and again if i can set the context a little bit as a 501(c)(4) organization, you are permitted to engage in an amount of political campaign activity, you are. as long as it is not, along with the other things that are not social welfare, your primary activity. we have an obligation to take a look at cases both in the audit stream, we're out there doing this sort of work, or in the determination letter process which is why we began to centralize these cases. you asked for the genesis of this. centralization here was warranted. we have to look, we're obligated under the law to look at what an organization does in order to grant exemption. the way we centralized was wrong, that goes to the listing that we used. but we are to look at the amount of political campaign activity that is planned and how and

operation -- organization operates and that is what happened in the determination of the process here. >> okay. well, i would simply say, mr. chairman, since we're doing the oversight here, the rule, i understand the king's english, and it says the promotion of social welfare does not include direct or indirect participation or invention in political intervention in political campaign. now, how you interpret that to say that that does allow some intervention in local campaigns is beyond it, and if that had been cut off at the pass we wouldn't even be dating to these -- yes, sir. >> the oversight of the level of campaign intervention by

501(c) fours, subsequent shortly. shortly. >> who will be doing that? >> my organization, the treasury inspector general for tax administration. >> well, in conclusion, i would say if we could get the irs to follow the law and the regulation that implemented it, we wouldn't have this problem in the future. >> sender, i agree with you but i also think it's very complicated. and it's unfortunaunfortuna te this issue has not been addressed the last couple of years with any precision, any focus, any straight thinking. and were going to have to get, have to enact some changes in statute and also irs has i think us to a better job following the statute of my personal view is this ambiguity has led to part of the problem here. >> i certainly agree. >> we have to straighten it out. next, i have senator roberts,

you are next. >> thank you. listening to the responses of both of you gentlemen have provided to my colleagues on this committee, i am reminded of one of my granddaughters, age four, when she knows she's done something wrong, she just shuts her eyes and says you can't see me. well, we can all see what happened. the problem is no one is taking responsibility, other than horrible consumer service and apologies. there's a kansas thing, never live and let you have to, and they don't have a damn good lie, stick to the truth. seems to me we don't have some real truth tellers here. and facts are stubborn things

that we have here is targeted harassment and abuse of conservative groups. we can talk about the statute all day long but that's what has happened. as we hear from others, many who have contributed to the candidate of their choice or stated personal views but i think it's a significant. nobody likes to be audited and nobody likes to say they have been audited. especially with what has been going on. so what we have our hands is abuse, harassment and suppression of the first amendment rights. three years ago a top economic adviser to the white house divulged confidential tax administration in order to make a political point. i asked the igs protected misjudge the response. never heard back at all.

hearing a growing number of complaints, asked individuals or groups were being singled out are targeted in the application process come here is the letter that you sent to me and other members of the committee. the same letter, different names. might want to look up to you will see this, it is 10 pages long. single space, about 12-point. completely silent on targeting both full of detailed analysis of the law, but you knew that targeting was going on. i just don't think you do that. that really befuddles me as to why anybody in a position like you, or basically, mr. shulman, whatever do there, just not respond. he also said that the determinations as to the kind of in a more efficient way to process a huge number of exemption applications. here we have cincinnati, irs officials mulling about doing

their best, falling short, foolish action, need more money, need more lawyers. this may have been foolish but given what i know about the irs operates i find it very hard to believe that the irs employees were given free rein to set up a bowl list, be on the look out list, like law enforcement. there must've been a directive from washington or something. we need full disclosure of how this has happened. there was a news report reporting an anonymous cincinnati i was employed. you been taking a lot of grief here, and accordingly, this quote was attributed to this anonymous i was employed. well, we've got all the buzz with us and we knew it was wrong, we knew there would be hell to pay. we also knew that when it hits the fan, nobody at the top will take the blame, it will come right down the slide right through us. i wouldn't leak like that somewhere, lowest letter, the lady who doesn't do math but can -- said are holding who is now going to be working with the

affordable health care act office, and that's my next question if we go to another row, is how on earth we do that to a 15,000 new employees trying to administer the affordable health care act with a lot of specific questions. let's move up to joseph grant who's the deputy tax commission. when th i going to hear from hi. he retired. mr. miller, you have apologized and then you are living. mr. shulman, you are six months out, so can't remember. mr. wilkins, the chief counsel of the irs is not your buddy probably should be here, and then the secretary of the treasury, jacob lew. it went right up there. finally, to catherine who is the white house general counsel eric do any of these folks, yourself included, ever say what was going on and take responsibility? i just not have seen that. my follow-up question will be in regard on how on earth can the

irs have proper oversight and management to the implement of the affordable health care act given the current situation looks thank you, mr. chairman. >> thank you, senator. senator crapo, you are next. >> thank you, mr. chairman. you know, there's been a lot of discussion about who knew what and when they knew it. and one of the big questions i have, this is probably for you, mr. george, is it seems that there is an argument being made that there was no political motivation indeed actions. is that a conclusion that you have reached? >> in the review we conducted thus far, senator, that is the conclusion was reached. >> and how do you reach that kind of conclusion? >> it is, in this instance it was as a result of the interviews that were conducted for people who are most directly involved in the overall matter.

and so you take it one step by another, and we directly inquired as to whether or not there was direction from people in washington beyond those who are directly related to the determinations the unit. and their indication to us, and i have to note this is not done under oath. and began an audit and not an investigation. but they did indicate to us that they did not receive direction from people beyond the irs. >> when you see people beyond the irs, that could be anyone up the chain of the irs? >> it's very could be, but we have no evidence thus far that it was beyond begin the people, the determination skimming. >> so in other words, you simply have the statements of those who are engaging in the context saying they were not medically motivated? >> that is correct, sir. >> and based on that statement come and save is not under oath, you reach the conclusion that there was no political

motivation? eddie reese a conclusion to their was none or you haven't found? >> it's the latter, that we have not found any. >> it seems to me that it's almost unbelievable to look at what's happening and then say well, there is no political motivation. how could an agency with the power that the internal revenue service has engage in this kind of conduct and it not be politically motivated? you know, i think most people in the united states have a very quick and intuitive understanding of the reason that these revelations are so concerning to the country. as you look at the internal revenue agency, the internal revenue service, more than perhaps any other agency of government, it has the capacity to be the prosecutor, the judge, the jury and executioner in ways

that can devastate individuals and families and businesses. and americans understand that, and to have the investigation to reach the conclusion that these kinds of actions were just statistical anomaly or that they all sort of statistically came together at the same time, but that there was no finding of any kind of political motivation i think is almost beyond belief. is there any way that you can conduct further investigation and perhaps by putting people under oath, identify where the direction came from? as my colleague, senator roberts indicated, we have continuous denial of responsibility for the policy. those implementing the policies say apparently it wasn't us, and we are asked as an american people to believe that just out

of the notion to target these entities can individual entities just coalesced and came together? >> senator, as a result, it's standard practice, as a result of audits that we conduct, many times there are subsequent investigations. sufficesuffice it to say that ts matter is not over as we are concerned in terms of our next actions in this matter. >> so you believe there will be further investigation on this issue? >> there will be continued review bias, and if it ultimately leads to an investigation, that may be the case. >> all right, thank you. >> senator enzi. >> thank you, mr. chairman. bill from cheyenne, wyoming, called my office and said the ministry was five, was not the real problem, was just a fall guy. now, from the testament we heard

earlier that was some disciplinary action taken by the administrator didn't know about. doesn't disciplinary action filter up in these organizations is i got a call from charles pinedale not concerned that churches were being targeted as well, noting that the irs had requested membership lists to this conceit -- to this church. that sounds above what should be done. to follow up on what senator grassley was an about mrs. lerner's question that the american bar association tax section. it doesn't the irs have a policy of not commenting on issues subject to an inspector general tax of this treasure audit and if so why did the irs feel it so necessary to make such statements days before the report was publicly released? why did the irs not shed light on the issue years ago when became aware of the

inappropriate targeting and the discipline that i referred to? mr. miller? >> first, i can correct part of your question going back to the discipline action, i actually took that disciplinary action in may of 2012. going forward, we do have a practice of not talking about investigations or on its. the it was done at this point. we thought, mistakenly, that we should get in front and apologized, and that was, and then reach out to the hill in advance of the coming out. and that was, that was wrong. we made a mistake. >> look back at her testament, i thought you were not aware of the discipline action. at any rate, david and casper, wyoming, posted on facebook that he would like to know why the irs shared information from tea party grips with the liberal media group propublica. does anybody have an answer to that? >> so, i would recommend, and i don't know whether they will

speak to this but there were in the media discussions of the release of some data to propublica. the referral was made the tigta on that out of our offices, and at this point i think, i think he would know that better than i. >> to follow up a little on what senator roberts said. mr. george, when you comment out the house ways and means committee hearing last week on he believes the actions were inappropriate but not illegal. would you weigh in on what used to believe that's the case, or any of the actions that were taken by the irs employees illegal? and if not, would you please elaborate on why your audit fundies do not suggest that was any illegal activity? because your group conducted an audit and not an investigation. is it true that could, in fact, even illegal activity that your audit did not uncover?

>> yes. center, two things, to address the point about the matter that you mentioned, the release of taxpayer information could be a violation of title 26, section 61 to three which does have criminal penalties associated with it. that is something that my organization investigates. we take quite seriously, and if we do find evidence of such activity we would refer it to prosecutors for criminal prosecution. but i'm otherwise restricted by law from revealing any additional information on that. and as it relates to this instant matter, the restructuring reform act of 1998 certainly provides for the action to be taken if irs employees are guilty of, again, of using, abusing, among a number of other things, taxpayer information. we are charged again with revealing that. we are doing so.

if we determine that something has occurred we will certainly, again, pass it on either in an administrative environment or if, again, it seems very unlikely, a criminal environment pursuant to the act itself. the our fate has very few if any criminal aspects to it. but there are quite a few administrative actions that could be taken as result of this violation. but based on that, again, we does for have not uncovered any actions that we would be illegal in this instant matter, sir. >> okay, i guess be reckoned public what kind of judge that but it seems like it's very bottom line if it's not illegal. my time has expired. >> senator wyden. >> and one that i have several questions for you, mr. shulman, and mr. miller. and for me, the basic proposition is simple. notwithstanding the troubling

and unacceptable conduct of the irs, if political organizations do not want to be scrutinized i the government, they shouldn't seek privileges like tax-free status and anonymity for their donor. so the are you otherwise is advantage tax cheat to the detriment of law-abiding americans. that's why my hope is that out of this debate will, clear and enforceable rules that treat all political groups equally. but with respect to questions, mr. miller and mr. shulman, the lines have blurred between political active groups that disclose their donors, those are the 527s, and those who did not. those are the i the one see force. and it has become apparent that organizations that ought to be 527s are applying for c-4 status to avoid disclosure

obligation. that means there is an incentive for people to choose their tax status based on whether they want to hide their donors. my fear is that the loophole congress articles. given they could exempt from federal income tax, section 501(c)(4) of the code requires nonprofits to operate exclusively as opposed as a judge or primarily for the promotion social welfare, my question to the two of you, mr. shulman and mr. miller, why was this problem not corrected? mr. shulman. >> senator, could you just clarify the problem? >> yet, the line blurred. the lines of blurred between 527s and the 501(c)(4)s so there's an incentive for people to choose their tax status based on whether they want to either does but i think it's real

straightforward to the line is blurred and you'll don't seem to do anything about and i want to know why not? >> look, let me state i think the law in the taxi good area is very complex. like -- >> we understand all the. why didn't he do anything on your watch to corrective? >> let me continue. the treasury regulation that the irs staff in cincinnati was wrestling with in this case our long-standing regulations. i believe they are 40 plus years, 50 old. and i did see that the inspector general in his report recommended that treasure ought to look at the regulations. i heard the chairman said he was going to look at this, and all i can say is that, you know, this is a very hard path given to the irs. to have the irs, which means due process 140 million tax returns and give billions of dollars of

refund out of people every year, to also have them have this piece of the operation that buys a lot has to be asking questions about political activities is very difficult. and so from where i sit as a former irs commissioner, if congress could help clarify the law, that would be a very helpful thing. >> mr. nutter, same question. what did you do to correct this problem on your watch? >> so, we have put out guidance but not enough. coming, the issues are several fold. one is we get 70,000 applications for exemption a year. the number of those that are see force is much less but even those have doubled over the last few years. there is no doubt that in 2010 when citizens united released this wave of cash that some of that cash are headed towards c-4 organization. that's proven out by irs day. that does put pressure on us to take a look but as i mentioned earlier, 527 organizations and

all the politics they want to do. 501(c)(4) organizations have limited ability for politics. when organizations choose plan b them the 501(c)(4) option, it's our obligation to go and look hard at whether they meet those requirements or could be a 527 organization, but, in fact, would have to talk and interest apple come up and work you do. to our issues in the law that they can't convert or we cannot convert a 501(c)(4) organization into a 527 at this point. >> what troubles me is on your watch 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 any meaningful way. i think it's very regrettable. let me ask but one other issue for the future going forward. the irs and inspector general agree on a number of reforms proposal but the irs does not

support one of the most important and that's developing and making public clear guidance for processing potentially political cases. now, even the best -- to fairly applied ambiguous role to in the absence of clear guidelines, the country is in effect left to the whims of the bureaucracy. wouldn't it make sense to have those knowledgeable about political campaigns and campaign finance work with the irs to develop clear and enforceable guidelines that are really at the intersection of these two areas, campaign finance and tax law? wouldn't it make sense to get to agencies, particularly the federal election commission and the irs, working together under congressional and public oversight at this point? either one of you. start with you, mr. shulman. >> look, it sounds reasonable to me but i don't direct what the irs does not so i can't speak for the irs should be doing at

this point. >> i divide the world into two pieces. sure we do guidance? absolutely. there's a different issue involved in the tigta report that we are to take a look at again anyway and i agree on the. that was whether there's some sort of guide, some sort of template we could do to move these cases forward i believe, and they are the concerns of those involved, and i was not, is that these cases are very facts pacific. and it may not be possible. that i do think all of this we ought to work with tigta. >> my time is up to our facts pacific the inspector general is right, we can get more -- this was another failure in my view in terms of what the problems are that we're dealing with now. >> thank you, senator. i might say in response to the question asked by senator wyden, why didn't you do something when your notice. frankly, i'm sure senator wyden is not counter with your answer but i certainly am not because i

wrote a letter to you, mr. shulman, september 20, 2010, asking you to look into this very question. clearly a mack truck was driven through the 501 seed for -- 501(c)(4) loophole. for the reason that even discussed it, and i must say the answer i got back from you, what's the day, they were eighth, many months later basically said we share your concerns but we're not looking at it. that's all it says. you were on notice. you didn't -- nobody did anything about it. i'm just quite disappointed. next, senator menendez. >> well, thank you, mr. chairman. and i join you in your opening statement, the idea that any government agency which is searches of political charged terms to single out groups for selective review is truly

offensive to our concept of democracy. and i believe it's not only unacceptable but it's pretty appalling. and it undermines the very nature of a government and its people that consent by virtue of believing that its constitutions will work in a way that are fair and transparent. having said that i also have real concerns, and i want to follow-up on, i think are two scandals here. one is management, the failures and the whole process of singling out specific groups. the other is how we take statutory authority and then extrapolate it differently from what the congressman. i read the statute with reference to 501(c)(4) scum and it says simply organizations that organize for profit and operated exclusively for the promotion of social welfare. the irs took that statute, the congressional vote to say

exclusively and turned it, and our position as opera exclusively for the promotion of social welfare if it is primarily engaged in promoting some way the common good and general welfare. i didn't see a vote for primarily because i vote for exclusively. because we wanted to limit the scope of who availed themselves of the benefit of a title i seaforth under the tax code. so -- the 501(c)(4) under the tax code. do you believe it could have taken some of the authority of the subject of scrutiny out of the hands of the irs officials, thus avoiding for mitigating some of the problems that we're talking about here today? >> center, i will respond directly to your question. but i just have to acknowledge that the secretary of the treasury has delegated all tax policy questions exclusively to the assistant secondary for tax policy. and with that said, the direct

issue you raise with me was beyond the scope of this. but that said it would seem with what your saying it would be accurate, that they should have not necessarily taken the interpretation that they did, but i will have disputed mr. miller, mr. shulman, how do you jump from exclusively to primarily? how do you take the congressional action and then really subverted to a different view? >> so, let me say a couple of things. one is, as i mentioned, this was a regulation, a treasury regulation that's been in effect for many years. and so speedy on behalf of myself, and i think, you know, i don't know how long mr. miller was there, as was in place when we got the i don't necessary agree with you, that this is, as i told senator wyden, this is a place that congress should look because from what i said the irs is given a very, very, very difficult task of trying to go

in and figure out, there's enough political come you can do some political activity but you can't do too much. and the confusion and breakdown that you saw happen in the cincinnati office is inexcusable. but i would also posit, it's my belief that part of it was because of his very difficult task given to these people. >> it's a task we can clearly corrected you can do. i envision -- i have a copy on august 20 will op-ed by karl rove, which asking and is considered to be included in the record. in this, he right roughly 100, quote roughly 111 million of -- outside groups chipped in just over 20 million. the romney campaign spent only 42 men over the same period of response. with 107.4 million more in ads attacking mr. obama's policies or boosting mr. romney coming from outside groups.

with crossroads gps, a group in him, mr. rove, i helped found providing over half. i don't mean to single him out as the only bad active because there are many representatives in the entire local spectrum but this is the nature of the beast it is a reason that you seek a 501(c)(4) status because you can hide, as your donors, and you also have a tax advantage otherwise you don't need to seek the 501(c)(4) advantage. so the reason that people -- i would like to see what does it cost the american taxpayers in the granting of all of these 501(c)(4) is when they're not being used for social welfare but they're being used in essence the political advocacy. final question to the ig. inspector general, did chairman i sent a letter on august 3 of 2012 to all of the inspector general's. reminded of the under the inspector general's that requires i just report particularly likely problems to congress to the agency had