A Rational Explanation for the Targeting of Tea Party Groups by the IRS?

Although the inspector general of the U.S. Treasury is set to release a report on Wednesday detailing the increased scrutiny certain tea party groups received in their 501(c)(4) applications, a Duke tax law professor, Richard Schmalbeck, was at the ABA meeting where this was first disclosed and has shared his thoughts:

From the Tax Prof Blog: 

I was at the Exempt Organizations Committee meeting of the ABA Tax Section meeting when Lois Lerner, the director of the division that handles exempt organizations matters, dropped the bombshell that is in the papers today, and generating a lot of media outrage, especially but not exclusively on Fox News. I think her explanation in person was probably better than the statement that the IRS released, at least in terms of explaining why some exemption applications actually require more scrutiny than others.
The IRS position on 501(c)(4) organizations ("social welfare organizations")is that, while they can engage in campaign activities, they cannot do so as their primary activity—which they understand as more than 50% of the organization's activities. Many organizations that seek this status probably should be section 527 political organizations rather than social welfare organizations. So when the service center in Cincinnati, which handles exemption applications, was inundated with unusually large numbers of (c)(4) applications, they tried to find ways to triage them, so that the traditional social welfare organizations would not have their processing held up, but organizations that might be close to the 50% campaign activity zone would get the appropriate level of scrutiny. In developing ways to identify the applications requiring attention, one of the tests that somebody decided would work is whether the organization had "tea party" or "patriot" in its name. The IRS did also look at other organizations with potential for abuse of the social welfare organization status, but apparently did not come up with any shorthand ways of identifying any such organizations that did not have "tea party" or "patriot" in their names.
This was obviously a bad idea for a number of reasons, including its political asymmetry. But a) it didn't come from the top—Lois is herself a career employee, and it was a decision made somewhere below her level; and b) it did not involve scrutiny that was inappropriate under the circumstances. The content of some of the scrutiny may have been inappropriate, however, in seeking names of donors, which is not ordinarily done. (Even here, I can imagine some basis for thinking this was relevant to the inquiry: if all an organization's funds were coming from a party, or other 527 organizations, it would be a matter of some concern, and raise a somewhat higher suspicion that the organization was being used to finance campaign activities primarily. And while public disclosure of donors is not required, there is no absolute bar on the IRS seeking information about donors. They do it routinely in their efforts to determine private foundation status and compliance, since major donors are disqualified persons for purposes of the private foundation excise taxes. I should emphasize that Lois did not offer this explanation however—it is just my speculation on why IRS staff might have asked that question.)
I think the problem is that if you hear that tea party organizations were "targeted" for special scrutiny, it is hard to imagine an explanation that doesn't depend on partisan bias. But there is such an explanation: the need to draw the line between (c)(4) and 527 organizations. I'm not saying that this was the right way to go about this, and neither is Lois or anyone else in the IRS. But at the same time, it isn't the smoking gun that some in the media seem to think it is. It is nothing like Richard Nixon asking the IRS to audit his political enemies, though it is being compared to that.

Some additional headlines on this matter: 

American Thinker:  IRS Scandal Deepens: High Officials Knew of Tea Party Targeting in 2011

  • CNN:  IRS Abuses Power in Targeting Tea Party
  • Fox News:  Republicans Slam IRS Targeting of Tea Party as 'Chilling,' a Form of Intimidation
  • The Hill:  Rep. Issa: IRS apology to Tea Party Groups ‘Not an Honest One’
  • Legal Insurrection:  IRS Reaped Hatred of Tea Party Sown by Democrats and the Media, by William   Jacobson (Cornell)
  • Legal Insurrection:  The Washington Post leads on the #IRScandal ... Who Will Follow?
  • Mother Jones:  The IRS Shoots Itself in the Foot, Then Reloads
  • New York Post:  The Nixon Wing at the IRS
  • New York Times:  IRS Focus on Conservatives Gives G.O.P. an Issue to Seize On
  • Politico:  5 Questions on the IRS Debacle
  • Reuters:  IRS Kept Shifting Targets in Tax-Exempt Groups Scrutiny: Report
  • The Volokh Conspiracy:  IRS Scrutinized Teaching the Constitution, by Jonathan Adler (Case Western)
  • Wall Street Journal:  Wider Problems Found at IRS: Probe Says Tax Agency Used Sweeping Criteria to Scrutinize Conservative Groups
  • Washington Examiner:  Conservatives Want Congress to Audit IRS for Targeting Tea Party
  • Washington Post:  IRS Targeted Groups That Criticized the Government, IG Report Says 
  • Washington Tims:  IRS Scandal Grows to Include Debt Critics