The Intimidation Game (9 page)

The Democratic Congressional Campaign Committee kicked it off in August, filing a complaint with the IRS claiming that the Americans for Prosperity Foundation was violating its tax-exempt status. An outfit called U.S. Chamber Watch, set up by labor unions, in September followed suit, filing its own complaint with the IRS alleging that the Chamber of Commerce was breaking its nonprofit bounds. Two liberal campaign finance outfits, Democracy 21 and the Campaign Legal Center, in October requested that the IRS specifically investigate Crossroads GPS.

This was a one-eighty. Back in 2005, the George W. Bush IRS took the very stupid step of investigating a large and liberal California church, All Saints Episcopal in Pasadena, where the rector had delivered a sermon critical of Bush's war policies just a few days before the 2004 election. Churches are 501(c)(3) organizations—true charities—and are prohibited from supporting or opposing candidates. Then again, the rector wasn't urging his congregation to vote one way or another. And religious entities certainly have an interest in questions of war and peace.

In any event, the left (rightly) attacked the IRS action. Liberal groups complained that the Bush administration was attacking liberal churches. California Democratic representative Adam Schiff called for a Government Accountability Office investigation into the IRS action. “An overzealous IRS must not be permitted to chill the speech of the nation's clergy on matters of such great importance as war and peace,” he railed. Robert Edgar, general secretary of the National Council of Churches, and a former Democratic congressman from Pennsylvania, called the probe “a political witch hunt on [the reverend] and progressive ideology. It's got to stop.” Marcus Owens, who once ran the tax-exempt division at the IRS (the position Lois Lerner would take) and went on to represent All Saints as a private attorney, complained that recent IRS changes had given agents more freedom to look into groups. “This is exactly the sort of 1st Amendment briar patch the Congress wanted to keep the IRS out of,” he told the
Los Angeles Times
.

But Democrats had clearly forgotten that outrage. So much so that in September 2010, Montana Democrat Max Baucus, head of the powerful Senate Finance Committee, sent a letter to IRS commissioner Doug Shulman demanding an investigation into nonprofits. The letter referenced recent news stories on 501(c)(4)s—stories that the White House had pushed—as evidence of the need for a probe. The finance chairman laid out clearly what he wanted to see happen: a “survey” of “[nonprofits] involved in political campaign activity to examine whether they are operated for the organization's intended tax-exempt purpose and to ensure that political campaign activity is not the organization's primary activity.” Baucus even named at least one 501(c)(6)—a conservative trade organization called Americans for Job Security—as a possible subject for the investigation. And he cited a
Time
magazine article that named several 501(c)(4) groups that Democrats hated, including Crossroads GPS and American Action Network. Baucus phrased his letter as a “request” but made clear that he viewed it as an immediate order: “Please report back to the Finance Committee as soon as possible with your findings and recommended actions regarding this matter.” Three years later, when the IRS scandal came out, Baucus would express great outrage that the IRS had done exactly what he ordered it to do.

The Baucus letter was only the first of a number of demands from Senate Democrats that the IRS go after nonprofits. The letters didn't go unnoticed. Republicans immediately accused Democrats of misusing the agency to go after conservative groups. They pointed out that the IRS, even forty years later, still labored under its Nixon-era reputation as a political hit agency, and that it needed to take great care to avoid anything that would smack of a repeat. Within a few days of the Baucus letter, Republican senators Orrin Hatch and Jon Kyl had sent their own letter to the IRS, warning the agency that such an investigation threatened to “chill the legitimate exercise of First Amendment rights,” and reminding it that “I.R.S. audits and investigations are specifically intended to be separated from the political process. We expect the I.R.S. will adhere to those standards despite requests to the contrary from high-level political officials.”

In short, the IRS had been warned. It knew its own history. It knew the law. But it also had its boss, the president of the United States, sending it very clear signals every day about “shadowy” conservative “front” groups “posing” as tax-exempt entities and illegally controlled by “foreign” players, engaged in “unsupervised” spending that was a “threat” to democracy. It had formal complaints. It had some of the nation's most influential Democratic senators demanding an investigation. It heard the call. And it acted.

It happened
at an American Bar Association conference at the Grand Hyatt in Washington, D.C. Many Americans have never heard of the ABA, and fewer still know that it holds conferences. That changed on May 10, 2013, when an otherwise obscure government official named Lois Lerner took to the stage at the ABA event to announce that she had been front and center in one of the more notorious episodes of government abuse in U.S. history.

Lerner didn't put it that way, of course. She instead slipped into a question-and-answer period the news that her agency had separated out and applied special scrutiny to conservative political groups asking for tax-exempt status. She also acknowledged that in doing so the IRS had acted in a manner that was “incorrect, insensitive, and inappropriate.”

She went on to explain that all this had happened at some outpost of “line people” in Cincinnati, and that Washington hadn't known about it until later. So “the IRS should apologize for that, it was not intentional, and as soon as we [D.C.] found out what was going on, we took steps to make it better.”

What Lois Lerner said that day was a lie. The country would only later discover that she'd gone to great lengths to plant a question in the audience that would allow her to give a formulaic answer that attempted to brush the IRS actions under the carpet.

It didn't work.

Cleta Mitchell was sitting in front of her computer in Pinehurst, North Carolina. Mitchell is one of Washington's most high-powered (and hardworking) conservative lawyers, so she spirits off to her home there any chance she gets, for a change of scenery. It was a Friday, May 10, 2013, and she was clearing off the last to-do items, looking forward to a quiet weekend.

Instead, her laptop started pinging like mad, notes flooding in from Republican and Democratic colleagues alike. “They all said the same thing: ‘Cleta, did you see? Did you? Lerner admitted it! She admitted the targeting. She apologized. You weren't nuts after all!'” recalls the lawyer in an amused voice.

The e-mails came within minutes of Lois Lerner's confession. And that was much to the IRS's chagrin. The agency had carefully strategized the moment, choosing an obscure tax meeting as the place where Lerner would let slip the news that her IRS unit had spent three years harassing and silencing conservative groups. Lerner had hoped the little-noticed forum, and the Friday timing, would help skate the moment past the press.

Instead, Washington exploded. “I don't go to those ABA events—they are all communists,” says Mitchell (only half kidding). “But a lot of my Washington colleagues and lawyers were present, and they'd been following this, and they knew exactly what a bomb this was. The IRS was idiotic to think this wouldn't blow up.”

Mitchell certainly wasn't surprised. She'd been ferrying—or rather attempting to ferry—several of her clients through the IRS's tax-exempt program for three years. She'd known there was something rotten on Constitution Avenue since at least 2010, as her applications sat on hold.

What did surprise her was Lerner's description of events. The head of the IRS's Exempt Organizations unit assured the ABA audience that this was just a little low-level slipup. Some “line people in Cincinnati” had “centralized” and delayed tax-exempt applications in a way that was “wrong.” They also sent out some letters that “were far too broad,” asking questions that “weren't really necessary.” Luckily, crowed Lerner, the Washington IRS office was on hand to make it better. All better.

Mitchell couldn't believe what she was reading. “When I heard her blaming this all on Cincinnati—when I'd been dealing with the Washington office from day one—well…I was ripshit.”

A ripshit Mitchell is not something most people would like to see. A partner at the respected Foley & Lardner law firm, the sixty-five-year-old is a fixture at Washington events, and a charming one. She's tall, blonde, always well dressed. Born in Oklahoma, she still has a lilting southern accent, which gives voice to a stockpile of down-home aphorisms. Whenever I call Mitchell, desperately confused over some legal point, she usually begins her response with, “Awww. Bless your heart.” She's quick with a smile and can chat your ear off.

Get in Mitchell's face, however, and she turns from posy to piranha in a nanosecond. Her eyes narrow, her voice drops an octave, and that southern accent suddenly goes to steel on flint. She has a vast mastery of facts, a deep knowledge of the law, and the ability to instantly blow a hole in a flawed argument. And she has no fear.

Mitchell's one of those conservatives who started as a Democrat, which gives her the zeal of a convert. She served a stint in the Oklahoma legislature as a Democrat, and then a time in Oklahoma City private practice, where she completed her political conversion. In 1991, she moved to sin city, D.C., to run a legal institute. She soon became a go-to political law attorney for the entire Republican ecosphere, counseling everyone from the National Rifle Association, to political campaigns, to state and national party committees. She has a specialty in election and finance law.

One of Mitchell's areas of expertise is navigating conservative groups through the minefields of IRS and FEC tax and election law. (When Bauer in 2008 went after the American Issues Project, calling in Justice, the IRS, and the FEC, it was Mitchell running defense for the group.) She's shepherded dozens of conservative organizations through the IRS tax-exempt process, and when in 2009 she went to file for her latest client, a social-welfare group, she at first didn't think anything of it. “I sent in the application in October, and they cashed our check—because, of course, it's the IRS and you have to pay up front,” she recalls. “And then nothing. And that started to get weird, the nothing.”

Mitchell was used to dusting an entire tax-exempt process for a client in about three weeks. It's supposed to be a quick process. That's because, as Mitchell likes to stress again and again, the IRS's only job at the application stage is to make sure the paperwork is in order. “This isn't about asking permission—this isn't about a group saying, ‘Please, can I be an LLC, or a C-corporation, or a social-welfare group?'” she explains. “No. You go to the IRS and
tell
them what you are. They then make sure your basic articles of incorporation are in order, and that you have enough board members and whatnot, and then you get your letter saying you are tax-exempt. This is something so easy you should be able to do it from home.

“It isn't until much later, until you've existed for a time and filed your first tax forms, that the IRS gets to start looking at how you spent your money and asking the questions. In all my years of doing this, I never got a call from the IRS about the purpose of an organization. Never, never, never. And appropriately so.”

She got a call that time—though not until many months later. The IRS rang in June 2010 with an odd request: It wanted her to send copies of all her client's advertisements. Mitchell remembers it vividly, because she'd never been asked to do anything like that before, and she struggled to figure out how to format and send the ads. Mostly, she thought it strange. The group she represented was spending 100 percent of the money it raised on ads about Obamacare. Lobbying falls entirely within the definition of social welfare, and the group had zero involvement in any election activity. So there wasn't even any question that her client met that 51 percent “primary” purpose test. It was 100 percent legit. (Not to mention—as she stresses again and again—that the IRS has no business looking at spending in the application phase.)

Mitchell ended up calling the IRS. She got routed to an exempt-office agent in D.C., who marked the request for ads down to confusion among his colleagues about different types of tax-exempt groups.

Yet as 2010 wore on, Mitchell began realizing that none of the applications she submitted were moving. “It was complete radio silence, pretty much that whole year,” she says. Then in February 2011, she got a call from Catherine Engelbrecht.

Engelbrecht is Texan. She used to run a small manufacturing plant outside Houston. In 2009, she volunteered as a poll watcher in the Texas elections, where she (as she puts it) “saw some weird stuff” that made her worry about potential election fraud. So she formed a social-welfare organization, King Street Patriots (KSP), a pro-liberty community group, which aimed to support and defend constitutional governance and civic duty. She filed an application with the IRS for 501(c)(4) status in the spring of 2010.

In July, she filed an application for an offshoot group, True the Vote, a 501(c)(3) charity designed to restore integrity to the electoral system by training poll volunteers and researching and reporting on the polling process. “When I think about how little I knew or understood of politics back then, it almost makes me laugh,” she says. “I had no knowledge of anything other than this thought that it might be good to have average citizens volunteering and helping out at the polls.” For the rest of 2010, she heard nothing from the IRS about those applications.

She did, however, hear from the government in different regards. In late 2010, the FBI showed up, saying it was looking for an individual who it thought was affiliated with KSP, and asking to see a list of “members.” Engelbrecht didn't keep lists—her events were open to all, and people came and went. She offered to let the FBI know if she saw him. The bureau came back for a follow-up in January. In that same month, the IRS also appeared, to conduct an on-site audit of two previous years of business tax returns. Engelbrecht thought these events “strange, but I didn't connect the dots.” She was, however, concerned about the status of her applications, and was increasingly being attacked by Democrats. She realized she needed some professional help, so on a trip in early 2011 to Washington's annual conservative CPAC conference, she reached out to Mitchell. The Washington lawyer had no idea what she was about to sign up for.

Mitchell and Engelbrecht had barely met when True the Vote received a questionnaire from the IRS—five long months after filing. It was a request for more information regarding the application.

Engelbrecht worked through the questions and returned the info to the IRS. Mitchell had told Engelbrecht when they met in February to get back in touch if she hadn't heard anything from the agency in a few months.

Summer came and went, and still no word from the IRS. Mitchell stewed, and then suggested to Engelbrecht that they supplement the application and note for the IRS other groups like True the Vote that had already been granted charitable status. In October 2011, Mitchell reached out to the agent in Cincinnati listed at the top of the case, advising him that she'd been retained and telling him she was preparing additional information. She was surprised during that conversation to be told by the agent that a “task force” in Washington was “handling” this application.

When she sent in the supplement in November, Mitchell memorialized that conversation by heading her cover letter with a request that Cincinnati forward the package to its “task force” in Washington. That letter would end up providing the explosive first proof that pretty much nothing Lerner said at that ABA meeting about how all this had happened in Cincinnati was true.

Another month passed. No word. A now fully agitated Mitchell put in another call to the Cincinnati agent just before Christmas 2011. She remembers his words exactly. “We haven't heard anything. Everything is in Washington. Take it up with them.”

Lerner's confession at that conference did contain one small truth. The IRS targeting scandal did indeed start in “Cincy”—as D.C. headquarters refers to that outpost. On a cold late February day in 2010, a Cincinnati screener named Jack Koester found himself focused on an application from a local Tea Party group.

The IRS is a vast organization, employing ninety-five thousand people, who enforce a code 3.7 million words long that oversees taxes on everything from income to corporations to employment to estates to gifts to excises. It's home to agents and auditors and specialists and examiners and investigators and lots and lots and lots of lawyers. It also oversees organizations that are “exempt” from paying taxes. The Exempt Organizations unit at the IRS is in fact a big operation; on any given day it oversees a universe of 1.5 million recognized tax-exempt organizations.

Precisely because the IRS handles so many nonprofit groups, it maintains a dedicated unit in Cincinnati—known as the Determinations unit—that processes initial tax-exempt applications. The Cincy Determinations unit in turn is divided into thirteen groups, one of which handles the initial “screens” of applications. The typical screener spends fifteen to thirty minutes on an application, and completes twenty to thirty a day.

Koester's eye nonetheless settled for more than a few beats on the Tea Party application in front of him. He forwarded the application to his supervisor, noting, “Recent media attention to this type of organization indicates to me that this is a ‘high profile' case.” His alert worked its way up the chain, all the way to Cincinnati's boss of exempt operations, Cindy Thomas. She in turn forwarded it to one of Washington's senior officials, Holly Paz, asking “whether [Washington] wants this case because of recent media attention.” Paz took less than a day to respond: “I think sending it up here is a good idea given the potential for media interest.”

So Lerner, the IRS, Obama—they were all correct that the targeting fiasco started with a “line agent” in Cincinnati. They just neglected to mention that within twenty-four hours of that agent's alert—and every minute thereafter—it was political types in Washington running the show.

When Koester talked about “media interest,” he was undoubtedly referring to the wall-to-wall coverage that had just followed the
Citizens United
decision. He'd likely seen the White House's furious reaction to the Court's decision to free up speech rights, and Obama's dressing-down of the Supremes. He'd likely seen the Democratic Party and its media allies bang on daily about the evils of conservative “nonprofits.” He'd likely taken in the nonstop stories about the Tea Party gearing up in opposition to Obama, and how they were rushing into the (c)(4) realm. And he likely knew those groups were having an effect. Only a month earlier, Scott Brown had won that Senate race, against all odds. Koester was a prime example of how an executive branch—and a political party—can drive a story and make the bureaucracy take notice.