IRS Chief Finds Lingering Malpractice in Agency Review

Danny Werfel acknowledged that his agency continued to use inappropriate criteria for evaluating tax-exempt status requests even after last month's inspector-general report

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AP / Charles Dharapak

Acting IRS commissioner Danny Werfel testifies on Capitol Hill in Washington on June 6.

In a report issued Monday, Internal Revenue Services principal deputy commissioner Danny Werfel acknowledged that his agency continued to use inappropriate criteria for evaluating tax-exempt status requests even after an inspector-general report last month revealed widespread political targeting of conservative groups.

Werfel, who was appointed to head the IRS shortly after the scandal broke, said in his initial review of agency operations that he suspended the use of nearly all “be on the lookout” watch lists for applicants for 501(c)(4) status last week. According to the inspector general, the Tea Party targeting stopped in May 2012, but other improper screening continued. (The IRS is working to devise a better system to screen applications for appropriate review, the report stated.) In May, the Treasury Inspector General for Tax Administration (TIGTA) found that improper scrutiny was applied to dozens of groups applying for “social welfare” status with the phrases Tea Party and patriots in their names.

Werfel’s report, ordered by President Barack Obama last month after he selected Werfel for the job, details the scope of the agency’s failures and the opening stages of its corrective actions. Already five senior IRS officials with oversight of the division responsible, including the previous IRS commissioner, have lost their jobs. Werfel has convened an Accountability Review Board to examine disciplinary measures for responsible employees and executives.

The scandal has become a lightning rod in Washington, where multiple congressional committees are investigating and holding hearings into the improper reviews. Some congressional Republicans have suggested that the White House somehow was involved in the targeting, a claim both the inspector-general report and the IRS found unsubstantiated.

“We have not found evidence of intentional wrongdoing by anyone in the IRS or involvement in these matters by anyone outside the IRS,” Werfel told reporters.

The IRS has also devised a system by which groups that have been caught in the IRS review backlog — which has stretched to over to years for some groups — to expedite their approval.

Werfel briefed Obama and Treasury Secretary Jack Lew on his findings Monday afternoon, White House press secretary Jay Carney said.

“The President believes Principal Deputy Commissioner Werfel’s report is an important step in ensuring accountability for any staff that acted inappropriately, identifies the failures in their systems that allowed the misconduct to happen and takes a forward-looking systemic view at the agency’s management,” Carney said in a statement. “The Administration is committed to making sure the IRS continues to reform itself with the goals of providing the highest-quality service and reflecting the principles of fairness and neutrality.”

IRS Report Findings:

  • Significant management and judgment failures occurred, as outlined in the TIGTA report, that contributed to the inappropriate treatment of certain taxpayers applying for tax-exempt status.

  • At this time, while fact gathering is still under way, we have not found evidence of intentional wrongdoing by IRS personnel or involvement in these matters by anyone outside the IRS.

  • The IRS Commissioner’s Office and other leaders across the organization do not always have sufficient knowledge of emerging operational risks among the various IRS business units. This fact limits the ability of senior IRS leaders and managers to identify and help manage organizational risks and stifles the timely flow of such information to external stakeholders.

  • There is no current evidence of the use of inappropriate criteria in other IRS business unit operations. However, we recognize there is public concern in this regard, and therefore additional mechanisms to evaluate such criteria should be initiated.

  • The IRS has mechanisms, such as the Taxpayer Advocate Service, to assist taxpayers who are having difficulty in resolving matters with the IRS. However these mechanisms are not well understood by taxpayers and therefore are not being sufficiently leveraged.


  • New leadership has been installed at all five levels of the senior executive managerial chain that had responsibility over the activities identified in the TIGTA report.

  • We have empaneled an Accountability Review Board to provide recommendations within 60 days (and thereafter as needed) as to any additional personnel actions that should be taken to ensure there is appropriate accountability for the events described in the TIGTA report.

  • We have suspended the use of “be on the lookout,” or BOLO, lists in the application process for tax-exempt status.

  • We have established a new voluntary process for certain taxpayers who have been in our priority backlog for more than 120 days to gain expedited approval to operate as a 501(c)(4) tax-exempt entity through self-certifying to certain thresholds and limits to political and social-welfare activities.

  • We will establish a review process by which criteria and screening procedures across the IRS will be periodically assessed for any risks of criteria that would be inconsistent with our mission statement.

  • We will establish an Enterprise Risk Management Program to provide a common framework for capturing, reporting and addressing risk areas across IRS. This is intended to improve the timeliness by which such information is brought to the attention of the commissioner and other IRS leaders, as well as external stakeholders.

  • We will initiate additional internal and external education and outreach about the role of the National Taxpayer Advocate in assisting taxpayers in resolving problems with the IRS.

The Full IRS Report: