United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS Committee on Homeland Security and Governmental Affairs Carl Levin, Chairman John McCain, Ranking Minority Member IRS AND TIGTA MANAGEMENT FAILURES RELATED TO 501(c)(4) APPLICANTS ENGAGED IN CAMPAIGN ACTIVITY MAJORITY STAFF REPORT WITH MINORITY STAFF DISSENTING VIEWS REPORT EXHIBITS Part 5 OF 10 Report Exhibits - Pages 682-867 (IRSR0000400000 Series - 6-digit #s) REPORT EXHIBIT LOCATOR LIST IRS AND TIGTA MANAGEMENT FAILURES RELATED TO 501(C)(4) APPLICANTS ENGAGED IN CAMPAIGN ACTIVITY 8/20/14 Bates Number or Document Description Page Number PART 1 of 10 IRS0000000271-284 IRS0000000285-316 IRS0000000386-387 IRS0000000492 IRS0000001330-331 IRS0000001341 IRS0000001349-364 (11/9/2010 BOLO) IRS0000001423-438 (6/16/2012 BOLO) IRS0000001484-499 (7/11/2012 BOLO) IRS0000001500-511, together with IRSR0000006705-6710 (2/8/2012 BOLO) IRS0000002503-515 (8/12/2010 BOLO) IRS0000002540-552 (7/27/2011 BOLO) IRSR0000002734-735 IRSR0000002738 IRSR0000003152-155 IRSR0000005273 IRSR0000005338-342 IRSR0000005935 IRSR0000006583-584 IRSR0000006674-699 IRSR0000006700-704 IRSR0000006705-719 (Also see IRS0000001500-1511 ) (2/8/2012 BOLO) IRSR0000006723 IRSR0000008593-602 (2/2/2011 BOLO attachment) PART 2 of 10 IRSR0000010132 IRSR0000011217-218 IRSR0000011220-221 IRSR0000011492-494 IRSR0000012122-126 IRSR0000012133-134 IRSR0000012226-227 IRSR0000013066-067 IRSR0000013187 IRSR0000013251-256 (6/13/2012 BOLO attachment) IRSR0000013418-419 IRSR0000013420-421 IRSR0000013430-433 IRSR0000013533-538 (1/25/2012 BOLO attachment) IRSR0000013545-565 1 1 16 32 34 35 37 38 54 70 86 104 117 130 132 133 137 138 143 144 146 163 168 184 185 195 196 198 200 203 208 210 212 214 215 227 229 231 235 241 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description IRSR0000013739-748 (2/21/2012 attachment - enhanced for reading by the IRS) IRSR0000013882-885 IRSR0000013909-923 IRSR0000013980-981 IRSR0000014013, 015-016, 018, 021-022, 025 (8/10/2010 BOLO attachment) IRSR0000014069-070 IRSR0000014171-174 IRSR0000014175-189 IRSR0000014190-191 IRSR0000014253-258 (3/26/2012 BOLO attachment) IRSR0000014377 IRSR0000014719-769 IRSR0000015566 IRSR0000054399 IRSR0000054590-592 IRSR0000054918-922 IRSR0000054937 IRSR0000054942-944 IRSR0000054945-946 IRSR0000054948 IRSR0000054963 IRSR0000054976-978 IRSR0000056970-983 IRSR0000057111-112 IRSR0000057166 IRSR0000057184-185 IRSR0000063025-037 IRSR0000066973-981 (2/21/2012 BOLO attachment) IRSR0000069334-346 PART 3 of 10 IRSR0000122863-864 IRSR0000141809-811 IRSR0000159751-752 IRSR0000161237-248 IRSR0000162544-546 IRSR0000164559-561 IRSR0000165382-383 IRSR0000165439-440 IRSR0000165721-722 IRSR0000167847-851 IRSR0000168020-023 IRSR0000168024-054 IRSR0000168058 IRSR0000168059-061 2 Page Number 262 272 276 291 293 300 302 306 311 313 324 325 376 377 378 381 386 387 390 392 393 394 397 411 413 414 416 429 438 451 453 456 458 470 473 476 478 480 482 487 491 522 523 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description IRSR0000168062 IRSR0000168087-091 IRSR0000168115-116 IRSR0000168256-257 IRSR0000177228-230 IRSR0000178714-715 IRSR0000180969-970 IRSR0000181003-007 IRSR0000182659-660 IRSR0000184248-250 IRSR0000188490-493 IRSR0000195549-554 IRSR0000195585-586 IRSR0000195600-617 IRSR0000195635-636 IRSR0000196659-660 IRSR0000196739-758 IRSR0000198415-416 IRSR0000198417-422 IRSR0000198670-671 Page Number 526 527 532 534 536 539 541 543 548 550 553 557 563 565 583 585 587 607 609 615 PART 4 of 10 IRSR0000202644-646 IRSR0000202703-706 IRSR0000210032-034 IRSR0000210035-036 IRSR0000210445-464 IRSR0000218202-203 IRSR0000218372-375 IRSR0000221479-481 IRSR0000222604 IRSR0000222949-950 IRSR0000222967-971 IRSR0000333194-195 IRSR0000350219 IRSR0000350220-221 IRSR0000350748-749 IRSR0000354397 IRSR0000379714-719 IRSR0000380096 617 620 624 627 629 649 651 655 658 659 661 666 668 669 671 673 674 680 PART 5 of 10 IRSR0000408471-472 IRSR0000410028-030 IRSR0000410433-434 IRSR0000410695-711 682 684 687 689 3 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description IRSR0000411078 IRSR0000411359-360 IRSR0000411578-580 IRSR0000411586 IRSR0000411587-588 IRSR0000415066-069 IRSR0000428195-203 IRSR0000428212 IRSR0000428403-404 IRSR0000428420-421 IRSR0000428427-428 IRSR0000428433 IRSR0000428435-436 IRSR0000429362-363 IRSR0000429501-504 IRSR0000435473 IRSR0000440089-090 IRSR0000441700-701 IRSR0000443982-985 IRSR0000444264-267 IRSR0000444375-377 IRSR0000444443-447 IRSR0000444805-808 IRSR0000444817-829 IRSR0000453023 IRSR0000455182-196 (7/27/2010 BOLO - enhanced for reading by the IRS) IRSR0000457889-899 IRSR0000458064-065 IRSR0000458430-438 IRSR0000458439-447 IRSR0000458456-459 IRSR0000462238-239 IRSR0000462280-284 IRSR0000465030-035 IRSR0000466813-815 IRSR0000468544-547 IRSR0000468583-584 IRSR0000468870-871 IRSR0000468891-894 IRSR0000468907-909 IRSR0000468916-920 IRSR0000468937-938 IRSR0000468978-980 IRSR0000469223-228 4 Page Number 706 707 709 712 713 715 719 728 729 731 733 735 736 738 740 744 745 747 749 753 757 760 765 769 778 779 795 797 799 803 807 811 813 813 824 827 831 833 835 839 842 847 849 852 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description IRSR0000482737 IRSR0000484246 IRSR0000485854-860 IRSR0000487175 Page Number 858 859 860 867 PART 6 of 10 IRSR0000506547-589, 593-623 IRSR0000507010-044 IRSR0000508181-182 IRSR0000617102-103 IRSR0000626700-701 IRSR0000630285-289 (1/25/2012 BOLO - enhanced for reading by the IRS) IRSR0000636330 IRSR0000640063 IRSR0000640307-308 IRSR0000640490-491 IRSR0000645603 IRSR0000706928-931 PART 7 of 10 PSI-IRS-01-000001-013 PSI-IRS-02-000001-026 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-03-000001-002 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-04-000001-008 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-05-000001-004 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-06-000001-003 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-07-000001-119 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-08-000001-108 (documents will appear in PSI/IRS correspondence section, below) PSI-IRS-09-000026-027 PSI-IRS-09-000040-044 PSI-IRS-09-000045-046 PSI-IRS-09-000047-049 PSI-IRS-09-000064-076 PSI-IRS-09-000092-093 PSI-IRS-37-000001 PSI-IRS-37-000002-03 PSI-IRS-37-000004-014 PSI-IRS-40-000001-002 PSI-IRS-50-000001-002 PART 8 of 10 PSI-TIGTA-01-000044-081 PSI-TIGTA-01-000145 PSI-TIGTA-01-000146-199 PSI-TIGTA-01-000206-208 PSI-TIGTA-01-000210-218 PSI-TIGTA-02-0000064-068 5 868 942 977 979 981 983 995 996 997 999 1001 1002 1006 1378 1406 1414 1424 1431 1436 1558 1019 1021 1026 1028 1031 1044 1046 1047 1049 1060 1062 1064 1102 1103 1157 1160 1169 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description PSI-TIGTA-03-000081, 089 PSI-TIGTA-03-000134-135 PSI-TIGTA-03-000156-158 PSI-TIGTA-03-000165-166 PSI-TIGTA-03-000661-663 PSI-TIGTA-03-000666-667 PSI-TIGTA-03-000668 PSI-TIGTA-03-000669 PSI-TIGTA-03-000673-677 PSI-TIGTA-03-000678-682 PSI-TIGTA-03-000683 PSI-TIGTA-03-000685-686 PSI-TIGTA-03-000687-688 PSI-TIGTA-03-000690 PSI-TIGTA-03-000691-692 PSI-TIGTA-03-000693-694 PSI-TIGTA-03-000695-696 PSI-TIGTA-03-000699-700 PSI-TIGTA-03-000701-702 PSI-TIGTA-03-000703-704 PSI-TIGTA-03-000705-707 PSI-TIGTA-03-000710-711 PSI-TIGTA-03-001404-405 PSI-TIGTA-03-001409-410 PSI-TIGTA-04-000015 PSI-TIGTA-04-000016-018 PSI-TIGTA-04-000019-022 PSI-TIGTA-05-000002-003 PSI-TIGTA-05-000441-442 PSI-TIGTA-05-000443-444 PSI-TIGTA-05-000892-898 PSI-TIGTA-05-000909-949 PSI-TIGTA-05-000957-958 PSI-TIGTA-06-000686, 702 PSI-TIGTA-16-000006-009 PSI-TIGTA-18-000002-003 PSI-TIGTA-21-000001-002 PSI-TIGTA-22-000001-004 (6/6/14 letter from TIGTA I.G. to the Subcommittee) PART 9 of 10 TIGTA Bates No. 003081-083 TIGTA Bates No. 003084-085 TIGTA Bates No. 003991 TIGTA Bates No. 004297-299 TIGTA Bates No. 004451 6 Page Number 1174 1176 1178 1181 1183 1186 1188 1189 1190 1195 1200 1201 1203 1205 1206 1208 1210 1212 1214 1216 1218 1221 1223 1225 1227 1228 1231 1235 1237 1239 1241 1248 1289 1291 1293 1297 1299 1301 1305 1308 1310 1311 1314 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description TIGTA Bates No. 004603-606 TIGTA Bates No. 006649-652 TIGTA Bates No. 006699-700 TIGTA Bates No. 007221-222 TIGTA Bates No. 007751-752 TIGTA Bates No. 007791-792 TIGTA Bates No. 007794 TIGTA Bates No. 007840 TIGTA Bates No. 008136 TIGTA Bates No. 008185 TIGTA Bates No. 008271-273 TIGTA Bates No. 008440 TIGTA Bates No. 009498 TIGTA Bates No. 010384-386 TIGTA Bates No. 010404 TIGTA Bates No. 010433-434 TIGTA Bates No. 010609 TIGTA Bates No. 010610 TIGTA Bates No. 010611 TIGTA Bates No. 010710 TIGTA Bates No. 010755 TIGTA Bates No. 011102-103 TIGTA Bates No. 011343-344 TIGTA Bates No. 012554 TIGTA Bates No. 015855-858 TIGTA Bates No. 015966 TIGTA Bates No. 016007 TIGTA Bates No. 016072-074 TIGTA June 2013 emails Bates No. 000241-244 TIGTA June 2013 emails Bates No. 000307 TIGTA June 2013 emails Bates No. 000434-437 Page Number 1315 1319 1323 1325 1327 1329 1331 1332 1333 1334 1335 1338 1339 1340 1343 1344 1346 1347 1348 1349 1350 1351 1353 1355 1356 1360 1361 1362 1365 1369 1370 PART 10 of 10 CORRESPONDENCE BETWEEN THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS (PSI) AND THE INTERNAL REVENUE SERVICE (IRS), March 20, 2012 - March 15, 2013. 1374 Subcommittee Letter of March 30, 2012; IRS Response of June 4, 2012 (PSI-IRS-02-000001-026) 1375 1378 Subcommittee Letter of June 13, 2012; IRS Response of July 13, 2012 (PSI-IRS-03-000001-002) 1404 1406 Subcommittee Letter of July 27, 2012; IRS Response of August 24, 2012 (PSI-IRS-04-000001-008) Subcommittee Letter of August 31, 2012; IRS Response of September 14, 2012 (PSI-IRS-05-000001-004) 1408 1414 7 1422 1424 REPORT EXHIBIT LOCATOR LIST 8/20/14 Bates Number or Document Description Page Number Subcommittee Letter of September 27, 2012; IRS Response of October 17, 2012 (PSI-IRS-06-000001-003) 1428 1431 Subcommittee Letter of October 23, 2012; IRS Response of November 23, 2012 (PSI-IRS-07-000001-119) Subcommittee Letter of January 4, 2013; IRS Response of March 15, 2013 (PSI-IRS-08-000001-108) 1424 1436 1555 1558 OTHER DOCUMENTS - NO BATES Joint Committee on Taxation Press Release, dated March 16, 2000, regarding "Report of Investigation Relating to Internal Revenue Service Handling of Tax-Exempt Organization Matter." 1666 Permanent Subcommittee on Investigations letter to Internal Revenue Service Acting Commission Daniel I. Werfel, dated May 23, 2014, urging IRS to suspend Lois Lerner from her office as Director of the Office of Exempt Organizations. 1675 Treasury Inspector General letter to The Honorable Sander M. Levin, July 19, 2013, regarding TIGTA audit report. 1677 IRS list reveals concerns over Tea Party 'propaganda,' USA Today, September 18, 2013, together with IRS list of Political Advocacy Cases. 1680 Does the IRS really have it in for tea party groups?, The Colorado Independent, March 28, 2012, together with IRS Letter to Waco Tea Party Group and IRS Letter to Progressive Group. 1696 8 Report Exhibits - Page 000682 From: Lerner Lois Sent: Friday, December 21, 2012 2:22 PM To: Marks Narich Subject: RE: 501(c)(4) question in Senate Finance Committee Nomination Hearing Jest got beak from iench with my oid FEC hose, Larry Noble who now works for Americans for Campaign Reform. informed me that Songrees is pretty mad at the for not doing; anything about the caisw-i?m ehookedi But what reaiiy got me ia the expectation that not oniy shouid we be revoking them, we ehouid be prosecuting them for tax fraud! Hadn?t heard that before. it wee disappointing to me that Larry didn?t recognize that determining what is poiitioal activity is not eaeymne thought 152.3 Should have provided "clearer" guidance-?you oan?t win gm Director of Exempt Organizations From: Marks Nancy] Sent: Friday, December 21, 2012 1:07 PM To: Lerner Lois . Subject: Re: 501(c)(4) question in Senate Finance Committee Nomination Hearing Sent using BiacirBerry n?n-w . . uru'J-nn-nrmn-n-u Ja-L-m-v-n-w ?Mun-4 From: Lerner Lois Sent: Friday, December 21, 2012 11:20 AM To: Marks Nancy Grant Joseph Medina Moises Subject: RE: 501(c)(4) question in Senate Finance Committee Nomination Hearing i iove Meade?s response-We heard it oh so many times before-(v; Dam gm Director of Exempt Organizations From: Marks Nancy] Sent: Thursday, December 20, 2012 7:06 PM To: Grant Joseph Medina Moises Lerner Lois Subject: FW: 501(c)(4) question in Senate Finance Committee Nomination Hearing in the-Senate ?nance hearing for Christopher Meade?s nomination for generai ooansei at Treasury Senator Wyden expressed his concern that the ERS had failed to iist as a priority guidance project the of political activity conducted by Code section 501(c)(4) 1 .. . I - Report Exhibits - Page 000683 organizationg. He staked whether Mr. Meade thought the issue should be inducted in the priority guidance list and Whether he perdonaily thought it was an important pmblem and Mr. Meade premised t0 100k trite the issue arid make us aware 0f the Senatdr?s cameras. Juat an FYI I think we have dime Our work thrdugh an the pres and cons of guidance, we know where Steve wants to be for now, and I?d say hdthihg - ?50 be dame at this point 1R8R0000408472 Report Exhibits - Page 000684 From: Urban Joseph Sent: Friday, April 20, 2012 7:23 AM To: Lerner Lois Marks Nanch Subject: RE: Sen. Levin?Draft Response 4 I can titre with their draft, becauee I am assuming Counsel wants to make the point that that there is no percentage established for any term in the reputations (not'for exclusively, not for primariiy, not for anything else). That being said, the issue on the tebie, as the comments in the press in the test ?few months demonstrate, is that many practitioners, pubiis interest types, and some members heiieve that ?less than primary" means less then 5 ?In. Levin seems to think that too, as his question is not about "exclusive" but instead about the "primary" standard and he seems to think is the apparent 51?48 percentage test. (Specificaliy, Levin asks if is the position of the MRS that (cm; can engage in what he calls nonpartisan politicai intervention as a secondary activity. ?and that political activity can consume up to 49% of the entities expenditures and resources?" Fri, among the questions i Woutd ask an IRS witness at a hearing is why, after these years. the has not defined primary, or given any indication as to what tests and circumstances the 1R3 uses in determining whether a activities primarily benefit public or private interests. Mrfi?uis Witness. don?t you think vagueness might scare honest folks away from doing things they are permitted to do, but be exploited by those who went to?teke advantage of aithough they are not legitimate sociei Welfare orgs? Doesn?t vagueness ieave the open to charges of arbitrary enforcement? From: Lerner Lois Sent: Thursday, April 19, 2012 5:17 PM To: Spelimann Don Marks Nancy Urban Joseph Cc: Cook Janine; Brown Susan Subject: RE: Sen. Levin-Draft Response 4 Han and i are good with that see gm . Director of Exempt Organizations From: Spelimenn Don Sent: Thursday, April 19, 2012 5:13 PM To: Lerner Lois Marks Nancy Urban Joseph] Cc: Cook Janine; Brown Susan Subject: RE: Sen. Levin-Draft Response 4 Please see our suggested revision in yesterday?s draft (attached). Please let us know it you need anything eise. {Jon 002B Report Exhibits - Page 000685 From: Lerner Lois Sent: Thursday, April 19, 2012 2:10 PM To: Marks Nancy Urban Joseph Cook Janine; Brown Susan Spellmann Don Subject: RE: Sen. Levin?Draft Response 4 OK-wCounsei folksnis Contrast comfortabie adding the resources? . . . below? Section 501 describes organizations that operate exclusively for the promotion of social welfare. The Treasury regulations provide that an organization operates exclusively for the promotion of social welfare if it primarily engages in promoting the common good and general welfare of the people of the community. The regulations also provide that the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public of?ce. Treasury and the Service have stated in published guidance that an organization may carry on lawful political activities and continue to be described in section 501 as long as it is primarily engaged in activities that promote social welfare. The regulations do not estabiish an expiicit percentage test. Rather, to determine whether an organization operates primarily for the promotion of social Welfare, the courts and the Service consider all the facts and circumstances, including but not limited to the organization?s stated purposes, expenditures, principal source of revenue, number of employees and volunteers, and time and effort. gm Director of Exempt Organizations From: Marks Nancy] Sent: Thursday, April 19, 2012 1:44 PM To: Urban Joseph Cook Janine; Brown Susan Spellmann Don Cc: Lerner Lois (3 Subject: FW: Sen. Levin-Draft Response 4 I?m concerned that this response will meet with a fair amount of frustration on the hilt because the question asks very speci?caiiy whether 49% works. i recognize the regulations don?t specify a percentage and that We have not taken a position on one but i don?t think we can completely ingore the percentage portion of the question but rather have to indicate that the regulations do not establish a specific percentage but rather establish a "principle" activity standard . . . . in other words don't think the answer can pretend the word percentage is not in the question although i do understand why it is hard to engage with. From: Urban Joseph Sent: Thursday, April 19, 2012 1:35 PM To: Marks Nancy] Subject: Fw: Sen. Levin?Draft Response 4 Repair EXhibits - Page?000686 Sent from Blackberry .mm :wr- us" From: Speilmann Don Sent: Wednesday, April 18, 2012 06:45 PM To: Urban Joseph Cc: Cook Janine; Brown Susan Subject: Sen. Levin-Draft Response 4 Hi Joe, Attached is our suggested response to question 4 of Senator Levin's letter. Please let us know if you have questions or need anything else. Don ?Levin response 4.doo>> xuwv wx? . .z'a-mewHLx: Nassau-rote xsw'acn-rmw an Report Exhibits - Page 000687 From: Shafer John Sent: Friday, October 08; 2010 1:19 PM To: Collins Glenn Cullen Jeffery Heagney Nancy Kiser Joan Kitchens Kimberly Koester John Muthert Gary Norton Renee Railey; Sanders Shawntel Schaber Dale Trimble Del Vance Roger Subject: FW: BOLO Tab Update Importance: Low FYI John Shafer Group Manager Tetaphone: (513)253a3??d FAX: {513}253?520?i From: Camarillo Sharon Sent: Friday, October 08, 2010 1:09 PM To: Shafer John Cc: Thomas Cindy Subject: FW: BOLO Tab Update Importance: Low John: - Piease ask your soreeners to be on the tookout for these cases. From: Weddell Jon Sent: Thursday, October 07, 2010 8:25 AM To: Bowling Steven Camarillo Sharon Subject: BOLO Tab Update Importance: Low Steve and Sharon, We have discovered some new components to the Acorn-Related Category listed on the BOLO Tab as Issue Speci?cally, we have identi?ed two additional Acorn-Related coming out of both sharing the same address. As was the situation the currently assigned two New York cases, one is applying as a 0(3) and one as 3 The of?cers of the organizations had prior af?liations with Acorn as members of boards on various chapters. The names of the applicants are as follows: 501(c)(3) Applicant 2. ?e 501 (6)04) Applicant Overall, 1 would suggest an aiert be sent informing agents/screeners that to be on the lookout for the following name an application factors associated with Acorn related cases. Additionally, during the next Report Exhibits-i?- Pag'e 600688 I spreadsheet update. add these factors to the Watch Issue Description section for this category. Name and Application Factors are as follows: 1. The name(s) Neighborhoods for Social Justice or Communities Organizing for Change 2. Activities that mention Voter Mobilization of the Low?lmeme/Disenfranchised 3. Advocating for Legislation to Provide for Economic, Heathcare, and Housing Justice for the poem 4. Educating Public Policy Makers (Le Politicians) on the above subjects thanks IRSROOUOM 0434 Report Exhibits - Page.I000689 From: Lowe Justin Sent: Wednesday, March 21; 2012 11:03 AM To: Fish David Subject: C4 history Attachments: Exclusively Standard 09-02r11.d DC This document is still very much a work in progress (variOUS Counsel and IRS people have worked on it], but it gives some insight into the state of things and what they should be. Report Exhibits - Page 000690 EXCLUSIVELY STANDARD UNDER 8 501(c)(4) Questions Considered: 1. How have courts interpreted the exclusively standard under 50] 2. How has the IRS interpreted the exclusively standard under 501(c)(4)? 3. How is the amount of activity not furthering exempt purposes measured? Part .1 provides the statutory and regulatory background Part II summarizes cases that discuss the exclusively standard under 501 Part administrative materials (Rev. Rul.s., the IRM and GCMs and other memora The appendix contains some sample questions that could be used as guidan agents when measuring the amounts of activity that do and do not I. STATUTE REGULATIONS iiliefstablishing operational in the meaning of either exclusively it'd ?e-the exempt purposes The and statutes use nearly identical standard required for an organization to be described section: the organization must be ?operated approved under ?501(c)(3) or ?501(c)ra ?5011cil411A1 ations not E?iggranized foil-pro?t but operated promgjjion ot?social?ihyelfare? any ?immunity chest, fund. or foundation, organized fiver for? lgeligious. charitable, scientific, testing for or educational purposes? regulgftiions under each subsection use nearly identical language in th ah organization is operated exclusively for its respective As shown belting relevant parts, stat?! purposes ifit: ?l . .is primarily engaged in promoting in . .engages primarily in conducting some way the common good. . activities which accomplish its exempt purposes. . However, the regulations go on to state that an organization will not be so regarded if more than an insubstantier part of its activities is not in furtherance of an exempt purpose. Report Exhibits - Page 000691 61.501tcll4l-llall2) i) An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare ofthe people ofthe community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements.? ii) Political or social activities. The promotion of docs not include direct or indirect participation or intervention m'i'po.litical for pro?t." ?An organization will be regard? exclnii? more exempt purposes only if it - .- accomplish one or more of such exempt 501(c)(3) An organization will no-??pbe insubstantial. par purpose? Vely?_ for one or rimarily in which specified in section. iedijfi'morc than an. same this-"la liSOl't 0. national Test (1) Primary activities. An operated exclusively for one or more exempt purposes only if it engagest in activities which accomplish one or more of the purposes spec; - ed in section. 501(c)(3). An organization shall not be considered toll-be engaged primarily in activities which accomplish one Or more exempt purposes ifa substantial part ofz'ts activities are not in furtherance of an exempt purpose. This draft was reviewed by Arch M. Cantrall, who in a signed memorandum to one of the dra?ers, Mr. Rose, dated January 12, 1959, stated: IRSROOUOMOBQY Report Exhibits - Page 000692 To me there is one particularly dangerous possibility of a variation in the meaning being ascribed to a difference in wording. This runs throughout this draft. . . . the phrase ?otherwise than as an insubstantial part of its activities? [in is, to me, a well-stated and important test, and I think that this formula should be consistently used throughout. But, for example, [in I see theitcst of if ?primary?, which implies that something is ?secondary? is permissible. I doubt that propositio. Now if these are necessary or per, think so. And these variations run on in -. con?ision. lace tqpreate even more The question is, lbeliei?i??YE allow. Code 501(c)(3) says tha operated ?exclusively?. on: much leewa do we intend to .?iiganization sha and But, egg in. to mean ?primary? an ?an it ?will ndiigbe so regarded if a substantial part of its activ-.-itte ?pot in @?therance of item-pt purpose?. I do iibt think. that we have authority by regulation to construe ?exclusively? as ?primary? or ?substantial?, etc. The language in l) was changed two days later, in a draft dated December 7, 1958, to read ?no more than an insubstantial part of its activities is not in furtherance of an exempt purpose." This phrase matches the language of the existing final regulations. An even earlier version of? 1), dated August 6, 1958, read: Report Exhibits - Page 000693 For an organization to . . . be operated exclusively for one or more of the purposes speci?ed in section 501(c)(3), its operations must be conducted exclusively for the accomplishment of an exempt purpose that is set forth in the articles of organization, and such operations must be duly authorized in the manner prescribed by its constitution, by?laws or articles of organization, which must he in accordance with state law. In case an organization properly acts under an implied power which is necessary or appropriate to carry out its stated exempt purpose and is not forbidden by the terms ot?its articles of organization, such acts will ordinarily be regarded as being within the exempt purpose. However?ai?tiact of the organization not devoted to the accomplishment ofit: empt purpose, or not incidental thereto, cxcecds the organization?slpp. authority and, if substantial, constitutes a proper basis for den_yihl?__or an exemption. l? This August 6, 1958 dra? was submitted to Tre \y for itsgviews. Handle rQ-ns made on this draft delete this language entirely without ?pslanati The ?primarily: 1anguage contained irrucurrent Treas. present in the August 65 1958 dm? provided: was not A civil league or or anization is operate it welfare if it engage __civ10 in whicht?individuals cooperate to promote in spine way 0mmon goltitl and general welfare of the people of the community?? ll" - This versiop?gilidggantain ?p final Many courts, when ussing the requirements for tax-exemption under 501(c)(4), follow the Supreme fourt?s holding in Better Business Bureau v. United States for the proposition that the presence of a substantial non?exempt purpose will prevent exemption. 326 US. 27.9, 283?284 (1945) (interpreting a provision ofthe Social Security Act that ?was drawn almost verbatim Courts have not differentiated between having a ?substantial non?exempt purpose? and failing to be ?primarily operated for exempt purposes?; sometimes they equate the two concepts. These cases post-date the issuance of the regulations under 501(c)(3) and (4). CIR vi Lake Forest. Inc, IN.) Report Exhibits - Page 000694 305 F.2d 814, 818, 820 (4th Cir. 1962') In 1947, Lake Forest Inc, a nonpro?t, nonstoek corporation, was incmporated by World War II veterans to acquire a public housing project to provide housing to veterans of WW1 and W1. Membership in the corporation. was established by purchasing a dwelling unit in the project, and membership was limited to the number of dwellings available. Each member paid a operating payment to satisfy the debt owed on the purchase price of the project. Upon dissolution, all assets would be distributed to the members in accordance with their respective equities. The court held that the organization and operation of Lake Fore; ?exclusively for the promotion of social welfare? because it largely was in?. nature of an economic and private endperative undertaking. Relevant language from CIR v. Lake Forest. Inc: 5 3 ?At all events. taxpayer?s operations exclusively of the demands. ?Civic? pretensions and considers: git-social plainly other substantial realizations motivated and isioned by the corporation.? ('51 5* a Lake Forest, Inc. are not I ?But we do decide that the "iiz-ation and operatidnsof partake largely of the ?exclusively for the promotion om - - l- 3 a he'presence of a single noneducational purpose, if i betray the exemption regardless of the number or 513 People?s Educational amp Society (the corporation) was incorporated in 1920 and purchased 2,196 acr??s in the Pocono Mountains that had served as a summer camp and recreation area. The corporation named the property Tamiment. During the year in issue (1956), Tamiment was one of the most modern resorts in and it charged guests substantial amounts for access to Tamiment. The corporation also ?sponsored and promoted several activities relating in general to social welfare? in New York City. From I953 through 1957, the corporation?s total revenues were more than (approximately from Tamirnent), and its expenditures on social welfare activities were $204,969. Report Exhibits - Page 000695 Relevant language ?om People?s Educ. Camp Soc?v, Inc. v. CIR: I The court concluded ?that petitioner?s activities in Operating the resort at Tamiment . . . [were] not ?exclusively,? or even principally or primarily, ?for the promotion of social welfare? within the meaning of the statute." ?The word ?exclusively? as used in the statute has not been given a strict interpretation, so as to foreclose every operation for a non?exempt purpose no matter how insubstantial, but rather has been interpreted to mean ?primarily.? Debs Memorial Radio Fund, Inc. v. Commissioner, supra, F.2d at 952; see Sugarman Pomeroy, Business Income of Exempt 46 Va.L.Rev. 424, 425 (1960). Stated another way, ?the presence Single (non-exempt) purpose, if substantial in nature, will destroy the regardless of the number or importance of truly (exempt) purposes? Better Business Bureau v. United States, 326 US. 279, 283, 66 SC . 4, 90 L'fEdh?'? (1945).? American Women Buyers Club, Inc. vat. . 235 F. Supp. 668, 672-673 mm 526, 528,629 (2d Cir. 1964) American Women Buyers Club (the Club) was incorporat ?d__to promote the welfare of ready?to-wear buyers, conduct social ements for maintain a spirit of cooperation among members, and aid m, thin times of (ii? Membership Was limited to women with at least three year'sg?experr rincipal ready?to?wear buyers. The Club helped members get work when 'lliyed, held lectures that helped members .in rigid-assisted members in locating merchandise. Durin the issue the total contribution to charitable organizations totali'eid 700 had an accumulated surplus of $92,587.15. ,??lexclusively for the promotion of social. omen buyers were admitted to the club; the 1 and not then ,lic; an, payments to charities were incidental to the operation .e Club. hurt ii?ted ?even a cursory examination of the [Internal Revenue] ru 1 [the on] reveals a substantial difference in the scope and breadth of sen/ice endere??by those taxpayers compared to the present taxpayer.? Relevant language ?gm American Women Buyers Club, Inc. v. U.S.: - taxpayer's other activities recited above preclude a ?nding that taxpayer is operated ?exclusively? for this purpose? A recent decision of this court, People?s Educ. Camp Soc'y, Inc. v. Commissioner, 331 F.2d 923, 931 (2 Cir. 1964:), cert. denied 85 75 (US. Oct. 12, l964'), furnishes us with the legal standard to be applied: a The word ?exclusively? as used in the statute has not been given a strict interpretation, so as to foreclose every operation for a non?exempt Report Exhibits - Page 000696 purpose no matter how insubstantial, but rather has been interpreted to mean ?primarily.? Debs Memorial Radio Fund, Inc. v. Commissioner, supra, 148 F.2d at 952; see Sugarman Pomeroy, Business Income of Exempt Organizations, 46 Va.L.Rev. 424, 425 (1960). Stated another way, ?the presence ofa single (non?exempt) purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly (exempt) purposes.? Better Business Bureau v. United States, 326 US. 279, 283. 66 112, 114, 90 67 (1945).? ?The district court's ?nding that taxpayer pursues substant' non~exempt purposes was supported by substantial proof.? 1., - ?Taxpayer contends that these non?exempt activiti, erely ancillary to its basic purpose . . . We disagree . . . :poses . . . con?rms our conclusion that these are not merely anoiglil'aiitypiZtivities.? Contracting Plumbers Coop. Restoratin 488 F.2d 684 (2d Cir. 1974') Plumbers formed a private. 'Iionprofitigiooperative whose ef?cient repairs of ?cuts? made in str?? activities. purpose was to ensure .yits members i' the, course of plumbing The court held that the mandates provides. as I i'ifidifferent bene?ts to both the public and its private Aceordingl"" was notittprimarily? devoted to the iberal oflRC _?__urpose preclude? ?exemp regardless of'the number or importance of the - ,iting part Better Business Bureau v. United States, 326 business interjest in taxpayer?s formation). . . . Second, we have the embodiment of that completely legitimate. but nevertheless private, interest in the taxpayer's bylaws. . . . while . . . it is not conclusive, we nevertheless think it is probative as to the taxpayer's non?exempt purpose . . . Third, we have the taxpayer?s actual operation. Here there can be no doubt that the cooperative is of tremendous value to the private economic interests of its members a clearly non-exempt purpose. . . . Finally, we have the fact that each member of the c00perative enjoys these economic benefits precisely to the extent that he uses, and pays for, it . . IRSRUOUD410702 Report Exhibits - Page 000697 Mutual Aid Ass?n ofthe Church of the Brethren v. U.S., 578 F. Supp. 1451, 1456-1457 (D. Kan. 1983), aff?d 759 F.2d 792, 795-796 (10th Cir. 1985) Mutual Aid Association of The Church of the Brethren (MAA) was an unincorporated church-sponsored insurance company.1 MAA provided Church of the Brethren members with insurance protection against ?re, storms, vandalism, and other casualties continuously since its inception. MAA also provided the same coverage to Church of the Brethren structures and insured some small businesses provided they were owned only by Church of the Brethren members. stated purpose, set forth;.in its bylaws, was to provide Church of the Brethren members with mutual protecti rrci and extended coverage property insurance. MAA operated primarily to p. de economic and non? economic benefits to its members. MAA restricted . '0 Church of the Brethren members. MAA generated income pr turns and investment. of surplus funds. The court held that promotion ofreligion is ngt; promotioriit?if Social welfare, and that in view of economic bene?ts co - ?erred .gnembers by redistribution of Surpluses or reduced premium rates, MAA did not :Fi'as a social welfare . ?We are that social welfari; consistent?f and Policies clear puhli succorg. souls; it sells insurance coverage. . . . MAA ?y provides insurance, an admitted economic activity. MAA I antifipro?t as would any mutual insurance company: ?[t]he ultimate of in creating and using its surplus and pro?t are to provide - .diiable and adequate security margin, and to provide better protection ands-Service to its members.? The presence of a substantial non?exempt purpose a providing property insurance for its members on the basis of assessed premiums precludes exempt status as an organization . . . primarily engaged in the promotion of the social welfare.? Vision Serv. Plan v. US, 96 2005?7440 (ED. Cal 2005), aft"d 265 Fed. Appx. 650 (9th Cir. 2008) This caSe predates the enactment of ?501(m), which prohibits some insurance activities 010(c)(3) and (ex-4) organizations. Report Exhibits - Page 000698 VSP contracted with subscribers to arrange for the provision of vision care services and vision supplies to the subscribers employees or members. A non-enrolled individual would not receive care. VSP provided some services to charity programs. The court held that VSP did not operate primarily for the promotion of social welfare. VSP's primary purpose was to serve VSP's paying members. Although VSP provided vision care services to non-enrollees under charity programs, the provision of these services (free ofcharge to the individual) was comparatively small in relation to revenue and number of enrollees. Relevant language from Vision Serv. Plan v. US: "gave-.2 erent meanings, courts interpret the word ?exclusively? to See American Women Buyers Club. Inc. v. United States. 338 2nd C. 964) (?The word 0 ?Although the words ?exclusively? and ?primarily rather has been interpreted to mean Fund. Inc. v. Commissioner. 148 F.2d 94 tEE?s?si-charitable and community outreach efforts *all operations and it was not operating ?exclusively . MSP provided charitable and community outreach semis-es to" _t most. 0.8 /ci its enrollment. Although VSP argued that it aspired to is: up to 40% exc?Ss net revenue annually to provide charity care, the court lookediaifiih actual amounts expended and found those amounts to be insigni?cant. Relevant language In re Vision Serv. Plan Tax. Litigz ?In determining Whether an organization is primarily engaged in promoting the general welfare, courts typically compare or weigh an organization's purported charitable activity against its non-exempt activity, which here is plaintiffs? delivery of vision care services to paying subscribers. See. e. g. Better Business Bureau v. United States, 326 US. 279, 283 (1945) presence ofa single [non-exempt] purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly [exempt] Harding Hosnital. Inc. v. U.S., 505 F.2d 1068! .1072 (6th Cir.l974) (?The term Report Exhibits - Page 000699 ?exclusively? means that an organization is not exempt if it has any substantial noncharitable Ohio Teamsters Educational and Safety Training Trust Fund v. Comm'r, 692. F.2d 432, 435 (6th Cir.1982) (same). IRS RULINGS. IRM MEMORANDA The IRS has, in some instances, interpreted the requirement established by the regulations that an organization be ?primarily engaged? in promoting the common good and general. welfare to mean that organizations may engag_g_ in more non?exempt activity than organizations. The Service has based these; on the reasoning that the ?501(c)(4) regulations lack. the ?insubstant? art? language that is present in the ?501(c)(3) regulations. However, several ii _noranda have questioned whether the ?primarily? language in the regal ions is ccurate interpretation of the statue. Rev. Rul. 66-179 A garden club was held to be eligible for statti? ubstiantiai, but not primary, activity consisted of providing socialbene?ts to its me The social bene?ts did not ?n?ther exempt purposes, but because less than {ry did not prevent exemption under even though asubstantial an otild therefore bar exemption under lRlVi 7,2546 (1) Treas. Reg. 1-15 include-st; charitable purpose wit re re Accordingly, there is considerablgegpye ?i (4). In this GCM, the Office of Chief Counsel considered a proposal to revoke the status of a Post of the American Legion. .At issue was Whether the Post?s operation of a staged theatrical production, from which it derived 90% of its annual income, violated section requirement that an organization described within that section of the Code be ?operated exclusively for the promotion of social welfare.? Chief Counsel postulated that a revocation of exemption would not be upheld by a court because. ?the only way a court could logically uphold such an administrative action would be by saying in effect that the regulations prescribe a less restrictive test than is required by a proper reading of the statute involved.? 10 IRSR0000410705 Report Exhibits - Page 000700 In its review of the statute and the regulations, Chief Counsel compared the ?operated exclusively? requirement of the statute with its interpretation in the regulations, specifically, that the statute?s exclusivity requirement is met if the organization is ?primarily engaged? in. the promotion social welfare. Chief Counsel then opined that, "the cumulative effect of the cited provisions requires the interpretation that anything less than primary engagement in non-exempt activity by an otherwise quali?ed organization will not bar its exemption under section In view of this reading Chief Counsel concluded that the statute would support a holding which would deny exemption under section 501 to an organization substantially engaged i_1_g,,_carrying on an activity for pro?t, but the regulations would not support such For this and other reasons, the of?ce declined to concur in the proposed ?cation ofthe Post's exemption. Chief Counsel also stated that the Service should doc" :zigas to which languaged controlled the statute or the regulatxj before any sig?i?figgnt ruling position was adopted, particularly if the IRS sot, adopta standard any substantial nonHexempt activity would GCM 33495 (Apri127, 1967) The GCM considers the interplay betw? L)..and organization engages in ?action? activities. The gory ofrthe statutory language and states that recent court er Buyers Club) interpret ?exclusively? to mean The ialso statesil?i?We do not accept the premise that once an organiz parody-fates substan?glly in activities of the action type, it necessarily must toe-ii onger operatesgtiexclusively? for the promotion of social. welfare.? - ather it states that so long as social welfare is sible. See also GCM 32394 (Sept. 14, 1962) (no iggary activities ifmeet primarily test); GCM 32395 (Sept. 14. ?'fifhan primary and remain exempt). GCM 38215 notes that the implementing regulations have remained unchanged since their issuance in 1959? (then 20 years ago). GCM 3821.5 states that the regulations were questioned in GCM 32395 and that regulation projects were initiated shortly thereafter, in 1963, but no further formal action was taken on them after referral to the Exempt Organizations Council. Copies of three memoranda attached to GCM 38215 (Mar. 31, 1978, memorandum from Director, Interpretative Division to Deputy Chief Counsel (Technical); Nov. 21, 1979. memorandum from Director, Employee Plans and Exempt Organizations Division to Technical Advisor; Dec. 6, 1979, memorandum ??om Technical Advisor to Chief 11 Report Exhibits - Page 000701 Counsel-to Director, Interpretative Division each discussed infra) further discuss proposed amendments to the IRC 501(c)(4) regulations. GCM 32394, upon which GCM 38215 relied, concluded that ifthe exempt organization?s primary activity is social welfare then there is no Quantitative test applied to nonexeinpt activity GCM 32395, upon which GCM 38215 relied, concluded that anything less than ?primary? will not bar exemption pursuant to IRC 501(c)(4). Background Information Note 75?05?04822 (March, 1975) The Background Information Note (BIN) 75-05~04822 (Mar. 1. (Apr. 27, 1967) for the same proposition espoused m: th RC 501 (0)04) organization is permitted to conduct as much non?exeinptiactiv it wants so long as it is ?short ofbeing the organization?s primary activity.? GCM The BIN also cited GCMs dealing with IRC 501(c)(5) and regs tring that the exempt activity be the primary activity. GCM-ir3'6286'lMay 22, non?exempt receipts and expenditures were 1/5 the amounti?i uali?edelRC- 501(c)(' gigmpt expenditures; if primary purpose and activities 0 - rganE-fiation qualify p'titisiiant to IRC 501(c)(5) then some non?qualifying participation 1 "or expenditures will not disqualify organization); GCM 3. 1969). 1 provides no de?nition of what ?primary? means or how it is to Philadelphia Inquirer ran a story had organization to engage in upf?l 9 peic itof its activities in politics. This story generated ens Cogg?'essional inquiries concerning the Service?s posit. 'n th panties] activities of exempt organizations. social welfare. . . am organization that is exempt under section 501(c)(4) on some political activities so long as the organization til-primary activities remain?these are activities that social welfare. Interpretative Division Memorandum (March 31, 1978) The March 31, 1978, memorandum from Director, Interpretative Division to Deputy Chief Counsel (Technical) begins by noting that the proposed revenue ruling ?prompted a reexamination ofa perennially troublesome question: Should the Regulations implementing 501 be changed?? because the regulatory language (?primarily?) differs from the statutory language (?exclusively?). The memorandum states ?it has long 12 Report Exhibits - Page 000702 been recognized that they [the IRC 501(c)(4) regulations] are an unduly broad interpretation of the statute." The March 1978 memorandum cites GCM 32394. GCM 32395, and GCM 33495 and inteiprets, as discussed gm. these GCMs concluding that. the rule for an IRC 501(c)(4) organization is that it can engage in any non-exempt activity so long as it is less than primary. an organization is primarily engaged in activities promoting the social welfare, there is no additional quantitative test to be applied to it activities that are not promoting social welfare. . . In light of all ofthis, E0 suggested recommending to ?primary activities? test be eliminated from the regulations and insertin?w ?exclusive? test permitting no more than an insubstantial amount of activit no promotion of social welfare. The Director, Interpretative Division, howeverfiiecomm? against amending the regulations at that time. The Director believed highly ikely that an IRC 501(c)(4) reg. project would be approved at thg; even though ther ?substantial Regulations as finally adoptedis . . . [have more stringent languageffr? irjng that no] mo? insubstantial part of its activitie? . purpose. Thus, at least. no 51% 49% dichotomy the quantum of qualifying and nongualifying activities?? . I ?t?ed under the section 501 50 4) Rein "Hilarious." He Went on to state: ethe test it Treas. Reg. is gfftions . . . we are inclined to think it might if? He further stated that extensive and were made, Without success, to amend the IRC regulations. impact of recent legislation (UBIT and IRC .ve exclusively/primarily problem. 527) who Memorandumfrorn (November 21, 1979) The November 21, - memorandum. from Director, Employee Plans and Exempt Organizations Divisibn to Technical Advisor concurred with the recommendation of Interpretive Division ?that any proposal to amend the Regulations under section 501(c)(4) be dropped at this time, and the position re?ected in Rev. Rul. 67?368? continue to be followed regarding a ?quantitative test? for non-qualifying activities of an IRC 501(c)(4) organization.2 The Director also concurred that the ?most serious problems emanating from the ?primary? test have been eliminated by the extension ofthe unrelated business income tax to section 501 4) organizations if the non-qualifying, 2 Rev. Rul. 67?368 states that political intervention does not further social welfare and that an organization whose primary purpose is political intervention therefore does not qualify under 501(c)(4). l3 Report Exhibits - Page 000703 but less than primary, activity of a social welfare organization is business activity.? He also agreed with the assessment regarding the impact of IRC 527. The December 6. 1979. Memorandum The December 6, 1979. memorandum from. Technical Advisor to Chief Counsel to Director, Interpretative Division concurred with the recommendation that no project to amend the regulations be taken at that time. The Technical Advisor was of the opinion that ?the problems with the 501(c)(4) ?primary activities? test are clearly lessened by 527 and the extension of the unrelated business income tax. Measurement of activities not in furtherance of exempt nurn The IRS has not published a precise method of measuring-.exemp - i-?tivities or purposes in any of its published guidance, though three revengei-?iittlin?gs have that all of the organization?s activities must be considered and there is no pure test. See Rev. Ruls. 68?45, 68?46, 2004-6. -- Internal training materials have stated that time, ?na - 'a?l esoritces, and number of employees are factors that must be considered in a dete? ?mutation of whether a certain activity constitutes a primary activity "6 l4 IRSROOUO410709 Report Exhibits - Page 000704 Appendix: List Of Questions Used to Evaluate ?Primarily? How was the Organization formed. and what is its history? [Contracting Plumbers Coon. Restoration. Corp. v. Is admission to the Organization limited or is it open to all? [American Women .Bavers Club. Inc. v. US. On What basis is admission limited? What bene?ts did the Organization confer on non-exempt perso entities? [American Campaign A cadenw v. Does the Organization have more than one activity (tag l-zfor pro?t)? (if it does:) [Peonle?s Educ. Camp Soc?v, Inc. v. and What civic betterments and social. improvemenf you provide to the pea?l?g?f the community (what effect does the on the public)? [Reta Raf. 74-17, 80-205. People ?5 Educ. Camp Soc Inc Does the organization Provide members? [Vision Sew. Plan Us. 7 What portion of the community benefits [Rev Rul. 80-205] ?5 What activities did/dice Organization for the benefit, pleasure, or What is/are ource(s) ofthe Organization?s income? [Rev. Rul. 68?45, 68-46] What did the Organization ?primarily? use its income for break down ofthese expenses)? [Rev Rul. 68-45) ?arm 990-EZ, People ?3 Educ. Camp Soc ?12, Inc. v. Does the Organization own real property? (if so) [Santa Cruz BideDoes the Organization rent the property to others? is rental limited to members of the Organization or the entire community? 15 Report Exhibits - Page 000705 'What does the Organization consider its exempt purpose(s)? [Form 990?152] In what order does the Organization consider its exempt purpose(_s) (starting with most important to least)? [Form 990-52] How many people bene?ted ?om the Organization?s exempt purposes? [Form How much time was devoted to each activity? [Internal PowerPoint] How much ?nancial resources were devoted to each activity? [Internal PowerPoint] "What social welfare activities was/is the Organization engage? in (or what services did/does it provide)? [Rev Rul. 68?46. Form. What did the Organization achieve in carrying out purpo I ll?t.ime panama, or seasonal? If they ar part?tim?a?hen did/do they work? Elf they are s?tiisonalfiduring what season (months) did/do they work? How does the Organization have? arm 990] Are hill?time, part time, or seasonal? If they are part?time, when did/do they work? If they are seasonal, during what season (months) did/do they work? How many employees and volunteers were devoted to each activity of the Organization? [Internal PowerPoint] 16 IRSROOUO410711 Report" Exhibits Page coo-?Ice From: Lerner Lois Sent: Monday, March 26, 2012 9:38 AM To: Judson Victoria A Subject: Thanks for'the call--l appreciate it--you and I just have very different styles-4 express my frustrations openly and I'm guessing you are a bit more close to the vest. Having said that, I also think we live in 2 different worlds. I live in a more "real" world than yours where my staff can't wait far formal guidance to do theirjobs. Cases come in and we need to work them with the information we have. When the c4, 5, and 6 guidance on political intervention came out, folks wanted to know where the 3c guidance was. We said loud and clear, while the guidance is about 04,5, and 6, it gives you information about how the IRS would view the activity that will be helpful to you in thinking about where activity c3s contemplate. That is the kind of practical information we need to provide to agents. These are live cases and if all we can give them is published guidance on the extreme ends of the spectrum, they will get themselves in trouble. That is why said I don't care if we have to caveat--we need to provide direction. In any event, we?ll keep plugging away. (-: gm Director of Exempt Organizations Report Exhibits - Page 000707 From: Lerner Lois 6 Sent: Friday, April 20, 2012 2:35 PM To: Park Nalee First, Organizations seeking IRS recognition under section 501(c)(4) file a Form 1024 application, which instructs the applicant to provide a detailed description of each of its activities, including the purpose of the activity, how it furthers the organization?s exempt purpose, when the activity is initiated, and where and by whom the activity will be conducted. Whether an organization meets the statutory and regulatory requirements of section 501(c)(4) depends on all of the facts and circumstances, and no one factor is determinative. So, if the applicant organization does not provide sufficient detail to make a determination, or the information provided raises additional issues, such as political intervention or other non?exempt activity, the IRS contacts the organization and solicits the additional information needed to determine whether the organization meets the statutory and regulatory requirements for section 501(c)(4) status. ?ay Report Exhibits - Page 000708 Director of Exempt Organizations IRSROOUU411360 Report a age-000709 From: Lerner Lois Sent: Friday, May 10, 2013 3:21 PM To: Flax Nikole Eldridge Michelle Lemons Terry Marks Nanch Subject: RE: Proposed answers: Washington Post Editorial Board it tea?? the balance i am focused tire idea that we lie-owmthat sounds like we track it and we don?t. Doesn?t look good if it looks iike we check to see what side of the aisle an org, is on, can; gm Director of Exempt Organizations From: Flax Nikole Sent: Friday, May 10, 2013 4:17 PM To: Lerner Lois Eldridge Michelle Lemons Terry Marks Nancy] Subject: RE: Proposed answers: Washington Post Editorial Board We know the balance may be off, but We had been told earlier there are a few and this is an important point. From: Lerner Lois Sent: Friday, May 10, 2013 4:09 PM To: Flax Nikole Eldridge Michelle Lemons Terry Subject: RE: Proposed answers: Washington Post Editorial Board .-.-, - "mama. .- - rvMame-IL i can?t confirm test there was anyone on the other side of the political spectrum-ml thiek that sentence presumes we keep track of which side of the aisle an or faiisuwe don?t. The one with names used were only know because that have been very loud in the press. i think that line is dangerous ?ue foam? Director of Exempt Organizations From: Flax Nikole Sent: Friday, May 10, 2013 3:44 PM To: Lerner Lois Eldridge Michelle Lemons Terry Subject: FW: Proposed answers: Washington Post Editorial Board Know the numbers are not even, but want to add the following can you live with it? From: Flax Nikole Sent: Friday, May 10, 2013 3:35 PM To: Eldridge Michelle Vozne Jennifer Lemons Terry Miller Steven Cc: Patterson DeanJ Subject: RE: Proposed answers: Washington Post Editorial Board Can WE add the CAP language? 1578 Report Exhibits - Page 000710 From: Eldridge Michelle Sent: Friday, May 10, 2013 3:15 PM To: Flax Nikole Vozne Jennifer L, Lemons Terry Cc: Patterson Dean Subject: Proposed answers: Washington Post Editorial Board -lere is the proposed answer based on our discussion. Comments or concerns? Proposed answer: Here is our full statement. have also answered your questions below. 1R5 Statement IBetWeen 2010 and 2012, the saw the number of applications for section 501(c)(4) statue double. As a result, local career employees in Cincinnati sought to centralize work and assign cases to designated employees in an effort to promote consistency and quality. This approach has worked in other areas. However, the recognizes we should have done a better job of handiing the influx of advocacy applications. While centralizing cases for consistency made sense. the way we initially centralized them did not. Mistakes were made initially, but they We're in no way due to any poiiticai or partisan rationale. We fixed the situation last year and have made significant progress in moving the centralizad oases through our system. To date, more than half of the cases haye been approved or withdrawn. it is important to recognize that all centralized appiications FROM ALL PARTS OF THE SPECTRUM received the same, even?handed treatment, and the majority of cases centralized were not based on a specific name. in addition, new procedures also were implemented last year to ensure that these mistakes won't be made in the future. The 1R8 also stresses that our employees all career civil servants will continue to be guided by tax tent and not partisan issues. From: Stromberg, Stephen Sent: Friday, May 10, 2013 1:46 PM To: Burke Anthony Subject: From Washington Post Editorial Board Hi? I am writing an on-deadline editorial on the Tea Party/IRS issue, filing by 4:30 pm. at the latest. At the moment, I have three questions: Why weren?t there protections in place to ensure that selecting out groups of a particular political stripe was not possible? What procedures are in place now to prevent this, both in the tax?exempt office and elsewhere in the The recognizes we should have done a better rob of handling the influx of adyocacy applications. While centralizing cases for consistency made sense, the way we initially centralized them did not. Mistakes Were made initially, but they were in no way due to any political or partisan rationale. We fined the situation last year and have made significant progress in moving the centralized cases through our system. To date, more than half of the caSes have been approved or withdrawn. It is important to recognize that'ail centralized applications receiyed the same, eyenwhandeo? treatment, and the maiority of cases centralized were not based on a specific name. In addition, new procedures also were implemented last year to ensure that these mistakes won?t be made in the future. The iFtS also stresses that our employees all career civil servants wli continue to be guided by to): law and not partisan issues. Who has led the investigation into this episode? is someone else inside or outside of the IRS going to investigate further? Report Exhibits - Page 00071 1 The 1R8 hes internaiiy reviewed ihis matter. Additionally, this is issue is being reviewed by the Treasury Inspector anei'ei. Thanks in advance. Best, Steve Stromberg Steve Stromberg Editorial Writer The Washington Post Office: 202.334.6370 - nt Redacted by the P81111300 . - I Subcommittee on Investigations Report Exhibits - Page 066712 From: Lerner Lois Sent: Friday, May 10, 2013 5:54 PM To: Downing Nanette Paz Holly 0; Partner Melaney Marx Dawn Cc: Marks Nanch Subject: Stuff As you both know, we are getting beaten up in the press for all the wrong reasons. Not sure there is we can do about it--other than hang in and ride it through. When the report comes out, it will start all over again. We need to keep remembering, we did not do what they are alleging. We need to support each other and help our staff get though it too. I did send an voicemail to Cindy and Donna to distribute to impacted employees, who are feeling pretty bad. Cindy is planning on holding a town hall with E0 Determinations. Not sure whether you want to do anything with others--if so, please coordinate with each other and talk to Nan Marks before you actually do it. I apologize for being gone during the aftermath, butl can't change that. We'll touch base when I get back on the 20th. Hang in there-4 couldn't ask for better folks to work with. gm Director of Exempt Organizations Report xhibits - Page 000713 From: Lerner Lois Sent: Sunday, May 12, 2013 12:08 PM To: Light Sharon Subject: Re: Congressional Response with SHORT Turnaround Thanks. i'm afraid i have little tonfidenee that most folks making the stink care about what is true. They?ve already decided they know without regard to the facts, Thanks for trying to make things clearer--if not better. Lois G. Lerner Sent from my BlackBerry Wireless Handheld ?meme-w?; Mao-xv" 7r ?womusm? From: Light Sharon Sent: Sunday, May 12,? 2013 09:27 AM Eastern Standard Time To: Lerner Lois Subject: Re: Congressional Response with SHORT Turnaround nex?mxem?rtr x- a. -. :?n-merm: - . -. What a whirlwind, huh? i hope being in Canada will give you some emotional distance from this, too. l'rn giad to be helping set the story straight. I From: Lerner Lois (3 Sent: Sunday, May 12, 2013 08:29 AM Eastern Standard Time To: Marks Nancy Paz Holly Marx Dawn Light Sharon Subject: Re: Congressional Response with SHORT Turnaround Everyone? i just want to thank you for being the very best team a person could wish for and apologize for leaving you with such a huge task. Lois G. Lerner -- Sent from my BlaekBerry Wireless Handheld From: Marks Nancy] Sent: Friday, May 10, 2013 07:06 PM Eastern Standard Time To: Paz Holly Marx Dawn Light Sharon Sweetenberg LaWan A Cc: Lerner Lois Subject: RE: Congressional Response with SHORT Turnaround Dawn is Working the system every which way trying to get access to the letter but she is having no luck. She is taking her lap top home and wiil monitor over the weekend and forWa rd if it shows up. LaWan the fast track Congressional you warned Dawn about (thanks for that) needs to get to her, Hoily, Sharon and me as soon as possible. i know you get in early so if you could speed it on it?s way it would be greatly appreciated. Thanks From: Paz Holly 0 Sent: Friday, May 10, 2013 6:53 PM To: Marx Dawn Marks Nancy]; Light Sharon Cc: Lerner Lois Subject: RE: Congressional Response with SHORT Turnaround 1 aspen Exhibits-?l? "bags coo?714 Do we think there?s a chance We'll get to see the letter today? It Would be helpful to know it there are more questions beyond the request for documents and names of individuals involved noted below. itwo can get the letter over the Weekend. perhaps Nan, Sharon and i can talk brie?y to agree on approach before We start drafting and Sharon and ccoid divvy up the letter and start working. From: Marx Dawn Sent: Friday, May 10, 2013 5:24 PM To: Marks Nancy]; Paz Holly 0; Light Sharon Cc: Lerner Lois Subject: Congressional Response with SHORT Turnaround Importance: High am forwarding this email to you as advance notice that E0 needs to prepare a response to an incoming Congressional from Boostany by Tuesday, May 14th.l do not have the incoming yet but will forward as soon as the case is assigned to us. This will need to be signed by the Commissioner, so need to buiid in time for the Eommissioner?s office review as well. From: Sweetenberg LaWan A Sent: Friday, May 10, 2013 4:24 PM To: Marx Dawn Cc: Lerner Lois Medina Moises Subject: Heads-Up etrak case due Tuesday May Hey Dawn, heads-up just assigned an etrak case to E0, that has a very short turnaround time on it, Toes May Regarding TRACKING - PLEASE PREPARE THE RESPONSE FOR THE SIGNATURE. Chairman of Committee on Ways and Means, Charles Boustany, wrote about news reports detailing a public apology from the Director, Exempt Organizations, Lois Lerner, about discriminating practices targeting conservative groups seeking tax-exempt status. He asked us to provide all communications containing the words ?tea party?. "patriot", or "conservative" and the names and titles of all individuals involved in this by May 15, 2013.? LaWan A. Sweetenberg Staff Assistant to the Commissioner office 202.283.2500 voice fax I LaWan.A.Sweetenberg@irs.eov Report Exhibits - Page 000715 Advocacy Feedback from QA Three cases involved: 1. 501(c)(4), Bucket 3 2, 501(c)(4), Bucket 2 3. 501(c)(4), Bucket 2 All three cases were worked by Determinations specialists and submitted to QA for mandatory revicwi - QA approved the case and provided some additional feedback on the cases. Overall Comments: All ofthe cases were grained exemption. Much of the feedback involves distinctions of professional opinion. An overall thei-nefOr thefeedhachfoeuses on what Dips? ofdocui-nentation is neededfor political advocacy cases. Recommendation: Because these political advocacy cases will receive higher scrutiny both QA and likely by third?party F014 requests, it may be to have specialists document their opii-zions more thoroughly. It may be to discuss HOW to document such a grey area. A group discussion on best practicesjor documentation could be beneficial. Case 1: the feedback is as follows: From Reviewer: 12. Ifyou have any comments regarding the questions asked in the development 1etter(s) please insert them here.- Relevant prints from their web site should have been printed and sent to the org with directed questions regarding the intent and political activities, how the org is under the 51% limits, how they are not just pushing an. agenda and platform rather than promoting general social welfare. While the measure of whether they are over or under accepted political amounts is dif?cult to gauge we never really challenged them on their purposes and activities. From QA Manager: - Admin record does not support decision. Memo to ?le not substantiated. social welfare not certain. Comment: Disagree There is no prohibition to having an opinionfor a 5 01 organization. r?Just pushing on agenda and platform can he considered social welfare. There is no absolute 51% primary activity test. Because the law is so grey, the conclusion that the organization qualifies for exemption under section 501(c)(4) is ultimately aprofessional assertion ofthe specialist. Recommendation: Because these political advocacy cases will receive higher scrutiny both internally??om QA and likely by third?party 01A requests, it may be to have specialists document their Opinions more thoroughly. It may be to discuss document such a grey area. A group discussion on best practices for documentation could be bene?cial. From Reviewer: Report Exhibits - Page 000716 1 8. Ti you have any comments regarding Wh eth er or not the determinations letter was properly prepared, please insert them here. Org had new address that was not used. Comment: Agree Case 2: the feedback is as follows: From Reviewer: 8. If you have any comments regarding whether the ?le was appropriately documented please insert them here. Org has related board. Per research, president/chair of the board is running for state representative for the Republican Party. Research indicates unrelated individual is now the interim executive director. No documentation (in this issue. From QA Manager: Determ already issued prior to QA review. Please ensure sigmificant issues documented. Comment: Agree The private political actions ofan individual are distinct?'om the organization. A tax law concern would be if the organization was usedfor the private bene?t of the orgai-iizoiion. There is no indication in the case?le that the organization is being used for the private bene?t of the individual. Indeed, the individual stepped back from. involvement in the organizatioi-i. Although there is no tax law issue with this case, the documentation would he enhanced the specialist noted private benefit was considered and what conclusion was reached. Recommendation.- or political advocacy case documentation is may be for each case to have a comment on considerations ofprivate benefit and whether any private bene?t was found. Case 3: the feedback is as follows: From Reviewer: 6. You indicated the case was not placed in the appropriate bucket. Please explain what bucket the case was placed in, which bucket it should be placed in. and Why. Case was reconciled to the focused development bucket should have been general devolopment due to board issues. activity issues, potential bene?t issues. Comment: Disagree The distinct between hackers 2 and 3 are moot. There is no o?eci. "Bucketing" is an administrative tool to help assign casework. ?Bucheting? does not affect application of the law. (Select ofhackets or 4 does a?ect the case. Bucket is not subject to mandatory review, and hacker 4 will significantly increase the cycle. time on the case.) Recommendation: Is it to continue to have buckets 2 and 3 Should we stop using bucket {fwe do rethink the buckets. is it to Create a sub-bucket to bucket 4 (bucket 4h perhaps)? Such a hacker could note the situationfor which an orgai-iization does not quali?ifor Report Exhibits - Page 000717 but might quolyjz'jor Taxpayers in this bucket could be contacted about a possible subsection switch. 8. If you have any comments regarding whether the ?le was appropriately documented please insert them here. A gent cited taking the risk for allowing a two person related board, when the Bylaws state there would be at least three members. and when the initial and only board member had resigned without any indication what his future role would be. Overall the case does not have suf?cient documentation for determining primary social welfare activities. Only vague and general descriptions have been provided. See further attachment. There is a general lack of details regarding the activities and operations of this organization. Their response to the 1312 deals mainly with their board no questions were asked of their activities. They indicate they will educate on rcpics including private economic development. There is no description as to what private economic development may he, who this could be directed towards, who might benefit. The activities of economic development can qualify under multiple Code sections, and can also be adverse to exemption. We have no speci?cs on what economic development they are covering. Given their percentages, if they are 100% educational they could meet C3. They did .not distinguish the difference betWeen what was public economic development versus private economic develoPment. Along with this, they provided no copies or samples ofmedia, educational materials1 results of studies, etc. They did not deacribe who would be producing this media, who they may be contracting with, if there was any relation with board members to these companies, etc. This also applies to the energy activities they have described no further details were provided or requested on content, ads, media. etc. In all, the org has not fully substantiated that the activities they have proposed are for social welfare. These could be for private purposes, business purposes, or even exclusive educational purposes. Further development should have been done to request more details on how the organization was going to conduct these activities, where their expenses were goin g, and what they were producing to further their educational purpose. Comment: Disagree Organizations are allowed to exemption in advance of'operarions. When doing so. details on operations may}; be. limited. However. lock ofdet?oil does not prohibit a determination. Regarding the board expansion, the organization stated they would be seeking an additional board member. The specialist '3 risk assessment on this issue is appropriate and documented. Regarding the economic development concerns. it should be noted the organization plans to teach. about economic development and not to conduct economic development. Since the organization is teaching about economic development, concems ofprivol?e bene?t associated with conducting private bene?t are. moot. Regarding the subsection concern. the organization ?s response to Form 1024, Part II, Question 1 5 indicates the organization will be conducting indirect legislative activity (even though they responded ?no They stated they would be ?educating the public on legislation to enhance economic development. As such, (4) would he more appropriate than For this item, as noted above, some extra. effort to document conclusions may be l2. If you have any comments regarding the questions asked in the development letter(s) please insert them here. Report Exhibits - Page 000718 Org did not explain what happened to the founder once he resigned his board position is he still involved with org? Why wasn?t a third board member named? Why did the founder resign his position? Who does the Org intend on hiring for consulting/media/ads? What is a govt affairs expense? Has this org created any materials yet they intend on using in their activities? How will a two person related board establish compensation in the futtn?e? eminent: Disagree Do aJ-iswers to these questions change (4) exemption? These questions appear to he ?want to know questions versus ?need to tozow. As such, the documentation would appear to be at the discretion ofthe specialist '5 professional opinion. Recommendation." As noted above. we may want to come to some consensus on what constitutes sa?icient documentation/or political advocacy cases. 18. if you have any comments regarding whether or .not the determinations letter was properly prepared, please insert them here. A. copy of the letter was not prepared for the POA. A copy for the new address of the org was not prepared. The current letter is addressed to the old board member. Also. although correct, the effective date centains a minor typo. Comm eat: Agree Report Exhibits - Page 000719 Notes from meeting with on January 31, 2013 The meeting started off with an overview of the general format for the discussion as well as some comments and observations from TIGTA and our response to those observations. - TIGTA pulled some cases that they wanted to discuss with us. They did not think that it would be productive proceed on a case-by-case basis. 0 After reviewing our spreadsheet and documents, took 13 cases off of their lists (as a note both Judy and Hilary updated the spreadsheets during the meeting to reflect these changes). They cases taken off the list are: 0 Case 4 0 Case 14 0 Case 20 0 Case 24 0 Case 31 0 Case 37 0 Case 65 0 Case 72 0 Case 75 0 Case 76 0 Case 82 0 Case.# 124 0 Case 125 - According to TIGTA, their problem is not with the facts of each particular case, but rather the ?criteria? used to move the cases in the first place. They are concerned that the criteria was so broad that anything involving advocacy or lobbying could ostensibly be involved 0 felt that it was odd that there were only two 501(c)(6) organizations on the list. They thought there would have been more. - noted that the documentation related to the decision on whether to send a case is limited (only check sheet and handwritten notes of ?tea party? cases). Without more, it is hard to know whether anything more went into the process, like website reviews, etc. - in their review, stated that they only looked at the initial identi?cation of the case and how it was assigned to the advocacy group. They said that they did not look at the ultimate result or any factors beyond the initial identi?cation (though they often reference the bucket lists in deciding whether the screening process was appropriate). 0 TIGTA stressed that their review was limited to the information that came With the application and anything that the screeners identi?ed in making their determination to send something to the advocacy group. Report Exhibits - Page 000720 Notes from meeting with on January 31, 2013 - noted that it seemed to them that more cases should have ?rst gone to general development. They felt that some cases should have been sent over to advocacy group at a later time, after more development revealed a problem. As an example of this, they cited TIGTA case 12 (E0 case 3). In reSponse, Holly stated that there is some concern that the specialists who work in general development may not understand the specialized issues that are presented with these particular cases and may not develop a case properly or even ask the appropriate questions. For example, if an organization mentions holding rallies, the specialist may not think to ask if whether they are political and how they are being conducted. 0 She added that we initially cast a broad net in order to understand the big picture of what was going on. As we learned more, we were able to narrow it down. 0 She also added that the bucketing decisions were not determinative of any final decisions. We issued a fair number of favorable determinations, and have not yet issued any adverse rulings. The impact was that the cases sat for a little longer. 0 She also noted that we have specialized groups for other types of complex cases including group rulings, supporting orgs, etc. Those cases also end up sitting a little longer. Essentially any coordinated efforts will take longer; this situation doesn?t occur just in advocacy cases. - TIGTA stated that they did not think that these cases were treated consistently with other types of organizations, particularly when looking at the evolution of the criteria. 0 Holly thought it was interesting that their list of cases that should have been treated as advocacy cases, but instead were not, was a very small number. She would have thought that if the accusations made against us were true and we were only looking at one side or the other that list of ?should have been included? would have been longer and skewed accordingly towards other groups. 0 While she agrees that the screeners used terminology that was not always ideal, she also understood that the operated under several constraints: they only spend 15 minutes per case; they lack the luxury of time to include a lot of documentation/research, etc. - TIGTA thought that although it was plausible that nothing negative occurred during the identi?cation process, outside people could look at the combination of our initial criteria and the supplemental criteria to make a negative conclusion. 0 Holly agreed again that the language in the BOLO was incorrect, but adds that. it was corrected. She has no problem with saying that the language was incorrect on the BOLO, but she doesn't think that they can say that the logical extension of the language is that we had a concerted effort to target one group of organizations. - TIGTA believes that there is documentation saying that these groups were targeted. They I base this on the BOLO list, and the fact that the only rationale noted on the screening form is a tea party? notation. This is problematic for them. 2 Report Exhibits - Page 000721 Notes from meeting with on January 31, 2013 '0 Holly informed them that when we have similar cases and issues, the screeners often times call them by a shorthand name, such as what is in their names. She used the newspaper cases as an example. She also added that for many when you say ?party? in your name, that is a term of art and it means a 527 organization. Although TIGTA plans to put in their report that a iot of these cases ultimately did have political intervention in them, they have a problem with how the cases were identi?ed. 0 Holly wanted to know if they would acknowledge that we did not target one side or the other. 0 TIGTA responded that they did not look at it in a "right vs. left way.? But they will include their results of what ?should have gone.? The discussion then turned to comments on the specific cases-listed on the case spreadsheet. 0 Judy disagreed with the organization. She also disagreed with the medical marijuana case because it was more marijuana than anything. - Holly agreed to send Judy and Hilary?s comments on those cases to TIGTA. She said the real concern was on campaign advocacy but it was hard to make sure it was focused correctly on items such as rallies, etc. - TIGTA said that one issue we discussed previously was when an organization stated ?in the future we might, but it won?t be primary. . . . They wanted to understand how we handle developing a case when something is mentioned in that way. 0 Holly said this situation comes up regularly in a variety of area, such as international grant-making, scholarships, etc. During the development process we have to flesh all of their activities that they have brought up to us. If they mentioned that they might do an activity, then it is more of a solid idea than the things they didn?t mention to us. It is important that we develop these areas because of the role it could play during the revocation process. It may make the difference between retroactive and prospective revocation. Even if the organization has no additional details, we still have to ask the follow Up questions or else we are limited with regards to the revocation process under 7805(b). The RC 501(c)(3) cases: Holly mentioned cases 2 and it 26, and said that there were other similar cases that she did not have the numbers for. In those cases she thought it was important to note that they are 501(c)(3) organizations, not 501(c)(4) organizations. As such the rules are harsher/more clear cut. She felt that if there was an indication on the face of the application that there may be some political activity on the part of a applicant, then that should be enough to take it off of the list. 0 TIGTA agreed to go back and look at this. They didn?t make this distinction when they were looking at the cases. Report Exhibits - Page 000722 Notes from meeting with on January 31, 2013 0 Case 26: When looked at the bucketing list, they didn?t see any problem activities found during bucketing. The only non-exempt purpose listed on the bucketing sheet was publishing and no other non?exempt activities were observed at that time. If there was nothing found in bucketing, they wonder why this case was picked in screening. 0 Hoily replied that bucketing is different than screening and the purposes/questions behind them are different. In screening, the questions being asked are can we get to a yes answer now and if we cannot, What needs to be done with the application. 0 There was a discussion on organizations making a 501(h) election. admitted that they didn?t look at the election in the decision making. 0 stated that when they see ?no nonexempt activities observed" on the bucketing sheet then they have to question how it was pulled from screening. 0 Holly stated that people, even those who are experts, can disagree. She doesn?t know that she wOuld look to the ultimate bucketing outcome to determine whether we were right in pulling it from screening. When we get additional information we can narrow down the criteria. She gave an example of the newspaper cases and how we started out more broadly. She also discussed the evolution of the criteria used for the advocacy cases. in May 2012 the criteria was indicators of potential political activity. By that point we have now seen enough to know that in some of these, the issues ended up not ultimately being political activity but instead inurement and private benefit. 0 TIGTA stated again that they have a problem with the perception of the criteria and the evolution of the criteria. For example, the fact that it switched back to more objectionable language at some point is troubling. 0 Holly noted that what is being alleged to have occurred is much more serious that the classification of the cases. it is also the outcome of the cases. There are still cases coming in and the people who are working them are those who went through the specialized bucketing training. There are two people bucketing and they write up a work sheet and then when that it done it goes to Ron to be documented. 0 She agreed to follow up with Ron on the timing of when a case gets added to the spreadsheet by him. . Case 501(c)(3) with an af?liated 501(c)(4) TIGTA thinks that this is another one where the issue was the criteria itself and not the facts of the case. They said that advocacy could lead to political intervention but that they didn?t see an intervention here from a screening perspective. 0 Report Exhibits - Page 000723 Notes from meeting with TIGTA on January 31, 2013 Holly noted that when there is a related 501(c)(4) that can raise a red flag. For example, we must ask whether the 501(c)(3) subsidizing the activity of intervention/lobbying. Additionally, the is giving money to the then it cannot be used for political intervention. Judy added that if the funds are used for lobbying then it counts towards the limit as well. Judy stressed that even for organizations who know these rules or should know them, that we still see a lot of issues in Exams where there is not a clear separation shared web sites). TIGTA agreed to look at the with affiliated again to see if they see any of the issues we raised. 0 Holly mentioned that they should also look at the cases involving leadership training (eg. 23, 85, etc.) There they train local leaders, elected officials, etc. it could be training of candidates for one political party. Noted that #85, our quality people bucketed differently. 0 Case #23 - Tl GTA said that in bucketing, thereweren't concerns of political activity but of private bene?t. They thought this case should have gone to general development rather than the advocacy group. - Holly discussed examples of political officials on boards and how we need to ask questions about that. - Judy reiterated the eadier concerns about general development and explained how it can be problematic later during an examination. TIGTA inquired into the training prior to the May 2012 training. They also wanted additional information about the change in the criteria. - Holly mentioned that Judy and Justin did training in 2011. She said they did a CPE CENTRA session in the summer/early fall 2012. She also thinks there may have even been an earlier session with Justin and Siri teaching it. This was training for everyone. - As for the criteria, the criteria were broadened again because agents were raising so many cases. Many of which had detailed apps with organizations who were just doing legislative activities. wanted to know if the screeners were part of the training in Mary 2012. - Holly responded that she believes it was just the agents. The screeners have new BOLO language, but she doesn?t think they had a training session on this. 0 Case #5 brought up by Hilary) TIGTA said they didn?t see the language in the original application that we said was there. Judy went into TEDS to pull up the application. There are 2 files and one is 908 pages so she couldn't open it. She didn?t find the language in the smaller file, but saw that the participants were'encouraged to be involved in local, state and federal government by communicating with elected officials. 0 Report Exhibits - Page 000724 Notes from meeting with on January 31 2013 Hilary agreed to go back through the file to locate the language. admitted that it didn?t read all 908 pages to see what was in the application. - Hilary sent an email on 2/1 with the language attached. It was on page 3 of their Form 1024, page 3. under their ?Community Involvement Program, Ongoing? heading, bullets (1) and (2). - Caseit? 0 Holly stated that low voter participation was listed as a reason. Anytime someone talks about raising voter participation it can raise a red flag because there is a right way and a wrong way to do voter participation activities. - Case#8w - Case#10? 0 Holly said that the organization talks about organizing around Congressional districts. TIGTA says they couldn?t find that language. Judy pulled up the application on TEDS. She informed them that it was in their attachment to the Form 1023, organizational structure. There it says they are organized by Congressional District. agreed to go back and look at this. 6103 said that in their narrative that they hold forums for people of both parties so they aren?t sure why we would flag it. Judy said that we have to look into how they are doing it. Inviting both sides isn?t enough. They have to ask non-biased questions. It is incumbent upon us to explore how they are conducting the activity. - Caseit? 0 Holly says that they discuss voter education on a particular political platform. Again this could be one where they are talking about a lot more than just advocacy. Judy said there has to be a weighing were we look and see how much is and how much is other. Sometimes it went to ROO later. Holly added that if you are a screener you are asking if this case is ok now or whether it needs another look. She said that you can?t compare that to the bucketing. The bucketing was done by the best of Cincinnati and the best of DC who really looked at it and weighed out everything. That is a very different analysis than the up-front screening. TIGTA wanted to know if we are saying that the criteria are any indicators of advocacy or only significant indicators of advocacy. - Holly responded that the criteria mentions significant. But if someone says they are going to do rallies, the question is how much are they really doing. You can?t always tell if it is going to be significant at the beginning. If it is a recurring activity, it is impossible for the screeners to make that judgment. if it was a one off event, then no it probably should be sent. But that is different than a recurring activity. 6 Report Exhibits - Page 000725 Notes from meeting with TIGTA on January 31, 2013 Case 21 0 Holly said there was a line in the app at that needed an additional look. They talk about responsive government, accountability, urging leaders to be responsive, educating citizens about where of?cials stood on the issues. Maybe this is lobbying but it seems like a lot of direct leaning on the legislators. TIGTA noted that this was one where someone wrote tea party even though that terms wasn?t in its name or contained elsewhere. Case 49 0 Holly said they mentioned billboards in their application 0 TIGTA thought that it was only a small percentage of what they were doing. '0 Holly informed them that there isn?t an exact percentage that tips it over. 0 Judy added that when you are engaged in other types of advocacy you have to add it all up. People think that if they don't say to vote for or against something than it isn?t advocacy but that isn't true for us. 0 Holly added in that there is vague information on the billboards,_like the expenses they list for it that makes it seem like they may be spending more around the election on billboards for candidates. Case 55 0 Holly mentioned that they are affiliated with a PAC 0 said that they looked at the file and they didn?t see this relationship identi?ed until after screening. They don?t think it came up until bucketing. 0 Judy pulled up the application on TEDS and showed them where the PAC information was contained on the application. 0 agreed to go back and reread the application. Once cases were discussed, more general issues were discussed again such as the timeline for the report.- TIGTA added that we are probably going to have to agree to disagree on many of these. Not on the actual facts of the cases, but on the framework used in screening. Holly said that to the extent possible, it would be helpful if they could acknowledge our perspective. wanted to know if we had gotten through the timeliness list and the list of inappropriate questions. Holly wanted to know how much time we have to look at it. lf we have until March, then we will get through as much as we can. said in theory they hope to have a discussion draft by the beginning of March. But that if we have concerns about the other spreadsheets to give them a call. TIGTA asked about the inappropriate questions list. 0 Holly said that Judy made that original list herself and it was not vetted. We can potentially see how/why some of them were asked, so we may have questions for TIGTA on that list or one items we no longer agree with. 7 IRSR0000428201 Report Exhibits - Page 000726 Notes from meeting with on January 31, 2013 TIGTA discussed the 270 day issue and how many organizations could have filed in court because of the delays. We then took a break so that Lois could speak with TIGTA Lois stated that she was frustrated over what appears to be confusion about the purpose of the audit. TIGTA said that the purpose was whether there was any targeting of organizations and of so, what were the consequences. Lois felt that the purposes were similarto what said, but different in important regards. She phrased the purpose as whether there was a political bias shown in our actions. In her mind, with all that has gone on, where the allegations have come from, and the allegations of political bias for one side or the other, that she thought that is what TIGTA was looking at. Lois agreed that the initial articulation on the Cincinnati BOLD list was bad, but said the real question was whether then made us act badly. And it did not. She also added that we have ?xed the BOLO list issue. That is a very different problem than one where we say that the list created a problem that couldn?t be fixed. Lois also felt that TIGTA did not understand the difference between screening and bucketing. She pointed out that these are different processes with different intentions. Lois noted that it is difficult for non-lawyers (like our exams and determs agents) who are looking for clear rules to operate in areas where there are no clear rules. In this situation you can?t apply black and white rules. So, in screening, if they thought someone else should look at it, the agents erred on the side of caution. She is not unhappy with our screeners for being cautious because after looking at them, many were moved out. Lois felt that there is a disconnect between our thinking and and wouid like a meeting with them, Terry, and her people to explain the process. She noted that our regulated community looks at the approvals to see what we are allowing organizations to do and the redacted denials to see what we denied. it is incumbent on us to err on the side of caution because of the potential impact of being wrong. She also discussed the bucketing process saying that in when it appeared that people were struggling, we sent down our people to help talk them through it and to give them training. We are seeing that the process put in place there really did work. TIGTA discussed that the period they look at was before May 2012. They looked to see three things: 0 Was there targeting? 0 Were there delays? 0 Were there unnecessary questions? - Noted that the delay in getting guidance from DC was 13 months. That wasn't biased. but it was delayed. IRSROOUO428202 Report Exhibits - Page 000727 Notes from meeting with TIGTA on January 31, 2013 Lois noted that it was important to distinguish between the actions and the motivations between the actions. .There is a big difference between bad judgment and bias. She asked if they had any examples of anyone acting with bias. 0 TIGTA responded that at the beginning there was one person who pulled out information on TEDS just based upon the names of the organizations tea party, liberty, patriot, etc.). That individual received advice to conduct the search in that manner. They think that searching for names or beliefs is targeting. Lois said that may have been one individual but there was never institutional IRS bias. There was never direction from anyone in management to target anyone. . She said it was less targeting than not providing them with the tools needed early on. 0 Holly added that if you look at the list of organizations, not all have those terms in their names. That was not the sole basis for an organization to be included in a list of advocacy organizations. 0 Lois asked whether the whole process was bad if it flowed from one poor choice. Lois thinks both sides should ask: 0 What are the things left unanswered or not explained if the IRS was indeed targeting organizations? 0 Where are the places that EO hasn't explained the process/law well enough for TIGTA to understand what we are saying? To Do List: 1. Send Judy and Hilary?s comments to TIGTA on the cases that TIGTA thought should go. 2. Send an updated list to TIGTA with the cases,- buckets, statuses, etc. 3. Forward TIGTA the information Hilai and Judi found on the - 6103 and the cases. 4. Check on how the person managing the status updates on the list checks/veri?es the status. 5. Hilary will go back through-the language in the case 6. Look at the lists sent to us by TIGTA on unnecessary questions and submit comments. 7. Look at the list sent to us by TIGTA on the timeliness issue and submit comments. IRSROOUO428203 Report Exhibits - Page 000728 gistf' Page 1 of1 Lerner Lois 5 From: Paz Hoily 0 Sent: Monday, March 25, 2013 8:20 AM To: Lerner Lois Cc: Marx Dawn Subject: i am planning to leave for the airport around 9:30. That way, I hope to be through security and able to join the 11 by phone until I have to board. You asked me to shoot you an email reminding you of the two major points you wanted to make with TIGTA: 1. The report lacks any__reference to or information regarding the broader conte t(such as how difficult it is to determine what 04's primary activity). Without this broader context, the report could appear slanted in one direction. 2. The report contains several instances of speculation lacking any support speculation that the wait fora determination adversely impacted org's fundraising. speculation that orgs did not file required 9905 while awaiting a determination because they had not engaged in any activity). Holly Mir?- 1 [pa/MM Macaw/meg abate/494% q? 3 0kg 3/25!2013 {bf Report Exhibits - Page 000729 Cook- Janine From: I . Cook Janine Sent: I Wednesday.-April 04, 2012 8:46 AM To: I Judson Victoria A - Slime?: . FW: Follow ?up Viekil sharing this with you so you know what i explained to Lois since she is still pushing back. I didn't think a phone call today with her would be productive (although more information on what they are-doing would be helpful overalland would have been helpful to unders'tand?eaflier'thah these last few days}. think she needs to see the document ?rst as she may be more setlsfiedthan she thinks (other than the lack of categorizing factors). - - i thought about copying you but instead just sprinkled your name'throdghont to indloate you are fully engaged with this, FromyCool-ailanlne - - . -- . - - Sent: Wednesday, .Aprll AM .i . . . 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Report Exhi its - Page 000794 $28308me - 35m mm .28 .2 EE88 8 3039a 5:553 BEE Report Exhibits - Page 000795 From: Abner Donna Sent: Monday, January 30. 2012 7:40 AM To: Fish David Seto Michael Subject: Review requested Attachments: Proposed Adversedoc Follow Up Flag: Follow up Flag Status: Completed Hi David and Mike, Attached is a proposed denial letter We?ve drafted for an ACORN successor. BecaUse this is the first such letter we?ve prepared I'd like to have someone in E0 Technical review before it is issued. (I also think that this might receive some attention). in brief, the basis of the denial is the Please let me know if you?d like a copy of the case or have any qUestions. Thanks, Donna Report Exhibits - Page 000796 THESE PAGES REDAC TED BY IRS IRSR0000457890 - 899 Report Exhibits - Page 000797 From: Abner Donna Sent: Tuesday, March 27, 2012 5:55 AM To: Hartrick Cc: Seto Michael Fish David Subject: FW: Review requested Bill, will you please work with Sandy to get a copy of the admin ?le to Thanks, Donna From: Seto Michael Sent: Monday, March 26, 2012 4:43 PM To: Abner Donna Cc: Fish David Subject: RE: Review requested Hi Donne, Elizabeth Aro?ion and Mike Repose reviewad the proposed denial. They concluded that the deniai needs additional facts to support the legal conclusion that the organization doesn?t qualify as a They need to review the adminieirative fiie. i recommend that you send a copy of the administraiive ?le to me so We can look at the case inadepi?n. Lei me know if this plan is agreeable. Thanks. Mike From: Abner Donna Sent: Wednesday, March 07, 2012 8:46 AM To: Abner Donna Fish David Seto Michael Cc: Paz Holly 0 Subject: RE: Review requested Just following up on this case thiiughts?3 From: Abner Donna Sent: Tuesday, February 07, 2012 9:16 AM To: Fish David Seto Michael Cc: Paz Holly 0 Subject: RE: Review requested The case has a March 2010 control date. No TAS inquiry or other push by ED yet. Hovvevercould happen at any time. Could we set a 30 day due date? Report Exhibits - Page 000798 From: Fish David Sent: Tuesday, February 07, 2012 9:12 AM To: Abner Donna Seto Michael Cc: Paz Holly 0 Subject: RE: Review requested When do you need this back? The answer is yes but they don?t have it yet and we want to make sure whomever we assign it to can make the timeline. From: Abner Donna Sent: Tuesday, February 07, 2012 9:09 AM To: Fish David Seto Michael Cc: Paz Holly 0 Subject: RE: Review requested Just following up any decision or assignment to a From: Abner Donna 3 Sent: Monday, January 30, 2012 8:40 AM To: Fish David Seto Michael Subject: Review requested Hi David and Mike, Attached is a proposed denial letter we've drafted for an ACORN successor. Because this is the first such letter we've prepared I?d like to have someone in E0 Technical review before it is issued. (I also think that this might receive some attention). in brief, the basis of the denial is Please let me know if you'd like a copy of the case or have any questions. Thanks, Donna Report Exhibits - Page 000799 From: Grodnitzky Steven Sent: Wednesday, March 24, 2010 8:43 AM To: Choi Robert Subject: FW: Investigation Attachments: doc Just a heads up that it appease that ACORN morphing into new orgei?iizetions. According to Ciney, there was one organization that came in for exemption. but they boiieve it was closed FTE. Will keep you updated as to new deyeioprnents in this aree. May cause eorne press attention, From: Thomas Cindy Sent: Monday, March 22, 2010 7:28 PM To: Grodnitzky Steven Subject: FW: Investigation Steve, Does 50 'I'eohnioel need this information? From: Camarillo Sharon Sent: Monday, March 01, 2010 1:18 PM To: Thomas Cindy Meiahn Brenda Cc: Shafer John Waddeli Jon Suh?ect:FVV:Invesdga?on Cindy: elevate this te aiert EST to a potentiei mew twist on the fermer ACORN organization. It appeare that ACORN may have gone out of business, but hae reworgenized into several different organizations with the iame purpose, new organizations include: I I I agree with Jon's recommendation that we not open a new TQG untii we eetueliy receive one or eppiieetiens and nee make an for their potential for fraud or other abuse. John: Can you tell it we have received any of these epplioetiene in our screening unit? If so, the $3533 should be forwarded to the TEG group, Sharon L. Camarillo E0 Determinations Manager, Area 1 9350 E. Flair Drive IRSR0000458430 Report Exhibits - Page 000800 El Monte, CA 91731?2885 Telephone: 626-312?3608 ext 5026 Fax: 626-312?2928 From: Waddell Jon Sent: Monday, March 01, 2010 6:40 AM To: Camarillo Sharon Subject: FW: Investigation Sharon. I?m forwarding on this entail rec?d from Richie in the ROG, it concerns ACQRN and its apparent new incarnation as; 6103 . Richie inquired as to bow Acorn Af?liated capes are identified when they come in for exemption as: wait as suggesting theme types of cases be Worked in TA have: informed Richie i would elevate. his e~mail but here are my specific thoughts: 1. To date, i remember seeing only one Acorn-related application which was previousin assigned to Julie Chen and was .at one time. included on the Sensitive Case Report in 7?821. I believe that tin-.23 case was uitimatety closed 2. I don?t think. this issue should be added to TAG until we actuain review a case and 33581355 the level of potential fraud, ii" any. 3. Lastiy. it might be a good idea to aiertihe screener?s that iftbey see an ACORN reiated case or one referencing that they stand it the Group for review. Otis-emit, at this point. i think its. premature to state anything is TAG case until we actualiy sea and review a case. thanka From: Heidenreich Richie Sent: Friday, February 26, 2010 3:58 PM To: Todd Nancy Cc: Lawson Colleen Waddell Jon Subject: InVestigation Nancy, There is a lot of internet traffic about ACORN reinventing itself. office is now occupied by - . They havoforrned a new corporation and .will be applying for exemption under 501(c)(4group? may be John, Report Exhibits - Page 000801 Do we have a mechanism to recognize these cases if and when they come in for exemption. Richie Report Exhibits - Page 000802 THESE PAGES REDACTED BY IRS IRSR0000458433 - 43 8 Report Exhibits Page 000803 From: Choi Robert Sent: Friday, March 26, 2010 1:11 PM To: Thomas Cindy Camarilio Sharon Melahn Brenda; Sharer John Waddell Jon Berry Daniel Cc: Grodnitzky Steven; Miller Thomas Choi Robert Subject: ACTION by 12noon 3/29/10: Investigation Attachments: doc I need a summary from Cincy regarding this issua of ACORN morphing- into new entities. i hays a meeting Monday afternoon, we, to discuss this issue with HQ folks. i'm trying to get background on what we have seen so far and if there are any concerns identified on theepplioations that have been submitted. What have We received to date re applications? Numbers. Have we approved. denied, or any? Numbers. How do we know that these new arapieatione are related to the predecessor organizations? in other words, how are we linking then'z? Have we identified any eonoems to date? Have any of these new entities assumed the assets and of the predecessor ergo? see from the email thread below that this originated from Ritchie Heidenreioh in RQG, EO Exam. Do you know what his roie is regarding Mead response he email to Steve. Tom and i by Watson, Monday, 3329!?. Thanks. From: Grodnitzky Steven Sent: Wednesday, March 24, 2010 9:43 AM To: Choi Robert 5 Subject: FW: Investigation Just a heads up that it appears that ACORN is merphing into new organizations. According to Cinoy. there was one organization that came in for examption, but they beiieVe it was closed FTE. Will keep you updated as to new developments in this area. May cause some press attention. From: Thomas Cindy Sent: Monday, March 22, 2010 7:28 PM To: Grodniizky Steven Subject: FW: Investigation Steve, Does E0 Technical need this information? From: Camarillo Sharon Sent: Monday, March 01, 2010 1:18 PM To: Thomas Cindy Melahn Brenda Cc: Shafer John Waddeil Jon Subject: FW: Investigation Romanian; -ipage 000800 Cindy: Please elevate this iseue to alert BOT to a potential new twist on the former ACORN organization. It appears that ACORN may have gone out of businees, but has reeorganized into several different organizations with the same purpose. These new organizations include: - 6103 - ?r and - agree with Jon's recormnendation that we not open a Jew TAG iesue until we actually receive one of these applioat one and can make an as L1 5 or their potential fraud or other abuee. H1 John: Can you tell if we have receive any Of applications Oil}: unit? thEi C3563 $11011 .. I be forwarded to the groupt Sharon L. Camorillo E0 Determinations Manager, Area 1 9350 E- Flair Drive . El Monte, CA 91731-2885 Telephone: 626?312-3608 ext 5026 Fax: 626?312-2928 From: Waddell Jon Sent: Monday, March 01, 2010 6:40 AM To: Camarillo Sharon Subject: FW: Investigation Sharon, i'm forwarding on this e?mail rec'd from Richie. in the ROD. it concerns AGGRN and its apparent new incarnation as . Richie inquired as to now Acorn Af?liated cases are identified when they come in for exemption as well as suggesting these types of cases be worked in TAG. have informed Richie i would elevate his e?maii but here are my specific thoughts: 1. To date, I remember seeing only one Acorn?related application which was previously assigned to Joiie Chen and was ,at one time. included on the Sensitiire Case Report in 7821. i believe that the case was ultimately closed 2. I don?t think this issue: should be added to TAG until we actuain review a case and assess the level of potential fraud, ii any. 3. Lastly: it might be a good idea to alert the soreener?s that if they see an ACORN related case or one referencing that they send it the TAG Group for review. R?bdri Exhibits P3??boocos Over-ail, at thie point, i think its premature to state anything is TAG case until WE: actually see and review a case. thanks From: Heidenreich Richie Sent: Friday, February 26, 2010 3:58 PM To: Todd Nancy Cc: Lawson Colleen Weddell Jon Subject: Investigation Nancy, There is a lot of internet traffic about ACORN reinventing itself. office is now occupied by - They have formed a new wrporetion and .wi'lbe. applying forexernption. under. . I11. John, Do we ham a mechanism to recognize these cases if and when they come in for examption. Richie Report Exhibits - Page 000806 THESE PAGES REDAC TED BY IRS IRSR0000458442-447 Report Exhibits - Page 000807 From: Thomas Cindy Sent: I Sunday, March 28, 2010 3:50 PM To: Choi Robert Cc: . Camarillo Sharon Weddell Jon Berry Daniel Grodnitzky Steven; Miller ThomasJ Subject: FW: ACTION by 12noon 3/29/10: Investigation Attachments: Mar 2010 Revdoc Rob, in response to your questions, piease refer to the email directly heiow from Jon Weddell. Also, the sensitive case report Jon references in item 1 below is attached. It you have additional onestlons, please let us know. ?-?--Original Message--?-- From: Waddell on Sent: Friday, March 26, 2010 3:36 PM To: Thomas Cindy M, Camarillo Sharon Subject: RE: ACTION by llnoon 3/29/10: Investigation Importance: Low Cindy and Sharon, Below are my answers: 1. How many of these applications have we received to date? As far as I know, none to date under the new scenario referred to below. However, I do remember a case received in my old group (7821) called - . In that case, Acorn was speci?cally listed as a member of the organization. I believe a current Sensitive Case Report Exists on that case. 2. Have we approved, denied, or approved any? To my knowledge, no. 3. How are we linking the new applications with the predecessor Acorn Organizations? At this point, through elevation to the managers and screeners to be aware that Acorn has changed its name in _per the details in the e-mail screen below. 4. Have we identi?ed any concerns to date? To my knowledge, we have yet to see any ofthese applications so the answer would be no. 5 . Have any of these new entities assumed the assets of the predecessor 1 Report Exhibits - Page 000808 org's? Per the answer to #4 above, we have yet to see any ofthese applications. 6. Richie role? Richie initially elevated the issuo to me as an awareness issue. His source, I believe, was Nancy Todd who referenced internet stories describing this issue- Richie was only wondering if we (E0 Determinations) have seen any applications like these. To my knowledge, the answer would be no but i elevated the issue for awareness to management, screeners, etc. thanks From: Choi Robert Sent: Friday, March 26, 2010 11:11 AM To: Thomas Cindy Camarillo Sharon Melahn Brenda; Shafer John Weddell Jon Berry Daniel Cc: Grodnitzky Steven; Miller Thomas Choi Robert Subject: ACTION by 12noon 3/29/10: Investigation I need a summary from Ciney regarding this issue of ACORN morphing into new entities. I have a ?eeting Monday afternoon, 3129, to discuss this issue with HQ folks. i?m trying to get background on What we have seen so far and if there are any concerns identified on the applications that have been submitted. What have We received to date re applications? Numbers. Have we appreiIed, denied; or any? Numbers. How do we know that these new sonications are related to the predecessor erganizaiidns'? in other Words, how are we linking them? Have We identified any concerns to date? Have any of these new entities assumed the assets and liabilities of the predecessor orgs'? i see from the email thread below thetthis originated from Ritchie Heidenreich in EC) Exam. Do you know what his roie is regarding resident-3e by email to Steve. Tom and i by Herman. Menday, 3(29110. Thanks. From: Grodnitzky Steven Sent: Wednesday, March 24, 2010 9:43 AM To: Choi Robert 5 Subject: FW: Investigation Just a heads up that it appears that ACORN is morphing into new organizations. According to Cincy, there was one organization that came in for exemptidn, but they beiieva it was sins-ed FTE. Witt keep you updated as to new developments in this area. May cause some press attention. From: Thomas Cindy Sent: Monday; March 22, 2010 7:28 PM To: Grodniizky Steven Subject: FW: Investigation Steve, Does Technical need this information? Report Exhibits - Page 000809- From: Camarilio Sharon Sent: Monday, March 01, 2010 1:18 PM To: Thomas Cindy Melahn Brenda Cc: Shafer John Waddeil Jon Subject: FW: Investigation 9 the former ACORN organization. It appeare may have gone out of bueinees, but hae reworganiz?d into Several different organizations WI the eam purpose. These new otganizatione include: Cindy: Pleaee elevate this ieene to alert EDT to a potential new twist on m. I agree with Jen?s recommendation that we not open a new we actually receive one of these aopiioetione nd can make an for their Hotential for fraud er othe abuee. 1 ved any of appii?ations in our John: Can you tell if we have the cases should be forwarded to the TAG ornu . .J screening unit? If 50, Sharon L- Camorillo EO Determinations Manager, Area 1 9350 E. Flair Drive El Monte, CA 91731-2885 Telephone: 626-312?3608 ext 5026 Fax: 626-312-2928 From: Waddell Jon Sent: Monday, March 01, 2010 6:40 AM To: Camarilio Sharon Subject: FW: Investigation Sharon, I?m forwarding on this e-maii rec?d from Richie in the R00. it concerns ACORN and its apparent new incarnation as . Richie inquired as to how Acorn cases are identified when ?they come in for exemption as weil as suggesting these Eypes of cases be worked in TAG. i have informed Richie I would elevate his e?mail but here are my specific; thoughts: Report Exhibits - Page 000810 f. To date, i remember seeing only one Acornwelated application which was assigned to Jeile Chen and was .at one time, included on the Sensitiva Case Report in 7821. believe that the case was ultimateiy closed fie. 2. i don?t think this issue should be added to TAG until we actually review a case and easese the level of potential fraud, if any. 3. Lastly. it might be a good idea to alert the screener?s that if they see an ACORN related case or one referencing that they send it the TAG Group for review. Overall, at this point, i think its premature to state anything is TAG case until we aotualiy see and review a case. thanks From: Heidenreich Richie Sent: Friday, February 26, 2010 3:58 PM To: Todd Nancy Cc: Lawson Colleen Waddell Jon Subject: Investigation Nancy, There is a lot of internet traffic about ACORN reinventing itself. office is now occupied by - hThey haveformed a new corporation andyril! be applying for exemption under 501 John, Do We have a mechanism to recognize these cases if and when they come in for exemption. Richie Report Exhibits - Page 00081 1 From: Paz Holly 0 Sent: Tuesday, June 05, 2012 1:37 PM To: Thomas Cindy Cc: Light Sharon Fish David Subject: FW: donor info Ietterdoc Attachments: donor info letter.doc Attached is the Setter to applicants that sent us donor info in response to our requests. We will. need to destroy the informa?on. Thanks. Hath} Report Exhibits - Page 000812 Dear Applicant: On [date], we requested additional information regarding your application for recognition of tax?exempt status'under section 501 included in this request for additional information was a request for information concerning donors to your organization. The information regarding donors was requested in error and was not used in the consideration of your application for tax~exempt status. Accordingly, we have expunged such information and it will not become part of your application file. If you have any questions regarding this letter, please contact the person Report Exhibits - Page 000813 313! Doc: 2012?13021 (5 pgs) i. v: - 531:? w. s; .31.. i lb I "Wis: 12:84bazaizimirf? I aimg?ia Erma; 51-3 11% 118-, 5 {ngfz??a?s WASHIN 11,1 On the-age:qu applying tam 'Hagtg?i? 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Advizm manic games-.23 warms Expressibnsg Cangr?m made- F1113, Hindi writ-he:- it is H?ii?- imam-?ue '?qat- 3.551313% ed ram pt?i?u??g {he- pr??racy 'Lafe'ind'ividuai? mm to Limatarfaan?S-m?ha? table;- m-ig?an-imrmia fif'h?a- prii?acg*Eht?r?sis 1"9f393witiz?ia ji-quaiimi Bufth must?1m ass-12w:- Report Exhibits - Page 000815 container SERVICE Doc 2012?13021 (5 [393) money to speci?c charitable organizations is something that carries great value to certain interested parties, as trading of personal information about private citizens has become common practice. Unfortunately, the public release of private donor infonnation exposes citizens to possible harassment'and intimidation by those who oppose the goals of the charitable organization. As we mentioned in our March 14 letter, it is our understanding that the IRS asde several organizations who applied for tax-exempt status to provide the names of individuals who had made donations (regardless of dollar amount) to those organizations, as well as the names of individuals who are expected to make donations in the future. The Form 1024 exemption application asks applicants for sources of ?nancing but does not ask for names and addresses. It is our understanding that specific donor information names and addresses are not provided on Form 1024. Yet, by requesting through correspondence, after the ?ling of a Form 1024, that organizations applying for tax exempt status provide names of donors, the IRS sets in motion an outcome wherein donor information that would be protected and redacted by one provision ofthe Internal Revenue Code (?Code?) which provides an exception from disclosure, would be made available for public inspection by a separate provision of the Code relating to inspection of applications for tax exemption. Such an outcome is clearly at odds with the express intent of Congress to maintain the privacy of donors. Even if not prohibited by law, the actions of IRS are an inappropriate circumvention of the policy of donor privacy embedded in the Code. When the IRS requests specific donor information through a follow up letter as part of the exemption application process, it ensures that this highly sensitive donor information will be included in the administrative record. This presents a serious privacy problem: if the IRS approves the organization?s application for tax?exempt status, then section 6104 of the Code requires the associated administrative record including the identity of donors if included therein to be made available for public review at the national of?ce of the Internal Revenue Service."r This is completely at odds with the treatment of the same donor information when it is viewed at the principal of?ce of the tax-exempt organization. The Code speci?cally states that the names and addresses of donors are not required to be available for public inapection when viewed at this physical locatioa.5 Given that donor infonnation is redacted on annual tax returns of tax-exempt organizations, redacted on denied tax-exempt applications, redacted on success?tl tax-exempt applications (when viewed at the organization?s principal of?ce), and not required to be provided on the Form 1024, it is disconcerting that donor information would be reviewable, or at the very least not be redacted, on successful tax?exempt applications viewed at the national of?ce of the IRS. 25 use 6104(a)(1)(A) 5 25 use 6104(d)(3)(A) h, a Fr atelier. ode 2012:13612'1 (5 pgs) In order to better understand the background on these recent requests for con?dential donor information and the authority of the Internal Revenue Service to make these requests, we respectfully request that you provide answers to the following questions: 1. What is the speci?c statutory authority giving the IRS authority to request actual donor names during reviews of applications for recognition of exemption under Section 501(c)(4)? Is it customary for IRS revenue agents to request donor and contributor identifying information during review of applications for tax-exempt status under Section 501(c)(4)? Please provide the number of requests by the IRS for such information for each year from 2002 to 2011. Is the Exempt Organizations technical of?ce involved in all such information requests of exemption applicants? Section 7.21.5 of the Internal Revenue Manual states that Letter 1313 should be used as a ?rst request for additional information for cases received on Form 1024, and that Letter 23 82 should be used for second and subsequent requests for information. We have attached redacted copies of an IRS 1313 Letter and 23 32 Letter which were reportedly sent to applicant organizations earlier this year. Each of these letters contains passages which speci?cally request names of donors?5 a) Which IRS employees and of?cials were involved in the dra?ing of the questions requesting donor names? h) Which IRS of?cials provided authority and approval for the questions requesting donor names? c) Did any IRS personnel de?nitively review and detemune whether there would be any privacy impact by the requests for names of donors which could ultimately be made part of a publically available administrative record? Was the IRS Of?ce of Privacy consolted, and did it play a role in any such determination? What is the total number BB and 2332 letters sent in 2011 and 2012 (to date) which speci?cally request names of donors? Does the IRS intend to utilize IRS 1313 and 2382 letters in the future to speci?cally request names of donors? 5 Letter 1313 asks for danor names in question 3(a) on page 4. Letter 23 82 asks for donor names in question 11(a) On page 6. Report Exhibif?n- Page 00081?7 ?rm-unzsz sfre'vm Doc 2012?13021 (5 pgs) 7.. 33 Whim 53151 lhe'vsiiW-a-S-i ibis wa?a 'iaeh?xgi gamma-:15- ??gi??EE iih ?gixfi?ggi'a?om?? Emmi). ?rm w. Egg-aci?i?: ?11.13; reguige ihaii?itihi Iii?hmm-gt?gn furnishtitlli? I nfti?tiimm?m?i 13f image-mm mm? fair; at} "d aiming-I? 35151- Wank} a 2ft?11?i?t=?tian: . madam? I . l: - 1. 959' - . ?3?ka r; . tJ . - as?? m; "It-31? ram"- . ?h?mmxamw :2 a ?a Anus Five . 1-1: a" - - - m?w apt-ix-gsw 'Wiw?llilr?rmum-?mirhx? lam-gai-oweg Report Exhibits - Page 000818 disagrees of the linitch gtatca mashington, Bill 213515 April 23, 20l2 I The Honorable Douglas H. Shulman APR 2 3 2012 Commissioner, Internal Revenue Service Room 3000 IR CONG. CORR. BR 1111 Constitution Avenue, NW CL: LA Washington, DC 20224 Dear Commissioner Shulman: It has come to our attention that numerous nonpro?t civic organizations across the country have experienced extensive delays and received excessively burdensome information requests in connection with their applications for tax?exempt status under 26 U.S.C. ?501(c). These requests have included demands for complete records of every oral statement ever provided by any'mernber of the organization, vague probes into tangential associations with private citizens and excessively long questionnaires all to be returned within unreasonably short time periods. These demands go well beyond good-faith due diligence and appear designed to be logistically and ?nancially impossible to comply with. Tax-exempt status exists to ensure that taxation does not hinder citizens? engagement in social welfare and civic activities. To wit, 26 U.S.C. exempts ?[c]ivic leagues or organizations not organized for pro?t but operated exclusively for the promotion of social welfare,..the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes." Further, the I.R.S. has af?nned that these organizations ?may carry on lawful political activities and remain exempt as long as it is primarily engaged in activities that promote social welfare.? (Rev. Rule 81?95, 1981~l CB. 332) These recent inquiries appear to constitute disparate for no apparent reason other than the political persuasion of applicants. Such practices chill these groups? Constitutionally? guaranteed rights to civic participation, ?'eedom of association and free Speech and are better left to despotic regimes than a revenue~colleotion agency in a free country. It does not appear that the missions and activities of these organizations require information beyond the scope of Form 1.024 and Schedule B, which we understand to have been traditionally required. We request that you provide a response demonstrating how these recent requests by the are consistent with precedent and supported by law. We further request that the 1.R.S. refrain from any additional unwarranted and excessive information demands and other dilatory tactics. Thank you for your attention to this matter. We look forward to your timely response. Sincorely, Bill Flores Member of Congress Member of Congress ON RECYCLED 1R8R0000465030 Report Exhibits - Page 000819 The Honorable Douglas H. Shulman Page 2 g3. I ran; 0.: Member of Congress Doug 05 Barton Member'bf Congress Member of Congress Louie Gohmer?t Member of Congress AndyHaJris Br . i: Member of Congress Member of Congress ?Wal?rer one-s Member of Congress 7i - - 1' . . Member of Congress - . I. . Rose-0e Bartlett Member of Congress Member of Congress ual?? The Honorable Douglas H. Shulman. Page 3 err-ms Bossy -- Member of Coness Jung-mewl, I I I I Dennis Ross Member of Congress Canseoo - Member of Congress R561 Labrador Member of Congress Al's Member of Congress Wilson Member of Congress Report Exhibits - Page 000820 I Member of Congress I Member of Congress ig?eo Member of Congress Todd Akinli- Member of Congress The Honorable Douglas H. Shulman Page 4 I Li" - Diane Black Member of Congress Bob Goodlatte Member of C011 grass Mam-b?. 6f congress .W MM- Report Exhibits - Page 000821. em- a ihl ahm Member of Congress ?1'51 .: ?ii-mama: . mi. . . . Inqnii??an-aim: DeSJarlais Member of Congress Kii'Michaeljfon'away Member (?g-Congress Member of Congress .- IRSROODO465033 Report Exhibits - Page 000822 The Honorable Douglas H. Shulman Page 5 Sam Johnson Sc?tt TiptCm Member of Congress Member of Congress . 1 . . ,u II 7M Member of Congress Robert Latta Member of Congress Taddeus Matter Member of Congress '51 Woodall Member of Congress Ada Membero Congress The Honorable Douglas H. Shulman Page 6 Sve Scalise I. Member of Congress Member of Congress Report Exhibits - Page 000823 Report Exhibits - Page 000824 I Page 1 of3 Flax Nikole From: Lerner Lois Sent: Tuesday, February 05, 2013 10:32 AM To: Grant Joseph Marks Nancy . Cc: Flax Nikola 0; Pa: Holly 0 Subject: FW: Follow?Up I I We have met with TIGTA on this several times. From our perspective, they are taking a very narrow 1iriew of the program and how we ran it. They also seem to be focused on the initial articulation of the BOLO list as a_"bad? thing without looking at the entire program. I think we have a basic difference in our View of their audit. We thought it was to determine whether IRS had a biased program: which would include looking at every aspect. they seem to think the question Is narrowerndid we "target based on the articulation of the We Will. continue to keep you apprised as we see their written document. Am Director of Exempt Organizations From: Lerner Lois Sent: Tuesday, February 05, 2013 10:27 AM To: Paterson Troy TIGTA Cc: Paz Holly 0 Subject: RE:-Follow-Up Thanks Troy??lt probably makes sense, to see what you put together and react to it rather than continuing the discussion in the abstract. We will begin teapot together. a reply. As _l'rn sure you would guess, if you don't include the whole picture, we will include a detailed 'iiersion in our response. Keep "us appraised of progress on the repert. Director of Exempt Organizations From: Paterson Troy TIGTA Sent: Tuesday, February 05, 2013 7:54_ AM To: Lerner Lois Cc: Paz Holly 0 Subject: RE: Follow-Up Lois, After the discussion last week, the team went over some cases on- Friday afternoon and Monday morning. We then met yesterday afternoon to discuss the cases and our thoughts on mowing forward. As far as the cases go, the team has reconsidered some cases based on input from Holly, Hillary, and Judy last week. In addition, i think we have one case that is still up in the air awaiting some additional 2/5/2013 Report Exhibits - Page 000825 Page 2 3 documentation. After that, i believe we will have approximately 90 cases that we could not resolve. Forthese cases, I?m not sure there is much more we can discuss because must involve our literal view of the application package versus the E0 functio n?s interpretation of the application package based on experience. For example, in our literal view, we may not pick up on code words or know based on past experience that certain activities or sets of activities could actually be signi?cant political campaign intervention, whereas the EU function. may. On our side, we?ll have to determine how we present both sides in the report. As far as moving forward, began working yesterday morning on a very rough version of the report that i had asked the team to prepare while we were awaiting your feedback. There is a lot of information currently in the report and a lot of information that is currently not in the report. On ourside, we have a lot of difficult decisions coming up on what is relevant to include and what our interpretation isregardi'ng, not only the allegations that led to us initiating this review, but the actions the E0 function has taken since that time. At this point, we have not determined what will or will not be included in the report and how we will present everything. if you would like to meet to discuss your concerns, i am available. if you would rather wait until i have a dearer view of what are considering for the report, we can do that also. a How would you'like to proceed? - roy 404-338?7476 From: Lerner Lois [mailtmLois.G.Lerner@lrs.gov] Sent: Thursday, January 31, 2013 2:34 PM To: Paterson Troy TIGTA Cc: Paz Holly 0 Subject: Follow?Up 1 I We were disappointed that you couldn't attend the meeting today. I think it would be useful for you; your group, and mine to have another conversation about approach. We .feel your folks are being too narrow in their new and'have-decided? that because of the language on the earlier BOLO list. regarding Tea Party, everything that_fol"low_ed was tainted. They seem to believe that if a case was initially sentrto the but ultimately determined to? be an approval, that our action in putting it into the advocacy group in the ?rst place is?incorrect, and illustrates "targeting." i think'they remain confused about the. purpose of screening vs.. bucketing?-and we have tried to explain- several time. They also don't seem to be taking a big picture look at what we have done. That is, we've already owned up to the fact that we recognized in mid-prosess that Cincinnati was struggling with the issues. That is why we sent our experts in this area to Cincinnati for 3 weeks to work hand in hand with the Determ folks to train them and then walk through their post training assessments to ensure they understood and we were getting the right treatment for the cases. When we describe that process, they acknowledge that that approach sounds reasonable, but seem to be saying that reasonableness is overshadowed by theyfact that the criteria look bad to felks on the outside, so there is no way we could cure the initial bad impression. We understand why the criteria might raise questions. In fact we re?ned it to more accurately re?ect what we are doing. [met with the group today and asked your folks what they thought the TIGTA audit was all about. The response was that they were here because there were allegations that the IRS was "targeting." When asked, they ,didn't seem able to provide me with a clear de?nition of what they meant by targeting, and they confused me when they said it wasn't necessarily political. I told them my understanding is that the audit was to determine whether the_iRS was acting in a 2/ 512013 Report Exhibits - Page 000826 Page 3 of 3 politically motivated manner-mot whether the earlier articulation of the criteria looked bad. However, that doesn't seem to be the focus. They have said they aren't looking at whether the organizations are conservative or liberal because that is too dif?cult to figure out They have also acknowledged that there are both conservative and liberal organizations on the list of advocacy cases. So, I'm not sure how they are looking at whether we were politically motivated, or what they are looking for With regard to targeting.They didn't seem to understand the difference between acting in a politically motivated manner and front line staff people using less than stellar judgment. I am willing to take the blame for not having provided suf?cient direction initially, which may have resulted in front line staff doing things that appeared to be politically motivated, but am not on board that anything that occurred here shows that the was politically motivated in the actions taken. So, i suggested to the. group that we all get together after they have had a chance to talk to you. I asked'both sides to think about the main points they wanted to make or better understand, so the meeting can be most fruitful. This is the toughest one you and have worked on together. But, l'm haping the meeting will get us all to an improved - understanding so that your report can better reflect what occurred and why. ,duz gm . Director of Exempt Organizations 2/5/2013 Report Exhibits - Page 000827 AM Senate Finance Committee 202-228-2131 1M annual Struts ($018113 WASHINGTON. DC 20510 March 14, 2012 Hon. Douglas H. Shulman Commissioner Internal Revenue Service 11 1 Constitution Avenue, NW Washington, DC 20230 Dear Commissioner Shulman: We have received reports and revieWed information from nonpro?t civic organizations in Kentucky, Ohio, Tennessee, and Texas concerning recent inquiries perceived to be excessive. it is critical that the public have con?dence that federal tax compliance efforts are pursued in a fair, even-handed, and transparent manner?without regard to politics of any kind. To that end, we write today to seek your assurance that this recent string of inquiries has a sound basis in law and is consistent with the treatment of tax-exempt organizations across the spectrum. As you know, the designation as a organization under section 501(c)(4)(A) is reserved for ?[c]ivic leagues or organizations not organized for pro?t but operated exclusively for the promotion of social Welfare, the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes." An organization ?may carry on lawful political activities and remain exempt under section 501(c)(4) as long as it is primarily engaged in activities that promote social weltarc.?I The 501(c)(4) designation has been conferred on many organizations in America that espouse political or public policy viewpoints?including Priorities USA, the sister organization of ?[t]he super PAC supporting President Cl?ntnna,?2 and American Crossmads, the sister organization of a super PAC supporting Republicans. Civic and social welfare organizations have long pe1formcd valuable roles and o?cred numerous bene?ts to our society, and tax exemptions for such organizations can be traced all the way back to the Tariff Act of 1913. It is imperative that organizations, applying for tax?exempt status are able to rely on a consistent and foreseeable review structure from the IRS. Any signi?cant changes to the IRS review process should be implemented only after appropriate notice and opportunity for comment from the public and affected parties. A number of our constituents have raised concerns that the recent IRS inquiries sent to civic organizations exceed the scope of the typical disclosures required under IRS Form 1024 and Federal Election Commission v. Beaumont, 539 146, 150 n. (2003) (quoting Rev. Rul. 81-95, 1934?] Cum. Bull. 332, 1981 WL 166125). 1 Jeremy Peters, ??Super Not Campaigns, Do 13qu of Ad Times (Mar. 2, 2012). llE-Mar-M 11:10 AM Senate Finance Committee 202-228-2131 Report Exhibits - Page 000828 2.14 accompanying Schedule B?the forms that all 501(c)(4) organizations must submit. Understandably, this has prompted some concerns about selective enforcement and the duty to treat similarly situated taxpayers similarly. To address these concerns, we respect?rlly request that you provide answers to the following questions: 1. What is the process for approval and renewal of a tax-exempt designation under seetion 501(c)(4)? Are all 501(c)(4) applicants required to provide responses and information beyond the questions speci?ed in Form 1024 and Schedule If not1 when and on what basis does the IRS require an applicant to make disclosures not described in Form 1024 and Schedule Which IRS of?cials develop and approve the list of questions and requests for information (beyond the questions speci?ed in Form 1024 and Schedule B) whidh are sent to 501(c)(4) organizations? What are the objective standards by which the responses to such requests for information are evaluated? How do additional requests for information sent by the IRS to 501(c)(4) applicant organizetions (beyond the information required by IRS Form 1024 and Schedule B) relate to a speci?c standard of review previously established by the Has the, IRS published such standards? Does the decision to approve or deny applications for tax- exempt status adhere to these standards, particularly if these standards have not been published and are not readily known? Is every 501(c)(4) applicant required to provide the IRS with copies ?of all social media posts, speeches and panel presentations, names and quali?cations of speakers and participants, and any written materials distributed for all public events conducted or planned to be conducted by the organization? If not, which 501(c)(4) applicants must meet this disclosure requiremcntand on the basis of what objective criteria are they selected? Form 1040 does not require speci?c donor information, as the instructions for the form indicate that the statement of revenue need not include ?amounts received from the general public. . .for the exercise or performance of the organization?s exempt function.? In addition, the annual schedule of contributors required by the IRS for 501(c)(4) organizations is limited to donors giving the organization $5,000 or more for the year, and the names and addresses of contributors are not required to be made available for public inspection (according to IRS Form 990, schedule B). However, some of the IRS letters recently sent to 501(c)(4) applicant organizations speci?cally ask for the names of all donors and the amounts of each of the donations, and further-mere state that this Report Exhibits Page 000829 AM Senate Finance Committee 202-228-2131 3K4 information will in fact be made available for public inspection. These Speci?c requests for donor information appear to contradict the published IRS policy. Given this discrepancy, please provide any concepondence (including emails, written notes, and electronic documents) generated with rcSpect to the decision to send letters in 2012 requesting all donor information from 501(c)(4) applicant organizations, including correspondence between IRS employees, or between or among the IRS, the Department of Treasury, and the White House. 7. Many applicant organizations have stated that the IRS gave them less than 3 weeks to produce a signi?cant volume of paperwork, including copies of virtually all internal and public communications. What is the typical deadline for responses to an IRS inquiry for additional information under section 501(c)(4)? 8. Form 1024 and related disclosures by 501(c)(4) organizations are generally ?open for public inspection."3 In the interest of addressing any concerns about uneven IRS enforcement of section 501(c)(4) eligibility requirements, can you please provide us with copies of all IRS inquiries Sent to and responses received from Priorities Those documents would provide a useful basis for comparison to other inquiries the IRS has addressed to section 501(c)(4) applicants. - Given the potentially serious implications of selective or discriminatory enforcement, we request that you hold further IRSvinitiated demands for information from 501(c)(4) applicants beytmd the extensive information already required of all applicants (in Form 1024 and Schedule 13), until the agency provides a response demonstrating these recent IRS requests are consistent with precedent and supported by law. Thank you for your prompt attention to this matter. Sincerely, Loam 3 See Form l024, Application for Recognition of Exemption OMB No. [545?0057 Under SectionSOlla). Report Exhibits - Page 666830 AM Senate Finance Committee 202-228v2131 M4 6W1 1m 11?? IRSROOUU488547 Report Exhibits - Page 000831 ?i??itt? ?rsts; ?mau WASHINGTON, DC 20510 March 9, 2012 a, Received me Be Hon. Douglas H. Shulman Conunissioner of?ce Internal Revenue Service MAR t2, 1 2012 Room 3000 IR 2M2 1111 Constitution Avenue, NW. MAR 2 1 CONG. CORR. BR Dear Commissioner Shulman: We write to ask the Internal Revenue Service to immediately change the administrative framework for enforcement of the tax code as it applies to groups designated as ?social welfare? organizations. These groups receive tax and other advantages under section 501(c)(4) of the Internal Revenue Code (hereinafter, or the ?Code?), but some of them also are engaged in a substantial amount of political campaign activity. As you know, we sent a letter last month expressing concerns about the 501(c)(4) issue; an investigation this week by the New York Times has uncovered new, speci?c problems? on how 501(c)(4)s conduct business. We wanted to address those new concerns in this letter. IRS regulations have long maintained that political campaign activity by a 501(c)(4) entity must not be the ?primary purpose? of the organization. These regulations are intended to implement the statute, which requires?that such organizations be operated exclusively for the public welfare: But welthink the existing IRS r?gulations run afoul of the law since they only require social welfare activities to be the ?primary purpose? cf a nonpro?t when the Code says this must be its ?exclusive? purpose. In recent years, this daylight between the law and the IRS regulations has been exploited by groups devoted chie?y to political election activities that operate behind a facade of charity work. A related concern, raised in a March 7th New York Times article, concerns Whether certain nonpro?ts may be soliciting corporate contributions that are then treated by the company. as a business expense eligible for a tax deduction. The Times wrote: ?Under current law, there is little to no way to tell whether contributions are being deducted, especially because many 'of the most political companies are privately held.? This potential abuse distorts the objectives of vital revenue mechanisms and undermines the faith that we ask citizens to place in their electoral system. We propose'that the IRS make three administrative changes to curtail these questionable practices and bring IRS tax regulations back into alignment with the letter and spirit intended by those_'Who crafted the Code:' I . First, we urge the IRS to adopt a bright line test in'applyin?g its ?primary purpose? regulation that is consistent with the Code?s 501(c)(4) exclusivity language. The IRS currently only requires that the purpose of these non-pro?ts be ?primarily? related to social Welfare activities, without de?ning What ?primarily? means. This standard should Report Exhibits - Page 000832 be spelled out more fully by the IRS. Some have suggested 51 percent as an appropriate threshold for establishing that a nonpro?t is adhering to its mission, but even this number would seem to allow for more political election activity than should be permitted under the law. In the absence of clarity in the administration of section 501(c)(4), organizations are tempted to abuse its vagueness, or worse, to organize under section 501(c)(4) so that they may avail themselves of its advantages even though they are not legitimate social welfare organizations. If the IRS does not adopt a bright line test, or if it adopts one that is inconsistent with the Code?s exclusivity language, then we plan to pursue legislation codifying such a test. 0 Second, such organizations should be further obligated to document in their 990 IRS form the exact percentage of their undertakings dedicated to ?social welfare.? Organizations should be required to ?show their math? to demonstrate that political election activities and other statutorily limited or prohibited activities do not violate the ?primary purpose? regulation. a Third, 501(c)(4) organizations should be required to state to potential donors what percentage of a donation, if any, may be taken as a business expense deduction. As the New York Times reported in its March 7'h article, some of these organizations do not currently inform donors whether a contribution is tax deductible as a business expense at all. The IRS should already possess the authority to issue immediate guidance on this matter. We urge the IRS to take these steps immediately to prevent abuse of the tax code by political groups focused on federal election activities. But if the IRS is unable to issue administrative guidance in this area then we plan to introduce legislation to accomplish these important changes. CM gz awv Charles E. Schurner Michael Bennet United States Senator United States Senator Sheldon Whitehouse Torn Udall United States Senator United States Senator %r?w United States Senator United States Senator Report Exhibits - Page 000833 From: Miller Steven Sent: Thursday, April 18, 2013 7:29 AM To: Flax Nikole Subject: - Re: speech We will talk at neon Sent using BlackBerry From: Flax Nikole Sent: Thursday, April 18, 2013 08:28 AM Eastern Standard Time To: Miller Steven Subject: Re: speech Maybe not a terrible idea for her to get out how many approvals we haVe had to date and discuss the issue a bit. From: Miller Steven Sent: Thursday, April 18, 2013 08:21 AM Eastern Standard Time To: Flax Nikole Subject: Re: speech She can apologize for undermanaging. Sent using BlacltBerry From: Flax Nikole Sent: Thursday, April 18, 2013 08:17 AM Eastern Standard Time To: Miller Steven Subject: Re: speech April 25 she is begging for material ta discuss From: Miller Steven Sent: Thursday, April 18, 2013 08:04 AM Eastern Standard Time To: Flax Nikoie Subject: Re: speech When is her speech?may want to use it to burst a bubble Sent using BiackBerrv From: Flax Nikole-C Sent: Wednesday, April 17, 2013 08:37 PM Eastern Standard Time To: Miller Steven Report Exhibits - Page 000834 Subject: Fw: speech I assume you don't want lois talking? at I know the answer, but she will want to know that I asked. min-up". . From: Lerner Lois Sent: Wednesday, April 17, 2013 08:08 PM Eastern Standard Time To: Flax Nikole Subject: Re: speech Any possibility we'd ask permission on this? Lois G. Lerner -- Sent from my BlackBerry Wireless Handheld . . . . . . From: Flax Nikole Sent: Wednesday, April 17, 2013 07:32 PM Eastern Standard Time To: Lerner Lois Subject: Re: speech Anything We say re has to be cleared by omb. A new memo on it came out today. From: Lerner Lois Sent: Wednesday, April 17, 2013 07:13 PM Eastern Standard Time To: Flax Nikole Subject: Re: speech Am at home so can't send until tomorrow. Got a message from Terry nixing it, which puts me in a pickle since i need to talk about something high level for 40 minutes. Lois G. Lerner -- Sent from my BlackBerry Wireless Handheld :m ms. ?7 rag?c4 From: Flax Nikole Sent: Wednesday. April 17, 2013 04:12 PM Eastern Standard Time To: Lerner Lois - Redacted by the Permanent Subject: speech Subcommittee on Investigations Lois - said you sent a copy of your speech - can you send ii? Thanks IRSR0000468871 Report Exhibits - Page 000835 From: Lemons Terry Sent: Sunday, April 21, 2013 11:46 AM To: Miller Steven Flax Nikole Vozne Jennifer Subject: Fw: Emailing: draft c4 comments 4-18-13.doc Attachments: So it?s close But I don?t think it's quite there. For the people in the room at Georgetown, it?s ?ne. But it?s not clear draft 04 comments enough for people who won't be there and will be combing through the speech afterward. Think current version will create a lot of questions coming in after the speech and actually amplify attention on the upcoming report. Think we need to frame up better - goal should be having a text that stands on its own for reporters and others coming in later and minimizing follow-up questions. (And perhaps goal should also be for reporters in the hearing room to be handed this and fold this into their stories.) With that in mind, We made some edits as a starting point?tried simplifying and making clearer at a couple of points. Biggest addition is paragraph three that?s where the reporters will go. Thanks for listening) Sent from my BlackBerry Wireless Handheld Original Message mu From: Terry Lemons Sent: Sunday, April 21, 2013 12:40 PM Eastern Standard Time To: Lemons Terry Subject: RE: Emailing: draft c4 comments 4?18-13-doc Original Message From: Miller Steven Sent: Sunday, April 21, 2013 11:30 AM Eastern Standard Time To: Flax Nikole Vozne Jennifer Lemons Terry Cc: Miller Steven Subject: Emailing: draft c4 comments 4-18-13.doc Take a look. This is the possible insert into Lois' Thursday speech. Sent Using BlackBerry Redacted by the Permanent Subcommittee on Investigations Report Exhibits - Page 000836 Recent section 501(c)(4) activity DRAFT 4-21-13 So I think it?s important to bring up a matter that came up over the last year or so concerning our determination letter process, some section 501(c)(4) organizations and their political activity. Some of this has been discussed publicly already. But I thought it would make sense to do just a couple of minutes on what we did, what we didn?t do, and where we are today on the grouping of advocacy organizations in our determination letter inventory. I will start with a summary. As you know, the number of 04 applications increased signi?cantly starting after 2010. In particular, we saw a large increase in the volume of applications from organizations that appeared to be engaged or planning to engage in advocacy activities. We did not have good enough procedures in place to effectively work these cases. You also know about the level of guidance in this area we need more. There?s also the factual difficulty we have of separating politics from education in these cases it?s not always a clear area. Complicating matters is the sensitivity of these cases. Before I get into more detail, let me be clear. The IRS should have done a betterjob of handling the review of the 04 applications. We made mistakes, for which we deeply apologize. But these mistakes were in no way due to any political or partisan reason. They were made because of missteps in our process and insuf?cient sensitivity to the implications of some our decisions. We believe we have ?xed these issues, and our entire team will do a much betterjob going fonvard in this complex area. And I want to stress that our team - all career civil servants -- will continue to do their work in a fair, non-partisan manner. So let me start again and provide more detail. Centralizing advocacy cases for review in the determination letter process made sense. The way we centralized did not make sense. But we have taken actions to fix the errors. What we did here, along with other mistakes that were made along the way, resulted in some cases being in inventory far longer than they should have. For that I apologize. Our front-line people-in Cincinnati -- who do the reviews took steps to coordinate the handling of the uptick in cases to ensure consistency. We take this approach this in areas where we want to promote consistency. Cases involving credit counseling are the best example of this sort of situation. Here?s where a problem occurred. In centralizing the cases in Cincinnati, my review team placed too much reliance on the particular name of an organization; in this case, relying on names in organization titles like ?tea party" or ?patriot,? rather than looking deeper into the facts(( to determine the level of activity under the 04 guidelines.)) Our Inspector General is looking at this situation, but I believe and the IRS leadership team believe this to be an error -- not a political vendetta. The error was of a mistaken desire for too much efficiency on the applications without sufficient sensitivity to the situation. We also made some errors in our development letters, asking for more than was Report Exhibits - Page 000837 needed. You may recall the publicity around donor lists. That resulted from insuf?cient guidance being provided to our people working on these cases. Now, we have remedied this situation both systemically for the IRS and for the taxpayers who were impacted. I think we have done a good job of turning the situation around to help prevent a situation like this from occurring again. Let me walk you through the process. Systemically, we will not allow the centralized collection of cases without greater and higher level review. 80 what happened here will not happen again. With respect to the speci?c 04 cases in inventory, we took a number of steps to move things along. First, we had a team review the cases to determine the necessary scope of our review. Now make no mistake, some need that review, (some have or had endorsements on their website for example)(given recent events-likely would drop parenthetical). But many did not. We worked to move the inventory. We closed those cases that were clear and are working on those that are less certain. With respect to what we agree may have been overbroad requests for information, we. engaged in a process of an active back and forth with the taxpayer. With respect to donor names, we informed organizations that if they could provide information requested in an alternative manner, we would work with them. In cases in which the donor names were not used in making the determination, the donor information was expunged from the ?le. We now have a process where each revenue agent assigned these cases works in coordination with a speci?c technical expert. And We have made signi?cant progress on these cases. Of the nearly 300 c4 advocacy cases, we have approved more than 120 to date. We have had more than 30 (?)withdrawals. And obviously some cases take longer than others depending on the issues raised. including the level of political activity compared with social welfare activity. Let me make another important point that shouldn?t be lost in all of this. We remain committed to making sure that we properly review determinations where there are questions. And I will say it seems likely that we will see some denials out of this remaining group as well. We hope to wrap the remaining cases up relatively soon. So I wanted to raise this situation today with you. You and I know the IRS does make mistakes. And I also think you agree that our track record shows that our decisions are based on the law not political affiliation. When we do make mistakes, we need to acknowledge it and work toward a better result on pending cases. We also need to put in place safeguards to ensure the errors do not happen again. I think we have tried to do that here. These cases will help us, along with the self-declarer questionnaire, to better Report Exhibits - Page 000838 understand the state of play on political activities in today?s environment, the gaps in guidance, and where we need to head into the future. IRSROOUU468894 Report Exhibits - Page 000839 From: Sent To: Subject: Attachments: Couple of edits Miller Steven Thursday, May 09, 2013 12:35 PM Miller Steven Flax Nikole Lemons Terry Vozne Jennifer Eldridge Michelle (MICH 05061301 talking version_doc 05061304 talking versiondoc Report Exhibits - Page 000840 Draft I Section 501(c)(4) Determination Issues May 6, 2013 Statement: Between 2010 and 2012, the IRS saw the number of applications for section 501 status double. As a result, local career employees in Cincinnati sought to centralize work and assign cases to designated employees in an effort to promote consistency and quality. This approach has worked in other areas. However, the IRS recognizes we should have done a betterjob of handling the in?ux of advocacy applications. While centralizing cases for consistency made sense, the way we centralized did not. Mistakes were made, but they were in no way due to any political or partisan rationale. We have ?xed the situation and worked to move the centralized cases through our system. New procedures were implemented last year to ensure that these mistakes won?t be made into the future. The IRS also stresses that our employees - all career civil servants -- will continue to be guided by tax law and not partisan issues. Key Points: - In 2010, Exempt Organizations (E0) observed a signi?cant increase in the number of section 501 and section 501(c)(4) applications from organizations that appeared to be potentially engaged in political campaign activity. Between 2008 and 2012., the number of applications for section 501(c)(4) status more than doubled. 0 These are difficult and sensitive cases. These are challenging cases to factually separate out political issues from those involving education or social welfare. It's not always a clear area, and there are no bright-line tests for what constitutes political campaign intervention. - Similar to our approach in other areas credit counseling, down payment assistance organizations, etc), EO sought to centralize work and assign cases to designated employees in an effort to promote consistent treatment of applications. - Centralizing advocacy cases for review in the determination letter process made sense, but some of the ways we centralized did not. - a While it is necessary to consider a variety of information in the screening process (including ?ags for current emerging iSSUes), we recognize that some of the selection criteria were not appropriate for these cases. a The recognizes that the use of speci?c names for handling the in?ux of advocacy cases was an error and, over the last year, has taken a number of steps to improve the process. . a We now have a process in place where each revenue agent assigned these cases works in coordination with a speci?c technical expert. New procedures also have been implemented to so that decisions with respect to the centralized collection of cases must be made at the executive level. a We have made signi?cant improvements in this area. We are confident that we have a more appropriate path for the future that witl avoid similar problems. - E0 is dedicated to reviewing applications fortax?exempt status in an impartial manner. Report Exhibits - Page 000841 The mistakes made were not due to any political or partisan reason. Exempt Organizations (E0) is comprised of career civil servants who do their work in a fair, non- partisan manner. Mistakes were made due to the absence of a set, rigorous process for working the increase in advocacy cases and insufficient sensitivity to the implications of some the decisions made. Of the approximately 300 section 501(c)(4) advocacy cases, more than 120 have been approved and nearly 30 have withdrawn. Background on Legal Standard: Although the tax law allows section 501 organizations to hold themselves out as tax-exempt without applying for IRS recognition of their status, once an organization does apply for recognition, E0 must ensure the organization meets the applicable legal requirements before granting recognition. To be recognized as exempt under section 501 an organization must be engaged primarily in the promotion of social welfare. The promotion of social welfare does not include political campaign intervention. The determination whether an organization engaged in political campaign intervention quaii?es under section 501(c)(4) is a dif?cult legal and factual issue. There are no bright-line tests for what constitutes political campaign intervention or whether an organization is primarily engaged in social welfare activities. Whether an activity is political campaign intervention, and whether an organization meets the requirements of section 501 must be decided on the speci?c facts of each case, and no one factor is determinative. Selection of an organization?s application for further review and development does not dictate how the case is ultimately resolved. It simply means that the IRS needs additional information before a determination can be made. Report Exhibits - Page 000842 Fact sheet?630pm Introduction: . Law in the Area An organization is described in section 501(c)(3) of the tax code if it is organized and operated for religious, charitable, educational and certain other specified purposes. An organization is described in section 501(c)(4) if it is operated exclusively for the promotion of social welfare. There are specific rules relating to exemption and political campaign intervention. Organizations described in section 501(c)(3) may not engage in such activity. Social welfare organizations described in section 501(c)(4) may engage in a limited amount of political campaign activity. Note that there are no bright-line tests for what constitutes poiitioal campaign intervention or whether an organization is primarily engaged in social welfare activities. The appiications for exemption (Form 1023 for recognition under 501(c)(3); Form 1024 for recognition under 501(c)(4)) contain questions about such activity as does the Form 990, the annual report filed by these organizations. Determination letter process Section 501(c)(3) organizations must apply to be recognized for tax exempt status by the Although the tax law allows section 501(c)(4) organizations to operate as tax-exempt without applying for IRS recognition of their status, most apply. Once an organization does apply for recognition, E0 must ensure the organization meets the applicable legal requirements before granting recognition. All applications for tax exempt status are sent to the IRS Exempt Organization offices in Cincinnati. A group of experienced revenue agents screens all E0 Determination Letter applications before the applications are assigned to other revenue agents for review. Based on that screening, a case may be handled in one of the following ways: (1) Cases resolved on screening?if the application clearly meets the requirements for exempt status on its face and all necessary documents are provided, the case is forwarded from screening to a closing unit which issues a favorable letter. (2) Cases with minor omissions-vii the application clearly meets the requirements for exempt status but the file lacks some required documentation (for example the articles of incorporation are not executed) then the case is forwarded to a unit which will contact the RS R000046891 6 (3) (4) (5) Report Exhibits - Page 000843 organization by letter to complete the file. Once the ?le is completed, the unit will issue a favorable determination. Cases that cannot be resolved favorably without further development?if the application leaves open questions as to the adequacy and scope of the exempt purposes, the presence of private benefit, or the presence of other activities inconsistent with exempt status, then the case is forwarded for full development to a Revenue Agent who will work with the taxpayer to resolve the questions raised and to ascertain whether the organization quali?es. Cases in category 3 that present novel issues or particularly complex fact patterns are sometimes handled on a coordinated basis by a particular group of agents in order to ensure proper development of the issues and consistency in handling credit counseling cases, down payment assistance cases, advocacy cases, etc). I In either categories 3 or 4 assistance from career specialists in the Headquarters office of Exempt Organizations may be sought. Trend line of applications for 501mm status The has seen a steep increase in the number of applications for section 501(c)(4) status and there are indications of a large increase in political campaign activity by social welfare organizations. Between FY2008 and 2012, the number of applications for 501(c)(4) status more than doubled. FY2008 FY2009 FY2010 - FY2011 FY2012 %Chg 501 applications received 1,631 1,751 1,735 2,265 3,357 +105% Not all exempt organizations must file the annual Form 990, only those with gross receipts of more than $200,000 or total assets greater than $500,000. Within this population, has seen a growth in reported political campaign activityisince 2008. Ch TY2008 TY2009 TY2010 TY201 1 WM 13 ?501(c)(4) organizations filing F990 8,962 9,133 11,486 9,444 23% Number of those returns reporting 0 political campaign activity (PCAReported PCA expenditures of organizations with revenues of $10 $17.3 $1.1 $46.7 $6.0 170% million or more (95M) Federal electoral cycles in bold. Based on historic filing patterns, W11 data are ?90% complete. Between the 2008 and 2010 electoral cycles, the number of ?501(c)(4) organizations reporting political campaign activity nearly doubled, outpacing the overall growth in the ?501(c)(4) population. At the same time, the value of campaign expenditures by large ?501(c)(4) organizations nearly tripled.. While Tax Year 2012 Form 990 filings are due beginning this week, Federal Election Commission data from 2012 electoral cycle are available. Although the definitions of reportable spending are different, a 2 IRSR0000468917 Report Exhibits - Page 000844 preliminary analysis of FEC data indicates another significant increase in spending in the most recent electoral cycle. The same large ?501(c)(4) organizations that reported PCA to IRS in 2010 also doubled their levels of campaign expenditures reported to the FEC between 2010 and 2012. (Note that this reflects an increase in expenditures among the population of filers identified from 2010 F990 data. It will not reflect additional organizations that may have undertaken political campaign activity in 2012.) Centralization of Advocag Cases Early in 2010, a 501(c)(4) application from a Tea Party organization indicated its intention to in?uence elections as part of its activities. This led a group manager in the Cincinnati office to take the following actions in February and March of 2010: handle this type of application as an emerging issue, and that screeners look for and identify similar cases in order to ensure appropriate and consistent handling. The Cincinnati of?ce had people try to identify and coordinate cases raising the issue of political activity using verbal and email reminders to look for cases involving the Tea Party, Patriots, 9/12 and other 501(c)(4) applications involving names suggestive of political activity. See Appendix A for the iterations of the lists that were used, along with relevant timelines. An increasing number of cases were found. The list is adopted as a method to replace the ad hoc email approach previously used to identify cases requiring coordination. On that initial list one of the categories was listed as ?various local organizations in the Tea Party movement. . . applying for exemption under 501(c)(3) or 501(c)(4). See In June 2011, concerns about the progress, identification and handling of these cases led to conversations among senior staff culminating in a brie?ng of the E0 Director at the end ofJune. The E0 Director instructed that the list should be revised immediately to use criteria focused on whether or applicants were involved with political, lobbying, or advocacy activities, and that headquarters should work on facilitating the resolution of the now over 100 cases. Late in 2011, efforts to facilitate case processing were slow. A new team was formed in Cincinnati to begin developing and resolving the cases with assistance from Headquarters specialists. In January of 2012, without any executive knowledge, staff in Cincinnati updated the list of centralization criteria out of concern that the criteria were over broad and pulling in too many cases. The new criteria read ?political action type organizations involved in limiting! expanding Government, educating on the Constitution and Bill of Rights, social economic reform/movement." Headquarters in Exempt Organizations was not informed. in January through February 2012, the centralized team started issuing development letters to the applicants using the standard reSponse time provided in the manual (21 days) and asking for voluminous information from some applicants, including in some cases web information and donors. Note that these letters went to organizations representing the full political spectrum. Increasing public concern (news articlesi letters from Congressional) was being expressed about the singling out of certain types of organizations, the nature of the questions in the development letters and the short turnaround time given to respond. Report Exhibits - Page 000845 At the end of February the Director E0 stopped the issuance of additional information letter requests pending new guidance to the Determinations unit. At the same time, in light?ofthe public nature of the discussion of the letters, the Deputy Commissioner, Services and Enforcement became aware that cases were being centralized in this area. in early March, after consultation with the Deputy Commissioner, a letter was sent to organizations with a pending development letter giving them a sixty day extension and allowing flexibilities on what information to provide. At the end of March, the Deputy Commissioner Services and Enforcement requested that the Senior Tech nicai Advisor (STA) to the Acting Commissioner (TEGE) conduct a review of what had happened with respect to determination letter inventory in this area and report back on the review and on recommendations for how to address any issues. At the same time, TIGTA indicated that they were going to review this area. The review by the STA was initiated by going to Cincinnati with a team of specialists to interview people about the process to .d ate and to conduct a review of a broad cross section of the ?les and of the development letters issued. On May 3, 2012, the STA reported back to the Deputy Commissioner, Services and Enforcement and to the Acting Commissioner TEGE identifying significant concerns in the case handling including: (1) Use of inappropriate criteria in the emails and then the list used to identify the cases that should I go to the advocacy case group; (2) Use of development letters that included troubling questions; (3) Delays in resolution of applications; and (4) A failure to provide the agents with the training and the tools they needed in order to handle this inventory appropriately and on a timely basis. The review did not identify: (1) Any evidence of improper influence on the from any party external to the Service. (2) Any evidence of partisan motivation or behavior by any IRS employee. Note that May 3, 2012, was the first date that the Deputy Commissioner had knowledge that a list with inappropriate names was being utilized by the Cincinnati Office. [Shortly thereafter, the Commissioner was made aware of the situation. Cogrective Actions Tagen On May 3, 2012, the STA recommended that training be conducted for a cadre of experienced agents including quality review staff and that it be followed by having a joint team of technical specialists from headquarters and agents go through the inventory together to group the cases into four categories: (1) cases that could be closed on their merits with the information in the file; (2) cases that required focused development; (3) cases that needed significant development; and (4) cases that presented significant concerns and might well conclude as adverse determinations. This process was designed both to enhance training, experience, and consistency while also moving the inventory forward to resolution as swiftly as possible. This approach was approved and implemented. Report Exhibits - Page 000846 Procedures were put in place to advise organizations that they generally did not need to provide donor information and that donor info r'mation that had been received in response to development letters was neither utilized nor retained. [when was this?] in addition, having learned in April of 2012 that the centralization criteria had changed again in January, the Director'EO Rulings 8: Agreements directed changes to the BOLO criteria and issued a memorandum requiring Director approval for anylisting to centralize determination applications. [This approach was concurred in by the Deputy Commissioner on May 3, 2012.] The Numbers and-Demographics Through May 9, IRS identified 472 applications for exemption for review of potential advocacy issues (including 301 ?501ic)(4) applications). The balance of applicants are for section To date, 176 applications have been approved (136 of which ?501(c)(4i applications There have been 37 withdrawals,? inclusive of both ?501(c)(3) and (4) organizations. Of the cases reviewed by TIGTA, only one-third have a name listed for centralization. of those have been approved. Moreover, while it is impossible based on name alone to determine with speci?city the political alignment of all organizations, in their totality it is clear that they span the entire political spectrum. 0f the approximately 300 section 501 advocacy cases noted in the report, more than 120 have been approved and nearly 30 have withdrawn. The difference in numbers is due to the point in time when TIGTA did its work. - Consistent Treatment for Determination Letter cases i need help here. There are certain protections against any adverse action in a determination letter case. Any adverse rulings against section 501(c)(4) organizations require multiple layers of review. No single person makes the determination. and multl-person review provides further protection for the integrity of the review process. [anything in this case?"partner with specialist from dcwmandatory review for all or Just adverse?] Analysis of this Matter The Internal Revenue Service is dedicated to reviewing applications for tax-exempt status in an impartial manner. Similar to our approach in other areas credit counseling, down payment assistance organizations, etc), E0 sought to centralize work and assign cases to designated employees in an effort to promote consistent treatment of applications. Given what was happening in the community in terms of the number oi organizations and concerns on campaign spending, centralizing advocacy cases for review in the determination letter process made sense: The way it was done did not. It was inappropriate but there has been no ?nding of political motivation. It should be noted that the vast majority of entities that were centralized would still have been centralized on a less narrow, more appropriate, centralization listing. Organization names did not play a role in the 5 Report Exhibits - Page 000847 Flax Nikole From: Paz Holly 0 Sent: Friday, February 08, 2013 9:28 AM To: Flax Nikole Lerner Lois Marks Nancy Light Sharon Subject: Advocacy Data Request Importance: High Below are the latest advocacy case numbers: 429 total cases have been bucketed as follows: 145 281 2 1. The 429 total cases have been placed in the following buckets: bucket1 ..94 - bucket2 ..96 - bucket4 ..75 0 misc ..1 a no bucket. Note: The cases identified as "no bucket" include 6 cases that are currently in the process of i being bucketed. 1 case closed status 01 and 15 cases closed status 04. Total number of'determinations processed is 156 cases: 501(c)(3) .. 32 approvals 501(c)(4) .. 117 approvals .. 1 approvals FTE status 11 FTE status 12 The 156 total number of determination cases processed by bucket: - BucketZ 48 2/8/2013 rage 1 a Bucket3 21 . _3 No 1 Total number of withdrawals is 33 cases. Report Exhibits - Page 000848 .. The total number of open cases is 240. Total number of development letters sent on open cases is 136 Number of cases open not bucketed: Number of cases in MISC open status: I Number of bucket 1 cases that are open: Number of bucket 2 cases that are open: Number of bucket 3 cases that are open: Number of bucket 4 cases that are open: 8 (6 additional info letters) 45 (23 additional info letters) 111 (80 additional info letters) 69 (27 additional info letters) 6 (no additional info letters) 1 (additional information letter sent) Note: Open cases are cases in status 31. 32, 37, 51 52 .55, 57, 58, and 75 2/ 8/20 1 3 Report Exhibits - Page 000849 lit/?i9 r? Recent section 501 activity Draft 7-17-12 Legal requirements: The law allows section 501(c)(4) organizations to hold themselves out as tax? exempt or to apply for IRS recognition as tax?exempt. All section 501(c)(4) organizations must file Form 990 annual information returns. To qualify under section 501(c)(4), organizations must be primarily engaged in the promotion of social welfare, not organized or operated for pro?t, and the net earnings of which do not inure to the benefit of any private shareholder or individual. The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. The regulations do not impose a complete ban on political activity by section 501(c)(4) organizations. A section 501(c)(4) social welfare organization can engage in some political activities as long as it is primarily engaged in activities that promote social welfare. Whether an organization meets the requirements of section 501(c)(4) depends upon all of the facts and circumstances of the particular applicant, and no one factor is determinative. Background: ?ii-"Starting in 2010. E0 observed an increase in the number of section 501(c)(3) and section 501(c)(4) determination applications from organizations that appeared to be potentially engaged in political advocacy activities Increase in section 50104 applications 2008 - 1410 2009 1571 2010 - 1591 2011 2242 2012 - 1715 (through April 1, 2012) E0 took steps to coordinate the handling of the cases to ensure consistency. - As sometimes happens. however, coordination efforts resulted in some cases being in inventory for a longer time than expected. In early 2012, after development letters were sent to some applicant organizations, issues with respect to these cases were brought to the attention of E0 management, who requested a status of the inventory. Report Exhibits - Page 000850 After receiving the inventory status, E0 management determined that a more refined approach was warranted to ensure more timely and consistent handling of the cases. EO management put together a team of highly experienced technical experts to work with the revenue agents in Cincinnati handling the cases. EO now has a process where each revenue agent assigned these cases works in coordination with a specific technical expert assigned to assist the agent. On section 501(c)(3) and section 501(c)(4) cases where there appears to be potential political intervention, the E0 staff member processing the application consults with his or her assigned technical expert on a real-time basis as to whether the facts raise issues of significant potential political intervention, and as to what information is needed to fully develop those issues. We have made significant progress on these cases to date. 0 320 total advocacy cases I '97 cases - 223 cases 0 More than 55.appr_ovals have been granted'to date [7 033 and 51 (:43 15 withdrawals] There have been no denials at this time. (Emerge cases were worked in 2008. Recent activity was revoking the 5 organizations that were wrongly approved.) 0 For many cases updated information requests have been sent to focus on the specific legal issues in question. We are in process of an active back and forth with organizations in those cases where there are questions as to whether the legal requirements for tax exemption are satisfied. Disclosure of donor names: 0 There are instances in which donor names are relevant in the course of the determination process. There is no legal basis for redacting such names from the application file if the information is used in making the determination on the application. 0 We informed organizations that if they could provide information requested in an alternative manner, they should contact their agent and we would work with them. - E0 Determinations staff did ask for donor names from some applicants for c4 status. In cases in which the donor names were not used in making the determination, the donor information was expunged from the file. Report Exhibits - Page 000851 E0 Workplan - Includes two separate projects that could be relevant here (exact language pasted below) 0 501 (5) and (6) self?declarers These groups social welfare organizations; labor, agricultural and horticultural groups; and business leagues, such as a chamber of commerce - can declare themselves tax-exempt without seeking a determination from the EO will review organizations to ensure that they have classified themselves correctlyand that they are complying with applicable rules. in FY 2012, E0 will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area. 0 Political activity - As in any election year, E0 will continue its work to enforce the rules relating to political campaigns and campaign expenditures. In FY 2012, E0 will combine what it has learned from past projects on political activities with new information gleaned from the redesigned Form 990 to focus its examination resources on serious allegations of impermissible political intervention. As in the past, information from outside sources about political campaign intervention will be reviewed by a committee of career civil servants. In addition, other potential violations identified through risk modeling of Form 990 data also will be sent to the committee for evaluation. The committee will focus on identifying the cases to refer for examination. E0 will further refine its risk models based on the results of examinations. EO will also ensure reporting and payment compliance with section 5276). Other issues: - Response times Normal timeline for responding to requests for additional information per IRM is 21 days. We have provided all organizations more time to respond and told them to contact us if they needed additional time. - TIGTA looking at consistency in identifying and reviewing applications for tax-exempt status involving political advocacy issues Opening letter .June 22, 2012 - BOLO procedures modified May 17, 2012 to require all changes to receive approval up to level of the Director, E0 Determinations. Report Exhibits - Page 000852 6811132389 13:35 539?4 DGRR 811359 1* EDOLPHUS TOWNS. NEW YORK DARRELL E. ISSA. CALIFORNIA RANKING MINORITY MEMBER ONE HUNDRED ELEVENTH CONGRESS Mum'sz of the ?051mm ?atatz? mm at ?eptzsentatihw COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 2157 RAYEUHN House OFFICE BUILDING WASHINGTON, DC 20515?5143 37122:? $22-31? 3 FACSIMILE 2009 Date. August 11, 2009 . GONG. CORR. BR The Honorable Douglas Shulman - TO: Commissioner Internal Revenue Service 3 From? Darrell . Issa Ranking Member Oversight 5: Government Referm Committee Phone: Fax: [202) 622?4733 There will be a total of 5 pages, including cover page. Comments: If there are any or problems regarding this transmission, piease can the sender at 202-225-5074 Please Note: The: information on this facsimile is con?dential and is intended only for the use of the: person named above. If this facsimile has come. to you in error, please call sender at the number given above. Any disu'ibution of this facsimile is strictly prohibited. Report Exhibits - Page 000853 coin/233 13: 35 53974 Dean PAGE 32/86 EDOLFHUS TOWNS. NEW YORK DAHHELL E. ISSA. CALIFORNIA CHAIRMAN RANKING MINORITY MEMBER ONE HUNDRED ELEVENTH CONGRESS (Empress at ti] 2 ?atten ?utes $0115: at ?eprzsentatihts ON OVERSIGHT AND GOVERNMENT REFORM 2157 Flavsuan House OFFICE BUILDING WASHINGTON, DC 20515-6143 53 33313351 a: I- I. Augustll,2009 -- i i ELJUEI The Honorable Douglas Shulman Commissioner . BR Internal Reyenue Service LA 1 1 1 Constitution Ave, N.W. i Washington, D.C. 20224 I .r Dear Commissioner Shulman: The Committee staff has been investigating the Association of Community Organizations for Reform Now's lack of compliance with various federal laws. Recently, I released a staff report entitled, ?Is ACORN Intentionale Structured As a Criminal Enterprise?? Report?). The ACORN Reportl found ACORN conspired to defraud the United States by using taxpayer funds for partisan political activities. ACORN submitted false ?lings to the IRS, in addition to failing to report and pay excise taxes on Dale Ratblce?s excess bene?t transactions. Additionally, ACORN falsi?ed and concealed facts concerning an illegal transaction between related parties in violation of the Employee Retirement Income Security Act of 1974 I am concerned ACORN has failed to with 501(6), 527(1) of the Internal Revenue Code and other Internal Revenue Service regulations. Our investigation has led to additional questions regarding compliance with the Internal Revenue Code. It appears that ACORN, a taxable non-exempt corporation, has intentionally used gaps in the RC and the Federal Election Campaign Act to engage in activities that would be subject to either prohibition or taxation under any reasonable contemplation of FECA and the IRC. FECA2 generally prohibits corporations from making a contribution or expenditure in connection with any election to any political office3 and from using See Minority staff report, 15 ACORN Intentionally Stir-newed As a Criminal Enterprise? COMM. OVERSIGHT mo Gov?r REFORM (2009) at 3?6, available at. :fh1.1.5.0. 431 at seq. IRSR0000469224 Report Exhibits - Page 000854 asnuzeas 13:35 53974 oases Pass 332's Mr. Douglas Shulman Augustll,2009 Page 2 treasury funds to pay fer clectioneering communications} However, there are several exceptions to general prohibition on corporations making contributions or expenditures. Under 2 U.S.C. 441b(b)(2), corporations may make expenditures: (1) to communicate with stockholders and executive or administratiVe personnel and their families; (2) to engage in nonpartisan voter registration or get-out?thewote campaigns aimed at stockholders and executive or administrative personnel and their families; and (3) to establish, administer, and solicit contributions to a separate segregated fund for political purposes. I understand that ?'527(f) of the subjects 501(c) organizations to tax if they make an eitpenditure for a 527 ?exempt function? The ?in?uencing or attempting to in?uence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public o?ice or of?ce in a political organization, or the election of Presidential or Vice-Presidential electors . . . would constitute a 527 ?exempt function? under the IRCI.s According to the IRC, if a? 501(c) organization sets up a separate segregated ?uid, the fund will be treated as a separate 527 political organization for tax purposes.6 However, 3 501(c) organization cannot set up a ?md to conduct activities it cannot do e.g. a ?501(c)(3) organization, which is prohibited from engaging in campaign activity under the tax laws, cannot set up a fund to engage in those types of activities.7 Treasury Regulation states that FECA-pennitted expenditures are taxable only to the extent provided by regulation Unfortunately, the Treasury Department has not yet promulgated a regulation stating what that extent is.:3 According to the Congressional Research Service, ?[u]ntil the regulation addresses this matter, it appears a 501(c) organization may engage in [political] activities without tax consequences under IRC I understand that, for purposes of applying FECA, the FEC does not distinguish between tax?exempt nonpro?t corporations like Project Vote and taxable nonpro?t cerporations like ACORN. However, the Congressional Research Service has informed me ?for the purposes of determining whether a corporation is exempt ?om certain FBCA 3 2 use. 441(3). 4 2 use. 441wa2). 5 {no 527(c)(2). 527mm; Treas. Reg. 7 Treas. Reg. Treas. Reg. 5' Memorandum from L. Paige Whitaker, Legislative Attorney, Congressional Research Service and Erika Lander, Legislative Attorney, Congressional Research Service to House Committee on Oversight and Government Reform, 2 (Aug. 4, 2009) (on ?le with author). See TD. 7744, 1981-1 (LBJ 360 (Stating that when the matter is eventually addressed, the regulation will apply on a prospective basis); see also Judith E. Kindell and John Francis Reilly, Election Year Issues, IRS 2002 E0 CPE TEXT, at 437 (2002), available at Report Exhibits - Page 000855 Emil/2389 13:35 53974 CIGRR PAGE BMBE Mr. Douglas Shulrnan August 11, 2009 Page 3 prohibitions, the tax-exempt status of a corporation is relevant.?l? These ambiguities create the concern that ACORN is permitted to engage in lobbying activities the may wrongly believe are exempt. In addition to the dif?culty my staff has faced in obtaining information cementing the IRC, the apparent gap in the rules of the and the FEC signals an increased need for inter-agency communication and coordination. To ensure that ACORN and ACORN?a?liated entities are complying with both the IRC and IRS regulations, please provide the following infonnation and documents on or befOre August 20, 2009: 1. It is my understanding that the IRC or IRS regulations require political funds to be separate and segregated from tax-exempt accounts. The ACORN Report disclosed an audit by outside counsel, ?nding ACORN and its a?iliates lack an adequately documented delineation of 501(c)(3) from non- 501(c)(3) work,ll ACORN cannot prove that 501(c)(3) resources are not being directed to Speci?c regions based on impermissible partisan ctmsiderationsf2 and Communities Voting Together a 527 organization, is ?treated like a pot of money aVailable to ACORN to carry out state?level political work. "13 Does ACORN 5 use of 501(c)(3) resources for impermissible partisan considerations and its use of 527 funds as a ?pot of money? constitute violations of the 2. Citizens Consulting inc. a taxable nonpro?t, simultaneously managed the accounts of political and private donor-ftmded organizations. a. Does co-management of various tax-exempt and non-exempt af?liate accounts, many of which receive federal funds and some of which are 5275, violate 527(f) of the b. If so, has the IRS taken steps to prevent rte-management of af?liate accounts that are legally required to be separate and segregated? 3. It is my understanding that ACORN ?les Form 1120 corporate income tax with the IRS, has no tax-exempt status with the IRS, and is registered in multiple states as a nonpro?t corporation. a. If a taxable nonpro?t corporation engages in lobbying and political even those exompt under 2 U.S.C. 441b(b)(2), where does it report these activities? Memorandum from L. Paige Whitaker, Legislative Attorney, Congressional Research Service and Erika Lunder, Legislative Attorney, Congressional Research Service to House Committee on Oversight and Government Reform, 3 (Aug. 4, 2009) (on ?le with author). - 1' Memorandum from Harmon, Curran, Spielberg, Eisenberg, on Organization Review to ACORN Bene?cial Association, ACORN Housing Corporation, ACORN Institute, ACORN VotesI American Institute for Social Justice, Association of Community Organizations for Reform Now, Citizens Consulting, lnc., Citizens Services Inc, Communities Voting Together, Instimte for Sigmunity Affairs, lnc., Project VoteNoting for America, Inc. (June 19, 2008Report Exhibits - Page 000856 1381' 11! 2309 13: 36 53974 UGRR PAGE 5/ 85 Mr- Douglas Shulman August 11, 2009 Page 4 b. Provide copies of 1120?s from 2004 to the present. 4. Identify the number of times the IRS has: publicd?on. 5. Provide all documents showing transfer of political contributions and does met the requirements that a. The 501(c) uses procedures that satisfy federal and state campaign laws; b. The 501(c) organization maintains adequate records to show the transferred monies and political contributions and dues (not investment income); and c. (3) the transferred monies were not used to earn investment income for the 5010:) organization.? 6. The IRS requires exempt organizations to report embezzlements on its federal tax information return (Form 990, Form W-2, or Form 1099) or on an amended federal tax information return".15 Section 4953 of "the Internal Revenue Code imposes an excise tax on excess bene?t transactions between a disquali?ed- person and an applicable tax-exempt organization.?5 A disquali?ed person is liable for a twenty-?ve percent tax on the excess bone?t.? An organization manager-may also be liable for a ten percent excise tax on the excess bene?t transaction, if he or she ?knowingly, and without reasonable cause? participated in the excess bene?t transaction.? 21. Produce all IRS documents concerning fees assessed against Dale Rathke, Wade Rathke and the relevant ACORN-a?Iiated 501 corporations involved in the embezzlement. Treas. Reg. Economic Bene?t Transactions. INTERNAL savanna SERVICE, miiabia at: tegefegtgpico?dr. ?6 Intermediate Sanctions. Tax Informatianfor Charitable Organizations, 13mm. REVENUE SERVICE, availabte at Bn'ti? th??blefgm'glg?u id: 123 22$ 30.th ?7 2007 instructions for Form 990 and Form 990-EZ. Tar Ityrormarion for Charting Other Non-Pro?ts, ETERNAL REVENUE SERVICE. available at Id. IRSR0000469227 Report Exhibits - Page 000857 EBIIUZBBS 13:35 53974 DGRR PAGE BEIBE Mr. Douglas Shulman August 11. 2009 Page 5 b. If no fees Were assessed, provide a detailed explanation and any documents explaining why such a transaction is not considered a Violation of the excess bene?t rule. 7. According to outside counsel, ACORN paid its embezzlement?caused . de?cits through an employee sponsored health fund. Produce 31] RS documents concerning penalties assessed against ACORN or any of its af?liates concerning violations of ERISA. I.an penalties were assessed, provide a detailed explanation and any documents explaining why such a transaction is not considered a violation of ERISA. For purposes of your response to this letter, ACORN and its a?liates includes but is not limited to: ACORN, Project VoteNoting for America, Inc, CCI, Citizens Services Inc. ACORN Housing Corporation ACORN Community Labor Organizing Center American Institute for Social Justice SEIU Local 100, SEIU Local 330, ACORN Institute, ACORN Votes, and Communities Voting Together The Committee on Ovorsight and Government Reform is the principal oversight committee in the House of Representatives and has broad oversight jurisdiction as set forth in House Rule X. "thank you for your attention to this matter. Ifyou have any questions regarding this request, please contact Daniel Epstein of the Committee statt? at (202) 225?5074. Sincerely, Darrell Issa Ranking Member cc: The Honorable Edolphus Toms, Chairman Report Exhibits - Page 000858 From: Shafer John Sent: Tuesday. March 16, 2010 9:31 AM To: Muthert Gary A Subject: RE: TEA PARTY Attachments: Notebookag Importance: Low What?s the movement? John Shafer Grasp Manager "fetegohooe: FAX: (513)253?5200 From: Muther?c Gary A Sent: Tuesday, March 16, 2010 10:27 AM To: Shafer John Subject: TEA PARTY ljust looked at CNN.com. There is a major TEA Party protest in Washington DC. today. I watched the video. It appears the TEA party is a Republican based entity. I am now a resident expert on the TEA Party. However, that being said, there is also an equal Democratic "tea party" type entity, calied "Emerge". If you want more info. just ask. Gary Muthert TEIGE, ID #1000203255 Screening Group, Group 7838 550 Main Street Cincinnati, ?Ohio 45201 513-263?3639 Phone 513-263?5200 FAX Report Exhibits - Page 000859 From: Angner William Sent: Wednesday, April 11, 2012 3:32 PM To: Seek Stephen Subject: RE: TIGTA audit 4/306/1/2012 pawns in chain of command are either overlooked or one up the chain should take the heat for you:) From: Seok Stephen Sent: Wednesday, April 11, 2012 4:29 PM To: Angner William Subject: RE: TIGTA audit 4/30-5/1/2012 Boss. You are going to save the: right? From: Angner William Sent: Wednesday, April 11, 2012 4:26 PM To: Conley Melissa Davenport Sally Fletcher Brad Jennewein John Perry Veronica Sut?eld Casey Woeste Bryan Hanson Michael Kiser Joan McLaughlin Geraldine Gentry Diane Luk Zenia; Perry Lori A Cc: Seok Stephen Subject: TIGTA audit 4/30-5/1/2012 Holiy Paz and TIGTA employees will be here in Cincy 4f30-5/1i2012 to review advocacy cases audit). There will also be Congressional hearings about how we handle those cases as well. Glad those are in another group worked by other agents! Please give Stephen all the morale support you can muster:) Report Exhibits - Page 000860 From: Thomas Cindy Sent: Monday, May 10, 2010 7:27 PM To: Herr Joseph Cc: Melahn Brenda; Camarillo Sharon Waddeli Jon Subject: FW: Emerging Issue follow-up Attachments: Issue Issue Form-05102010doc Joseph, Sorry i missed this in ?rst review there is reference to "See Below.? i?m not sure where we are directing the reader. Refer to comment incorporated into attached document. Regarding the concern I had regarding TAG issue, the bullet you included is good. i think the CPE instructors are going to need to make sure they explain that clear TAG referrals go directly to the TAG group and do not pass through Emerging issue group first. From: Herr Joseph Sent: Monday, May 10, 2010 2:07 PM To: Thomas Cindy Cc: Meiahn Brenda; Camarillo Sharon Waddeli Jon Subject: RE: Emerging Issue follow-up Cindy, I made some updates to address your concerns. Joseph Joseph R. Herr Manager Group 7825 Exempt Organizations Determinations (51' 3) 263?3725 (513) 2634513 fax From: Thomas Cindy Sent: Sunday, May 09, 2010 11:15 PM To: Herr Joseph Cc: Meiahn Brenda; Camarillo Sharon Waddeli Jon Subject: FW: Emerging Issue follow-up Joseph, This is so much better than the prior document. Attachment 1 includes changes i recommend (tracked through Word]. Attachment 2 is a clean copy. with outstanding comments/questions. From: Herr Joseph Sent: Friday; May 07, 2010 12:17 PM To: Thomas Cindy Meiahn Brenda; Camarillo Sharon Waddeli Jon Subject: Emerging Issua follow-up 1 Report Exhibits - Page 000861 All. Attached please find the re?drafted CPE training handout as discussed in our meeting yesterday. Joseph Joseph R. Herr Manager Group 7825 Exam pt Organizations Determinations (513) 263-3725 (513) 2634513 fax IRSRDOUO485855 Report Exhibits - Page 000862 EMERGING PROCESSING REFERRAL FORNI NOTE: Applications involving an issue that has been identi?ed on the TAG list or possessing other af?rmative indicators of potential fraud or abuse should follow the TAG referral procedures in IRM 7.20.6. Date: Specialist Name: Entity Information Name: EIN: Case number: POA (if applicable): EMERGING ISSUES COORDINATED PROCESSING l?l Reason for Referral: Additional Relevant Facts: Referral Approval Group Man ager Date . (For Coordinating Group) Recommendation: Disposition: Signature Date Report Exhibits - Page 000863 TAG, Emerging issue, Coordinated Processing, and Watch Issue Awareness Backgreund As Determinations specialists, we are continually asked to be on the look out for various new issues, cases, tax law changes, or possible fraud and abuse issues. We receive multiple emails, spreadsheets, and lists and are responsible for managing this information. Without a single depository for this information, it is difficult to remember all the issues and more difficult to keep up to date on the status of them. To assist with this, we created an Excel workbook to store all the information in one location. The workbook will be divided into five worksheets: TAG, TAG Historical Information, Emerging Issues, Coordinating Processing, and Watch Issues. Thelssues What is a TAG issua? Touch-and-Go (TAG) issues may involve abusive tax avoidance transactions, fraud, or terrorism. TAG procedures are described in full in IRM 7.20.6. TAG issues supersede all others. Therefore, applications involving an issue identified on the TAG list or possessing indicators of fraud or abuse should follow the TAG referral procedures. What is an Emerging Issue? An Emerging Issue is an issue identified in a group of cases for which no standard practice for handling has been established. Emerging Issues may arise in reaction to current events or changes to tax law, which are not addressed through existing precedent or procedures. Examples of Emerging Issues include the following: - Tea Party cases 0 These cases were referred because of the number of applications, high profile, and inconsistent requests of 501(c)(3) and I Pension trust 501(c)(2) non-traditional investment cases 0 These cases were referred because of the unusual note receivable asset, the involvement of the same law firm, high dollar amounts, and possible impact on Employee Plans (EP). What is Coordinated Processing? Coordinated Processing is the mechanism for promoting uniform case handling by assigning multiple related cases to a particular specialist-or group when there Report?Eini-bits - Page 000864' is existing precedent and procedures that cover the issues involved. Examples of Coordinated Processing include the following: A break-up of a large group ruling resulting in the subordinates seeking individual exemptions - Multiple entities related through a complex business structure such as a senior housing management company and separate senior housing properties - A change in state law requiring instrumentaiities to change their Form 990 ?ling requirement What is a Watch Issue? A Watch issue is a general term for issues or cases in need of special handling. Examples of a Watch Issue include the following: - A request from Criminal Investigation to look for an application from a specific organization - A request from E0 Technical to look for applications involving certain activities such as: 0 open software cases 0 Regional Health information Organizations (RHIOs) Workbook and Email Alerts The Excel workbook stores all information in one location and individual worksheets will list the various issues and provide guidance onhow to handle them. Also, we are in the process of establishing an email alert system to notify EO Determinations specialists of issues. These alerts will provide noti?cation of new issues, updates on existing issues, and resolutions on closed iSsues. (1) TAG issues, Emerging issues, Coordinated Processing and Watch Issues are tracked on a single Excel workbook. - Each of the issue types will have a separate worksheet. - Each worksheet lists the individual issues: 0 issues are named and numbered. 0 Brief descriptions of the issues are provided. 0 Guidance on how to handle the issue is provided. (A cross reference to an email alert number will be referenced. See below.) - Individual issues and related cases will be assigned to different groups or different specialists. - A Coordinator will maintain the workbook. 0 add, update, or close issue information on the appropriate worksheet. distribute the spreadsheet to E0 Determinations specialists. 1R8 R0000485858 Report Exhibits - Page 000865 (2) Email alerts will notify EO Determinations specialists of any additions, updates, or closures to issues in the workbook. - The Coordinator will compile and distribute the alerts: Containing information on one or more issues. 0 Providing guidance in more specific detail than the Excel workbook. 0 Including numbers for cataloging. Archiving for future reference. identificstion and Referral of issues (1) EO Determinations specialists identify potential issues. Routinely, issues are identified in the technical screening process. However, issues can be identified at any stage of case processing. (2) When a potential issue is identified, the specialist will complete a referral to the appropriate coordinator. - TAG issues are referred following the procedures in IRM 7.20.6. - Emerging Issues or Coordinated Processing issues are referred to the Coordinator by completing the Emerging Issue/Coordinated Processing Referral Form. (See attached copy of form.) 0 The reasons for the referral must be cleany described. 0 The specialist?s manager reviews and approves the referral prior to sending to the Coordinator. - Cases identified in technical screening are forwarded together with the approved referral sheet to the Group coordinating Emerging Issues. I Cases identified outside of technical screening remain with the specialists pending review of the referral form. - Watch Issues are referred to the screener/specialist?s manager. Analyzing the Referrai Upon receipt, the Coordinator reviews, researches, and analyzes the issue. The referral will result in one of the following recommendations: - To follow Emerging Issue procedures - To follow Coordinated Processing procedures - To forward the referral to the TAG Coordinator Report Exhibits - Page 000866 0 if the Coordinator finds indications of fraud or abuse I To not accept the referral if the referral is not accepted, the referring group manager will receive feedback explaining why. 0 Cases transferred from technical screening will follow secondary screening procedures. Emerging issues Procedures (1) In the processing of an Emerging issue Referral, the following will occur: - The issue will be researched and developed. 0 Research will include identifying any related cases. 0 Development will include identifying the significant facts and . circumstances and the appropriate tax law. I The Coordinator will complete the following: 0 Add the issue to the Emerging issues worksheet. 0 issue an alert. (2) A white paper is prepared and elevated to the appropriate authority to decide how the issue is handled. (3) The Coordinator disseminates the decision through a follow-up email alert, and makes updates to the Emerging issues worksheet. Coorainated Processing Procer?ures (1) in the processing of a Coordinated Processing Referral, the following will occun - The issue will be researched and developed. 0 Research will include identifying any related cases. 0 Development will include identifying the signi?cantfacts and circumstances and the appropriate tax law. 0 Determining what issue-specific procedures should be applied to the related cases. - The Coordinator will complete the following: 0 Add the issue to the Emerging issues worksheet. 0 issue an alert. (2) The Coordinator will disseminate follow-up information on the disposition of the issue through a follow-up email alert, and makes updates to the Coordinated Processing worksheet. Report Exhibits Page coo?aeti- TIMELINE Dates Players 2/25-26/10 Jack Koester to John Shafer email to Sharon Camarillo to Cindy Thomas to Holly Paz . 2/26- Gary Muthert and John I was asked by John to query our system and 4/5/2010 Shafer ?nd any Tea Party application and similar cases. John asked me to secure 10 Tea Party cases and transfer them to EOT for review. I. conducted EDS research and found 10 TP cases. Also had Karl Beckerich conduct EDS research to see if any TP received exemption or was being ?led via paper. Had Karl Beckerich secure the paper ?les for me and prepared the cases for transfer. 3/16- John S'hafer/Cindy Acknowledged that we have the 10 cases 3/ 17/2010 Thomas/Holly Paz secured by me and really to transfer. They email wanted only two and we us to keep the rest until noti?ed. 4/5/2010 Gary Muthert acting for Received email from Cindy Thomas as Sh acting manager Pre?2/25/10 3 TP were received eXemption per 2/25/2010 Jack indenti?ed Case #1 - 3/8/2010 Identi?ed 7 Tea Party?s and prepared for EOT transfer 4/2/2010 Identi?ed 3 Tea Party cases