Leak: FBI finds nothing criminal in IRS scandal. Why that report saddens me.

The Wall Street Journal cites unidentified “law-enforcement officials” who say Criminal Charges Not Expected in IRS Probe.

Why am I discussing an issue that tip-toes into the political realm?

Because I’m always talking to my NPO clients about tax law. I’m often encouraging them to correct behavior that, ah, may not be completely correct under the tax law. I often answer questions on how to handle particular types of transactions.

The last half of this post will explain why the WSJ report worries me.

No charges expected

The leak discussed in the article say it is expected the FBI will not file any criminal charges over the extra attention certain NPOs received. The article says the feds have found no illegal behavior in handling applications, nothing criminal in releasing non-public tax data during the application process to media sources with political opinions opposite to the applicant, and no perjury by senior level officials who repeatedly told the Congress there was no program or other special attention paid to certain types of applicants.

Lest you think I’m making up that description, here is a paragraph from the story:

The FBI explored a number of possible violations, including those involving statutes within the IRS code that prohibit the misuse or improper disclosure of taxpayer information. Another area examined was whether any IRS officials lied about what happened and the reasons for it.

The investigation did find some problems:

… Instead [of criminal behavior], what emerged during the probe was evidence of a mismanaged bureaucracy enforcing rules about tax-exemption applications it didn’t understand, according to the law-enforcement officials.

Let me translate that comment: the only problem the FBI found was that lower level staff and a few levels of supervisors don’t understand the law and are just incapable, bumbling bureaucrats.

A few reactions

The WSJ editorial board is not amused at either the reported status of the investigation or its thoroughness. In an article, The IRS Gets a Pass, the board points out:

Cleta Mitchell, a prominent lawyer who represents several conservative groups that applied for tax-exempt status, reports that the FBI hasn’t contacted any of her clients. That’s like investigating a burglary without interviewing the burgled.

The New York Post has an interesting take in their editorial The ‘crime’ of the IRS:

… if the threat of criminal charges has in fact been removed, there’s no more excuse for Lois Lerner not to tell us, under oath, what she was apparently afraid to say in May.

Perhaps she can be recalled to Congress to discuss in full detail what she knew, when she knew it, and what she did when. (background: she took the 5th instead of answering questions.)

Why am I concerned?

If it was actually possible to move outside the realm of political screaming, there would be no debate that the actions in the Cincinnati office focused on NPOs who are to the right-of-center politically. 

None of my clients are (c)(4)s, which were the focus of the selective enforcement.  None of clients – zero of them – are engaged in political activity or get anywhere near it. None of my clients even engage in lobbying, which is allowed to a small degree under the tax law for a (c)(3).

However, the vast majority of my clients have a long list of theological beliefs that are driven by their understanding of the bible.

For some of my clients, their theology leads them to doctrinal beliefs that would otherwise tend to correspond to left-of-center opinions in the political world. For some other clients, their sincerely held doctrinal beliefs would tend to have an overlap with right-of-center political opinions.  My clients start with the bible, not their political opinions, in developing their doctrine. They may get to a doctrinal position that is somewhat similar to a position in the political world.

Here’s my worry. How do I persuade certain clients whose doctrine sometimes overlaps with opinions that are right-of-center to follow the tax law and trust in equal enforcement of that law in light of the IRS’ selective enforcement against NPOs with opinions that are considered to be right-of-center? How do I encourage my clients they will receive fair treatment from the IRS when it is common knowledge that multiple levels of the agency supervisors were involved in directing/ approving/ knowing of this mess?

Flip the question around – How do I persuade certain other clients whose doctrine sometimes overlaps with opinions that are left-of-center that they can be confident in future they will still receive fair treatment when the political winds inevitably blow a different direction?

Even if my clients accept there was no illegal behavior, improperly leaked info, perjury, or focused political agenda, we are left with this as a description of the fiasco:

…what emerged during the probe was evidence of a mismanaged bureaucracy enforcing rules about tax-exemption applications it didn’t understand, according to the law-enforcement officials.

Mismanaged. Don’t understand the law.

The best explanation on the table from unnamed officials is an accusation that the determinations unit (a major part of the IRS if you live in the NPO world) is grossly incompetent. I don’t believe that assessment of the staff competence, but that is the off-the-record explanation for the fiasco.

Great. Incompetence is the best case.

As I go to my clients’ offices during this year and have various conversations on tax compliance, how do I persuade them they can expect fair tax enforcement today and in the future?

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