GOP Wants Hillary Audited

What’s the worst threat you can think of? The answer to this question probably depends on who you ask. My teenage daughter might say taking away her phone or the threat of somebody unfollowing her on Instagram. If you ask any normal adult person, it might be the threat of physical harm. But if you ask somebody in my circle of friends, it would definitely be the threat of an IRS audit.  There are few things more agonizing than the dreaded audit.

The Republican Party is threatening Hillary Clinton and her family’s charity, the Clinton Health Access Initiative (CHAI), not with legal action, but with an IRS audit. Of course, they can’t audit her themselves; they filed a formal complaint asking the IRS to audit the charity. CHAI staved off an investigation back in May by agreeing to file amended returns and fix the problem. But now they are taking the position that the income was correctly stated and amendments are not necessary. As the Democratic front runner, Hillary will undoubtedly attract plenty of scrutiny, and the Republicans will do their best to portray her as a tax cheat.

Clinton Foundation Under Fire for Tax Errors

Filing an amended tax return is normally not that big of a deal.  It is not uncommon for folks to make mistakes or leave out information on their Form 1040 personal income tax filing.  To amend a previously filed Form 1040, you need to complete a “1040x.”  If you want to make corrections on multiple tax years, you need a separate 1040x for each year and you need to mail them in separate envelopes to ensure they are processed correctly.  The basic structure of a 1040x is pretty straightforward: Column A shows the figures as reported on your original 1040, Column B shows the corrected figures, and Column C shows the difference between the two.  Furthermore, barring other relevant facts, the filing of a 1040x does not automatically put you into a high audit risk group.

The problem with Hillary Clinton and her foundation is there are a few “other relevant factors” that have placed their actions in the spotlight (catch up on the story here).  For one, we’re talking about million dollar mistakes, meaning they put “zero,” when the correct number was something in the tens of millions of dollars range.  Kind of hard to swallow, right?  And similar “mistakes” were made three years in a row.  In the words of charity law experts:

It [is] not remarkable for a charity to refile an erroneous return once in a while, but for a large, global charity to refile three or four years in a row [is] highly unusual.

Now House republicans are calling for an IRS investigation.  Most letters to Commissioner John Koskinen would probably be ignored or referred out to a different IRS department in typical IRS style, but I’m guessing this one will get adequate attention.

Lerner Emails not so Benign

There are just as many “crazies” in Sacramento as there are in Modesto, you just have to know where to find them.  And there are just as many Democrat crazies as there are Republicans.  After all, craziness knows no race, religion, or political preference.   Same with “—holes.”  In fact, that group may be more common than crazies.

Of course what I’m referring to here is the content of a couple emails that the now-famous Lois Lerner sent to a friend from her government issue Blackberry in 2012.  Her friend brought up the topic of right-wing radio shows and Lerner referred to the hosts and listeners of such shows as “crazies” and “—holes.”  The emails were released on Wednesday and Republican lawmakers see them as proof of Lerner’s disdain for conservatives and proof that she was targeting conservative groups’ tax-exempt status applications for extra scrutiny.

This new evidence clearly demonstrates why Ms. Lerner not only targeted conservatives, but denied such groups their rights to due process and equal protection under the law.

~ Rep. Dave Camp, chairman of the House Ways and Means Committee

Just to play the devil’s advocate, because that’s what I like to do, there are a number of ways to rebut the accusation that Lerner is biased against conservatives.  For example, maybe she loves conservatives but dislikes the “whacko wing” of the GOP, as her friend put it.  Maybe she specifically dislikes the small faction of radio whackos in the whacko wing of the GOP.  Maybe it’s only the radio wackos in the whacko wing who actually call in and talk apocalyptically about our beloved ‘Merca and the need to protect her borders, hunker down, buy ammo and food, and prepare for the end.  Maybe that’s who she thinks are the crazy assholes that don’t deserve tax-exempt status.  But even so, I think these emails suggest that she was most likely not being fair and impartial in the discharge of her official duties.

IRS Stays Away from Churches

Do you know the difference between a non-profit religious organization and a church?  Perhaps the biggest difference is their tax obligations.  While it is true that neither  is required to pay taxes, a pastor, televangelist, or broadcasting company that is registered as a religious organization must file information returns (Form 990) with the IRS that disclose how their money is spent.  However, churches, for the most part, do not have to answer to anyone.

John Burnett, reporting for National Public Radio, writes about a Christian television network called “Daystar” that operates much like a wealthy corporation, except without the transparency.  Yet they call themselves a church and the IRS has never questioned it so far as anyone knows.  There is a 14-point test that the IRS may use (in theory) to determine if an entity qualifies as a church under the law, but the IRS doesn’t enforce it. And if these churchy executives decide they want to drive Bentleys and live in sprawling chateus, they do it.  If they want to spend donation money on their own pet causes, then they do it.  According to IRS insiders, the government just doesn’t audit churches anymore, for at least the past five years anyway.

As part of America’s commitment to religious freedom, anyone can start a church, start preaching and passing the collection plate. They are presumed to be a church by the IRS — no questions asked.

Quoting former Daystar employees and tax attorneys, Burnett makes it pretty clear that Daystar would never meet the criteria for church status if the IRS were to enforce its own rules.  We all know how good the IRS is about enforcing its own rules…

Cindy Thomas Defends "Low-Level" IRS Employees in Sharp Email to Lois Lerner

At the height of the IRS Tea Party targeting scandal, high-level IRS employee Lois Lerner blamed low-level IRS employees in a Cincinnati office for flagging tax-exempt applications that contained words such as “tea party” or “patriot.”  Lerner had said that “line people . . . didn’t have the appropriate level of sensitivity about how this might appear to others.”

But one of these underlings in Cincinnati showed plenty of sensitivity in a May 10th email to Lerner that was made public this week by investigators on the House Ways and Means Committee.  Her name is Cindy Thomas, then-director of that office.  She took offense to Lerner’s labeling of her and others as “low level employees,” noticing right away that the Cincinnati tax-exempt division was being blamed in order to protect high-level IRS management.  Tax law and IRS news can be dull at times, but Thomas’ email reads like a juicy piece of gossip:

As you can imagine, employees and managers [in the Cincinnati tax-exempt division] are furious…How am I supposed to keep the low-level workers motivated when the public believes they are nothing more than low-level and now will have no respect for how they are working cases?  The attitude/morale of employees is at the lowest it has ever been…the previous 1½ years inside the determinations unit has been miserable enough because of the division’s workload and lack of help with strategic planning from Washington…Now our leader is publicly referring to employees who are the ones producing all of this work with fewer resources than ever as low-level workers!

This is obviously more than a defensive response from a manager with a bruised ego.  I respect the way she stood up for her employees.  And because I know first-hand the condition the IRS is in (and the condition it has been in for several months now), I don’t doubt anything she said.  This email, though emotionally-charged as it is, goes to the heart of the scandal in a way that is more raw and sincere than anything we have seen to date.

Veterans Groups Resist IRS Audits

The IRS does a fairly good job taking care of American military families, but what about our veterans?

Some think the IRS is picking on the American Legion and other non-profit veteran organizations.  The American Legion is a veterans organization that was incorporated by Congress in 1919.  They are “the nation’s largest wartime veterans service organization, committed to mentoring youth and sponsorship of wholesome programs in our communities, advocating patriotism and honor, promoting strong national security, and continued devotion to our fellow servicemembers and veterans.”  They are also highly enthusiastic about baseball and that’s good enough for me.

Jerry Moran, a Senator from Kansas, is unhappy about audits that the IRS has undertaken of certain American Legion posts.  Apparently the IRS requires that they maintain dates of service and character of service records for all its members or face $1,000 per day penalties.  American Legion officials are claiming that they have never heard of this requirement.

Really this requirement is not unreasonable, given the fact that it is the IRS’ job to make sure all tax-exempt organizations are meeting the requirements for tax-exempt status.  But veteran groups are claiming that they have never been informed of the record-keeping obligations.  Moran wants to know when this requirement came about, under whose watch, and by what authority.  These are valid questions since the audits are being conducted pursuant to mere IRS “guidelines” found in the Internal Revenue Manual.  Moran is asking the IRS to point to the actual legal authority that grants them the right to conduct these audits and levy tax penalties for non-compliance.

Accounting Today asked about these audits.  The IRS’ response:

  • There is no special enforcement effort underway; just routine compliance activity
  • Authority for these audits is granted by Internal Revenue Code Section 501(c)(19)
  • The IRS HAS made efforts to inform veteran organizations of their obligations by way of outreach programs and special publications, so if they didn’t know, they should have known

IRS Scandal Heats up as Lerner Refuses to Testify

It is normal for the IRS to be all over the news in April, but this year, heading into the last week of May, they remain the talk of the nation.  As you probably know, at the heart of the controversy is the IRS’ unfair targeting of conservative groups applying for tax-exempt status.  Many top-level Internal Revenue Service officials are coming under fire for either failing to detect the practice earlier or for failing to timely report it to Congress.  Former IRS Commissioner, Doug Shulman, has said he didn’t know for sure what was going on.  Steven Miller, the man that replaced him, has also denied any wrongdoing, before being fired by President Obama last week.

Today Lois Lerner was called to testify before Congress but, following the advice of her attorney, plead the 5th and refused to testify.  Lerner is the individual considered to be directly in charge of the branch in Cincinnati that was running afoul of IRS procedures.

I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any congressional committee.

Because I am asserting my right not to testify, I know that some people will assume that I have done something wrong. I have not.

~ Lois Lerner, speaking before the House Oversight and Government Reform Committee

J. Russell George, the head of TIGTA (Treasury Inspector General for Tax Administration) is also a target, and I think rightly so.  It has always bothered me that TIGTA’s audits, probes, and reports seem to be rather pointless, leaving it up to the IRS to agree or disagree with TIGTA recommendations.  If there was some kind of cover up, people are going to wonder about TIGTA’s involvement.

The next step appears to be appointment of a special prosecutor, which, in the eye of the public, may elevate things to the level of the Bill Clinton scandal and Watergate.  I don’t recall the last time the IRS was in the spotlight like this, much less involving something that could be called a “scandal.”  From the looks of it, it will be a while before they can go back to the processing of amended tax returns, and the bean counting, and whatever else they usually do this time of year.

Sandy & Obamacare

Just a couple random observations today:

1. Hurricane Sandy – Have you ever seen the looting that goes on when there are major storms and disasters?  Well, there is a distinct probability that we will see internet “looters” who don’t actually go and affirmatively steal things, but who lure victims to send them payments.  Beware of websites that purport to be charities raising money for victims of Hurricane Sandy — they could be a scam.  You can check on the tax-exempt status of the organization to determine how much you’re going to trust them.  Do this BEFORE you donate!  No need to run it by your tax attorney; just follow this link to the Exempt Organizations Select Check on the IRS website.

2. Obamacare Form – Americans for Tax Reform has prepared a “projected” tax form to assist taxpayers with their obligations under Obamacare.  This is so bizarre to me.  What a strange gimmick.  First of all, who has time to put together a complete form along with instructions based on what they think the IRS is going to require?  Second, who is really going to use this form when the individual mandate does not take effect until 2014?  Tax relief may be a top priority these days, but people just don’t plan that far in the future.  Props for style though;  it looks just like an actual IRS form.

Sunday's Political Sermons Will Likely Go Unchallenged

As part of the growing movement called “Pulpit Freedom Sunday,” approximately 1,400 pastors, preachers, and evangelists across the country will address their congregations this Sunday and talk very candidly about which presidential candidate they endorse.  This is something that could theoretically result in revocation of their churches’ tax-exempt status.  Theoretically.

The religious leaders who participate in “Pulpit Freedom Sunday” on October 7th are hoping the IRS will strike back . . . or at least do something.  They really would like to see a lawsuit, which they see as a necessary step in eventually putting the controversy to rest.  But they won’t need their tax attorney standing by because chances are the IRS will not have any kind of response at all.

The IRS simply does not have the manpower to police these sorts of violations.  Yes, the IRS has their hands full with collections and tax relief cases, but that’s not the problem.  The personnel who used to be responsible for investigating churches no longer have the authority to do so.  New regulations have been pending since 2009, but until they are approved, the IRS is absolutely powerless.

Back Again: Pulpit Freedom Sunday 2012

image via

Hundreds of defiant pastors will be joining forces next month for “Pulpit Freedom Sunday,” an event intended as a “head-on constitutional challenge” to the rules prohibiting churches from endorsing or opposing political candidates.  Participation has grown every year since 2008 when the movement began.  Pastors participating in this October 7th event will be speaking unequivocally for and/or against specific presidential candidates, risking revocation of their 501(c)(3) tax-exempt status.  A risk they welcome, apparently.  They will be recording each sermon and sending it in a care package to the IRS.  They are hoping the IRS takes action against one or all of the pastors so they can then litigate and (eventually) take it all the way up to the Supreme Court.

I’m not sure churches will have a leg to stand on in challenging the constitutionality of this 58-year-old tax code provision.  It would be one thing if the federal government were unilaterally restricting what church representatives can and cannot say over the pulpit, but what about the tax relief offered to non-profit organizations!?  Its a dual tax subsidy for churches: (1) their income is not taxed, and (2) donations to them are tax-deductible.

Sounds like a fun event though — a real American kind of thing to do.  Constitutional law lawyer, tax lawyer,  and interested citizen alike will be watching to see how the IRS responds.