Durbin Asked IRS' Shulman to Probe 'Several' Conservative 501(c)(4) Groups in 2010

While many Democrats have joined Republicans in public shaming of the Internal Revenue Service for singling out conservative groups, others say the scandal is just a byproduct of muddied rules about nonprofits and political activity in the wake of the Citizens United ruling -- and they're hoping that they can steer the conversation from outrage over political targeting to fuel for campaign finance reform.

But senior Dems may have much more than an opportunity to try to turn scandal to their advantage: they may have a degree of culpability as one especially vocal proponent of campaign finance reform asked the IRS nearly three years ago -- around when the stalling of applications began -- to probe conservative groups applying for tax-exempt status.

Long before the extensive questionnaires and document requests levied on conservative applicants fell under the scrutiny of Congress, Senate Majority Whip Dick Durbin (D-Ill.) asked IRS Commissioner Douglas Shulman, a Democrat appointed by George W. Bush who served through President Obama's first term, "to examine the purpose and primary activities of several 501 (c)(4) organizations that appear to be in violation of the law."

At the House Ways and Means Committee hearing on the IRS scandal today, Rep. Jim McDermott (D-Wash.) led the bandwagon of members on the panel who claimed the root cause of the problem was the Supreme Court's Citizens United campaign finance decision in 2010.

"Applications for secret money political organizations increased by fourfold after that. This small group of people in the Cincinnati office screwed up. Nobody's going to deny that. They simply screwed up," McDermott said. "But the Congress, this committee messed up by not giving any clear criteria for what a real charitable organization is."

"Even with the egregious actions that have been acknowledged by the IRS, there's still an underlying problem here, and that's 501(c)(4)s being engaged in politics," said Rep. Richard Neal (D-Mass.). "After Citizens United, the IRS was flooded with applications… seeking 501(c)(4) status. And why was that? In large part because super-PACs must disclose their donors while 501(c)(4)s do not."

Rep. Charlie Rangel (D-N.Y.) slipped when he referred to the landmark ruling as "Citizens Union." When corrected by a colleague, Rangel quipped "whatever."

"It's almost an invitation as the law is written for abuse in terms of political activities for corporations that primarily are supposed to be doing social service work," he said.

"It is something that we have to look at closely, yes, sir," said acting IRS Commissioner Steve Miller. "…I think it's an area ripe for a redefinition and reform."

House Republicans were investigating heavy-handed treatment of the Tea Party and other groups by the IRS last year, and Miller told a subcommittee in July that certain applicants weren't being targeted because of ideology.

But Rep. Paul Ryan (R-Wis.) noted the IRS-supplied list of approved tax exempt applications for advocacy organizations through May 2009. "Some of these that were approved were Chattanooga Organized for Action, the Progressive Leadership Alliance, and the Progressive USA," Ryan said. "If you were concerned about political activity, did you have targeting lists that contained words like 'progressive' or 'organizing' in their names?"

Miller conceded that these weren't buzzwords used for targeting, like "tea party" and "patriots," but maintained that more applications were received from the Tea Party movement, which began in 2009.

Treasury Inspector General for Tax Administration J. Russell George testified that "the organizations experiencing these delays included tea party organizations, patriot organizations, 9/12 organizations, among other organizations."

"The status of December 2012 for 296 cases that we reviewed was 108 cases have been approved, 28 cases were withdrawn, and 160 cases were still open. Zero cases have been denied," said George. "Of the cases still open, some had been in progress for over three years and crossed two election cycles without resolution. Of the 108 cases approved, 31 were tea party, 9/12, or patriot organizations."

The IG's report found that 98 of 170 cases that received follow-up requests for information from the IRS had unnecessary questions, he said.

"The IRS later determined these questions were unneeded but not until after media accounts and questions by members of Congress arose in March of 2012," George testified.

Durbin singled out not the Tea Party in his Oct. 11, 2010, letter to Shulman, but Karl Rove's group.

"One organization whose activities appear to be inconsistent with its tax status is Crossroads GPS, organized as a (c)(4) entity in June. The group has spent nearly $20 million on television advertising specific to Senate campaigns this year. If this political activity is indeed the primary activity of the organization, it raises serious questions about the organization's compliance with the Internal Revenue Code," the senator wrote.