about the alleged political targeting over the last two years, it is important to stress that this Committee has conducted the only bipartisan investigation into the matter. Consequently, this report will perhaps serve as the definitive account of events transpiring at the IRS and the management failures and other causes that were at the root of the IRS's actions. Hopefully, this report will provide a roadmap for how Congress and the public can act to make sure this type of conduct does not happen again. We want to acknowledge the hard work and countless hours of time spent by Committee staff who conducted over 30 exhaustive interviews, reviewed more than 1.5 million pages of documentation, drafted numerous versions of this report, and performed countless other tasks necessary to bring this investigation to closure. The Committee staff whose diligence and devotion to duty made this investigation and report possible include the following: John Angell, Kimberly Brandt, John Carlo, Justin Coon, Michael Evans, Daniel Goshorn, Christopher Law, Jim Lyons, Todd Metcalf, Harrison Moore, Mark Prater and Tiffany Smith. Orrin G. Hatch Ron Wyden THE INTERNAL REVENUE SERVICE’S PROCESSING OF 501(C)(3) AND 501(C)(4) APPLICATIONS FOR TAX-EXEMPT STATUS SUBMITTED BY “POLITICAL ADVOCACY” ORGANIZATIONS FROM 2010-2013 Table of Contents Page Number Bipartisan Investigative Report as Submitted by Chairman Hatch And Ranking Member Wyden 1 Additional Views of Senator Hatch Prepared by Republican Staff 143 Additional Views of Senator Wyden Prepared by Democratic Staff 269 Timeline of Significant Events 320 Appendices 410 U.S. Senate Committee on Finance BIPARTISAN INVESTIGATIVE REPORT AS SUBMITTED BY CHAIRMAN HATCH AND RANKING MEMBER WYDEN Table of Contents I. EXECUTIVE SUMMARY AND RECOMMENDATIONS .......................................... 6 II. BACKGROUND ON BIPARTISAN INVESTIGATION BY THE SENATE FINANCE COMMITTEE............................................................................................... 13 A. Scope of the Investigation and This Report ....................................................................... 13 B. The Committee’s Access to Taxpayer Information Protected by Section 6103 of the Internal Revenue Code, and Use of Taxpayer Information in This Report ....................... 14 C. Limitation on the Committee’s Access to Relevant Information ...................................... 16 1. Summary of Information That Forms a Basis for this Report........................................ 17 2. The IRS Loss of Data, Failure to Notify Congress in a Timely Manner, and Results of TIGTA Investigation ...................................................................................................... 18 3. Actions Taken by Committee Investigators to Mitigate the Information Gap ............... 31 D. Legal Background of 501(c)(3) and 501(c)(4) Organizations ........................................... 32 E. Structure of The IRS Exempt Organizations Division and General IRS Procedures for Reviewing Applications for Tax-Exempt Status ............................................................... 33 III. FINDINGS OF THE SENATE FINANCE COMMITTEE AND SUMMARY OF SUPPORTING FACTS ................................................................................................... 37 A. IRS Management Lacked an Appreciation for the Sensitivity and Volatility of Political Advocacy Applications ...................................................................................................... 37 B. IRS Management Allowed Employees to Use Inappropriate Screening Criteria That Focused on Applicants’ Names and Policy Positions ........................................................ 40 C. IRS Management Failed to Develop an Effective Plan for Processing Applications for Political Advocacy Groups ................................................................................................ 43 1. IRS Management Placed Exclusive Reliance on Test Cases for Too Long ................... 43 2. Lois Lerner’s July 2011 Solution to Resolve the Political Advocacy Applications was Flawed and Ineffective ................................................................................................... 44 3. The 2011 Triage of Political Advocacy Applications Was Not Properly Supported by EO Management and Predictably Failed ........................................................................ 45 4. Lack of EO Management Oversight of the Political Advocacy Applications Allowed Development of the Guidesheet to Simply Stop in November 2011 ............................. 46 5. EO Management Allowed the Advocacy Team to Process Political Advocacy Applications Without Proper Training and Support, and Failed to Adequately Manage Its Activities ................................................................................................................... 47 1 U.S. Senate Committee on Finance Bipartisan Investigative Report 6. Although the “Bucketing” Exercise of 2012 Resolved Many Pending Political Advocacy Applications, the IRS Has Not Yet Issued Determinations for Some Applications .................................................................................................................... 48 D. The IRS Placement of Left-Leaning Applicants on the BOLO List Resulted in Heightened Scrutiny, Delay and Inappropriate and Burdensome Information Requests ...................... 49 1. The IRS Instructed Employees to Flag “Progressive,” “Emerge,” and ACORN Successor Applications at Training Workshops. ............................................................ 49 2. The IRS Placed the Terms “Progressive,” “ACORN,” and “Occupy” on the BOLO List ........................................................................................................................................ 49 3. IRS Scrutiny of Left-Wing Applicants Resulted in Years-Long Delays and Burdensome Information Requests ..................................................................................................... 49 E. The Culture in EO Contributed to a Lack of Efficiency in its Operations ........................ 50 1. EO Management Lacked a Sense of Customer Service ................................................. 50 2. Remote Management and Workplace Flexibilities Affected the Efficiency of EO Determinations ............................................................................................................... 53 3. Antagonism Existed Between EO Senior Executive Level Management and EO Determinations Managers and EO Line Employees ...................................................... 55 4. The IRS Failed to Ensure That All EO Employees Received Technical Training ........ 56 F. Lois Lerner Oversaw the Handling of Tea Party Applications and Provided Limited Information to Upper-Level Management ......................................................................... 57 1. Lois Lerner Was Informed About the Tea Party Applications in April 2010 and Received Updates About Them ...................................................................................... 57 2. Lois Lerner Failed to Inform IRS Upper Management About the Tea Party Applications ........................................................................................................................................ 59 3. Lerner Did Not Consult With IRS Chief Counsel William Wilkins About the Tea Party Applications .................................................................................................................... 62 G. Even During the Committee’s Investigation, Some IRS Employees Continued to Screen Tea Party Applications Based on the Organization’s Names ............................................ 63 H. For a Three-Year Period, the IRS Did Not Perform Any Audits of Tax-Exempt
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