IRS IG Report: Targeting Conservatives Began In 2010

The targeting of conservatives by the IRS started earlier and was more extensive than the IRS acknowledged last week, according to a draft IRS inspector general report obtained by ABC News.

As we reported on "Good Morning America" this morning, the IRS began targeting "Tea Party or similar organizations" in March 2010. That was when the Cincinnati-based IRS unit responsible for overseeing the applications for tax exempt status starting using the phrases "Tea Party," "patriots" and "9/12? to search for applications warranting greater scrutiny.

During this first phase, 10 Tea Party cases were identified. By April of 2010, 18 Tea Party organizations were targeted, including three that had already been approved for tax-exempt status.

By June 2011, the unit had flagged over 100 Tea Party-related applications and the criteria used to scrutinize organizations had grown considerably, flagging not just "Tea Party" or "Patriot" in group names, but also groups that were working on issues like "government debt," "taxes" and even organizations making statements that "criticize how the country is being run."

The report, done by the Inspector General for the IRS, also shows that senior IRS officials in Washington was aware of what was going on as early as August 4, 2011 when, according to the report, the IRS chief counsel held a meeting with the IRS's Rulings and Agreements unit "so that everyone would have the latest information on the issue."

Click here to see the draft report.

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IRS commissioner was grilled on targeting conservatives earlier than first thought

IRS Commissioner Douglas Shulmanis sworn in prior to testifying before the Senate Homeland Security and Governmental …

News reports about how the Internal Revenue Service applied heavier scrutiny on conservative political organizations applying for tax-exempt status have pointed to a March 22, 2012 House Ways and Means oversight subcommittee hearing in which IRS Commissioner Douglas Shulman denied any wrongdoing. But that wasn't the first time lawmakers grilled him about the IRS' practices.

During a Financial Services subcommittee hearing earlier that month, on March 7, 2012, Georgia Republican Rep. Tom Graves questioned Shulman about similar concerns. Shulman pushed back against allegations that the IRS was targeting groups that advocated for limited government, just as he did at the subsequent Ways and Means subcommittee hearing.

At the March 7 hearing, Graves pointed to concerns from tea party groups that the IRS had unfairly scrutinized them with burdensome questions because of their political ideology. Shulman, who was appointed to the post by President George W. Bush and whose five-year term as IRS commissioner ended in Nov. 2012, told Graves that the agency had followed standard protocol and said allegations that specific groups were being targeted were "off."

"Can you help put any of those concerns to rest today that these groups are specifically being targeted because of their political activities or their opposition to the administration’s policies?" Graves asked, according a transcript of the exchange.

"It is a good question. I am glad you asked it because I think there has been lots of information flying around in the press, and I think it is important that people put it in perspective," Shulman said, and went on to explain the agency's process for examining applications non-profit status. "When we decide to do an examination, we pride ourselves on being a non-political, non-partisan agency. We are given these complex rules that have things like political activity written into the tax code that does not allow you to do certain things or else you jeopardize your tax exemption. We have set up very clear safeguards, for determinate exams.

"This notion that we are targeting anyone, I think, is off," Shulman added, "because these people are going through an application process that they voluntarily decided to do. It is not required under the law."

The IRS on Friday apologized for singling out conservative organizations that applied for tax-exempt status between 2010 and 2012. A forthcoming audit of IRS procedures during that time will show that the agency was made aware of the practices as early as 2011, according to copy of the report obtained by the Associated Press.

The White House and several lawmakers have called for an investigation for more details.

Here's the full transcript of Graves' exchange with Schulman during the March 7 Financial Services subcommittee hearing:

Mr. GRAVES: Madam Chair, Commissioner. There has been a great deal of press in terms of the likelihood of your agency structure and form and funding of 501(c)(4) in terms of welfare organizations. This media attention specifically focused on our assets, examination of what are (c)(4) groups, who also engage in political activity, should be denied a release of their taxes. Two reasons I think that your activities are of so much interest to the press, and to everyone out there, certainly to us in Congress, first because of the timing of the inquiries, which make it appear a little bit linked to other actions, and second, is the focus, since the examinations seem to be centered on groups that are considered Tea Party groups, or those that openly oppose the Administration’s policies.

Can you help put any of those concerns to rest today that these groups are specifically being targeted because of their political activities or their opposition to the Administration’s policies?

Mr. SHULMAN: It is a good question. I am glad you asked it because I think there has been lots of information flying around in the press, and I think it is important that people put it in perspective. First, is for taxpayers to operate as a 501(c)(4) organization, they need to be primarily engaged in promoting the common good or general welfare. They are allowed to be involved in political campaign activity, but it cannot be the primary activity. Second, in order to be a (c)(4) organization, you do not need to apply to the IRS. You can hold yourself out as a 501(c)(4). You then file your 990 at the end of the year, and if we see something that either has to do with political activity or something else, we have the option to do an examination, and there is not a high chance of an examination; we run samples. Third, when we decide to do an examination, we pride ourselves on being a non-political, non-partisan agency. We are given these complex rules that have things like political activity written into the tax code that does not allow you to do certain things or else you jeopardize your tax exemption. We have set up very clear safeguards, for determinate exams. Our Chief Counsel and I are the only Presidential Appointees, and I have a five-year term, so that it goes past Presidential election cycles.

There is a committee of three career employees in our tax-exempt organization, not even based in Washington, who look at any political referrals or any allegations of political activity. Those three rotate, but they make decisions about farming out examinations to the field, so there are many safeguards built in. This work has nothing to do with election cycles and politics. And so that is, generally, what happens. But the important thing about what has been in the press in the last few weeks is not all of these organizations are being examined. They voluntarily came in and said, ‘‘I would like to apply for 501(c)(4) status, so I would like to engage the IRS in what my activities are,’’ and when you apply, you send in an application. We ask sets of questions. These people had a choice to not engage the IRS, to be 501(c)(4)s, hold themselves up as such, file a 990 after a year plus of operation, and then there would have been a much less of a chance that we would have discussions with them. So this notion that we are targeting anyone, I think, is off because these people are going through an application process that they voluntarily decided to do. It is not required under the law.

Mr. GRAVES: Has the IRS recently changed its policies with respect to these organization’s applications?

Mr. SHULMAN: No. No, when you apply as a 501(c)(3) or a 501(c)(4) you send in information. If we need more information, we do a back-and-forth with you. I think there have been press reports about the questions we ask. We also send out information that say, ‘‘If you think you can provide us information in other ways, please let’s have a conversation.’’ I think we are quite reasonable around those things.

Mr. GRAVES: The questions you ask today are the same questions you asked two, three years ago?

Mr. SHULMAN: It is facts and circumstances, and up to the examiner what they think they need to ask to get the information to determine what the activities of this organization are.

Mr. GRAVES: So back to the original question. So you did not deny that are increasing in exams or looking into these organizations, in fact you said engaging in political activities is not the primary focus, but you can come good after determining that does increase the opportunity for examination, so sounds to me like you confirmed the fact that the groups identified that the primary focus here is not the common good, but it is of a political nature.

Mr. SHULMAN: No, I think you have got that wrong. I was reciting the tax law and what are the standards we use when we look at 501(c)(4) organizations. We have been clear in our exam plan that we will look at these groups. When we see 501(c)(4)s not using their status right, we will look at it. That is our job, it is written into the tax code, and when people apply, we will make sure we try to do our best to understand what is happening.

Mr. GRAVES: What is your intention when somebody is not using it correctly?

Mr. SHULMAN: People file a 990, we get referrals from organizations about what is happening, and our examiners have a variety of ways it comes to their attention. A lot of it is on the application. They say, ‘‘Here are my activities,’’ and we will go out and do examinations.

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Insight: Silent or supportive, conservatives give gay marriage momentum

By Peter Henderson

SAN FRANCISCO (Reuters) - On a frosty December night last year, about two dozen guests slipped into the Alta Club, a century-old private retreat a block away from the temple of the Church of Jesus Christ of Latter-day Saints that dominates Salt Lake City.

Two men, who didn't know each other, were the reason for the dinner: church lobbyist Bill Evans and gay rights leader Rick Jacobs. Evans was a point man for the church's successful effort to pass California's gay marriage ban, known as Prop 8, in 2008. Jacobs, leader of Courage Campaign, produced a 2008 commercial against the ban showing Mormon missionaries ransacking the home of a lesbian couple.

Politics was not on the agenda - just getting to know each other. "The two hit it off," said host Greg Prince, a medical researcher and church member who had come to know both men. He noted that less than a month before the dinner, the church had launched a website with a major change in its view of gays: the site said homosexuality was not a choice.

"There has been a shift of some tectonic plate somewhere," Prince said.

Shifting attitudes among some conservatives and many businesses is altering the landscape around gay marriage, long considered a uniquely liberal and political issue, at one of its most crucial junctures - its review by the U.S. Supreme Court.

On Tuesday and Wednesday, the court's nine justices will hear arguments on the constitutionality of Prop 8 and the Defense of Marriage Act, which excludes gay couples from federal benefits.

Some jurists look to societal changes when interpreting the law, and scholars speculate that Justice Anthony Kennedy, the possible swing vote in the divided court, will be pondering increased public support for gay marriage.

A Reuters/Ipsos poll released last week found 63 percent of Americans supported gay marriage or civil unions.

While the Mormon Church has backed "traditional marriage" in Supreme Court briefs, it has been silent in recent ballot battles and has not promoted fundraising as it has in the past.

Republicans like Senator Rob Portman of Ohio are supporting gay marriage and publicly conflicting with party leaders, such as House of Representatives Speaker John Boehner. Portman this month said he had switched position on the issue after his son told him he was gay.

Corporations, including Goldman Sachs, whose chief executive, Lloyd Blankfein, has campaigned in support of gay marriage, have joined the battle, arguing in briefs to the court that federal policy of not allowing gay marriage is bad for business.

The issue is far from settled, however. Gay marriage opponents have been written off as dinosaurs before, including in California, and most states ban same-sex weddings. But the momentum has been moving towards the proponents of gay marriage.

MORMON MONEY, NO MORE

Money has played a huge part in the pivot, both in terms of the financing of campaigns in favor of gay marriage and the funding of opposition groups.

When the New York State Senate voted to approve gay marriage in 2011, four Republicans joined Democrats. Republicans led by hedge fund manager Paul Singer, whose son is gay, gave the four financial and moral support, and in the 2012 national race, Singer led a political action committee that spent more than $2 million to help pro-gay marriage Republicans.

"You have billionaires telling Republicans 'Vote our way and you'll receive more money than you've ever seen,'" said Brian Brown, president of the National Organization for Marriage, the leader of the movement to stop gay marriage. "That was new."

Pro-gay marriage groups have routed their opponents financially, outraising them three-to-one in November 2012 ballot races that legalized same-sex marriage in three more states, bringing the total to nine states and the District of Columbia.

The single biggest fundraising change between 2008 and 2012 was the disappearance from the political arena of the mightiest foe of gay marriage - the Mormon Church.

While the church has petitioned the Supreme Court in favor of Prop 8, it has focused its public messages about gays on personal issues of respect and love rather than politics.

In the four November 2012 votes - Maine, Maryland, Washington and Minnesota - the top ballot committees raised about $30 million for gay marriage and $10 million against it. The $20 million difference between the two campaigns last year is close to several estimates of what the Mormon Church and its supporters gave to California's Prop 8 in 2008.

More than 800 Utahns gave $2.7 million to support Prop 8 in 2008, state campaign finance records show. In 2012, a total of 16 Utahns gave $1,264 to the main ballot committees against gay marriage.

"The Mormon Church left as a major funder," concluded Chad Griffin, president of the Human Rights Campaign (HRC), the biggest gay rights group.

Frank Schubert, who ran the 2008 and 2012 anti-gay-marriage campaigns, downplayed the Church hierarchy's silence last year. "Not having a direct statement encouraging people to get involved in the campaign naturally would result in fewer people getting involved in the campaigns, but there were fewer Mormons in these states to begin with, and there was never any expectation that they would be involved."

California Mormon Brooke Crosland, 27, gave $1,000 in 2008 for Prop 8 and made campaign phone calls, but she stayed out of politics in 2012. She described a personal search for understanding, which she saw reflected in the church. "I feel like the ideal for a child is a father and a mother, but I also feel under the law we should have equal rights," she said.

Screenwriter Dustin Lance Black, whose portrait of gay rights pioneer Harvey Milk won an Academy Award, was approached for informal talks by Mormon officials after he narrated a documentary critical of the church called "8: The Mormon Proposition." Church officials were surprised to learn that he, a young, gay man, deeply wanted a family. "That was this big 'ah ha' moment," he said.

But Black said the initial invitation came only after the church was pilloried in public. "They didn't contact me after making 'Milk'. They contacted me after making '8: The Mormon Proposition'," said Black, who was raised a Mormon. He since has introduced HRC leader Griffin to church officials, at the December dinner and a concert following, while continuing talks.

Church spokesman Michael Purdy said its hospitality did not signal a change in position. "Being committed to marriage between a man and a woman does not mean that we do not love and care for all of God's children. Having conversations with gay rights leaders, speaking about compassion and respect for all, and inviting people to attend a concert do not equal pulling back from supporting traditional marriage due to negative publicity during Prop 8," he wrote by email.

Meanwhile, gay marriage fans and foes agree that same-sex-union proponents have improved their fundraising. Ted Olson, President George W. Bush's Solicitor General, made it ok for conservatives to support gay marriage when he agreed to take the Prop 8 case, said Margaret Hoover, a pro-gay-marriage Republican activist.

When former Republican Party Chairman Ken Mehlman in 2010 came out as gay, it was critical mass. "Nightingales don't sing unless they hear another nightingale singing. As soon they hear one, another one sings, and another one sings," said Hoover.

Dozens of Republican leaders, including former California candidate for governor Meg Whitman and former presidential candidate Jon Huntsman, have signed a brief to the Supreme Court in favor of gay marriage.

Some 278 businesses, including Goldman Sachs and hotelier Marriott International, whose chairman and major stockholder is Mormon, have signed a similar brief opposing the Defense of Marriage Act. (Thomson Reuters, the parent of Reuters News, is part of that group.)

UNEXPECTED CONVERTS

The person credited by all sides with cementing the victory in California for the gay marriage ban was a little schoolgirl who told her mother she had just been taught, "I can marry a princess!" The girl was in a commercial for Prop 8, and for years Evan Wolfson, president of Freedom to Marry, has been asked whether he could beat the "Princess" ad.

Wolfson, a fundraising and strategy leader for most recent ballot campaigns in favor of gay marriage, said the answer was chiefly to change his own side's message, rather than chase the opposition. The pro-gay-marriage campaign, which in 2008 had largely focused on appealing to voters to give gays rights because it said they deserved them, took a more personal tone, he said, of affirming the idea of equal rights and respecting loving couples.

That strategy had some unexpected converts.

David Blankenhorn, founder of the family-focused Institute for American Values think tank, was the prime witness in 2010 in the opening round of the federal trial of Prop. 8. Blankenhorn struck up unlikely friendships with gays while debating the issue in public, and he was sitting at his desk one day last year, when one called and told him to go to a website with a strident, anti-gay article.

"He said, 'Are you sure that this is the side you are on?'" Blankenhorn recalled. He put down the phone, and in that moment realized he had already changed his mind.

"I have a kind of intellectual reason for shifting from one foot to the other foot," he said "But I really, honestly think that it was through just personal interactions... if you want to stick with your position, don't get to know people who disagree with you."

Gay marriage foe Brown says he is not worried by polls that show gay marriage support snowballing. It's all about how you ask the question, he said, and a majority of voters do not want to redefine marriage. His side has always been behind in the money battle, he added, but has had some banner successes.

Politicians can see the danger of switching sides, he said. Of the four New York State Senate Republicans who voted for same-sex marriage, only one returned to office, despite financial backing from sources as diverse as the Service Employees International Union (SEIU) union, Wall Street Republicans, and libertarian David Koch.

Back in California, Rick Jacobs, the Courage Campaign chief, thinks Prop 8 was the best thing that ever happened to his movement. People sat up and started paying attention when liberal California overturned its own state Supreme Court and took away the right to marry, he said, and the court fight has kept the issue alive.

"It not only galvanized a lot of people who didn't really care about it before that - gay people - but it also galvanized straight people," he said. "People said, 'wait a minute, we don't like voting on people's rights.'"

The night in Salt Lake City left little doubt things had changed since 2008. After the dinner, the gay rights leaders all headed over to the Mormon Tabernacle Choir's Christmas spectacular. It was the hottest ticket in town and, as guests of the church, they had VIP seats.

(Editing by Mary Milliken,; Martin Howell and Sandra Maler)

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