Nearly two years after the IRS was exposed for improperly sidetracking requests for tax exemptions from tea party groups, POLITICO has learned that at least a half-dozen conservative applicants are still waiting for an answer.

This challenges repeated assertions by IRS Commissioner John Koskinen that his embattled agency has “completed” a set of recommendations to fix the problem and address a backlog of nearly 300 applications, some of which had been pending already for three years.


The groups that are still waiting include Karl Rove’s giant Crossroads GPS, which spent at least $26 million against Democrats in the last election cycle. But most of the half dozen are mom-and-pop outfits from New Mexico to New Jersey, run by volunteers out of their own houses and operating at a fraction of Crossroads’ budget.

The years-long delay has gutted these groups’ membership, choked their ability to raise funds, forced them to reserve pots of money for possible back taxes and driven them into debt to pay legal bills.

“If you say the targeting issues have been resolved … how come we still haven’t received a determination one way or the other?” asked Rick Harbaugh, leader of the Albuquerque Tea Party, which has been waiting five years for its tax exemption. “We are still being targeted.”

IRS’ website says it has closed 95 percent of “priority” groups that had been pulled for extra scrutiny.

The agency said it cannot comment on specific cases, but it deflected blame, in part, to the Justice Department. When an applicant is suing the IRS, Justice also has a say in whether to issue a final ruling during litigation. Almost all the groups in limbo have taken the IRS to court.

The IRS also argued that holdups can arise when a group appeals a preliminary, though not official, ruling on its application, which “can add significant time.”

“The IRS is committed to treating taxpayers fairly,” IRS said in a statement.

But a retired IRS veteran who oversaw the tax-exempt division called it “inexcusable.”

“While I appreciate that some determinations involving exemption for organizations engaged in political activity can involve difficult decisions, a five-year wait is inexcusable,” said Marvin Friedlander, who retired in 2008. “Justice delayed is justice denied.”

Even critics who argue some such political groups shouldn’t be tax-exempt say they deserve an answer from the IRS.

“Regardless of whether or not a group is entitled to [501c](c)(4) status, I think groups have the right to have a determination made in a timely fashion — and five years is not timely,” said Paul S. Ryan of the Campaign Legal Center, which backs reforming tax-exemption rules to require disclosure of donors. “It’s a disgrace.”

QUESTIONS, NOT ANSWERS

In 2009, a group of conservatives in New Mexico made a plan to speak out for limited government, joining the nascent tea party movement sweeping the nation.

The Albuquerque Tea Party vowed to educate surrounding communities on the Constitution, states’ rights and free markets. It homed in on the Obama administration’s big moves on health care and Democratic proposals, including the DREAM Act for undocumented youths and cap-and-trade rules on pollution.

It mailed its application for tax exemption to the IRS on Dec. 29, 2009. Members expected to hear back in a few months.

But in April 2010, instead of an approval, they received a lengthy request for more documentation — copies of newsletters, brochures, handouts and board-meeting minutes.

What they didn’t realize was that just weeks before, a Cincinnati-based IRS agent had flagged their application, along with another tea party group’s, sending them to Washington, D.C., for further examination.

The IRS around the time was aware of Democratic lawmakers’ complaints, including some by President Barack Obama himself, about how the Citizens United court decision would affect “dark money” nonprofits like Americans for Prosperity, suggesting they that were breaking tax-exempt law by over-engaging in politics and hiding donors.

When approving 501(c)(4) applications, the IRS has to determine if the purpose of a group is “primarily” for social welfare, often interpreted to mean 51 percent of its time and money. The rest of its resources can go toward campaigns and politics, including candidate endorsements.

But defining “political activity” proved difficult. IRS employees mixed up the rules and found themselves in hot water for flagging groups based on their policy stances, like curbing government spending or taxes — even though expressing such views, even lobbying on them, is allowed.

In November 2011, more than a year after submitting a “couple hundred pages” worth of answers to IRS questions, Albuquerque received another list of questions.

It wasn’t the only group getting extra scrutiny. Using ideological trigger words, including “tea party” and “patriot,” IRS agents sidetracked at least 298 similar applications — most of them from conservative-leaning groups. The IRS also used hot-button terms like “occupy” and “progressive” to flag seemingly liberal groups.

San Fernando Valley Patriots in California, which applied in October 2010, didn’t hear back from the IRS for 16 months. In February 2012, it received a letter requesting donor information, political party affiliations of all event speakers and the employer ID numbers of businesses it had worked with.

The small groups interviewed for this story told POLITICO they have always followed rules limiting “political activity,” though they would not share their budgets for POLITICO to verify that claim.

But they did describe their activities in general terms. Harbaugh, the secretary of the Albuquerque Tea Party, said his group keeps an email list of around 1,000 subscribers. Volunteers gather every third Tuesday of the month in a local church or inexpensive hotel conference room to discuss various topics, from school board elections to national policy priorities. About 30 members recently screened a documentary on the impact illegal immigration is having on border towns.

They have a clear political point of view, but Harbaugh said they have never endorsed a candidate. They host candidate forums for the state house, city council or county commissioner, but both parties are invited to attend. They spend most of their time on education and advocacy, Harbaugh said, organizing lectures, for example, on problems with VA hospitals and arranging retreats for kids to learn about the Constitution.

Like other groups interviewed for this story, they scoff at allegations that big-name donors, like the Koch brothers, send them checks to influence elections. Harbaugh said his group raises 95 percent of its funds locally, including from an Uncle Sam top hat members pass around at monthly meetings.

Given his group’s size, budget and mission, Harbaugh said he doesn’t know why approval is taking so long: “What is the IRS afraid of?”

UNFINISHED BUSINESS

In May 2013, the Treasury Inspector General for Tax Administration, the IRS watchdog, disclosed the targeting practice. It attributed the controversy to incompetence and found no evidence of political bias, but the watchdog, the FBI and a half-dozen congressional committees are still investigating.

The IRS was given nine recommendations to fix the problem and ensure it wouldn’t happen again, including: Stop pulling applicants based on controversial trigger words, fix the murky social welfare rule and ensure employees are better trained.

Another key recommendation given the lengthy wait some groups had endured: Get to the backlog of 298 cases.

“Provide oversight to ensure that potential political cases, some of which have been in process for three years, are approved or denied expeditiously,” the recommendation reads. That was 22 months ago.

But the way the IRS counts the cases makes it difficult to track the agency’s progress.

In May 2013, it released a list of 176 political nonprofits it said it had approved already, many of them groups it once labeled “inflammatory,” “anti-Obama” and engaging in “propaganda.”

Then, the IRS created a Web page on which it updated monthly its rulings on a collection of 145 “priority” applications from groups that had been waiting for more than 120 days as of May 2013. The IRS has declined to explain why it does not track the progress of all the groups the watchdog identified.

In January 2014, after closing 111 of those “priority”cases, the IRS declared victory and proclaimed to have “completed” the watchdog’s recommendation. Since then the agency has ruled on another 27 cases, bringing the total to 138, but still short of its 145 target.

That hasn’t prevented IRS chief Koskinen from asserting repeatedly that the agency has satisfied all the watchdog’s recommendations.

In early February, Koskinen appeared before the Senate Finance Committee. When Sen. Tim Scott (R-S.C.) prodded Koskinen for taking nearly a half-decade to approve a tea party application from his state, Koskinen agreed with his outrage.

“I have said from the start that those were mistakes that were made, they should never have been made and they should not be made again,” he said.

Then he assured the committee members: “We have implemented every one of the inspector general’s recommendations to do our best to make sure that never happens again.”

The agency says the process is complicated by litigation. If an applicant sues, the agency said, the case “moves to the Department of Justice, which in consultation with the IRS will control the resolution of the applicant’s status.”

Freedom Path in Texas, a group that’s been waiting about four years for an answer and is suing the IRS, says it was told it could not receive a ruling while litigation was pending. But the American Center for Law and Justice, which represents more than 40 conservative groups, including Albuquerque Tea Party, saw multiple groups approved during litigation. In fact, that was one of the reasons why the judge threw out the case, calling it moot. ACLJ is appealing.

IRS also said applicants who received a proposed denial letter can appeal, moving the matter from the exempt division to appeals, “a process that can add significant time to when a final decision on the application is made,” IRS said.

‘DEATH BY DELAY’

While Crossroads’ expansive connections, powerful fundraising arm and full-time staff have kept the group functioning despite lacking the IRS’ stamp of approval, small groups on hold for years at a time struggle to stay above water.

“Your ability to operate as a [501](c)(4) when you’re not approved is fatally injured — your ability to raise money … to plan,” said David French, senior counsel for the American Center for Law and Justice.

At one point, for example, Unite in Action, a group that’s been on hold for more than 1,700 days, looked poised for growth. With members in various states and a mission to “prepare current and future generations to be guardians of our Constitutional Republic,” it quickly built a nationwide following, fundraising $600,000 to throw a multiday rally on conservative priorities in Washington, D.C., in 2010. Thousands attended.

IRS agents flagged its tax-exempt application, citing a blog post that said “fire Timothy Geithner,” then the Treasury secretary, and “demand Joe Biden apologize,” according to leaked IRS documents from 2011.

When the IRS asked Unite in Action for its list of donors, their occupations and addresses, the group’s finances took a nosedive.

“We told everybody that we will in no circumstances surrender that … [donor] information, but it still has dried up about 95 percent of the fundraising that we were able to do prior,” said current president Jay Devereaux, who joined the group in 2009. The IRS would later apologize for asking for groups’ donors, which it said was inappropriate.

Now Unite in Action is $16,000 in debt and operates on an annual budget of $8,000 to $10,000.

Though Devereaux, an IT guy by day, dreams of organizing a nationwide bus tour to protest the Common Core education standards, the most his group can afford to do is to occasionally send a member to lobby state legislatures on amending the Constitution, or to Congress to protest fast-track trade authority for Obama.

“We really can’t do events anymore, namely because of the cost and the impact this has had on our fundraising since this whole thing was made public,” Devereaux said.

Some would-be donors and partners are suspicious of groups without exemptions, thinking they might be bad apples.

Northeast Tarrant Tea Party in Texas, which received its tax-exempt status in December 2014 after waiting four years, had a partner withdraw funding for a mailer when he found out the group wasn’t yet IRS approved. “He wasn’t sure of the legal limits for how his tax-exempt organization could interact with ours,” said Julie McCarty, group president.

Other donors worry they’ll be audited or slapped with a gift tax, another option some in the IRS exempt unit had considered. A former Albuquerque Tea Party president, who has left the group, was audited twice after the group filed its application.

Groups say they’ve lost members out of fear and frustration. One of Albuquerque’s board members quit because of concern that involvement with the group would affect a spouse’s government job. Another Albuquerque volunteer backed out from leading a protest at a local IRS office because of “his fear of being photographed by the IRS cameras,” Harbaugh, the group’s secretary, said.

Unite in Action lost “some of our best people involved in this because they got so frustrated with the process,” Devereaux said.

And if they do not get an exemption, these groups face a potential tax hit for the years they were allowed to operate as a nonprofit. Harbaugh made the executive decision to put money aside each year in case that happens. He told a local paper in July that his group has $3,500 in reserves.

“This is huge for a group like ours where every dollar counts,” he said.

California’s San Fernando Valley Patriots found itself in a similar bind. Upon applying for tax-exempt status in the fall of 2010, organizer Karen Kenney was advised that California’s exemption for state taxes would be approved automatically once her federal approval came through.

But the group dropped its federal application in the summer of 2012 after receiving a donor-request letter. Two weeks after Kenney testified on Capitol Hill on the matter in mid-2013, she got a call from California tax collectors.

The group, which has a $3,000 annual budget, wound up owing around $2,500 due to a minimum tax California levies on non-for-profit corporations. It forced them to cut honorariums for guest speakers, curb support for the local food bank, kill the advertising budget to promote the group on talk radio and halt distribution of free copies of the Constitution.

“Do the math — it hurt us,” said Kenney. She just paid the last installment out of her own pocketbook at the end of January.

After the scandal broke, the IRS gave groups on hold a fast-track option: immediate approval if they pledged to spend less than 40 percent of their time and resources on political campaigns. But several of the groups dismissed that option on principle, calling it unfair because it was a stricter standard than other 501(c)(4)s had to abide by.

Unlike with nonprofit charities and foundations, which are allowed to sue the IRS if they don’t get an answer from the agency within 270 days of filing, the IRS is under no obligation to answer 501(c)(4) applications within a certain time frame.

Former IRS official Friedlander said postponing a decision this way is known as “death by bureaucratic delay.”

Indeed, many conservative groups withdrew their applications in frustration. Others changed their names and could try to start the whole process again. For example, Greenwich Tea Party Patriots of South Jersey, another group that never heard back, is starting a new group, changing its name to Faith and Freedom Coalition of New Jersey.

Then, there are those who went belly-up while waiting.

Freedom Path, which was created in part by GOP operatives with connections to Utah politicians, ran a series of ads in Utah between summer 2011 and spring 2012 supporting a balanced budget amendment and Obamacare repeal.

IRS deemed two of the 2012 ads political campaign activity: one praised Sen. Orrin Hatch (R-Utah), battling a contentious primary that year, for backing both policy positions, telling Utahans to call his congressional office to show support. The other name-dropped Mitt Romney, presidential candidate, for holding similar views.

The Center for Public Integrity reported the group spent at least $500,000 on “ads designed to help Hatch’s electoral prospects,” citing FEC filings, and received hundreds of thousands in donations from a Hatch-friendly drug lobby.

But the group argues it never came close to breaking the social welfare rules.

“The majority of the ads and the primary purpose of the organization was issue-based and not political,” said board member Scott Bensing, former executive director of the National Republican Senatorial Committee. “We weren’t pushing any limits.”

Even if they had, Friedlander said the IRS by now should have given them an answer because “a record exists on which the IRS can make an informed determination.”

Without an answer, Freedom Path, currently suing the IRS, stopped operating in late spring of 2012 out of concern that it would be denied tax-exempt status and forced to pay back taxes. It also feared donor information could be revealed to the IRS.

Freedom Path exists mostly in name now. It doesn’t even have a website. It’s “six-figures” in debt for legal bills suing the IRS.

“We’ve had to reduce all of our expenses, and really we’re in a position now where we’re just struggling with legal bills,” Bensing said. “We’re closer to bankruptcy than to solvency.”