A group of House Republicans whose committees have been investigating the Internal Revenue Service said Wednesday they have found evidence of delays created by the IRS Chief Counsel office in the screening of applications for tax-exempt status by Tea Party groups.

The lawmakers have sent a letter to IRS principal deputy commissioner Daniel Werfel, who is now leading the agency, requesting new documents related to IRS employee discussions about the 2010 election, the Citizens United Supreme Court decision, and the tax-exempt status of Tea Party groups. The letter signers include House Ways and Means Committee chairman Dave Camp, R-Mich., House Oversight and Government Reform Committee chairman Darrell Issa, R-Calif., Ways and Means Oversight Subcommittee chairman Charles Boustany Jr., R-La., and Oversight Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending  chairman Jim Jordan, R-Ohio. Werfel is scheduled to testify before the House Oversight and Government Reform Committee on Thursday.

The request follows testimony from career IRS officials in Washington, D.C., that the director of the IRS Exempt Organizations division, Lois Lerner, overruled the judgment of a career IRS lawyer in Washington and ordered Tea Party cases to go through a multilayer review that included her senior advisor and the IRS Chief Counsel’s office, according to the Republican lawmakers. The IRS Chief Counsel’s office is led by William Wilkins, one of two Obama administration political appointees at the IRS, they pointed out.

“As a part of this ongoing investigation, the committees have learned that the IRS Chief Counsel’s office in Washington, D.C., has been closely involved in some of the applications,” the lawmakers wrote in their letter to Werfel. “Its involvement and demands for information about political activity during the 2010 election cycle appears to have caused systematic delays in the processing of Tea Party applications.”

They cited several points from the testimony of career IRS officials. Carter Hull, a tax law specialist and self-described 501(c)(4) expert with 48 years of experience, testified that he sent development letters, and once he received responses, based on his decades of experience, determined he had enough facts to make recommendations whether to approve or deny the applications. But Hull’s recommendations were not carried out. Instead, according to Michael Seto, the head of Hull’s unit in Washington, D.C., Lerner specified that the Tea Party applications should go through a multilayer review process that included her senior advisor and the Chief Counsel’s office. 

According to Hull, sometime in the winter of 2010-2011, Lerner’s senior advisor told him the IRS Chief Counsel’s office would need to review the applications. Hull also indicated this was the first time in his 48-year career at the IRS he was told to send an application to such an official. It was not until August 2011 that the Chief Counsel’s office held a meeting with Hull, along with Lerner’s senior advisor and other Washington-based officials to discuss these test applications. During the intervening months, the applications from the Tea Party groups languished. Hull is also scheduled to testify at Thursday hearing, along with Werfel and Treasury Inspector General for Tax Administration J. Russell George.

The Chief Counsel’s office instructed Hull that they needed updated information to evaluate the applications. Since the applications were up-to-date months earlier, when Hull made his recommendations, he testified that he found this request from the Chief Counsel’s office surprising. The Chief Counsel’s office also discussed the possibility of a template letter to develop all the Tea Party applications, including those being held in Cincinnati. Hull explained that all the applications were different and that a template was impractical.

The IRS defended its Chief Counsel's actions in a statement forwarded to Accounting Today by IRS spokesperson Julianne Fisher Breitbeil. "Chief Counsel lawyers provide legal advice to the operating divisions of the Internal Revenue Service and to the Commissioner and Deputy Commissioners," said the IRS. "Chief Counsel lawyers provide advice on individual cases (including determinations and examinations) at the request of the relevant IRS operating division–in this case, the Tax Exempt and Government Entities division. Chief Counsel concurrence is required for final adverse determinations of section 501(c)(3) exempt status issued by Exempt Organizations Technical office or IRS Appeals. Otherwise, operating division personnel make the ultimate decisions on disposition of particular cases. Those decisions take into account legal advice from Counsel attorneys, but they are not controlled by that advice. Counsel attorneys do not control cases unless and until they are docketed for litigation in the United States Tax Court."

Hull’s supervisor, Ronald Shoemaker, offered further details on the type of additional information sought by the Chief Counsel’s office—namely, information about the applicants’ political activities leading up to the 2010 election, the lawmakers contended. The lengthy review of the test applications in Washington created a bottleneck and caused the delay of other Tea Party applications in Cincinnati, they noted. Multiple IRS employees in Cincinnati—including Elizabeth Hofacre—have told the committee they were awaiting guidance from Washington on how to move the applications forward. 

Hull explained that he could not provide advice to Hofacre because his hands were tied by his superiors in Washington. Therefore, none of these applications were approved or denied during the time he worked with Hofacre on the cases.

The head of the Cincinnati office, Cindy Thomas, also testified that she continuously asked senior Washington officials when guidance was coming, but to no avail.

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