IRS Reorganizes Division at Center of Controversy

This story has been updated.

The Internal Revenue Service on Thursday announced a reorganization of the legal team in its Tax Exempt and Government Entities division, the umbrella unit for the office at the center of the ongoing dispute over mishandling of applications by nonprofits seeking tax-exempt status.

“Under the change, technical law specialists and support staff, responsible for published guidance (including revenue rulings, revenue procedures), certain private letter ruling requests and technical advice, will be shifted from TE/GE to the IRS Office of Chief Counsel,” the agency said in a statement. “TE/GE is one of the few places in the IRS where published guidance, private letter rulings and technical advice memoranda are worked on outside of Chief Counsel. This change will bring TE/GE in alignment with the other three IRS business operating divisions, which use Counsel for their guidance and legal work.”

The advantage of the move, IRS said, is to “help ensure consistency and efficiency.”

Affected managers and the National Treasury Employees Union were notified of the plan scheduled to be completed by Oct. 1. “NTEU is reviewing this plan and will work to ensure that employees affected by the reorganization are not negatively impacted,” said NTEU President Colleen Kelley

The IRS believes “this organizational shift will have relatively little impact on practitioners and organizations that interact with this area,” the agency continued. “The IRS may, however, have to revise some administrative guidance, such as revenue procedures and addresses on where to send private letter ruling requests.”

Not mentioned in the statement is that the plan includes moving the director of the Exempt Organizations Division, a job once held by Lois Lerner before she retired last September in the midst of political controversy, from Washington out to Cincinnati, as noted by Marcus Owens, a onetime head of the Exempt Organizations Division who is now an attorney with Caplin and Drysdale.

That Ohio office is where most of the applications for status as social welfare groups were processed and, in many cases, subjected to extra scrutiny, particularly those with conservative and Tea Party themes.

The IRS’s planned shift will do little to help the division resolve outstanding controversies in the processing of nonprofit applications, Owens told Government Executive. “It really mirrors what happened in the rest of IRS, the units doing corporate tax and individual tax back in the 1980s. Then, the commissioner and chief counsel decided it made sense not to maintain two separate sets of legal counsel, and so sent all lawyers off to the chief counsel’s office. Those remaining back under the assistant commissioner were the project planning staff and program monitors,” Owens said.

The exception, however, was the Exempt Organizations Division, where it was believed the legal team was required by law to stay with the unit. When the IRS was reorganized in the late 1990s, that statutory provision ended, “which paved the way” for the new change, the recent disputes over 501 (c) (4) applications being “simply the impetus for bringing that part of the service in alignment with the rest of the service,” Owens said.

The new arrangement will have its most visible impact on the updating of tax forms for nonprofits, Owens added, forms such as the 990 which, unlike individual tax forms that involve mostly numbers, require taxpayers to compose narratives about their activities. “It will be interesting to see what the move does to funding,” he said. The legal positions that are moving to Washington are high-grade, while the support positions left in Cincinnati overall are lower-grade, he said. “It will be more difficult to coordinate between field offices and headquarters.”

Meanwhile, on Thursday, House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., wrote to Attorney General Eric Holder with demands for documents and questions on the testimony that Lerner reportedly gave to Justice Department investigators despite her having pled the Fifth Amendment and refusing to answer questions during two appearances before Issa’s committee.

“For over eight months, the committee has sought to carry out its oversight obligations in concert with the Department of Justice’s law-enforcement duties,” wrote Issa, along with subcommittee Chairman Jim Jordan, R-Ohio. “At every stage, the department has refused to fully cooperate with the committee.” 

The letter seeks detailed information on the Lerner testimony’s scheduling, content, discussions of possible immunity from prosecution and whether Lerner declined to answer any of Justice’s questions.

The Justice Department has received the letter and is reviewing it, a spokeswoman confirmed.

Much of Issa’s actions toward Lerner, in Owens’ view, are “staged-managed, classic congressional theater.” He objects to the Republican IRS critics’ regular use of the term “targeting” to describe the delays and extra paperwork the Exempt Organizations division imposed on the mostly conservative groups listed in the May 2013 inspector general’s report. “It’s unclear whether it was inappropriate handling,” he said. “The IRS mission is to discriminate among taxpayers who are voluntarily complying and those who are not, and those who are complying never hear from it. I find the use of the word targeting as a pejorative to be odd.”