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FarahTIGTA 1 of 2

FarahTIGTA 1 of 2

Page 1: FarahTIGTA 1 of 2


Number of Pages:74

Date Created:March 10, 2014

Date Uploaded to the Library:March 10, 2014

Tags:Questionable, examination, Commissioner, activity, interview, Revenue, organizations, Department of the Treasury, exhibit, Bill Clinton, Exempt, treasury, service, National, White House, district, EPA, IRS, ICE, CIA

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for TAX 
July 16, 2001 
Joseph Farah 
Executive Director 

Western Journalism Center 
P.O. Box 2450 
Fair Oaks, 95629-2450 
Dear Mr. Farah: 
This response your August 10, 1999 letter, which you sought appeal the Treasury Inspector General for Tax Administration's (TIGTA) July 1999 response your Freedom Information Act (FOIA) request dated April 1999. Your FOIA request sought information concerning Western Journalism Center. 
TIGTA's July 1999 response indicated that information contained ROI 5-9702-0022 well documents pertaining Western Center for Journalism al. 
were responsive your request. that time TIGTA asserted FOIA exemptions (b)(3), (b)(5) and (b)(7)(C) the bases for withholding various documents full and part. have reviewed the 139 pages documents that contain information responsive your request. this time, are releasing sixty-three (63) pages full and fifty-six 
(56) pages part. (See enclosed). addition, continue withhold twenty (20) pages full. are asserting FOIA exemption (b)(7)(C). Further, information has been withheld from the enclosed documents because the information outside the scope your request for information concerning Western Journalism Center. This information marked "OS" the documents that are enclosed. 
FOIA exemption (b)(7)(C) protects from disclosure "information compiled for law enforcement purposes the release which could reasonably expected constitute unwarranted invasion personal privacy." U.S.C.  552(b)(7)(C). The withheld information consists identifying information about various individuals other than yourself. Releasing the withheld information would not shed any light into the Bureau's performance its official functions, but instead would result invasion into the personal privacy the individuals whose names and personal information have been withheld. The information was compiled for law enforcement purposes and the privacy interest the third parties outweighs the public's interest having the information released, and therefore, this information exempt from release response your request. 
The FOIA requires advise you the judicial remedies granted the Act. You 
may file complaint the United States District Court for the district which you 
reside, have your principal place business, which the agency records are located, the District Columbia. you have any questions, please contact Lori Creswell this office (202) 622-4068. 
Sincerely yours, 
Deputy Chief Counsel 
cc: Disclosure Section 


BASIS FOR INVESTIGATION memorandum, dated January 30, 1997, EVELYN PETSCHEK, Assistant Commissioner (Employee Plans and Exempt Organizations), reported that recent weeks there have been number media articles and congressional correspondence critical Exempt Organizations' examination activities and other issues. 
ALLEGATIONS 	There outside intervention the IRS' Exempt Organizations' examination selection and/or exempt status determination letter process, target specific entities/taxpayers for political purposes,
RESULTS INVESTIGATION 	Based our investigation cases and extensive interviews, this special inquiry did not develop any evidence that outside intervention for political purposes was involved IRS decisions examinations determination letters. Our inquiries included numerous interviews with revenue agents, managers, executives (including the Assistant Commissioner (EP/EO), the Deputy Commissioner and the Commissioner), exempt organization representatives and information item complainants/sources. The majority the examinations our inquiry were initiated from media articles and individual complaint letters submitted information items from variety non-IRS sources, i.e. individuals, other exempt organizations, etc. Our special inquiry showed that IRS actions the cases were based the merits the alleged prohibited political activities. Because information items not selected for examination are not retained the key districts, practice authorized the national office, were unable assure that IRS actions for other information items are consistent with those the cases. 
During our interviews with current and past IRS executives, asked series questions regarding 
instances interve,-ition, outside contacts for information specific cases, etc. The executives 
Our special inquiry identified internal control vulnerabilities that prevent the IRS from readily assuring oversight bodies that process exists for timely, objective, and consistent decisions the examination alleged political activities exempt organizations quickly finalize 
determination for tax-exempt status. These vulnerabilities could contribute impression Congress, other exempt organizations and the general public, that the IRS' examination and 
determination letter processes are susceptible manipulation individuals organizations that 
Special Inquiry -Questionable Exempt Organization Examination Activity 
utilize the media, congressional and/or White House complaints voice their political views. The lack training and accurate explanations revenue agents with some representatives why their exempt organizations were audited does little allay concerns that they are selected for audit based their political leanings. 

The IRS receives information items from various external sources (i.e. media articles, 
individuals, congressional inquiries, other exempt organizations, etc.) regarding allegations 6.1 10.5
against exempt organizations. The IRS followed consistent practice forwarding the information items key district offices for evaluation the merits the laws alleged have been violated, without directing the field managers and revenue agents whether examine not examine the exempt organizations. reviewed available information for the cases included the special inquiry and 6.1 -31.4 interviewed nwnerous revenue agents, managers, executives (including the Assistant Commissioner (EP/EO), the Deputy Commissioner and the Commissioner), exempt organization representatives and information item complainants/sources. addition the sworn statements IRS employees, managers and executives, conducted extensive 
Special Inquiry -Questionable Exempt Organization Examination Activity 
review procedures and practices the national office and each the five key district 
offices. From these investigative steps determined the following events and actions 
occurred the cases: 
-15 examinations were initiated. The sources the information items included media articles, individuals, and other exempt organizations. The IRS forwarded the information items one their key district offices for evaluation and any action they deemed necessary; 

were consistent addressing issues involving allegations improper activities for exempt organizations, i.e. prohibited political activities. The fact that violation the Internal Revenue Code question what caused the examination influenced determination decision, not the political leaning and/or motivation the sources. did not identify any directions IRS officials managers and/or revenue agents examine/not 3.1 
examine approve/not approve applications for the involved exempt organizations, and 
did not develop any evidence that suggests that Exempt Organizations' examination selection 
process improperly selecting cases. 

 alleged politically conservative entities were either currently under audit recently audited:

Special Inquiry -Questionable Exempt Organization Examination Activity 

Taken Resolve 
31.1 -31.3 order prove disprove the allegations external influence contributing decisions examine not examine approve not approve exempt status applications for these entities, evaluated IRS procedures for classification and selection returns for examination and for processing applications for exempt status. Also, determined whether IRS followed procedures examining entities and processing applications for 
exempt status. 
Specifically, we:  
 secured case files and conducted in-depth reviews IRS actions the cases, including interviews under oath case agents and six their immediate, first-line managers and interviews five taxpayers who were the sources complaints the alleged improper political activities and two exempt organization representatives who were quoted media articles critical the IRS' examination selection process.  6.1 -6.28 7.1 -7.15 8.1 -8.6 18.1 -18.5 19.1 -19.2  
 interviewed other Service managers, executives (including the Commissioner, Deputy Commissioner and Acting Chief Compliance Officer), and Chief Counsel employees under oath regarding improper influence, procedures, sources and basis examinations and exempt status determinations.  9.1 -16.3  
 interviewed the former Assistant Commissioner (EP/EO) regarding his perspective any improper influence during his tenure the top EP/EO executive position.  17.l  
 conducted walkthroughs evaluate procedures authorized and practices followed IRS' national office and the five key district offices (four for examinations and one for determination letters).  31.1 -31.2  
 interviewed three Treasury Department and Administration employees regarding control, transmittal and receipt congressional and White House correspondence sent the IRS.  31.3  
 reviewed national guidelines and training material identify the procedures and techniques for Exempt Organization employees utilize during the initial interview with the taxpayer, specifically, what training did employees receive regarding how respond the taxpayer's question, "why return being examined?"  31.4  

Special Inquiry Questionable Exempt Organization Examination Activity 

-12of17 entities were examined. 

Special Inquiry -Questionable Exempt Organization Examination Activity 

Western Center for Journalism 	6.27 
Several newspaper articles reported that the Clinton Administration influenced the initiation audit against Western Center for Journalism (WCJ) because their investigative reporting the circumstances surrounding the death White House Deputy Counsel Vincent Foster. One the articles stated that the revenue agent remarked that "this political case, and going decided the national level." 

WCJ currently being audited for tax periods 9412 and 9512. 

The audit originated from taxpayer who faxed letter the White 
House expressing his concern over one-page advertisement paid for WCJ that asked for contributions investigate Foster's death. The 
fax was forwarded the National Office and then the respective 
Key District Office for appropriate actions. 
Special Inquiry -Questionable Exempt Organization Examination Activity 
 interview with the taxpayer confirmed that authored the fax. 
 The initial issue was whether the organization required file Forms 
990. Additional issues raised: (1) That investigative reporting was 
paid for with tax-deductible contributions. The agent waiting for 
copies proposed 1994 ruling relating investigative reporting 
"rule" this issue. (2) That there evidence inurement (the 
accrual personal benefit). 

The revenue agent stated that advised the organization's CPA that would not making the decision whether not the story was 
political. would send off National Office and let them decide. did not want take upon himself make such decision. 
never said that the case was political issue. 
The revenue agent and group manager stated that they were not aware any interest the case the Commissioner, Treasury, White House personnel. 

Special Inquiry -Questionable Exempt Organization Examination Activity 

During our interviews with current and past IRS executives, asked series 15.4  15.6, questions regarding instances intervention) outside contacts for information specific 
cases, etc. The executives stated they had not experienced any political intervention 

exempt organization cases  
Special Inquiry -Questionable Exempt Organization Examination Activity 

15.5, 17.1 

Procedures for Classifying Information Items 31.1 And Conducting Church Examinations 
IRM procedures for evaluating information items were very general, contained both 
vague and sometimes conflicting information, and have been virtually unchanged 
since 1986. 
The Returns Program Manager designated manager administers the 
Employee Plan/Exempt Organization (EP/EO) classification program for 
information items. 

There guidance the specific issues consider when evaluating 
information items. 

Various sections the procedures contained conflicting information 
whether information items should destroyed. 

The IRM gives field management broad discretion local coordination and 
development local procedures. 

Special Inquiry -Questionable Exempt Organization Examination Activity 

Procedures for church examinations were: 	Specific the steps follow once inquiry examination initiated; 	Non-specific with respect classifying and selecting church returns for inquiry examination. 
Practices The Key District Offices 
 local procedures for processing information items/referrals. Two the four KDOs had procedures but they were incomplete for processing infonnation items. 
The KDOs did not maintain record-keeping system for tracking information items from receipt disposition 
The KDOs did not have time standards established ensure that information items/referrals are promptly screened. 

The KDOs did not have specific criteria for evaluating the information items 
for audit potential. 
The information items not selected for examination were destroyed shortly after the evaluation three the KDOs and they did not maintain recordkeeping system that explained why these information items/referrals were not selected for examination and destroyed. 
Information items selected for examination are controlled the KDOs Audit Information Management System (AIMS) with source code 60, Information Report, rather than the specific AIMS source code that would have identified the actual source the lead. 
Overall, the KDOs were incon8istent how information items were processed, screened, and controlled. The information items were screened intermittently and seldom annotated why the referral was not selected for examination. Information items were not tracked from receipt disposition and the source the lead was not accurately recorded AIMS. Without accurate complete information the Service can not provide reliable data regarding the exact source, status, disposition information items. 
Special Inquiry -Questionable Exempt Organization Examination Activity 

Determination Letter Processing Procedures 
Overall,IRM procedures for Field Offices were generally sufficient detail and contained 
specific criteria for when applications should approved expedite basis, processed under "technical screening" guidelines (organizations such the -----------os ),or forwarded the National Office (N.O.) for decision. 
However, the IRM contains definitive standard for the nwnber days which applications should processed. addition, there are specific IRM procedures 
guidelines for actions taken the N.O. such, N.O. managers developed local case 
processing operating procedures 
Practices the Cincinnati Key District Office and the National Office 
Based walkthrough processing, interviews managers and review available 
documentation, the Cincinnati office following established national and local guidelines 
for processing applications for recognition exempt status. The N.O. also adhering 
established !RM guidelines for application processing; and has developed local procedures 
supplement those the IRM. 

Procedures for IRS White House, and 
All correspondence received IRS' Legislative Affairs controlled the Executive 
Control Management System (ECMS). ECMS Lotus Notes paperless tracking system 
designed manage and control correspondence. January 20, 1997, ECMS was 
implemented the National Office and the four Regional Offices. has not been 
determined whether ECMS will implemented the Service Centers and District Offices. 
Prior that Legislative Affairs controlled correspondence Congressional Correspondence 
Tracking System (CCTS) and Commissioner's Mail Tracking System (CMTS). 
Most the mail hand delivered mail clerk Legislative Affairs. The White House 
mail routed Legislative Affairs through Treasury. The mail comes bulk mail 
pouch, box similar container. There transmittal similar document transmitting the 
mail the IRS and Legislative Affairs does not acknowledge receipt the correspondence. 
The White House will annotate "Treas/IRS bulk" the top left comer the 
Special Inquiry -Questionable Exempt Organization Examination Activity 

correspondence. Occasionally, the White House mail will sent directly 1111 Constitution Ave. and that mail would delivered the courier desk and they would call Legislative Affairs come and get the mail. Upon receipt, the mail opened, counted and date stamped and the totals are entered the Daily Correspondence Received log type (Congressional, Treasury, Commissioner, and White House). 
Our walkthrough and observations showed that Legislative Affairs followed the procedures for processing correspondence received from the White House, Members Congress, and Treasury. also observed large volumes bulk mail received from the White House and noted that most the correspondence dealt with individual tax issues the taxpayers commented the complexity the tax laws 

Procedures for the Initial Contact with 
The IRM and the training material addresses how the revenue agents should conduct the 31.4 
initial contact and interview with the taxpayer. The material provides direction and 
techniques ensure that the comrnwiications between the tax.payer and the revenue agent are 
effective. also stresses that the revenue agent should explain the examination process 
the taxpayer. including how their return was selected for examination. addition, the 
appointment letter explains that the Service examining their return determine whether 
the organization operating the manner stated and for the purpose set forth its 
application for recognition exemption. 
Internal Control Vulnerabilities 
Internal Control Vulnerabilities IRS' Exempt Organization Operations That 
Pertain Receipt and Retention Information Items Exempt Organizations and 
IRS' Receipt, Control and Processing Applications for Exempt Status 
The special inquiry did identify several internal control vulnerabilities that may 
contribute impression Congress, other exempt organizations and the general 
public, that the IRS' examination selection and detennination letter approval processes 
are susceptible manipulation individuals organizations that utilize the media 
and/or congressional complaints voice their political views. 
These vulnerabilities include: 
lack written procedures and inconsistent practices the key district offices 
Special Inquiry -Questionable Exempt Organization Examination Activity 

for receipt, control and retention complaints (information items) alleged 31.1 
improper political activities exempt organizations received from various 
information items not selected for examination are destroyed the key district offices, practice authorized national office instructions, thus preventing comparisons and assurances that identical IRS actions are taken identical very similar situations. 
information items received under cover letters from members Congress and/or the White House are forwarded intact the IRS' national office 31.3, 6.7, field (key district) offices for evaluation examination potential. 6.12 
the methodology practiced the IRS referring certain proposed adverse exempt status determinations the national office for final decisions, and the 31.2, 6.6, national office and Counsel negotiating directly with applicants when their 6.16 request for determinations exempt status not meet criteria the law, has i:_esulted protracted periods tim.e 
(several years) without final decisions two the three determination letter cases that appeared the media articles. 
 	lack training and outdated, inappropriately worded taxpayer notices for what tell taxpayers when asked why they are being audited, may have 31.4, contributed misunderstandings exempt organization representatives quoted the media articles. Follow-up with two exempt organization entity representatives quoted media articles showed that one case, the articles 19.1 were not accurate when stating what they and the IRS revenue agent discussed relative the cause the audit. The second exempt organization representative confinned that the media article accurately represented their 19.2 impression what occurred during the conversation why they were being audited. However, both representatives stated that they are still uncertain why their exempt organizations were audited the IRS. 
The IRS constantly faces dilemma when trying determine the fine line 15.4 -15.6 that separates tax administration from tax policy and tax legislation. 17.1 
These vulnerabilities prevent the IRS from readily assuring oversight bodies that process exists insure timely, objective, and consistent decisions examine the alleged political activities approved exempt organizations quickly finalize determination new applications for exempt status. The lack clear and accurate discussions with representatives why the IRS auditing their exempt organization does little allay their concerns that they are selected for audit based their political leanings. 
Special Inquiry -Questionable Exempt Organization Examination Activity 

EXHIBIT LIST SHEET Exhibit Memorandum from Assistant Commissioner (EP/EO) -Evelyn Petschek. dated /30/97 with attached media articles and congressional correspondence. 
1.1. AIC Memorandum Exhibit Review and analysis media articles and
congressional correspondence attached A/C Petschek1s 
memorandum dated /30/97. 

2.1. 	Memorandum Activity, dated 2110197 	
Exhibit -Review media articles and congressional correspondence identify entities/individuals include our special inquiry. 	Memorandum Activity, dated 311197 	
Chart showing current and former IRS employees, exempt organization representatives, information item complainants/sources inteviewed and related entities/individuals included this special inquiry. 

4.1. 	Exhibit -Flow Chart 	
Exhibit -Chart showing examination/non-examination activity for exempt organizations included special inquiry, source examinations, etc. 	lnfonnation Chart entities/individuals included this special inquiry. 	
Exhibit Case Reviews and Glossary

6.27. Western Center For Journalism 

7.4. Lto )(.;-}'c-) 



12. Exhibit Memorandums Interview District Directors

15. Exhibit Memorandums Interview -National Office
Executives and Staff 
15.4. Steven Mi/fer, Special Assistant Assistant Commissioner, dated 
15.5. Marcus Owens, Director, dated 3113197, 614197 and 616197 
15. Evelyn Petschek, Assistant Commissioner, dated 3112197 
16. Exhibit Memorandums Interview -Commissioner,
Deputy Commissioner, and Acting Chief Compliance Officer 
16.1. Micheal Dolan, Deputy Commissioner, dated 4115197 
16.2. James Donelson, Acting Chief Compliance Officer, dated 4115197 

Margaret Richardson, Commissioner, dated 412.5197 
17. 	Exhibit Memorandum Interview-Former A/C (EP/EO)
17.1. 	James McGovern, Fonner Assistant Commissioner (EPIEO), 
512.9197 and 6111197 

18. 	Exhibit -Memorandums Interview -Complainants Sources 
18.5. ,
dated 5115197, Complaint regarding Western 
Journalism Center 
19. 	Exhibit Memorandums Interview -EO Representatives
19.2. 	John Roux, CPA for Westem Journalism Center, dated 5122197 regarding media article quoting Internal Revenue Agent Thomas Cederquist 

21. Exhibit Affidavits Group Managers
(k> )Ll'c 
22. Exhibit Affidavits Branch Chiefs
23. Exhibit Affidavits Division Chiefs
23. Deane Cox 
23.2. Teny Franklin 
23.3. Rosie Slaugflter 

23.4. -----------.. 
24. Exhibit -Affidavits Regional Chief Compliance Officers 
25. Exhibit Affidavits District Directors
25.3. Steven Jensen 
26. Exhibit Affidavits IRS Regional Commissioners
26.1. Marilyn Day 


Exhibit Affidavits EP/EO National Office Employees
29.1. 	Steven Miller, Special Assistant Assistant Commissioner 

29.2. 	Marcus Owens, Director 

29.3. 	Evelyn Petschek, Assistant Commissioner 

30. 	Exhibit Affidavits National Office IRS Executives
30.1. 	Michael Dolan, Deputy Commissioner 

30.2. 	James Donelson, Acting Chief Compliance Officer 

30.3. 	Margaret Richardson, Commissioner 

31. 	Exhibit Procedures and Practices
31.1. 	Examinations 


31.3. 	Treasury Department, Administration and Congressional 

31.4. 	Initial contacts with taxpayers -reason for examinations 

Assistant Commissioner Memorandum 
Internal Revenue Service 
JAM 1997 
Chiet Inspector
C\O \l
Assistant Commiaeioncr 
(Employee Plans and Exempt Organizatio 
subject: Allegations concerning Cae Selection Disclosure
Infonnation recent weeks, there have been number media
reports, including editorials, critical the examination 
The concerns
selection process EP/EO. raised the process
articles include allegations intervention the
target specific taxpayers for political purposes, well 
exam selection
allegations that process either
iproperly selecting cases otherwise susceptible 
manipulation third parties who refer only one side the 
political epectrum. 

These allegations have been inade Congreeelonal 
correspondence well. separate letters, Chairman Archer 
with number 
While have indicating improper behavior any Service employee, are bringing the allegations
your attention because the gravity charges. Please 
advised that have under.fay general review best 
practices our slection process. exempt organizations exam being
ThiG study undertaken, among other reasons, due 
the reetnicturing our field offices, revieion the 
Internal Revenue Manual, and roll-out the field new 
computer classification.
eyetem for returns 

Chief Inspector 
Attached are copies the following media reports, editorials, well ocrtain congressional correspondence and our responses. Note that aimilar reports have appeared elsewhere the media. 
Washington Times articles entitled: 
IRS audits target conservative groups, 1/17/97 

Righist group hit eurpriee audit, 1/30/97 
Wall 	Street Journal editorials entitled: 
Politics and the IRS, 1/9/97 
Wall 	Street Journal--Op piece Joseph Farah 
The White House Plays Politics with the IRS, 

Washington Times editorial entitled: 
What's the IRS? 1/97 you your staff have any questions, please contact Steven Miller 622-6700. 

IRS audits Wget conservative groups Liberal nonprofits escape scrutiny docwtMs>t. . 
Washington Times Articles 
"IRS Audits Target Conservative Groups"-1117/97 apot 11"""1' rlht-OCOGIN the IRS ct"" llnaJ ....,...,.a1 Ille nten !ICll(c)l eduu.11onal wen a.udlt