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Who's to blame for murky regulation in IRS scandal: Agency or lawmakers? (+video)

In a Senate hearing, the two most recent IRS chiefs were grilled over why the agency failed for years to fix the law at the root of the political targeting scandal. The same could be asked of Congress, one said.

By Staff Writer / May 21, 2013

Ousted IRS chief Steven Miller (r.) testifies before the House Ways and Means Committee hearing on the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, May 17. At left is J. Russell George, the Treasury inspector general for tax administration.

J. Scott Applewhite / AP

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Washington

The IRS should move unilaterally to fix the law sitting at the root of the agency’s targeting of conservative groups, according to Senate Democrats who grilled the agency’s two most recent chiefs at a Senate Finance Committee hearing on Tuesday.

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Plenty of questions remain unanswered after senators lit into the two men, Steven Miller and Doug Shulman, about the agency’s managerial competence, the thoroughness of its investigation into the matter given that the IRS has yet to identify exactly who is responsible for the targeting, and whether IRS officials were less than forthcoming with members of Congress during 2011 and 2012 when lawmakers were looking into allegations that eventually proved true.

But they were nearly as irate that the IRS claimed it was overwhelmed and confused about how to evaluate applications for tax-exempt status but did nothing to clarify the regulation at the crux of its discomfort.

“Why didn’t you do anything on your watch to correct it?” asked Sen. Ron Wyden (D) of Oregon. “When the lines are blurring on this disclosure issue, as far as I can tell, you all didn’t do anything to correct the problem in a meaningful way. And I find that very regrettable.”

There’s been no legislative fix proffered for what actually occurred – no lawmakers or IRS officials were making excuses for the agency’s decision to give extra scrutiny to scores of conservative groups’ applications for 501(c)(4) tax exempt status.

That tax status, which is offered to so-called social welfare organizations, is sought by many groups on both sides of the political spectrum because it allows organizations to engage in some political activity while not disclosing their donors.

The problem for the IRS arises in attempting to determine whether an organization is primarily involved in political activity or not. The original law as passed by Congress, as several Democratic senators noted on Tuesday, says 501(c)(4) organizations must be “exclusively” devoted to charitable, educational or recreational purposes.

When the IRS began implementing that rule half a century ago, however, they decided that exclusively really meant not “primarily” engaged in political activity, leaving the door open for groups like the Sierra Club or the AARP to claim the status but devote less than half their activities to politics.

But figuring out just what counts as political activity and what’s an educational offering tied to social welfare is often in the eye of the regulator rather than a definitive science.

Because the IRS, along with the Treasury Department, handles the regulations that spring from the tax code, “the IRS should be able to fix it on their own,” says Annette Nellen, a professor of accounting at San Jose State University. “The language in the statute does say ‘exclusively.’ ”

Members of Congress look at the original law and say, like Sen. Ben Cardin (D) of Maryland, “I don’t know what else we can do.”

“When you say ‘exclusively’ … What stronger word do you want us to use?” Senator Cardin says.

Citizens for Responsibility and Ethics in Washington (CREW), a government watchdog group, is even suing the IRS, asking a court to require the organization to reconcile the differences between what the law says and what the IRS does.

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