One woman sits at the center of the developing—and utterly confusing—Internal Revenue Service scandal. It was Lois Lerner, director of the IRS’s Exempt Organizations Division, who let slip at an American Bar Association meeting on Friday that, between 2010 and 2012, conservative nonprofit groups were improperly scrutinized by the IRS. And it is Lerner who has since become the target of a number of accusations and conspiracy theories, lobbed from both ends of the political spectrum. As the media waits impatiently for the Treasury Inspector General for Tax Administration to release an investigative report detailing who knew about the IRS’s inappropriate practices and when, it seems crucial to get to know the main character in this unfolding drama and the core issues swirling around her.
Lerner was appointed as head of the IRS Exempt Organizations Division during the Bush administration, in 2006. She served as director the IRS Exempt Organizations Rulings and Agreements Division for four years before that. A graduate of Boston’s Northeastern University and Western New England College of Law in Springfield, Mass., Lerner began her legal career as a staff attorney in the Department of Justice’s criminal division before joining the Federal Election Commission as an assistant general counsel in 1981. She spent 20 years at the FEC, where she was appointed head of the Enforcement Division in 1986 and then acting general counsel for six months in 2001.
Larry Noble, who served as general counsel at the FEC from 1987 to 2000, was involved in hiring and promoting Lerner. “I worked with Lois for a number of years and she is really one of the more apolitical people I’ve met,” Noble told The Daily Beast. “That doesn’t mean she doesn’t have political views, but she really focuses on the job and what the rules are. She doesn’t have an agenda. “Reporters grew frustrated with Lerner during a conference call last Friday, when she appeared reluctant to answer most of their questions. She seemed to dig herself into a deeper hole by acknowledging that she is “not good at math” when asked for a statistic, and she said she would not have publicly acknowledged her employees’ wrongdoing if she hadn’t been asked about it directly—further fueling the argument that the focus on conservative groups was politically motivated. Noble attributes Lerner’s discretion not to a coverup but to her rule-abiding nature.
“It does not surprise me that she would play it very close to the line in terms of what she would say publicly or what her organization would allow her to say,” he said. “The IRS is not a public-disclosure organization, and she has always been very conscientious of what she can and cannot say.”
Aside from the immediately pressing questions of when Lerner learned that her employees in Ohio were improperly targeting certain conservative groups and whether she properly handled their malpractice, the scandal highlights a broader issue: how tax-exempt groups, also known by the catchy IRS label 501(c)(4), are regulated.
As a result of Citizens United, the 2010 Supreme Court decision that brought us the super PAC, nonprofit organizations that fall in the 501(c)(4) category are allowed to raise and spend as much money on political campaigns as they please, as long as “social welfare,” not politics, remains their primary focus. Unlike super PACs, registered 501(c)(4)s are not required to disclose their donors, which explains the major spike in applications to the IRS for tax-exempt status in the years leading up to the 2012 election.
The problem is, the IRS’s guidelines for what constitutes a tax-exempt “social welfare” group are extremely vague. Under some interpretations, as long as 49 percent of a group’s activities does not relate to campaign intervention, it can be eligible for 501(c)(4) status, but even then there is no explanation of how the focus of a group’s activities should be measured. Proponents for stricter definitions of what qualifies as a 501(c)(4) argue that such inconclusiveness is to blame for the $308.5 million worth of undisclosed political spending that came from these supposedly nonpolitical groups in 2012 alone.
During last week’s conference call, Lerner insisted that employees at the IRS office in Cincinnati took it upon themselves to focus on certain groups based on keywords, such as “tea party” or “patriot,” in their names. But she acknowledged that the influx in tax-exempt applications starting in 2010 is what sparked the heightened scrutiny. The admission raises the question of whether Lerner had the opportunity to help clean up what has become a messy campaign-contribution system and, if so, why she instead is cleaning up the mess of a field office that supposedly went rogue.
In July 2011, Democracy 21 and the Campaign Legal Center, two nonprofit organizations that advocate for the enforcement of campaign-finance laws and curbing the influence of super PACs, sent a letter to the IRS petitioning for more definitive rules governing the political activities of 501(c)(4) groups. In March 2012, they sent a second letter reiterating their request. Finally, nearly a year after receiving the original petition, Lerner responded. “The IRS is aware of the current public interest in this issue. These regulations have been in place since 1959,” she wrote in a letter to Democracy 21 and the Campaign Legal Center. “We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.”
“Lerner was in a position to put 501(c)(4) policies on the plan in January as something they were going to try to tackle, and they didn’t do that,” Robert Maguire, an outside spending researcher at the Center for Responsive Politics, told The Daily Beast. “She could have directed a more robust investigation of certain groups.”
Because 501(c)(4)s technically are not considered political organizations, the Federal Election Commission has managed to wiggle its way out of overseeing them, letting the responsibility fall to the IRS. Yet the IRS Exempt Organizations Unit's annual report and plan for 2013, written by Lerner, does not, as Maguire notes, include a plan to create new policies for regulating 501(c)(4)s.
“The IRS is inherently opposed to getting involved in political disputes, and here they find themselves at the center of it without the means to address it,” said Maguire, arguing that the focus should have been on already-exempt groups, not those applying. “They could have easily downloaded FEC data and implemented a system that would trigger an investigation or questionnaire if the group in question spent a significant of money.” Instead, he observes, IRS staffers “just willy-nilly went about trying to create their own system and it has blown up in their face.”
While happy to attest to Lerner’s professionalism and management skills, Noble, who is now president of the D.C. nonprofit Americans for Campaign Reform, was just as open about his qualms with the IRS’s approach to tax-exempt groups.
“I know that as the head of the Exempt Organizations branch [Lerner] has some input on how they focus their resources and I assume she makes certain policy decisions, but I also know that the IRS is an extremely hierarchical structure,” said Noble, quick to clarify that he wasn’t assigning blame to his former colleague. “Still, the IRS and Congress need to clarify what the rules are and enforce them.”
Noble and Maguire agree that swifter action from the IRS and Congress would be the most positive potential outcome of this whole debacle. “Worst-case scenario, and my greatest fear, is that the IRS will decide to back off this issue entirely, and we’ll see more money being sent through these organizations for blatant political use,” he said.
David Vance, director of communications and research for the Campaign Legal Center, echoes that concern. “The IRS should not treat 501(c)(4)s as the third rail,” he told The Daily Beast. “We are hoping this storm does not send the IRS back in its shell on this stuff.”
However, said Noble, “knowing Washington, that’s probably the most likely scenario.”