The Justice Department is settling lawsuits with Tea Party and conservative groups that had sued the Internal Revenue Service over delays in granting them tax-exempt status, and Attorney General Jeff Sessions said the IRS should apologize to the groups.

In 2013, Lois Lerner, director of the IRS’s Exempt Organizations unit, revealed ahead of the release of a report from the Treasury Inspector General for Tax Administration that the IRS had been using terms such as “Tea Party” and “Patriot” to filter out applications for tax-exempt status from organizations and subject them to extra scrutiny. The uproar led to congressional hearings and the ouster of Lerner and other top officials at the IRS. The IRS and TIGTA later revealed that the IRS had also subjected liberal groups to extra scrutiny by using terms like “Occupy” and “Progressive” on the so-called BOLO (short for “be on the lookout”) lists.

In the face of the scandal, the IRS agreed to stop using BOLO lists and provide a streamlined way for groups to claim tax-exempt status for themselves before receiving approval. Hundreds of conservative groups nevertheless banded together and sued the IRS in a class-action suit.

“There is no excuse for this conduct,” Sessions said in a statement Thursday. "Hundreds of organizations were affected by these actions, and they deserve an apology from the IRS. We hope that today's settlement makes clear that this abuse of power will not be tolerated."

Sessions blamed the Obama administration for using inappropriate criteria to screen applications for tax-exempt status. “The IRS's use of these criteria as a basis for heightened scrutiny was wrong and should never have occurred,” he said.

Attorney General Jeff Sessions
Attorney General Jeff Sessions Zach Gibson/Bloomberg

The amount of the settlement with the more than 400 groups who sued the federal government in the class action and a separate lawsuit was not announced, but is said to be "generous."

The American Center for Law and Justice, a conservative advocacy organization that represented many of the groups, claimed a “resounding victory” in its legal challenge. It noted the IRS has consented to a court order prohibiting it from ever engaging in this form of unconstitutional discrimination in the future. In a proposed consent order filed with the court Wednesday, the IRS apologized for its treatment of Tea Party and other conservative organizations applying for 501(c)(3) or and (c)(4) tax-exempt status with the IRS between 2009 and 2012 during the tax-exempt determinations process

"Throughout litigation of this case, we have remained committed to protecting the rights of our clients who faced unlawful and discriminatory action by the IRS,” said ACLJ chief counsel Jay Sekulow, who also represents President Donald Trump in the Russia investigation. “Our objective from the very beginning has been to hold the IRS accountable for its corrupt practices. This consent order represents a historic victory for our clients and sends the unequivocal message that a government agency's targeting of conservative organizations, or any organization, on the basis of political viewpoints, will never be tolerated. This order will put an end, once and for all, to the abhorrent practices utilized against our clients, as the agreement includes the IRS’s express acknowledgment of — and apology for— its wrongful treatment of our clients. While this agreement is designed to prevent any such practices from occurring again, rest assured that we will remain vigilant to ensure that the IRS does not resort to such tactics in the future.”

Separately on Thursday, Trump designated a new IRS acting commissioner, David Kautter, who has been serving as assistant secretary of the Treasury for tax policy since August (see Trump names Kautter as acting IRS commissioner). Kautter formerly worked for the accounting firms RSM US and Ernst & Young before joining the Trump administration.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.