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How the Tax Code is Used to Suppress Political Opponents

Is There No Cure for the IRS’s Perpetual Political Outrages?

by JAMES BOVARD

The power to tax has long conferred the power to destroy one’s political opponents. When the latest IRS politicalization scandal erupted last May, many commentators talked as if the abuses were a novelty in American history. But, as David Burnham noted in his masterful 1990 book,  A Law Unto Itself: The IRS and the Abuse of Power,  “In almost every administration since the IRS’s inception the information and power of the tax agency have been mobilized for explicitly political purposes.”

For almost a hundred years, the IRS has diligently sought to ruin the political careers of its critics. In 1925, Internal Revenue Commissioner David Blair personally delivered a demand for $10 million in back taxes to Michigan’s Republican Sen. James Couzens—who had launched an investigation of the Bureau of Internal Revenue—as he stepped out of the Senate chamber. Couzens fought the case, and eventually proved that he had actually overpaid his taxes by roughly one million dollars. But the precedent of using threats to deflect oversight was firmly established.

President Franklin Roosevelt used the IRS to harass newspaper publishers including William Randolph Hearst and Moses Annenberg, publisher of the Philadelphia Inquirer.  FDR also dropped the IRS hammer on political rivals such as Huey Long and Father Coughlin and prominent Republicans like former Treasury Secretary Andrew Mellon.  Perhaps Roosevelt’s most pernicious tax skulduggery occurred in 1944 when he spiked an IRS audit of massive illegal campaign contributions from a government contractor to congressman Lyndon Johnson.  LBJ’s career would likely have been destroyed if Texans had learned of his dirty-dealing. Instead, LBJ survived and scores of thousands of Americans and more than a million Vietnamese died as a result.

President John F. Kennedy raised the political exploitation of the IRS to an art form. Shortly after capturing the presidency, JFK denounced “the discordant voices of extremism” and, in a passage that could have been lifted from President Obama’s Ohio State University commencement speech last year, derided people “who would sow the seeds of doubt and hate” and make Americans distrust their leaders.

At a news conference a few days later, a reporter sought his views on the legality of campaign contributions supporting ”right-wing extremist groups.” Kennedy replied: “As long as they meet the requirements of the tax law, I don’t think that the Federal Government can interfere or should interfere with the right of any individual to take any position he wants. The only thing we should be concerned about is that it does not represent a diversion of funds which might be taxable to – for nontaxable purposes. But that is another question, and I am sure the Internal Revenue system examines that.”

Actually, JFK heavily elbowed the IRS to make sure that they targeted the tax-exempt status of conservative organizations that had criticized Kennedy or his agenda. The IRS  launched the  Ideological Organizations Audit Project which targeted numerous right-leaning groups, including the Christian Anti-Communist Crusade and the American Enterprise Institute. Shortly before his assassination, Kennedy specified that he wanted an “aggressive program” against the IRS targets. JFK also used the IRS to bolster compliance with “voluntary” price controls, targeting steel executives who defied the administration for audits.

A 1976 Senate report noted, “By directing tax audits at individuals and groups solely because of their political beliefs, the Ideological Organizations Audit Project established a precedent for a far more elaborate program of targeting ‘dissidents.’” After Richard Nixon took office, his administration quickly created a Special Services Staff (SSS) to mastermind “all IRS activities involving ideological, militant, subversive, radical, and similar type organizations.”  More than  10,000 individuals and groups were targeted because of their political activism or slant between 1969 and 1973, including Nobel Laureate Linus Pauling and the John Birch Society. The IRS was also given a list of Nixon’s official enemies to, in the words of White House counsel John Dean, “use the available federal machinery to screw our political enemies.”  Contributors to the Democratic Party were also high on Nixon’s target list as were many left-leaning organizations.

The Nixon administration also vastly expanded a secret computer database – the “Intelligence Gathering and Retrieval System” the IRS began in 1963 to sweep up information on individual Americans and groups.  By 1975, the IRS had stockpiled data on almost half a million persons and groups; the program was abolished after its existence became known outside of official circles.

The exposure of Nixon’s IRS abuses profoundly weakened him during the uproar after the Watergate hotel break-in.  The second article of his 1974 impeachment charged him with endeavoring to “obtain from the IRS… confidential information contained in income tax returns for purposed not authorized by law, and to cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”  Congress enacted legislation to severely restrict political contacts between the White House and the IRS.

But the IRS continued its freelance work. After Sen. Joe Montoya of New Mexico announced plans in 1972 to hold hearings on IRS abuses, the agency added his name to a list of tax protestors who were capable of violence against IRS agents.  When IRS Commissioner Donald Alexander was challenged on the listing at a 1975 Senate hearing, he replied, “The only connection that I can think of immediately is that Senator Montoya is, after all, the Chairman of the IRS Appropriations Subcommittee, and some one might have thought that he did violence to our appropriation.”  Information from the an IRS investigation of Montoya was leaked to the Washington Post. Partly as a result of the IRS leak, Montoya lost his reelection bid.

In the following decades, the IRS regularly sparked outrage by abusing innocent taxpayers but there was scant controversy about the agency’s politicalization until Bill Clinton took office.  In 1995, the White House and the Democratic National Committee produced a 331-page report entitled  “Communication Stream of Conspiracy Commerce” which attacked magazines, think tanks, and other entities and individuals who had criticized President Clinton. In the subsequent years, many  organizations mentioned in the White House report were hit by IRS audits. More than 20 conservative organizations  – including the Heritage Foundation and the American Spectator – and almost a dozen  high-profile Clinton critics were audited.

The Landmark Legal Foundation sued the IRS after being audited. Its brief quoted an IRS official who declared at an IRS meeting “that documents identifying the names of members of  Congress and their staffers as the source of audit requests had been, or were being, shredded–and then went on to suggest ways to disguise future requests so that they did not appear to be coming from Congressmen.” The IRS claimed that it could not find 114 key files relating to possible political manipulation of audits of tax-exempt organizations. The Clinton administration fought vociferously to prevent Americans from learning how it had abused IRS powers.

In perhaps the least recognized media bombshell of the Clinton era, the Associated Press reported in late 1999 that “officials in the Democratic White House and members of both parties in Congress have prompted hundreds of audits of political opponents in the 1990s,” including “personal demands for audits from members of Congress.”  Audit requests from congressmen were marked “expedited” or “hot politically” and IRS officials were obliged to respond within 15 days. The AP noted, “The IRS computer tracking system in Washington denotes the name of a politician who refers a matter. The original letter from the White House or lawmaker is forwarded to the case agent.”  Permitting congressmen to secretly and effortlessly sic G-men on whoever they pleased epitomized official Washington’s contempt for average Americans and fair play. But because the abuse was bipartisan, it evinced little or no interest on Capitol Hill.

After Obama’s first presidential election, conservative groups began mobilizing across the nation to resist what they perceived as his socialist policies and programs.  By mid-2010, conservative organizations were complaining of harassment by the IRS.   The Obama administration perpetually denied that any such targeting was occurring.   However, a May 2013 Inspector General report confirmed that IRS employees had devoted far more scrutiny (sometimes amounting to seeming harassment) to nonprofit applications that used the terms “tea party” or “patriots” or that criticized government spending or federal deficits. The Inspector General report concluded: “Developing and using criteria that focuses on organization names and policy positions instead of the activities .. does not promote public confidence that tax-exempt laws are being adhered to impartially.” Surprise, surprise….

Congressional committees are reportedly vigorously investigating the latest scandal, but it remains to be seen how much courage and competence they will show.  Thus far, the alleged offenses of the Obama administration are fairly paltry in comparison to the smoking gun abuses of the Kennedy and Nixon eras.

The latest IRS brouhaha vivifies how the tax code allow presidents of both parties to suppress political opposition.  This fundamental truth has burst forth only occasionally over the past century – perhaps most eloquently in a 1967 federal appeals court decision overturning the conviction of a leftist Oregon lawyer: “The court will not place its stamp of approval upon a witch-hunt, a crusade to rid society of unorthodox thinkers and actors by using the federal income tax laws” to silence them.

But as long as the federal tax code is incomprehensible to most Americans, the IRS will continue to have vast power over its targets. And we cannot expect politicians to fix the problem as long as they expect to profit from the IRS’s machinations.  As Alexander Hamilton, later the nation’s first Secretary of the Treasury, warned in 1782: “Whatever liberty we may boast in theory, it cannot exist in fact while [arbitrary tax] assessments continue.”

James Bovard, a policy advisor to the Future of Freedom Foundation, is the author of author of Public Policy Hooligan, Attention Deficit Democracy, The Bush Betrayal, Terrorism and Tyranny, and other books. On Twitter – @jimbovard