Reading the highly critical report by the Internal Revenue
Service’s auditor, you get the sense that rogue, lower-level agents
ran amok, writing up watch lists, targeting conservative agencies,
and stalling their applications for tax-exempt status.

At least IRS management has painted a picture of misguided
underlings who acted “inappropriately,” finally offering a mea
culpa a couple years after claims that Tea Party groups being hung
up, even harassed, by tax agents began filtering in.

Lois Lerner, director of the IRS’ exempt organizations unit,
apologized a week ago for front-line employees who inappropriately
flagged for further review organizations with the descriptors, “tea
party” or “patriot.”

“We had a shortcut in the process. It wasn’t appropriate. 
We learned about it and we fixed it,” Lerner said, emphatically
denying that the segregation of applications and the lengthy delays
in processing them merely based on conservative-sounding names had
absolutely nothing to do with partisan politics.

But a report released late Tuesday by the Treasury Inspector
General for Tax Administration, the independent overseer of the
IRS, points to lax management and at least ignorance of federal
code governing tax-exemption review. And while TIGTA may not employ
the term “targeted” in its scathing review, the auditor blasts the
IRS for singling out conservative groups, asking them a host of
unnecessary questions and, in many cases, grinding the application
process to a halt.

More than anything, the IRS’ “inappropriate” measures threaten
public confidence, the report notes.

“The mission of the IRS is to provide America’s taxpayers top
quality service by helping them understand and meet their tax
responsibilities and by applying the tax law with integrity and
fairness to all.  According to IRS Policy Statement 1-1,
IRS employees accomplish this mission by being impartial and
handling tax matters in a manner that will promote public
confidence,” the audit states.

“However, the criteria developed by the (IRS) Determinations
Unit gives the appearance that the IRS is not impartial in
conducting its mission.  The criteria focused narrowly on the
names and policy positions of organizations instead of tax-exempt
laws and Treasury Regulations.”

BOLO List

The audit depicts agents in 2010, earlier than IRS brass
previously had stated, pulling out 501(c)(4) applications with “Tea
Party, Patriots, or 9/12 in the organizations name,” as well as
“political-sounding names.” In May 2010, the Determinations Unit
began developing a spreadsheet that would become known as the “Be
On the Look Out” list, according to the audit. By August, the unit
began distributing the first formal BOLO list.

A 501(c)(4) is designated for the promotion of social welfare
and cannot include direct or indirect participation or intervention
in political campaigns on behalf of, or in opposition to, any
candidate for public office.

“However, a section 501(c)(4) social welfare organization may
engage in some political activities, so long as that is not its
primary activity. However, any expenditure it makes for
political activities may be subject to tax under section 527(f),”
according to the IRS.

It is the IRS’ tax-exempt division’s job to sort all of that
out.

The “look out” criteria were expanded over time, including:

• Issues include government spending, government debt or
  taxes.