[House Report 113-414]
[From the U.S. Government Publishing Office]
113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-414
_______________________________________________________________________
Union Calendar No. 305
REFERRAL TO THE HONORABLE ERIC H. HOLDER, JR., ATTORNEY GENERAL, OF
FORMER INTERNAL REVENUE SERVICE EXEMPT ORGANIZATIONS DIVISION DIRECTOR
LOIS G. LERNER FOR POSSIBLE CRIMINAL PROSECUTION FOR VIOLATIONS OF ONE
OR MORE CRIMINAL STATUTES BASED ON EVIDENCE THE COMMITTEE HAS UNCOVERED
IN THE COURSE OF THE INVESTIGATION OF IRS ABUSES
__________
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
MINORITY AND DISSENTING VIEWS
April 11, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
LETTER OF SUBMITTAL
----------
House of Representatives,
Committee on Ways and Means,
Washington, DC, April 11, 2014.
Hon. John Boehner,
Speaker, House of Representatives,
Washington, DC.
Dear Mr. Speaker: On April 9, 2014, by a vote of 23 to 14,
the Committee on Ways and Means voted to submit the referral to
the Honorable Eric H. Holder, Jr., Attorney General, of former
Internal Revenue Service Exempt Organizations Division Director
Lois G. Lerner for possible criminal prosecution for violations
of one or more criminal statutes based on evidence the
Committee has uncovered in the course of the investigation of
IRS abuses to the U.S. House of Representatives. Minority views
are included.
Sincerely,
Dave Camp,
Chairman.
Union Calendar No. 305
113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-414
======================================================================
REFERRAL TO THE HONORABLE ERIC H. HOLDER, JR., ATTORNEY GENERAL, OF
FORMER INTERNAL REVENUE SERVICE EXEMPT ORGANIZATIONS DIVISION DIRECTOR
LOIS G. LERNER FOR POSSIBLE CRIMINAL PROSECUTION FOR VIOLATIONS OF ONE
OR MORE CRIMINAL STATUTES BASED ON EVIDENCE THE COMMITTEE HAS UNCOVERED
IN THE COURSE OF THE INVESTIGATION OF IRS ABUSES
_______
April 11, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
MINORITY AND DISSENTING VIEWS
House of Representatives,
Committee on Ways and Means,
Washington, DC, April 9, 2014.
Hon. Eric H. Holder, Jr.,
Attorney General, Department of Justice,
Washington, DC.
Dear Attorney General Holder: The Committee on Ways and
Means (Committee) of the U.S. House of Representatives has
discovered information in the course of its ongoing
investigation of the targeting by the Internal Revenue Service
(IRS) of taxpayers on the basis of their political views. This
information suggests willful misconduct by an IRS official, and
also suggests that she may have violated multiple federal
criminal statutes.
Rule X.1(t) of the Rules of the House of Representatives
for the 113th Congress delegates to the Committee legislative
jurisdiction over ``[r]evenue measures generally,'' including
the Internal Revenue Code (IRC or Code) and the Department of
Treasury (Treasury), which includes the IRS. As a result, the
Committee is responsible for considering all legislation that
raises the revenue required to finance the federal government.
The raising of such revenue depends on voluntary compliance
with the IRC, which is undermined when taxpayers and exempt
organizations perceive that the administration of the IRC is
unfair or, worse, is biased against them. Oversight of the IRS,
and particularly investigation of IRS activity that could
undermine voluntary compliance with the IRC, is thus a
fundamental obligation of the Committee.\1\ It is pursuant to
this authority and in discharge of this obligation that the
Committee has investigated allegations that the IRS mistreated
certain taxpayers and exempt organizations on the basis of
their political beliefs.
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\1\See also Rule X.2(b)(1), Rules of the House of Representatives,
113th Congress (vesting Committee with authority to oversee and
evaluate whether laws written by Committee are being administered
consistent with congressional intent and whether such laws should be
changed); cf. IRC 6103 (expressly authorizing Committee review of
certain material).
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During the course of its investigation, the Committee has
obtained information that reveals that former IRS Exempt
Organizations Division (EO) Director Lois G. Lerner, while
acting in her official capacity, may have violated one or more
criminal statutes. Specifically, the Committee's investigation
has uncovered conduct by Lerner that includes the following:
1. Lerner used her position to improperly influence
agency action against only conservative organizations,
denying these groups due process and equal protection
rights under the law as guaranteed by the U.S.
Constitution, in apparent violation of 18 U.S.C. 242;
2. Lerner impeded official investigations by
providing misleading statements in response to
questions from the Treasury Inspector General for Tax
Administration (TIGTA), in apparent violation of 18
U.S.C. 1001; and
3. Lerner risked exposing, and may actually have
disclosed, confidential taxpayer information, in
apparent violation of IRC 6103 by using her personal
email to conduct official business.
These findings, supported by the evidence described below,
suggest that Lerner may have violated multiple criminal
statutes. The Committee asks that you pursue this evidence and
ensure that the victims of IRS abuse do not also suffer neglect
from the criminal justice system.
I. LERNER SHOWED EXTREME BIAS AND PREJUDICE IN EXERCISING HER POWER AND
INFLUENCE OVER THE NON-PROFIT SECTOR
As EO Director, Lerner had authority to act on behalf of
the IRS.\2\ Lerner willfully used her authority to subject
specific organizations to adverse treatment in defiance of IRS
controls. Lerner directed subordinates to subject specific
right-leaning groups to increased scrutiny and audits, and even
the denial of exempt status.
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\2\See IRC 7803 (setting out the authorities of the IRS
Commissioner), see also Internal Revenue Manual (IRM) 1.1.23.5
(providing that Director of EO reports directly to Deputy Commissioner
of TE/GE and, among other duties, ``supervises and is responsible for
the activities of . . . EO Rulings and Agreements and EO Examinations
functions'').
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a. Lerner's targeting of Crossroads GPS & blind eye to Priorities USA
On October 19, 2010, Lerner explained to a group of Duke
University students that 501(c)(4) organizations were spending
money on campaign activity in the wake of the Citizens United
decision.\3\ She said, ``[E]verybody is screaming at us, `fix
it now before the election. . . .'''\4\ At the same time,
Assistant Senate Majority Leader Dick Durbin, wrote then IRS
Commissioner Doug Shulman to demand an investigation of
Crossroads GPS.\5\ Lerner explained to the students, ``I won't
know until I look at their 990s next year whether they have
done more than their primary activity as political or not, so I
can't do anything right now.''\6\ While Lerner's public
comments seemingly cast a wide, unbiased net across the entire
501(c)(4) spectrum, her private actions were different.
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\3\See generally, Citizens United v. Fed. Elec. Comm'n, 558 U.S.
310 (2010).
\4\Transcribed from http://www.youtube.com/
watch?feature=player_embedded&v=EH1ZRyq-1iM, Exhibit 1.
\5\See Letter from Assistant Majority Leader Dick Durbin to IRS
Commissioner Doug Shulman on October 12, 2010. Available at: http://
www.durbin.senate.gov/public/index.cfm/pressreleases?ID=833d8f1e-bbdb-
4a5b-93ec-706f0cb9cb99.
\6\Exhibit 1.
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Documents produced to the Committee further link Lerner's
actions with complaints from Democracy 21.\7\ Those complaints
chiefly focused on Crossroads Grassroots Policy Strategies
(Crossroads) and other right-leaning groups, but also cite
left-leaning groups such as Priorities USA.\8\ On October 5,
2010, just two weeks before her remarks at Duke University,
Fred Wertheimer of Democracy 21 and Gerald Hebert of the
Campaign Legal Center (CLC) wrote to then-Commissioner Shulman
and Lerner to, ``Request for IRS investigation to determine
whether Crossroads GPS' is operating in violation of tax
status.''\9\ Later, on July 27, 2011, Democracy 21 and CLC sent
the IRS a self-styled, ``Petition for Rulemaking On Campaign
Activities by Section 501(c)(4) organizations,'' in which they
raised concerns about the political campaign activities of
501(c)(4) exempt organizations, including Crossroads and
Priorities USA.\10\ Finally, on December 14, 2012, Democracy 21
requested a meeting with Lerner to discuss its July 27, 2011
petition.\11\
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\7\Democracy 21 describes itself as a ``nonprofit, nonpartisan
organization that . . . promotes campaign finance reform, lobbying and
ethics reforms . . . and other government integrity measures.'' See
``Petition for Rulemaking On Campaign Activities by Section 501(c)(4)
Organizations'' at 10. Available at: http://www.democracy21.org/
uploads/D21_and_CLC_Petition_to_IRS_7_27_2011.pdf.
\8\See Democracy 21 ``Letters to the IRS.'' Available at: http://
www.democracy21.org/wp-content/uploads/2013/05/Letters-to-IRS.pdf.
\9\See http://www.democracy21.org/wp-content/uploads/2013/05/
Letters-to-IRS.pdf.
\10\See fn 7.
\11\IRS00000122502-122505, Exhibit 2. See fn 8 for ``Petition for
Rulemaking.''
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Lerner quickly organized a meeting for Democracy 21 not
only with herself, but also with the Office of Chief Counsel
and the Office of Tax Policy at the Department of the Treasury
for January 4, 2013.\12\ In preparation for the meeting, Lerner
asked David Fish, then acting Director of EO's Rulings and
Agreement Division, and Andy Megosh with EO Guidance, for all
``letters these orgs sent in asking for c4 guidance. . .
.''\13\ While Democracy 21's petition raised concerns about
groups across the political spectrum, documents IRS produced to
the Committee show an aggressive and improper pursuit of
Crossroads by Lerner, but no evidence she directed reviews of
similarly situated left-leaning groups.\14\
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\12\See id.
\13\See id.
\14\See Letter from House Ways and Means Committee Chairman Dave
Camp to IRS Acting Commissioner Daniel Werfel of September 20, 2013
(requesting returns and return information of right-leaning American
Crossroads, Crossroads GPS, and Americans for Prosperity, as well as
left-leaning Priorities USA, Priorities USA Action, and Organizing for
Action), Exhibit 3. The documents show no special scrutiny of the left-
leaning groups.
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For example, on January 2, 2013, the IRS's Chief for Media
Relations circulated a ProPublica article to Lerner and Nikole
Flax, then chief of staff to Acting Commissioner Steve Miller,
among others, ``FYI--Here is the latest inbound for
ProPublica.''\15\ Following was an article titled: ``Watchdog
Groups Again Call on IRS to Deny Tax-Exempt Status to Karl
Rove's Crossroads GPS, Cite $70 Million in 2012 Campaign
Expenditures as Prima Facie Evidence Group is Campaign
Operation, not Social Welfare' Group.''\16\ The ``watchdog''
groups to which the article refers are Democracy 21 and
Campaign Legal Center (CLC). This email prompted Lerner to give
notice to Flax and others about the meeting scheduled for
January 4 with these groups:
\15\IRS0000122515-6, Exhibit 4.
\16\Available at: http://www.propublica.org/article/watchdogs-to-
irs-reject-rove-groups-tax-application. (The article updates an earlier
ProPublica story from December 14, 2012 that was based on an IRS-
leaked copy of Crossroads application for exempt status.)
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Just FYI for everyone's information I received the
incoming and will refer it to Exam as we do with any
complaint. Ruth Madrigal, Vickie Judson and I are
meeting with Democracy 21 and some others regarding
their request for guidance on c4. This has been set up
for some time. I plan to have David Fish there and
begin the meeting by telling them we cannot discuss
specific taxpayers. . . . We will be very cautious.\17\
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\17\Exhibit 5. A ``referral'' is, in lay terms, a complaint;
pursuant to the IRM it means:
A. A document or other communication, including an electronic
communication, received by EO Classification-Referrals from a source
outside the Internal Revenue Service, which alleges possible
noncompliance with a tax law on the part of an exempt organization,
political organization, taxable entity, or individual.
B. An internal document (referral) prepared by an Internal
Revenue Service employee and forwarded to EO Classification-Referrals,
which identifies current or potential noncompliance discovered during
either the processing of an assigned case, or at any other time in the
performance of official duties.
IRM 4.75.5.2(05-13-2005).
Notwithstanding Lerner's apparent careful adherence to the
rule against discussing specific cases with people outside of
the IRS, emails with her subordinates show a focused interest
in Crossroads immediately following the meeting. Again, these
emails show no apparent interest in left-leaning groups.
Lerner's calendar shows the January 4, 2013 meeting with
Democracy 21 blocked off for 11:00 AM-Noon and, based on
Lerner's subsequent actions, it is clear that the meeting went
forward as planned.\18\ Before or soon after the meeting,
Lerner apparently contacted Tom Miller (EO Technical) to ask
about the status of Crossroads (whether the group had been
audited or selected for audit) because he replied by email at
1:55 PM the same day that the group had twice been before the
Political Action Review Committee (PARC), in November 2010 and
June 2011, but was not selected for audit.\19\
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\18\IRS0000378449 (displaying calendar entry), Exhibit 5. See also,
Complaint of Van Hollen et al. v. IRS (D.D.C. August 21, 2013) at 41
(noting that ``On January 4, 2013, representatives of Democracy 21 and
the Campaign Legal Center met with Ms. Lerner and other IRS officials
regarding the petition for rulemaking.''). Available at: http://
www.democracy21.org/wp-content/uploads/2013/08/Complaint-August-20-
final-for-filing.pdf.
\19\IRS0000122549-122551, Exhibit 6. The PARC is responsible for
determining whether allegations of improper political activity by an
exempt organization merit an audit. See IRS0000378444-378446, IRS
Memorandum to Congress, ``IRS Exempt Organizations Processes with
Respect to Examinations,'' Exhibit 7. At the direction of Lois Lerner,
Nanette Downing created a special process for reviewing complaints of
political activity by exempt organizations following the Citizens
United decision. See Subcommittee on Oversight, Committee on Ways and
Means, U.S. House of Representatives, Interview of: Nanette Downing,
December 6, 2013 at 33-37, Exhibit 8.
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Following Tom Miller's response, Lerner sent an email to
Nanette Downing, the Director of the EO Examinations Unit in
Dallas, TX, demanding to know why Crossroads had not been
audited.
I had a meeting today with an organization that was
asking us to consider guidance on the c4 issue. To get
ready for the meeting, I asked for every document that
(sic) had sent in over the last several years because I
knew they had sent in several referrals. I reviewed the
information last night and thought the allegations in
the documents were really damning, so wondered why we
hadn't done something with the org. The first complaint
came in 2010 and there were additional ones in 2011 and
2012. . . . The organization at issue is Crossroads GPS
. . . I know the org is now in the ROO--based on
allegations sent in this year, but this is an org that
was a prime candidate for exam when the referrals and
990s first came in.\20\
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\20\Exhibit 6.
* * * * * * *
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You should know that we are working on a denial of
the application, which may solve the problem because we
probably will say it isn't exempt. Please make sure all
moves regarding the org are coordinated up here before
we do anything.\21\
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\21\See id.
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On the following Monday, January 7, 2013, Lerner sent a
follow-up email to Downing which states, ``As I said, we are
working on the denial for the [Crossroads] 1024, so I need to
think about whether to open an exam. I think yes, but let me
cogitate a bit on it.''\22\ Interviews of IRS personnel and a
review of Crossroad's file shows that Lerner was in fact
actively seeking to ensure a denial of the group.
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\22\See id.
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In a transcribed interview of Victoria Judson, Associate
Chief Counsel (Tax Exempt & Government Entities), Committee
staff asked Judson about Lerner's interest in Crossroads:
Q: I think you said that it was in the spring of 2012
that you discussed with Ms. Lerner a Crossroads GPS
case and she gave you advance notice that that might be
a denial. Is that correct?
A: That's the best of my recollection. And I don't
know if I would characterize it as ``discuss'' as
opposed to ``she told me that . . .''\23\
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\23\Subcommittee on Oversight, Committee on Ways and Means, U.S.
House of Representatives, Interview of: Victoria Ann Judson, Wednesday,
September 11, 2013, at 57 (quotation marks added), Exhibit 9.
Lerner's plan to deny the Crossroad application is evident
from the work log for the Cincinnati-based revenue agent
assigned to the case, as after her January 4, 2013 meeting with
Democracy 21, the agent sprung into action. In the seven
business days following her meeting, the revenue agent Joseph
Herr, logged more time on the application than the entire year
preceding.\24\ But more, the log shows that Herr was directed
to reach a particular result with Crossroads. Herr's log shows,
in part:
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\24\See IRS00071224-71226, Exhibit 10.
On January 4, 2013, Herr notes a conference call with
EOT [Exempt Organizations Technical Division] in DC
where specific guidance is given to him on ``how to
best proceed with the [Crossroads] case.''
On January 7, this guidance from EOT was memorialized
in Herr's time sheet, ``[b]ased on conference begin
reviewing case information, tax law, and draft/template
advocacy denial letter, all to think about how best to
compose the denial letter.''\25\
\25\See id.
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In the next journal entry from Herr, he notes,``[w]rite-up
summary of idea on how I plan to make denial argument and share
with Sharon Light, the Special Advisor to EO Director in
Washington DC, for her opinion on whether the idea seems
valid.''\26\ Nowhere in his 2012 log entries is there any
discussion of denial. In fact, in an analysis of the Crossroads
application in November 2011, among many others, EO Technical
lawyer Hillary Goehausen makes no recommendation for
denial.\27\
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\26\See id.
\27\IRS0000063029, Exhibit 11.
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The Committee subsequently learned that the agency was in
the process of denying Crossroads' application for exempt
status and selecting them for audit. Judson informed staff the
organization would be receiving a proposed denial letter.\28\
An IRS representative separately told staff that Crossroads had
also been selected for audit.\29\ The evidence shows that
without Lerner's intervention, neither adverse action would
have been taken against Crossroads. Again, the Committee has
found no record of Lerner pursuing similarly situated left-
leaning groups, despite receiving similar public
complaints.\30\
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\28\Exhibit 9.
\29\Telephone briefing by IRS staff to Oversight Subcommittee staff
of September 3, 2013.
\30\See http://www.democracy21.org/wp-content/uploads/2013/05/
Letters-to-IRS.pdf.
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In fact, during the same time period Lerner was engineering
a denial and audit of Crossroads, documents show Lerner had a
favorable disposition toward left-leaning groups, including
considering future employment with one. In response to a news
story about the formation of Organizing For Action, a
501(c)(4), Lerner remarked to EO Senior Technical Advisor
Sharon Light, ``Oh--maybe I can get the DC office job!''\31\
Light then forwarded Lerner's comment to Holly Paz wondering if
Lerner was considering retirement to pursue a potential job
opportunity at this left-leaning group.\32\
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\31\See Email from Lois Lerner to Sharon Light of January 24, 2013,
IRSC007157-60, Exhibit 12. N.b. Democracy 21 is highly critical of
Organizing For Action. See, e.g., `` Statement by Fred Wertheimer''
January 22, 2013 (stating with reference to the formation of Organizing
For Action that, ``In taking this step, the President has opted for the
ends justify the means' approach that is fraught with danger. It opens
the door to opportunities for government corruption.'') Available at:
http://www.democracy21.org/money-in-politics/press-releases-money-in-
politics/statement-by-fred-wertheimer-president-obama-opts-for-the-
ends-justify-the-means; see also, ``Is Organizing For Action Too Close
To The White House?'' National Public Radio (March 19, 2014) (quoting
Democracy 21's Fred Wertheimer, ``The best thing the president of the
United States could do is shut [Organizing for Action] down. This is a
danger to the integrity and credibility of his presidency.'') Available
at: http://www.npr.org/2014/03/19/291312006/is-organizing-for-action-
too-close-to-the-white-house.
\32\See Exhibit 12.
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b. Evidence suggests Lerner targeted other right-leaning groups
Evidence discovered by the Committee also suggests that
Lerner targeted other right-leaning groups. On January 2, 2013,
ProPublica separately published an article titled,
``Controversial Dark Money Group Among Five That Told IRS They
Would Stay Out of Politics, Then Didn't'' that was circulated
within the IRS.\33\ Forwarding the ProPublica article, Lerner
asked Holly Paz, David Fish and Sharon Light to ``meet on the
status of these applications please. Can we talk Friday?''\34\
The five groups named in the article are:
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\33\See http://www.propublica.org/article/controversial-dark-money-
group-among-five-that-told-irs-they-would-stay-out.
\34\IRS0000122510, Exhibit 13.
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Americans for Responsible Leadership
Freedom Path
Rightchange.com
America is Not Stupid
A Better America.\35\
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\35\fn 33.
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Information later provided to the Committee regarding IRS
EO examinations processes showed that four of the five groups
were subject to extra-scrutiny; two of the groups were placed
in the IRS' surveillance program, called a ``Review of
Operations,'' and two were selected to be put before the
Political Activity Review Committee, which determines whether a
group will be audited.\36\ Ultimately three of the groups were
selected for audit.\37\
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\36\Telephone briefing by IRS staff to Oversight Subcommittee staff
of September 3, 2013.
\37\Telephone briefing by IRS staff to Oversight Subcommittee staff
of March 27, 2014.
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c. Lerner's defiance of internal controls and abuse of authority
The evidence demonstrates Lerner acted in defiance of IRS
internal controls. Internal IRS policies and procedures, which
would be well known to Lerner, deter any one person from
deciding the disposition of a group based on political or
personal animus. Joseph Grant, former Commissioner of the Tax
Exempt and Government Entities Division, and former boss of
Lerner, told the Committee in a transcribed interview that it
would be ``completely'' inappropriate for a manager to target a
specific organization for exam or adverse determination.\38\
The IRS put in place these safeguards ``in the 1990's to ensure
equity and transparency and that no one individual could select
organizations within certain classes for examination.''\39\
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\38\See Subcommittee on Oversight, Committee on Ways and Means,
U.S. House of Representatives, Interview of: Joseph H. Grant, Sept. 20,
2013, at 39, Exhibit 14. Under questioning:
Q: Would it be appropriate for a manager at IRS to refer a specific
taxpayer to Exams or to intervene on their own on--I mean, their own
volition to Determ[ination]s?
A: I believe it would be completely--it would not be appropriate to
intervene on their own. So--and I'm not aware of that occurring.
See also, Testimony IRS Commissioner Douglas Shulman before the
U.S. House Committee on Appropriations Subcommittee on Financial
Services and General GovernmentHearing on the FY 2013 Internal Revenue
Service Budget, March 21, 2012. Per Shulman:
[W]e have the safeguards built in to this process so that no one
person can decide to examine an organization based on political
activities. So you've got your peers watching. You can't just get a
case, go off in the corner, and run with your own agenda. Available at:
http://appropriations.house.gov/uploadedfiles/hhrg-112-ap23-wstate-
dhshulman-20120321.pdf.
\39\IRS, FINAL REPORT, PROJECT 302 Political Activities Compliance
Initiative at 3 (emphasis added). Available at: http://www.irs.gov/pub/
irs-tege/final_paci_report.pdf.
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These safeguards are reflected in current EO Examinations
Unit procedures adopted during Lerner's tenure that she
nonetheless circumvented. From the FY2013 EO work plan:
EO will have a PARC (Political Action Review
Committee) operating at all times comprised of three
experienced career civil servant employees. . . . PARC
operations are overseen by the Managers of EPR and
EOCA; however, they shall not override or influence any
case selection decision of the PARCs.\40\
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\40\IRS0000410461-62, Exhibit 15. ``EPR'' refers to Examinations
Programs & Review and EOCA to Exempt Organizations Compliance Area. See
also, IRS Exempt Organizations FY 2012 Annual Report & FY 2013 Work
Plan at 2. Available at: http://www.irs.gov/pub/irs-tege/
FY2012_EO_AnnualRpt_2013_Work_Plan.pdf.
The PARC determines whether organizations about which
referrals are made are to be subject to audit.\41\ The PARC had
twice refused to target Crossroads, yet Lerner stated to the
head of EO Examinations that, ``we are working on the denial
for the [Crossroads] 1024, so I need to think about whether to
open an exam. I think yes, but let me cogitate a bit on it,''
in defiance of IRS policy.\42\ Lerner makes clear that she
believes she is entitled to approve or disapprove an
application or subject an organization to an audit based on her
say so alone and irrespective of the PARC's decision.
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\41\Exhibit 7.
\42\Exhibit 6.
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d. Lerner Seeks to Influence the IRS' Independent Appeals Process
In addition to IRS safeguards against interfering in the
determinations and exams functions, there are internal controls
in place with regard to the IRS's Appeals Division that Lerner
sought to circumvent. If EO Determinations reaches the
conclusion that an application for exempt status does not
satisfy the requirements under the Code, the IRS generally will
issue a proposed adverse determination letter to the applicant
and give notice of the opportunity to appeal.\43\ The Appeals
Division is independent of the EO Division and thus outside of
the EO Director's chain of command.\44\ Furthermore, as a
matter of law and not just IRS policy, ex parte communications
between appeals officers or settlement officers and other IRS
employees, to the extent that those communications appear to
compromise the independence of Appeals, are prohibited.\45\
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\43\Internal Revenue Bulletin: 2013-2, Jan. 7, 2013, Rev. Proc.
2013-9, sec. 7.01.
\44\See Section 1001(a)(4) of the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat.
685, 26 USC 7801 note. The provision requires:
The Commissioner of Internal Revenue shall . . . ensure an
independent appeals function within the Internal Revenue Service,
including the prohibition in the plan of ex parte communications
between appeals officers and other Internal Revenue Service employees
to the extent that such communications appear to compromise the
independence of the appeals officers.
\45\See id.
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An email from Lerner to the Chief of IRS Appeals, Chris
Wagner, on January 31, 2013, shows she sought to influence the
independent appeals process notwithstanding a prohibition
against such contact. Lerner offers unsolicited advice about
how to handle incoming c4 denials:
I gave [your people] a heads up that, in the next few
months we believe they will get a lot of business from
our [taxpayers] regarding denials on 501(c)(4)
applications. I explained the issue is whether they are
primarily involved in social welfare activities and
whether their political intervention activities. . . I
explained the issue was very sensitive and visible and
there is a lot of interest--Congress, press, political
groups, you name it. . . . I offered a general tutorial
session (noncase-related) on the law and the
complexities because--as I pointed out. . . . I told
them this is a place where we have worked very hard to
be consistent and have all our cases worked by one
group, and suggested they might want to do something
similar. (PS we are under audit by TIGTA because of
allegations of political bias on these cases). . . . If
you think it would be useful to have a meeting on
this--let me know.\46\
\46\IRS0000122863-122864, Exhibit 16.
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Ironically, Lerner's communication closes with, ``Hope this
doesn't [sound] like I'm trying to run your shop.'' The purpose
of this email could not be clearer. Lerner explained that her
team worked very hard both to get what Lerner characterized as
a highly technical law right and also to apply it consistently
to the circumstances of each applicant. She further
characterized the cases as ``sensitive and visible'' and
suggested that Wagner should consult her.\47\ Notwithstanding
agency safeguards, the message from Lerner to the Appeals chief
was unequivocal: EO got these denials right and Appeals should
affirm them.
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\47\See Exhibit 16. The applicable Revenue Procedure allows Appeals
to seek technical advice from EO, but that request for advice would
come from Appeals in the first instance and would be documented, not
behind the scenes.
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II. LERNER PROVIDED THE TREASURY INSPECTOR GENERAL WITH MISLEADING
STATEMENTS
The Committee has found documents that suggest Lerner's
written statement to TIGTA, submitted during the course of
TIGTA's audit, was knowingly misleading (Reference Number:
2013-10-053). The document titled, EO Director's responses to 3
questions asked by Director Paterson, which Lerner drafted and
submitted to TIGTA on November 2, 2012, contained specific
statements that are contradicted by the documentary evidence
reviewed by the Committee.\48\
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\48\EO Director's responses to 3 questions asked by Director
Paterson, produced to the Committee by the Treasury Inspector General
for Tax Administration, Exhibit 17. See also, telephone briefing by
TIGTA staff to Oversight Subcommittee staff of September 12, 2013.
---------------------------------------------------------------------------
TIGTA asked:
When did you become aware the IRS was targeting
applications for tax exemption that mention: 1) the
``Tea Party,'' ``Patriots,'' or the ``9/12 Project'',
2) government spending, government debt or taxes, 3)
education of the public by advocacy/lobbying to ``make
America a better place to live'', or 4) criticizing how
the country is being run?
Lerner began her response with the statement:
In early 2010, EO Determinations witnessed an uptick
in the number of applications for 501(c)(3) or
501(c)(4) status that contained indicators of
potentially significant amounts of political campaign
intervention (``advocacy organizations'').''\49\
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\49\Exhibit 17.
Lerner here seeks to establish that there was an increase
in the number of applications received in Cincinnati that
contained political campaign activity to minimize her
responsibility for the targeting. However, the statement is the
first of a compilation of misleading half-truths.
Just a few months before, on July 17, 2012, Lerner sent an
email to Holly Paz and Nikole Flax offering comments on a
talking point drafted for then-Deputy Commissioner for Services
and Enforcement Steve Miller about a perceived uptick in
political advocacy cases:
Only one comment--I know we don't have published SOI
stats for the uptick, but our Cincy folks saw it
happening--can we get Nikole whatever ``inside'' info
we have that led to that conclusion--she can then
figure out how to use it.\50\
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\50\IRS0000179271, Exhibit 18.
Holly Paz sought assistance from Nanlee Park,\51\ who
responded later that evening and included Lerner on the
response:
---------------------------------------------------------------------------
\51\IRS0000179269-179270, Exhibit 19.
[A]s Holly pointed out in her comment, we do not have
a reliable method for tracking data by issue such as
political activity. This is consistent with our
congressional responses where we had explained we would
have to manually go through each application, etc.
Because of the above points, the first bullet that
presently reads as: Starting in 2010, EO observed an
increase in the number of section 501(c)(3) and section
501(c)(4) determination applications from organizations
that appeared to be potentially engaged in political
advocacy activities.
Recommend it be revised (i.e., along the lines of the
following): For about the past five years [alternative
verbiage: From FY 2008 through June 30th of FY 2012],
EO has observed an increase in the number of section
501(c)(4) determination applications filed, as well as
a general upward trend in section 501(c)(3) application
filings.\52\
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\52\IRS0000179389-179390, Exhibit 20.
Despite being told that ``political advocacy activities''
could not be substantiated in her proposed talking point,
Lerner used almost the exact same words in her response to
federal law enforcement. Lerner knew her answer could not be
substantiated, and yet provided it in response to TIGTA's audit
in an attempt to minimize her role in the agency's management
failures.
Lerner then answered the question of when she first learned
``the IRS was targeting applications . . . that mention . . .
the `Tea Party,'' by saying that she:
First became aware that the BOLO referenced `tea
party' organizations and EO Determinations was using
the above criteria to determine what organizations met
that description when I was briefed on these cases on
June 29, 2011.\53\
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\53\Exhibit 17.
This half-truth appears calculated to obscure her knowledge
that ``Tea Party'' cases were being treated differently, in
part, at her direction, and far earlier than she acknowledged.
A series of emails show that Lerner knew as early as April 2010
that tea party cases were being flagged and held in Cincinnati.
On April 28, 2010 Lerner was told by email,
``there are 13 tea party cases out in EO Determinations.'' The
attached spreadsheet even identifies the issue involved
``whether a tea party organization meets the requirements under
501(c)(3) and is not involved in political intervention'' and
notes that there is a grouping of tea party cases.\54\
---------------------------------------------------------------------------
\54\IRS0000141809-141811, Exhibit 21.
---------------------------------------------------------------------------
On May 13, 2010, Lerner responded to a detailed
summary of the tea party cases and even inquires about the
status of the cases. Upon review of the email, she asked
follow-up questions regarding the tea party cases, ``[Are the]
tea party cases--applications for c3? What's their basis?'' In
response, she is explicitly told ``[w]e have tea party cases
here in EOT in Cincy. In EOT, there is a (c)(3) application. In
Cincy there are 10 (c)(4)s and a couple of (c)(3)s.''\55\
---------------------------------------------------------------------------
\55\IRS0000167872-167873, Exhibit 22. Pursuant to the Internal
Revenue Manual (IRM) 7.29.3.2 (07-14-2008), Sensitive Case Reports are
written for the benefit upper management.
---------------------------------------------------------------------------
In an email dated August 3, 2010, Lerner
specifically asked her assistant to print out a Sensitive Case
Report (SCR) on the handling of the tea party cases, for her
review. The SCR noted that the cases were being held due to the
likelihood of attracting media attention, contrary to Lerner's
assertion that the targeting was prompted by the ``uptick in
applications'' with these characteristics.\56\
---------------------------------------------------------------------------
\56\IRS0000163358-163359, Exhibit 23.
---------------------------------------------------------------------------
On January 1, 2011, Lerner received an SCR that
flagged issues with ``tea party organization[s].''\57\ The next
day, Lerner responded, ``Tea Party Matter very dangerous. . . .
Counsel and Judy Kindell need to be in on this. Cincy should
probably NOT have these cases.''\58\ Less than hour later,
Lerner appeared to be directing staff to find a way to deny
both c3 and c4 applications--``[I]t would be great if we can
get there without saying the only reason they don't get a 3 is
political activity.''\59\
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\57\IRS0000147507-147509, Exhibit 24.
\58\IRS0000147510-147513, Exhibit 25.
\59\Exhibit 25.
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These email exchanges memorialize Lerner's knowledge that,
as early as April 2010, the IRS was targeting applications for
tax-exemption involving the name ``Tea Party'' and holding
these cases pending review from EO Technical in Washington,
D.C.
III. LERNER USED HER PERSONAL EMAIL FOR OFFICIAL BUSINESS, INCLUDING
CONFIDENTIAL RETURN INFORMATION; FURTHER INVESTIGATION COULD REVIEW
UNAUTHORIZED DISCLOSURE
In an email dated October 29, 2012, Lerner sent TIGTA's
draft chronology containing confidential return information of
taxpayers, protected by 26 U.S.C. section 6103, to her personal
email address:
From: Lerner Lois G
Sent: Monday, October 29, 2012 10:51 AM
To: '[email protected]'
Subject: Fw: Revised timeline
Attachments: Long Political Advocacy Timeline HOP
comments.doc
Lois G. Lerner-------------------------- Sent from my
BlackBerry Wireless Handheld\60\
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\60\IRS0000062811-28, Exhibit 26.
A review of the redacted chronology shows that nine of the
17 pages contain section 6103 material.\61\
---------------------------------------------------------------------------
\61\Exhibit 26.
---------------------------------------------------------------------------
The next evening, Lerner sent this material back to her
official email address and to others in the IRS with her
comments:
From: Toby Miles
Sent: Tuesday, October 30, 2012 9:16 PM
To: Paz Holly O; [email protected]; Lerner Lois G
Subject: Long Timeline from LOIS
Attachments: Long Political Advocacy Timeline HOP
comments.doc
Looks pretty good--a couple questions/comments\62\
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\62\IRS0000062829, Exhibit 27. ``Miles'' is Lerner's husband's,
Michael R. Miles, last name. The source of the name ``Toby'' is not
known.
More recently on May 4, 2013, EO Senior Technical Advisor
Meghan Biss, apparently at Lerner's request, sent a summary of
One Fund Boston's 501(c)(3) application, which consisted almost
entirely of section 6103 material, to Lerner's personal email
address.\63\
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\63\IRS0000322610, Exhibit 28. The application has since been
approved and is available for public inspection.
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Sending confidential taxpayer information to a personal
email address is prohibited by IRS policy, but is not
illegal.\64\ However, it is a crime to disclose taxpayer return
information.\65\ If persons other than Lerner had access to her
personal email account, [email protected], and accessed this
protected section 6103 material, then Lerner may have violated
a criminal statute for which the penalty is up to $5,000 fine
and/or up to five years in prison.\66\
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\64\See IRM 11.3.1.14.2--Electronic Mail and Secure Messaging [Last
Revised: 03-07-2008]
(1) a. Employees may not use E-mail to transmit SBU [(Sensitive
but Unclassified)] data unless they use the IRS Secure Messaging (SM)
system . . . Both the sender and recipient must have SM in order for
the E-mail to be protected.
b. SBU information includes taxpayer data, Privacy Act protected
information, some law enforcement information, and other information
protected by statute or regulation . . .
d. SBU data may not be sent to parties outside of IRS, including
other government agencies , taxpayers, or their representatives . . .
Employees cannot send E-mails containing SBU data outside the IRS
network, even if specifically authorized by the taxpayer. (emphasis
added)
\65\See IRC Sec. 7213. Unauthorized disclosure of information.
\66\See id.
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IV. CONCLUSION
Contrary to reports that IRS' Administrative Review Board
found no political bias or willful misconduct by Lois Lerner,
the Committee's investigation has uncovered such evidence.\67\
After reviewing these same emails, Acting Commissioner Danny
Werfel himself conceded that there was evidence that raised
questions about wrongdoing at the agency. At a September 18,
2013 hearing, Oversight Subcommittee Chairman Charles Boustany
asked Werfel whether Lerner acted in violation of internal
agency controls:
---------------------------------------------------------------------------
\67\Stephen Ohlemacher, ``IRS official at heart of tea party
scandal retires,'' Associated Press, Sept. 23, 2013. Available at:
http://bigstory.ap.org/article/irs-official-heart-tea-party-scandal-
retires.
Chairman Boustany. Did Lois Lerner seek to intervene
in the examinations process or audit process?
Mr. Werfel. I am not sure that I can fully answer
that question because all those documents in Lois'
email file need to be further reviewed. I will say
this, that there were emails that we turned over to you
. . . that I thought raised questions, [which] I
provided directly to TIGTA and I also provided them to
the Accountability Review Board.\68\
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\68\U.S. House Committee on Ways and Means Oversight Subcommittee
Hearing on the Internal Revenue Service's Exempt Organizations Division
Post-TIGTA Audit, September 18, 2013.
Werfel's testimony is the first public admission by an IRS
official that evidence may show intentional wrongdoing; this
concession is wholly consistent with the Committee's
investigation.
Notwithstanding the Werfel Report and other IRS statements,
the foregoing sets forth evidence that tends to show
intentional wrongdoing, including targeting specific taxpayers
for adverse treatment, making misleading statements to law
enforcement, and the possible disclosure of confidential
taxpayer information. The Committee requests that you act on
the findings within this letter and the attached documentation
to ensure the rights of law-abiding taxpayers are protected.
Please contact Committee staff at (202) 225-3625 if you have
any questions.
Sincerely,
Dave Camp,
Chairman.
MINORITY VIEWS
Our opposition to this letter and to this process is not
about any of us condoning the mismanagement in the Internal
Revenue Service (IRS) Exempt Organizations division (EO).
Democrats were among the first to call for Lois Lerner to
resign and for her to be relieved from her duties.
Indeed, the Department of Justice (DOJ) is investigating
the entire matter to determine whether there should be criminal
charges. They are working with the IRS and with the Treasury
Inspector General for Tax Administration (TIGTA) to gain access
to documents, conduct interviews and compel testimony.
Nearly a year ago, the investigation by this committee
started with a bipartisan request for documents on May 14.
However, the investigation quickly went off those tracks with a
declaration by Chairman Camp on May 17 that the IRS matter was
the ``latest example of a culture of cover-ups and political
intimidation in this Administration.'' That end to bipartisan
efforts started a year-long pursuit of a failed effort to prove
White House involvement, pursuit of a non-existent enemies
list, and a search for non-existent evidence that the IRS
targeted only conservative groups.
The selective release of taxpayer information by the
Republicans to make political points contradicts the very
reason these taxpayer protections were enacted in the first
place. The provision under which this information is being
released--Section 6103(f)--was enacted in response to the
inappropriate use of taxpayer information by the Nixon
Administration. The very disclosure that is being made in this
report violates the spirit of the taxpayer protections this
Committee created.
The Chairman claimed in the executive session that the only
way he could notify the Attorney General of specific evidence
of criminal activity by Ms. Lerner that the Chairman had found
was to make all of this material--previously considered
protected taxpayer information--public.
But that is just not accurate. The DOJ has access to all of
the same information. If the Chairman was afraid they might
have missed something, he could have designated the Attorney
General or a designee with his 6103 authority as Chair of the
Ways and Means Committee--just as he did for the other Members
of this Committee--for the Attorney General to review it.
The Ways and Means Committee has never used this authority.
In 1974, Chairman Mills, along with Ranking Member Schneebeli,
acting on behalf of the Joint Committee on Taxation, filed in
the House and made public the audit of President Nixon's tax
returns, which had been requested by the President himself.
That process was a public service, letting the nation know that
the President, like other Americans, would be paying his fair
share of tax for the years under audit. This new action by the
Committee serves no such purpose.
After a year of investigation, $14 million spent, 15
Congressional hearings held, more than 60 staff interviews of
IRS employees conducted and the review of over 660,000 internal
IRS documents, it is now clear that Republican members of the
Ways and Means Committee have decided that they do not want to
be left behind in the Republican campaign to keep this so-
called ``scandal'' going until November.
This entire investigation has arisen from a fundamentally
flawed report issued by the Inspector General which failed to
indicate that progressive groups were selected for additional
screening alongside ``Tea Party'' groups. The report also
failed to mention that the Head of Investigations at TIGTA
reviewed 5,500 internal IRS emails and concluded that ``there
was no indication that pulling these selected applications was
politically motivated.''
The Republicans have hand selected information that they
claim proves their case from the over 660,000 documents
provided during this investigation. The Chairman gave Members
only 24 hours to look at the evidence he selected to back up
the assertions in the letter. Most egregiously, the Republicans
have not provided all Committee Members with the necessary
authority to look at any other documents beyond what they were
provided so that Members could reach a conclusion on their own.
However, the materials released to the public today confirm
our position from the very beginning--that Democratic-leaning
and progressive groups were subject to the same scrutiny as
``Tea Party'' and other Republican-leaning groups. Exhibit 21
(attached to the referral letter) contains a list of tax-exempt
applications that were subject to additional review.
Among that list are a group of Democratic-leaning
organizations with the term ``Emerge'' in their name. According
to a New York Times story dated July 20, 2011, Emerge Maine,
Emerge Nevada and Emerge Massachusetts were all denied tax-
exempt status after their applications were pending for over
three years. These denials happened during the period of
TIGTA's audit, but they were not disclosed by the Inspector
General in the audit report or during his testimony before
Congress. These applications were processed in the same manner
as the Tea Party cases as outlined in TIGTA's audit report:
The cases were identified and screened for
political activities;
They were transferred to Exempt
Organizations Technical Unit;
They were the subject of a Significant Case
Report (included in Exhibit 21 of the Republicans
Letter);
They were subject to multiple levels of
review within the IRS; and
They were reviewed by IRS Chief Counsel.
Now that the documents have been made public, many relate
to the application for 501(c)(4) status by Crossroads GPS. It
is an organization operated by Karl Rove that spends tens of
millions of dollars on political activities while claiming to
be a tax-exempt ``social welfare'' organization. This
Committee's action has the effect of assisting campaign
organizations like Crossroads. Crossroads GPS reported to the
Federal Election Committee having spent $71 million during the
2012 election cycle, according to the Center for Responsive
Politics.
Questions about Crossroads GPS status as a 501(c)(4) have
been around since 2010. If Republicans can shut down those
questions, Crossroads GPS can continue to pour hundreds of
millions of dollars into advancing Republican candidates
without having to disclose their contributors, as can others
like Americans for Prosperity and American Future Fund.
We all share the objective of a thorough investigation and
prosecution by the U.S. Justice Department, if justified, of
any person who violated the law. We all share the objective of
ensuring that the IRS is effectively administering procedures
to protect every taxpayer from discrimination. Were these the
Majority's only objectives, today's unprecedented political
theatre would never have occurred.
Making this Committee an arm of any campaign committee does
a deep disservice to the proud traditions and legacy of the
Committee on Ways and Means.
Sander Levin.
Charles Rangel.
Jim McDermott.
John Lewis.
Richard E. Neal.
Xavier Becerra.
Lloyd Doggett.
Mike Thompson.
John B. Larson.
Earl Blumenauer.
Ron Kind.
Bill Pascrell, Jr.
Joseph Crowley.
Allyson Schwartz.
Danny K. Davis.
Linda Sanchez.
DISSENTING VIEWS
On Wednesday, April 9, 2014, the Ways and Means Committee
took unprecedented action to refer Lois Lerner to the U.S.
Department of Justice for possible criminal charges.
I am very disappointed that for the first time in 40 years,
the Republicans on this Committee decided to release taxpayer
information to the public. I feel very strongly that this
action flies directly in the face of the taxpayer protections
which the Ways and Means Committee not only created, but also
worked in a bipartisan manner to protect and uphold.
As the Ranking Member of the Oversight Subcommittee, I take
tax policy and the importance of congressional oversight very
seriously. It is unfortunate that I was previously committed to
participate in the Lyndon B. Johnson Presidential Library Civil
Rights' Summit with the current and former U.S. presidents and
civil rights leaders on the day of this unprecedented Committee
action. I even tried, unsuccessfully, to rearrange my schedule
in order to attend this last-minute markup.
Before departing, however, I was one of the first Members
to review the tax documents when the Republicans made them
available to the Committee. Had I been present at the hearing,
I would have joined my colleagues in opposing this unnecessary
political maneuver.
To be clear, I do not support federal mismanagement or
potential criminal activity, and I share the bipartisan
sentiment supporting a thorough investigation by the U.S.
Department of Justice. Yet, there are a number of ways to
conduct responsible oversight, without political theatre, and I
am disappointed that politics are taking center stage over the
compelling issues of fairness, privacy, policy, and process.
John Lewis.