WASHINGTON — Newly uncovered IRS documents show the agency flagged political groups based on the content of their literature, raising concerns specifically about "anti-Obama rhetoric," inflammatory language and "emotional" statements made by non-profits seeking tax-exempt status.
The internal 2011 documents, obtained by USA TODAY, list 162 groups by name, with comments by Internal Revenue Service lawyers in Washington raising issues about their political, lobbying and advocacy activities. In 21 cases, those activities were characterized as "propaganda."
The list provides the most specific public accounting to date of which groups were targeted for extra scrutiny and why. The IRS has not publicly identified the groups, repeatedly citing a provision of the tax code prohibiting it from releasing tax return information.
More than 80% of the organizations on the 2011 "political advocacy case" list were conservative, but the effort to police political activity also ensnared at least 11 liberal groups as of November 2011, including Progressives United, Progress Texas and Delawareans for Social and Economic Justice.
The IRS controversy first exploded in May, when Exempt Organizations Director Lois Lerner admitted that the IRS had targeted Tea Party groups for additional scrutiny beginning in early 2010. The IRS placed a hold on those applications for more than 20 months, an inspector general's investigation found.
On Nov. 16, 2011, IRS lawyers in Washington sent a list of cases to front-line agents in Cincinnati, along with comments and guidance on how to handle political organizations.
Tax law experts say those comments appear to show IRS employees trying to apply the murky rules governing political activities by social welfare groups.
But the American Center for Law and Justice, a nonprofit legal institute that represents 23 of the groups appearing on the IRS list, said it appears to be "the most powerful evidence yet of a coordinated effort" by the IRS to target Tea Party groups.
"The political motivations of this are so patently obvious, but then to have a document that spells it out like this is very damaging to the IRS," said Jay Sekulow, chief counsel for the ACLJ. "I hope the FBI has seen these documents."
The IRS categorized the groups as engaging in several advocacy-related activities that could have barred them from tax-exempt status, such as lobbying and "propaganda."
But the word "propaganda" doesn't appear in section 501(c)(4), which governs the social welfare status that most Tea Party groups were applying for, said John Colombo, a law professor at the University of Illinois. Instead, it appears in section 501(c)(3), which governs public charities.
"There would be no reason I would think to flag them if it's for a 501(c)(4) status," Colombo said. "That's very odd to me."
In three cases, IRS lawyers noted that groups appeared to be connected to Republican politicians: Stand Up for Our Nation Inc., linked to former Alaska governor Sarah Palin; Reform Jersey Now Inc., linked to Gov. Chris Christie; and American Solutions for Winning the Future, founded by former House Speaker Newt Gingrich. Gingrich's group was approved last year.
Five groups were flagged as having "anti-Obama" materials in their applications or on their websites.
For instance, the IRS said the website of the Patriots of Charleston contains "negative Obama commentary." Though the IRS didn't cite examples, a November 2011 article on the group's site says: "Obama's and the Democrats' track record of disaster is based upon a combination of their ignorance and their fundamental desire to convert America into a ruling class of wealthy all-powerful elitists and a single class of serfs."
"The web site, as we explained to them on multiple occasions, is really a blog" that members can submit commentary to, said Joanne Jones, the group's vice chairwoman. "I'm not going to tell you we weren't political. We were to an extent, but we were within the limits of the law. For example, there's one clear-cut issue: We did not endorse candidates."
"To focus in on somebody saying something anti-Obama," she said, "it's almost like the speech police there. It's disturbing. It's the kind of overreach that leads into Obamacare."
The group received its tax exemption in September 2012.
RHETORIC OF SOME GROUPS QUESTIONED
It wasn't just anti-Obama rhetoric the IRS was looking out for. Progress Texas was identified by the IRS as engaging in lobbying, propaganda and political activities. IRS lawyers in Washington noted "anti-Rick Perry" rhetoric, referring to the Republican Texas governor, then a presidential candidate.
Progress Texas received a tax exemption as a social welfare group in June, 2012.
Campaign-finance watchdogs say the IRS scrutiny came out of a justified effort to police "dark money" in politics. After the U.S. Supreme Court ruled in 2010 that corporations and unions — and even non-profit groups — could engage in independent political advertising, social welfare groups became a vehicle for funneling undisclosed cash into the election system.
That's the position of Progressives United, a group founded by former senator Russ Feingold, D-Wis., that itself appeared on the 2011 IRS target list.
"The fact that our group received some scrutiny does not change at all our opinion that scrutiny like this from the IRS, it's their job. The law applies to us as it would any conservative group," said Progressives United's Josh Orton. "I feel like there's this group of campaign finance nihilists who want to expand this into an argument that there should be no scrutiny at all. They want a wild west of election law, because they want to continue using secret corporate money to influence elections."
Crossroads GPS, a group affiliated with GOP strategist Karl Rove, spent $70 million on the 2012 election. Its 2010 application for a tax exemption, obtained by the non-profit news organization Pro Publica last year, said it would spend 50% of its resources on "public education." In the 2011 list, the IRS noted "significant anti-Obama rhetoric." Crossroads has not received a tax exemption.
Another group on the 2011 list was Arizona Citizens United, which spent $107,000 to defeat a candidate for Phoenix mayor in 2011 without disclosing the source of that money to regulators, according to the Arizona Republic. The IRS noted its "political campaign activities appear to be substantial," and it hasn't been approved for tax-exempt status. Attorney Steven Hirsch, who incorporated the group and also represents Phoenix developers, did not return a call seeking comment.
'WE ARE TOTALLY ABOVE BOARD'
The Tea Party of North Idaho filed its tax-exempt application in February, 2010 — the same month IRS screeners in Cincinnati first brought Tea Party applications to the attention of officials in Washington, according to IRS employee testimony before a congressional committee.
A lawyer in the IRS Exempt Organizations Technical Unit in Washington wrote the Idaho group had "No significant amount of clear campaign intervention; however little issue advocacy or educational; significant inflammatory language, highly emotional language, little to no educational information on issues."
The IRS lawyers recommended that screeners in Cincinnati look for other materials — including "press releases, commentary, articles, and research reports," according to the IRS list.
That's when Leslie Damiano, who co-founded the North Idaho group, started getting what she considered to be intrusive questions from the IRS. She said the tax agency wanted to know who her donors were, and what companies they own. They wanted to know the educational background of the group's board members. And they wanted to know whether candidates were invited to the group's meetings, and whether it made endorsements.
"We're a conservative organization. We invited some independents," she said. "We never had any rallies that were off the charts by any stretch of the imagination."
Frustrated with the process, the Tea Party of North Idaho withdrew its application in 2012.
"We had an accountant, we had a bookkeeper. We were totally above board with everything we did," Damiano said.
REDUCING THE NATIONAL DEBT
Some groups caught in the IRS' net had no connection to national politics on either side. The Citizens for the Preservation of Rural Murrysville says it's "dedicated to the preservation of the open and natural, rural character of Murrysville, Pa.," although the IRS said it endorsed some local candidates. The Sarasota Bay Tiger Club is one of several similar Florida clubs that provide "a non-partisan forum on current political issues." The club says it has "never endorsed political candidates nor advocated a particular ideology," but the IRS said in its spreadsheet that it was "unclear" if that was the case.
The list also includes the Association to Reduce the National Debt, which was seeking to be recognized as a charity so it could solicit tax-deductible contributions — and give those contributions to the U.S. Treasury to put toward the national debt.
Founder Seth Eisenberg said the group was not political — and he told the IRS that.
IRS tax specialists noted "no political campaign activities." But two years after applying, the association still hasn't gotten his ruling letter. And without that letter, contributions are not tax-deductible and no one will give, he said.
All for a group that said it wanted to give the government money.
"I thought this would be a fast-tracked application. A no-brainer. But it got caught up in this whole political controversy," Eisenberg said. "It's the greatest irony that ever was."