JUDY WOODRUFF: We turn to fireworks on Capitol Hill today during the continuing probe into how the IRS scrutinized conservative groups asking for tax-exempt status.
Jeffrey Brown has our story.
LOIS LERNER, Director, IRS Exempt Organizations Unit: I have not done anything wrong. I have not broken any laws. I have not violated any IRS rules or regulations. And I have not provided false information to this or any other congressional committee.
JEFFREY BROWN: That dramatic defense came from Lois Lerner at the outset of the hearing. She oversees the IRS department that processes tax-exempt applications.
But having delivered her brief statement, Lerner refused to answer any questions from the committee.
LOIS LERNER: Because I'm asserting my right not to testify, I know that some people will assume that I have done something wrong. I have not. One of the basic functions of the Fifth Amendment is to protect innocent individuals, and that is the protection I'm invoking today.
JEFFREY BROWN: Lerner's lawyer had notified the committee in advance that she would take the Fifth, but South Carolina Republican Trey Gowdy was visibly agitated.
REP. TREY GOWDY, R-S.C.: You don't get to tell your side of the story and then not be subjected to cross-examination. That's not the way it works. She waived her right to Fifth Amendment privilege by issuing an opening statement. And she ought to stand here and answer our questions.
JEFFREY BROWN: The chair of the Oversight Committee, California Republican Darrell Issa, asked Lerner to reconsider.
REP. DARRELL ISSA, R-Calif.: Is it possible that we could narrow scope of questions and that there are some areas that you would be able to answer any questions on here today?
LOIS LERNER: I will not answer any questions or testify today.
DARRELL ISSA: Ms. Lerner, would you be willing to answer questions specifically related to the earlier statements made under oath before this committee?
LOIS LERNER: I decline to answer that question for the reasons I have already given.
JEFFREY BROWN: Even before Lerner spoke, committee Democrat Stephen Lynch of Massachusetts warned against refusing to testify.
REP. STEPHEN LYNCH, D-Mass.: We know where that will lead. It will lead to a special prosecutor. It will lead to special counsel being appointed to get to the bottom of this.
So I hope that's not the approach of the IRS going forward, because there will be hell to pay if that's the route that we chose to go down.
JEFFREY BROWN: Ultimately, Issa excused Lerner, but said she might be recalled if the committee finds she didn't properly invoke her Fifth Amendment right.
With that, the focus shifted to former IRS Commissioner Douglas Shulman. He led the agency at the time that employees were singling out conservative groups that applied for tax-exempt status. Shulman acknowledged yesterday that he learned of the practice a year ago, two months after he told Congress there was -- quote -- "absolutely no targeting."
Maryland Democrat Elijah Cummings pressed today for an explanation.
REP. ELIJAH CUMMINGS, D-Md.: But it seems to me that if you say to the Congress, absolutely not, absolutely no targeting, it seems to me that you would come back, even if it was a phone call or a letter, or something, I mean, common sense -- people -- I mean, a reasonable person would expect you, as the head of the IRS, communicating with Congress, to come back and do that. You didn't feel that way, though?
DOUGLAS SHULMAN, Former U.S. Commissioner of Internal Revenue: I mean, I guess I would repeat, in March ...
ELIJAH CUMMINGS: I don't want you to repeat. I don't want you to repeat. I just -- I take it that you disagree with what I just said?
DOUGLAS SHULMAN: At the time I learned about this list, I felt I was taking the appropriate actions and that my course was the proper one. And I still feel that way today.
ELIJAH CUMMINGS: Well, I'm sorry. That's simply not good enough. It's simply not good enough, Mr. Shulman.
JEFFREY BROWN: Even J. Russell George, the treasury inspector general who reported on the IRS targeting, came in for criticism today. Chairman Issa argued George should have alerted Congress of his findings sooner.
George defended himself, saying he was following established procedures.
J. RUSSELL GEORGE, Treasury Department Inspector General: And to ensure fairness and to ensure that we are completely accurate with the information that we convey to Congress, we will not report information until the IRS has had an opportunity to take a look at it to ensure that we're not misstating the facts.
DARRELL ISSA: Mr. George, that is not the statute. That is not the statute.
J. RUSSELL GEORGE: But it would be impractical for us to give you impartial information which may not be accurate.
DARRELL ISSA: This committee last August made it very clear that the statute as written doesn't give you the ability to -- or any I.G. to use us as a whipping boy when you want to, and in fact keep us in the dark until an investigation is completed.
JEFFREY BROWN: The committee also heard from Deputy Treasury Secretary Neal Wolin. He said what happened at the IRS was inexcusable, but no one at Treasury was involved.
Today's hearing came to an end after six hours, but there's no end in sight to the three congressional investigations under way. More hearings are expected after the Memorial Day recess.
Even as these hearings unfold to find out exactly what happened at the IRS, there's continuing confusion about the tax laws and regulations at the heart of the matter: who qualifies for tax-exempt status, how is that determined, and other questions we will try to get at now with Duke University law professor Richard Schmalbeck. He's a former tax attorney. And Kim Barker, she's a reporter with ProPublica.
Well, Kim Barker, you have been looking at the history. So take us back. How did it come to be that groups can seek tax-exempt status in the first place?
KIM BARKER, ProPublica: It's a very good question, and nobody is entirely sure even how social welfare nonprofits came about in the first place.
All we know is that as part of the Revenue Act of 1913, Congress created the idea of social welfare nonprofits. Eventually, they were defined as being formed exclusively to promote social welfare. And then over the years, that was -- that exclusively was defined to mean that you should have a primary purpose as being a social welfare nonprofit.
So there's this big debate over exclusively vs. primary. In the '80s, it came about that these groups -- these groups started to interpret primary to mean that they could actually spend money on politics. And the IRS has agreed with that.
The real argument here is over whether they should have to disclose the donors for the money that they're spending on politics and on these political ads that are then reported to the FEC.
JEFFREY BROWN: All right, so -- well, stay with this, Richard Schmalbeck, about defining this line between social welfare and politics. Help us understand more.
KIM BARKER: Right. I wish I could be -- I wish I could be more definitive.
JEFFREY BROWN: Hold on. Let me ask -- now, let me ask our other guest here.
RICHARD SCHMALBECK, Duke University Law School: OK.
There are really three types of organizations that are involved in this dispute, and I think it would be helpful to explain a little bit that the largest category of exempt organizations are actually 501(c)(3) organizations. Those are the ones that pursue educational, religious, or charitable purposes. And those are the ones that get the major tax benefits.
And the big tax benefit on the table here is whether donors can deduct their contributions. So, they can to educational, charitable and religious, but they can't to any of the other types of groups. And there are literally a few dozen other types of other categories of groups.
The trouble with the (c)(3), everybody would like that deduction, but they cannot engage in any substantial lobbying. And they're not supposed to do any political campaigning at all. Now, a lot of (c)(4) organizations actually might qualify in terms of charitable purposes that they serve, but they want to do lobbying. That is part of their function and -- as they see it, and they can do lobbying as a (c)(4) organization in any amount.
And as the other guest indicated, they are allowed to do some political participation in actual partisan campaigns, as long as it's not their primary purpose. And the IRS has traditionally understood that to mean as long as it's less than half.
JEFFREY BROWN: Less than half.
Well, Kim Barker, groups can define themselves and proceed in their work? That's also part of what happens, right?
KIM BARKER: Absolutely. You don't even have to apply to the IRS for recognition as a social welfare nonprofit to operate.
You can in effect go out tomorrow, incorporate your own social welfare nonprofit, say it's like “Values for a Better America,” start raising money, spend some money on an election, and then you can fold up before your first tax return is even due. So, in many ways, the IRS can't even make -- match the speed of politics.
And that's something I think that's gotten lost in this debate, is why are we even talking about the IRS monitoring the political spending of these groups, when the FEC is, theoretically, supposed to be the agency that's monitoring political spending?
JEFFREY BROWN: Well, Richard Schmalbeck, what -- do you have an answer for that, or is that just how the system has evolved? Or what -- why is the IRS the one looking at it?
RICHARD SCHMALBECK: Well, it is part of the Internal Revenue Code, and so they are the enforcers in chief as to 501(c)(3)s, 501 (c)(4)s, but they do have a kind of joint jurisdiction with the Federal Election Commission as to political campaign activities.
JEFFREY BROWN: Let me stay with you on this question that was raised earlier about the confidentiality of 501(c)(4)s.
RICHARD SCHMALBECK: OK.
JEFFREY BROWN: What's the history behind that? That goes back to at least the 1950s, I understand.
RICHARD SCHMALBECK: You know, the history is murky.
I think it probably has to do with the fact that (c)(3)s, the charitable type of organization, has long wanted to protect its donor lists. A lot of donors like to make their gifts anonymously. They don't want to be approached by people just because they are known to be generous in their philanthropy.
So, (c)(3)s have always been confidential; (c)(4)s were too. Even political groups under 527 had been able to keep their donors confidential until 2000, and then Congress changed that. And, really, there's probably not a strong argument that suggests that (c)(4) organizations and 527 political organizations ought to be treated differently on this confidentiality issue.
And if they were treated the same, then organizations wouldn't particularly seek to be (c)(4)s if they were going to do a lot of politics, and this issue would never even have come up.
JEFFREY BROWN: Well, Kim Barker, another thing that has been talked about much in the last couple of weeks is noting that the groups involved in the current situation are often relatively small players. And a lot of the much larger players on both the right and left did not fall into these categories or were not receiving the same sort of scrutiny.
Now, does anybody know why that is?
KIM BARKER: We don't really know the full extent of what the inspector general, TIGTA, is doing in terms of an investigation into social welfares, nonprofits' activity as monitored by the IRS.
We know that they're taking a look at what the IRS has done on other social welfare nonprofits involved in politics, but the full course of what the IRS was doing, whether it was actually targeting other groups besides the tea party and patriot groups, we don't know, because the inspector general's report was very limited in looking at whether these allegations of tea party targeting was true.
I think there are two points here that folks have been pointing out to me in the last couple of weeks. Number one was what you mentioned, the fact that the IRS was flagging these groups, like the tea party, that weren't doing much in the way of political spending at all, I mean, basically none at the federal level and some at the state level, and that they -- at least according to this audit, they don't seem to be looking at all at the major players, such as Crossroads GPS, which is a social welfare nonprofit founded in part by Karl Rove, the GOP strategist, which spent more than $71 million dollars on the elections last year without having to report its donors.
JEFFREY BROWN: Let me just ask Richard Schmalbeck very briefly, if you could, is there -- out of all this, is there -- are people looking at all this to kind of fix the system or clarify the system?
RICHARD SCHMALBECK: Well, there's quite a bit that could be done to fix or clarify the system, but a lot of problem is that the appropriations for the IRS have been actually declining in real terms in recent years, even as their duties have increased. So they don't have enough money to provide the right kind of guidance. They don't have enough money to provide the right kind of training. They don't have enough money to provide enough staff.
And they don't have enough money to provide the kind of layers of middle management review that would produce somewhat more consistency in the processing of these applications.
JEFFREY BROWN: All right, we will leave it there for now. Richard Schmalbeck and Kim Barker, thank you both very much.
KIM BARKER: Thanks very much.
RICHARD SCHMALBECK: Thank you.