Acting IRS Chief Touts Progress in Reforming Exempt Organizations Processes

Since taking over in May as acting chief of the Internal Revenue Service, Danny Werfel has presided over “a period of aggressive activity” that includes fresh leadership and promising policy reforms to ease the troubled agency forward from this spring’s scandal over alleged political targeting of conservative nonprofits.

Testifying Wednesday at a Ways and Means Oversight Subcommittee hearing, Werfel described progress in implementing 60 “action items” based on nine recommendations made this May by the Treasury Inspector General for Tax Administration.

He also clashed with Republicans who are angry that he has not fired Lois Lerner, the former head of the IRS Exempt Organizations division now on administrative leave. Lerner’s May decision to invoke her Fifth Amendment rights to avoid testifying on what went wrong has made her the central figure in the IRS controversy.

Subcommittee Chairman Rep. Charles Boustany Jr., R-La., convened the hearing saying, “There are many questions outstanding” and “the IRS faces a long road to recover its reputation.” He said his subcommittee’s review of the 298 original applications for tax-exempt status showed that “83 percent were right leaning and 29 or 10 percent were left leaning. Of the right leaning groups, only 45 percent have been approved, while 70 percent of the left leaning groups have been approved.” He also cited numbers showing that right-leaning organizations were more likely to be subjected to IRS “surveillance” and that “the consequence of being in the program is that surveillance can lead to an audit.”

Ranking Member Rep. John Lewis, D-Ga., though agreeing that the IRS tax exempt organizations unit needed reforms, said, “Unfortunately, my friends on the other side of the aisle continue to frame this issue as a partisan one -- as only affecting conservative groups. Time and time again the facts have shown that both Republican-leaning and Democratic-leaning groups were singled out during the application process. We know why we are here today -- for Republicans to distract us from their lack of a positive legislative agenda to improve the economy, create jobs and fund the government.”

Werfel praised his team of new leaders from outside and from within the IRS, and described reforms to the applications screening process. “We have suspended the [Be on the Lookout] lists, and everything is based on an organization’s activities, not on names or labels,” he said.

In addition, there are new checks and balances, enhanced training, and a new “Review of Operations” process for determining how much scrutiny an application should receive. The process includes a committee that votes on problematic cases, a requirement for a manager’s approval before an employee can contact a taxpayer applicant for further information, and an expanded appeals process. “We’re working toward more standardized language that takes some of the subjectivity out of it, that, after getting feedback from Congress, we hope to incorporate into the IRS manual,” Werfel said.

An accelerated process has allowed the Exempt Organizations unit to close 91 of the outstanding 131 cases, of which 70 were approved, 36 of them self-certified, Werfel said. An application backlog of some 65,000 remains. Werfel said there is a “discrepancy” between his numbers and those invoked by the Republicans, but said the differences could be worked out. Acting Exempt Organizations Chief Ken Corbin, he said, has sent many of those applications in question back to the IRS office in Dallas, so the whole process has been “re-baselined.”

IRS has also turned over 390,000 pages of documents to congressional investigators, Werfel reported. “There have been changes from soup to nuts, and we really are re-engineering the process-- it’s exciting,” he said. “We still have a great deal of work to do.”

Under questioning from Democrats, Werfel said he had not seen any evidence of political motivation in past processing of the applications.

Rep. Marcia Black, R-Tenn., asked whether the IRS retains donor lists that she said were unlawfully obtained from certain applicants -- 24 of 27 of them were right-leaning, she said.

Several lawmakers raised questions about recent emails from Lerner containing cryptic comments about Tea Party groups and the Federal Election Commission. Werfel agreed that certain messages “raised questions” but declined to speculate on their meaning.

Angry retorts came from Reps. Mike Kelly, R-Pa., and Tom Reed, R-N.Y., who demanded to know why Lerner hasn’t been fired. Kelly produced a letter on IRS letterhead that the IRS had turned over to Congress that still contained Lerner’s signature despite her being on administrative leave. “In Washington, accountability means putting people in another agency and never holding anyone accountable for wrongdoing,” Kelly said.

Werfel said the Privacy Act prevents him from addressing her case directly. “There is a process,” he said.

After Reed threatened Werfel with criminal charges unless he answered, Werfel consulted his staff and promised to seek legal advice to see whether he is permitted to provide Congress with an answer.