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House Hearing on IRS Scandal; House Panel Tackles IRS Scandal

Aired May 17, 2013 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


DANA BASH, CNN CHIEF CONGRESSIONAL CORRESPONDENT: Members of Congress trying to make political points. In this particular hearing, they genuinely have a fact-finding mission. There are a lot of unanswered questions about who these agents were, who started the -- these inappropriate criteria, that's the way the inspector general put it. How far up did it go, why was it done?

And most importantly, I think, from the members of Congress point of view now, why didn't they tell Congress, especially Steven Miller, Carol. He knew one year ago, Congress was investigating, this very committee that he's testifying before now. They were asking questions, he didn't disclose it. They're going to want to know why.

CAROL COSTELLO, CNN ANCHOR: Well, Dana, also, Mr. Miller has tried to pave the way to this hearing with excuses. In "USA Today" he wrote in an op-ed, he said mistakes were made, but they were in no way due to any political motivation."

I am thinking committee members won't stand for that.

BASH: Well, definitely on the Republican side, no, I did an interview in that very room yesterday with the chairman of the committee, Dave Camp, and he said that he's extremely skeptical that the reason that they made these criteria was for a shortcut. Because they were being so many -- they're being inundated with applications for tax-exempt status. He thinks that it was political. But, you know, we're just going to have to hear what he has to say. What Miller has to say.

If he has the answers about exactly why they did it, and why, if it wasn't political, it was just these conservative groups and not the more progressive groups. At least that's what it appears to be right now.

COSTELLO: And there may be no federal agency that invites the scorn of every American quite like the IRS . So even the president's fellow Democrats aren't likely to defend the tax agency or tamp down the outrage over this scandal.

Let's check in now with Gloria Borger.

Gloria, clearly the Obama administration is scrambling to contain this thing. But with today's hearing being the first of several, what kind of staying power does this have?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: This IRS scandal is something that every American can understand. Right, Carol? This is something --

COSTELLO: Gloria, I'm going to interrupt you right now because the hearing is under way. I apologize but you stay with us. Let's listen.

(BEGIN LIVE FEED)

REP. DAVE CAMP (R-MI), WAYS AND MEANS COMMITTEE CHAIRMAN: Targeting conservative-leaning political organization. Four days later, the Treasury Inspector General for Taxpayer Administration confirmed that, and I quote, "The IRS used inappropriate criteria to identify organizations applying for tax-exempt status," end quote.

The report also confirmed that this abuse of power began as far back as 2010. This revelation goes against the very principles of free speech and liberty upon which this country was founded. The blatant disregard with which the agencies treated Congress and the American taxpayer raised serious concerns about leadership at the IRS .

Let's establish the facts that we do know. Based on the TIGTA report, we know that for an 18-month period beginning in spring 2010, IRS employees in the agency's Determinations Unit employed key word, such as Tea Party, patriot and 9/12 to target applications for tax-exempt status.

These groups were then subjected to further IRS investigation and document requests. IRS employees later expanded their search to include groups concerned about government spending, debt, taxes, the Constitution, the Bill of Rights, or trying to, and I quote, "make America a better place to live," end quote. Let me repeat that. People were targeted for trying to make America a better place to live.

These Americans had their applications delayed for nearly three years and at least 98 applicants were asked for improper and inappropriate information, such as donor lists and whether family members planned to run for political office.

During that delay and while applications of conservative groups sat untouched for more than a year, other applications with names like progress and progressive were approved in just a matter of months. The headline in "USA Today" from earlier this week really says it all. "IRS gave liberals a pass, Tea Party groups put on hold."

TIGTA's audit found that some of those cases should have been set aside because of concerns related to their potential political activity, but no such review was done. Without objection, I entered the "USA Today" news report into the record.

This week, we learned that senior IRS officials knew about this activity almost two years ago in June 2011, and IRS leadership in Washington knew about it in May 2012, a year ago. Despite a two- yearlong investigation by this committee, the IRS never told the American people or their representatives about this simple truth. In fact we were repeatedly told no such targeting was happening. That isn't being misled, that's lying. But now we know the truth, or at least some of it. We also know that these revelations are just the tip of the iceberg. It would be a mistake to treat this as just one scandal. This may be one generating -- this may be the one generating headlines, but in total I count at least five serious violations of taxpayer rights. The right to be treated fairly, honestly, and impartially by their government.

First back in August 2010, a White House official discussed the status of a private company. The tax status of a private company, a clear intimidation tactic. Second, in June 2010, the targeting of conservative groups began. Third, in May 2011, the IRS started to threaten donors to conservative leaning non-profits, that they were liable for certain taxes.

And fourth, in March 2012, the "Huffington Post" published the confidential 2008 donor list of the National Organization for Marriage, a conservative tax-exempt organization. And fifth, but unlikely the final transgression, Pro Publica announced that the IRS had leaked confidential applications for tax-exempt status from conservative groups.

Mr. Miller, with all due respect, this systemic abuse cannot be fixed with just one resignation, or two. And as much as I expect more people need to go, the reality is this is not a personnel problem. This is a problem that the IRS being too large, too powerful, too intrusive, and too abusive of honest, hard-working taxpayers.

There isn't a person I come into contact with at home or anyone in this country, frankly, who does not fear the IRS. They fear getting something wrong in their tax filings. And they fear the IRS' ability to audit them and wreak havoc in their lives, especially when all they are trying to do is improve their lives, let alone, God forbid, try to make America a better place to live, which is what the IRS targeted them for.

Under that kind of thinking, every civic group in America is at risk. The Knights of Columbus, the Rotary, the Jaycees, American Legion and VFW clubs. I'm sure you're aware of the saying that the power to tax is the power to destroy. Well, under this administration, the IRS has abused its power to tax and it has destroyed what little faith and hope the American people had in getting a fair shake in Washington.

This will not stand. Trimming a few branches will not solve the problem when the roots of the tree have got rotten and that is exactly what has happened with our entire tax system. It is rotten at the core and it must be ripped out so we can start fresh. Only then will the American people get a tax system that treats them fairly and honestly as they deserve.

And while that's a larger discussion it is directly tied to the issue before us today. How and why our tax system has gone so far off track? Many questions still remain. Why did the IRS repeatedly target the American people and then keep that fact covered up for so long? Who started the targeting? Who knew? When did they know? And how high did it go? Who leaked the private taxpayer information? Why were the names of donors asked for and what was done with those lists before they were supposedly discarded? And when did the administration know about each of these, and what was its reaction?

Listening to the nightly news, this appears to be just the latest example of a culture of cover-ups and political intimidation in this administration. It seems like the truth is hidden from the American people just long enough to make it through an election. The American people have a right to the truth, to a government that delivers the facts, good or bad, no matter what.

President Obama promised to be different and to deliver a better government, the most transparent in history. He was right. America deserves better. It is time to end the corruption at the IRS and fix a tax code that allows Washington and the IRS to pick who wins and who loses in America.

I expect nothing less than total cooperation by the IRS and this administration as we investigate what happened and what we must do to fix it.

I now recognize Ranking Member Levin for the purpose of his opening statement and thank him for his commitment to pursue this issue.

REP. SANDER LEVIN (D), MICHIGAN: Thank you, Mr. Chairman. I'm going to read my opening statement. I will expand on it a bit now that I've heard the opening statement of the chairman.

This committee on a bipartisan basis takes seriously its oversight role. And we are fully committed to ensuring an IRS that serves the American people fairly and efficiently. What is now completely clear is that the management and oversight of the agency's handling of tax exemption applications have completely failed the American people. I emphasize that.

As we know from the inspector general's audit, the agency used totally inappropriate criteria in its review of tax-exemption applications, singling out organizations for review, based on their name or political views, rather than their actual activities. These criteria changed four times over two years, with little management review or oversight.

Applications sat for years. Work stopped for 13 months while one department waited to hear back from another. Questions were asked that were not necessary. Again, no oversight, no accountability. All of us are angry at this on behalf of the nation. And we are determined to get answers to our questions about how this happened to ensure that it does not happen again.

Finally, throughout this time, the IRS leadership has demonstrated a total disregard for the oversight role of the Congress and this committee. Former IRS Commissioner Shulman testified in front of us in March 2012 and said that, in quotes, "no targeting," end of quotes, was going on. Two months later, he was briefed on the IT's investigation, and was fully informed that, indeed, singling out by name had occurred on his watch.

He had an obligation to return to this committee and set the record straight. So did Mr. Miller. Neither fulfilled their obligations. A little more than a week ago, Louis Learner was in front of our oversight subcommittee. She serves as the director of the Exempt Organization Division, and she has been directly involved in this matter. Yet she failed to disclose what she knew to this committee. Choosing instead to do so at an ABA conference two days later.

This is wholly unacceptable. And one of the reasons that we believe, and as I stated several days ago, Miss Learner should be relieved of her duties.

Chairman Camp and I put together this hearing on a bipartisan basis to get the facts. We must seek the truth, not political gain.

And I just want to add in that regard, Mr. Camp has said listening to the nightly news, this appears to be just the latest example of a culture of cover-ups and political intimidation in this administration. It seems like the truth is hidden from the American people, just long enough to make it through an election.

I totally, totally disagree. If this hearing becomes essentially a bootstrap to continue the campaign of 2012, and to prepare for 2014, we will be making a very, very serious mistake, and indeed not meeting our obligation of trust to the American people.

You are here today, Mr. Miller, you're here today, the inspector general, to talk about what happened, how it happened, where it happened, who knew what when. And if instead this hearing essentially becomes an effort to score political points, it will be a disregard of the duties of this committee.

So I conclude with the sentence, we must seek the truth, not political gain. We look forward to full and forthcoming answers to our questions today.

UNIDENTIFIED MALE: Thank you. Before the witnesses are recognized for their opening statements, I will first swear them in. Well, this is the prerogative of every committee chair, it has not been the custom here at Ways and Means, but then it's not customary for this committee that have been so repeatedly misled by an agency under its purview. So it's always against the law --

(END LIVE FEED)

COSTELLO: All right. We want to bring in Gloria Borger to talk about what was said before this House Ways and Means Committee hearing.

Gloria, what struck me was the Democrat -- Congressman Sander Levin. He said if this hearing is just for political points it would be a disservice to the country.

BORGER: Well, the hearing will be an awful lot about politics, because you what heard Congressman Camp talk about is the sort of culture he believes emanating from the White House. Right or wrong, they've got a whole bunch of stuff on their plate right now.

And I think, look, this issue of the IRS as Congressman Camp said, resonates with the American people, because as he said, people believe the IRS is too large, too powerful and too abusive and that what occurred in this particular case, he said would affect every civic group in America, put every single one at risk.

I think it's a very least here what the members of Congress, whether they are Democrat or Republican, need to find out are the whys of all of this. Why did it happen? Was it competence? Was it banality? Was it possibly criminal?

Who directed it? Was it just a couple of rogue agents? Or was this, in fact, directed at some upper level? How high did -- you know, how high did this go?

And I think these are the answers to the real questions that they need to get.

And, of course, politics will come into play here, because this is on President Obama's watch, and this is the president who has asked government to do an awful lot for people. And people don't trust the government to do a lot for them, Carol.

COSTELLO: OK. We want to listen. This is the inspector general for the tax administration, J. Russell George, let's listen to him testify.

(BEGIN LIVE FEED)

J. RUSSELL GEORGE, I.G. FOR TAX ADMIN.: -- processing of these groups' applications. And, third, the IRS requested unnecessary information from groups it subjected to special scrutiny. All three allegations were substantiated.

The IRS used inappropriate criteria to target for review, Tea Party, and other organizations based on their name and policy positions. This practice started in 2010 and continued to evolve until June of 2011.

As a monitor shows, the IRS was following inappropriate criteria. Let me read to you these criteria from a briefing held by the IRS exempt organizations function in June of 2011.

The criteria included the words, Tea Party, patriots, or 9/12 project. Another list of criterion was that the group's issues included government spending, government debt, or taxes. Yet another listing criteria appeared as education of the public by advocacy or lobbying to, quote, "make America a better place to live", unquote.

Finally, the criterion consisted of any statements in the case file criticizing how the country is being run. The reason for the criteria were inappropriate, is that they did not focus on tax-exempt laws and treasury regulations. For example, 501(c)(3) organizations may not engage in political campaign intervention, 501(c)(4) organizations can, but it must not be their primary activity. Political campaign intervention is action taken on behalf of or against a particular candidate running for office. Although these criteria appeared in the IRS' own documentation as of June 20112, IRS employees began selecting Tea Party and other organizations for review in early 2010. From May 2010 to May of 2012, a team of IRS specialists in Cincinnati, Ohio, referred to as the determinations unit selected 298 cases for additional scrutiny.

According to our findings, the first time that executives from Washington, D.C. became aware of the use of these criteria was June 2011, with some executives not becoming aware of the criteria until April or May of 2012.

The IRS's inappropriate criteria remained in effect for approximately 22 months. After learning of the inappropriate criteria, the director of exempt organizations changed the criteria in July 2011 to remove references to organization names and policy positions. However, Cincinnati staff changed the criteria back to target organizations with specific policy positions, but this time, they did not include Tea Party or other named organizations.

Finally, in May 2012, after learning the criteria had again been changed, the exec organization direction of rulings and agreements changed it to be consistent with laws and regulations. Excuse me.

The organization selected for review for significant political campaign intervention, again 298 in all, experienced substantial delays in the processing of their applications. The organizations experiencing these delays included Tea Party organizations, patriot organizations, 9/12 organizations among other organizations.

As shown on the monitor, the status of the December 2012, 296 cases we revealed was 108 cases had been approved, 28 cases were withdrawn and 160 cases were still open. Zero cases had been denied.

Of the cases still open, some had been in progress for over three years and cost two election cycles without resolution. Of the 108 cases approve, 38 were Tea Party, 9/12 or patriot organizations.

My final point is that the IRS requested unnecessary information for many political cases. In fact, 98 of 178 cases that received follow- up requests for information from the IRS had unnecessary questions. Our evidence indicates that staff at the determinations unit in Cincinnati sent these letters out with little or no supervisory review.

The IRS later determined questions were unneeded but not until after media accounts and questions by members of Congress arose in March 2012.

Examples of the unnecessary information requested included the names of past and future donors, listings of all issues important to the organization, and what the organization's positions were regarding such issues, and whether officers or directors have run for public office or would be running for public office in the future.

Months after receiving these questions, 12 of the 98 organizations either received a letter or telephone call from the IRS stating that their applications were approved, and they no longer needed to respond to the additional requests. The IRS informed another 15 organizations that they did not need to respond to previous requests for information and instead, they were sent a revised request for information.

Regarding the donor information received from applications, the IRS informed us that they destroyed that information.

In closing, our audit found clear evidence that each of the three allegations were correct.

Was the IRS using inappropriate criteria in its review of organizations applying for tax-exempt status? Yes.

Was the IRS delaying their applications? Yes.

And, finally, did the IRS ask inappropriate and unnecessary questions of applicants? Again, yes.

These findings have raised troubling questions about whether the IRS had effective management and control in the organization function so that the public can be reassured that the IRS is impartial in addressing the nation's tax laws fairly.

Chairman Camp, Ranking Member Levin, members of the committee, thank you for the opportunity to present my views and I look forward to your questions.

REP. DAVE CAMP (R), MICHIGAN: Thank you, Mr. George.

Mr. Miller, you are now recognized for five minutes.

STEVEN MILLER, ACTING IRS COMMISSIONER: Thank you, Mr. Chair. Excuse me.

Thank you for the opportunity to be here today. Unfortunately, given time considerations, we received the notice of hearing within the last two days, the IRS was unable to prepare written testimony. I would note, I have a brief statement before I take your questions.

First and foremost, as acting commissioner, I want to apologize on behalf of the Internal Revenue Service for the mistakes we made and poor services we provided. The affected organizations and the American public deserve better.

Partisanship or the perception of partisanship has no place at the IRS. It cannot even appear to be a consideration in determining the tax exemption of an organization.

I do not believe that partisanship motivated the people who engaged in the practices described in the treasury inspector general's report. I reviewed the treasury inspector general's report and I believe its conclusions are consistent with that. I think that what happened here was that foolish mistakes were made by people trying to be more efficient in their workload selection.

The listing described in the report while intolerable was a mistake, and not an act of partisanship. The agency is moving forward. It has learned its lesson. We have previously worked to correct issues in the processing of the cases described in the report and we've implemented changes to make sure that this type of thing never happens again.

Now, the TIGTA has completed fact finding and issued a report, management we will take appropriate action with respect to those responsible. I'll be happy to answer your questions.

CAMP: All right. Thank you, Mr. Miller.

Are you still acting director of the IRS?

MILLER: I am, sir.

CAMP: Were you appointed by the president of the United States in that?

MILLER: No, sir.

CAMP: When was that?

MILLER: I was designated as acting in November. November of 2012.

CAMP: 2012.

And if I'm not mistaken, you hold two titles, acting director of the IRS and also deputy commissioner for services and enforcement?

MILLER: I do, sir.

CAMP: And in your role as deputy commissioner for services and enforcement, according to the IRS Web site, in that capacity, you direct and oversee all major decisions with regard to the tax exempt and government entities division?

MILLER: That is a division that reports through -- to me through the tax exempt and government entities office. Yes.

CAMP: So the Web site is accurate?

MILLER: Yes.

CAMP: And then, who do you report to in that position? Actually in both positions, as deputy commissioner for services and enforcement?

MILLER: In the deputy commissioner role, I would report to the commissioner if there was one. Without a commissioner and holding both hats, I would report to the deputy secretary.

CAMP: Of?

MILLER: Treasury.

CAMP: And is it not a violation of IRC 6103 to disclose confidential taxpayer information? MILLER: It is.

CAMP: And that really applies to all taxpayer information?

MILLER: Not quite sure what that means to be honest.

CAMP: In practice, it's basically all tax -- it's not just the return.

MILLER: 6103 only obligates us not to disclose taxpayer information.

CAMP: Were you ever made aware in August of 2010 that a White House official in a conference call with reporters disclosed confidential tax structure of a private company?

MILLER: I probably read it in the paper, sir.

CAMP: OK. You are made aware through news reports?

MILLER: I think that's probably. It's a long time ago.

CAMP: Did you take any steps when you learned of that?

MILLER: I don't recall. I'm not -- I don't -- I don't recall. I'd have to go back on that, sir.

CAMP: All right. So, you didn't inform the inspector general of that or your superiors that you recollect?

MILLER: I'm not sure why I would have to notify the superiors, it was in the papers. I don't remember whether we made a referral or I made a referral at that time.

CAMP: All right. According to the manufacture inspector general audit, the targeting of conservatives groups began in March of 2010. When were you made aware?

MILLER: I was aware of that on May 3rd of 2012.

CAMP: And how were you made aware?

MILLER: I was made aware of not the targeting, but I was made aware of the process that was described in the TIGTA report when I asked some of our people to go out and take a look at the cases, subsequently to the -- to the public discussion over broad letters coming out.

CAMP: So, that would have been in your role as acting director, as well as deputy commissioner for services?

MILLER: No, I was deputy at that time.

CAMP: You were deputy at that time. And when you say, you asked some of our people, who would that have been?

MILLER: So, I asked the senior technical adviser for tax exempt and government entities to lead a team, take a look, see what was going on in terms of cases that had gotten those letters.

CAMP: Did you inform anyone of that action that you took? Those steps?

MILLER: So I did that. I mean, I asked the senior technical adviser to do that in late March, March 23rd, 26th, something like that, and she and her team came back to talk to me in May, and subsequent to that, I'm sure I informed the commissioner. But the commissioner was aware of the letters as well.

CAMP: Did you inform anyone other than the commissioner at that time?

MILLER: You mean up the chain, sir?

CAMP: Yes.

MILLER: I don't believe so.

CAMP: Or the inspector general?

MILLER: The inspector general was aware of it and was looking into it at that time.

CAMP: OK.

Was there a time that you were aware of the IRS launching audits against conservative donors? That would have been in about May of 2010?

MILLER: Yes. That -- I don't remember the date, sir, but, yes, in that time frame, again, there were press accounts and congressionals coming in talking about that.

CAMP: And did you learn that from the press or inquiries from Congress?

MILLER: I don't know. It could have been either. It came up in a meeting and then it hit the press. So I don't know.

CAMP: In any event, after learning of that information of the audits, did you -- what steps did you take?

MILLER: We investigated what happened.