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The Roots of the IRS Scandal

From The Objective Standard, Vol. 8, No. 3.


The revelation in May of this year that the Internal Revenue Service (IRS) was systematically targeting Tea Party and other conservative groups for special scrutiny under the laws governing nonprofit organizations shocked the nation and triggered one of the Obama administration’s biggest scandals to date. According to a Treasury inspector general’s report, in May of 2010, agents in the IRS’s Cincinnati office began singling out applications for nonprofit status from groups with terms such as “Tea Party” or “patriot” in their names. The agents conducted lengthy investigations of the groups to determine whether they intended to spend too much of their money on political activities that are prohibited to most nonprofits.1 The IRS required some groups to answer long lists of questions about their intentions, it demanded donor lists from others, and it even examined Facebook and Internet posts.2 Some groups simply gave up and withdrew their applications. Others spent two years waiting for a decision that never came.3

When Congress investigated the scandal, Lois Lerner, the former head of the office that oversees nonprofit organizations, invoked her Fifth Amendment right against self-incrimination and refused to testify. Later, hearings revealed that Douglas Shulman, the former head of the IRS, was cleared to visit the White House at least 157 times during his tenure and that IRS chief counsel William Wilkins, who was one of two Obama appointees at the IRS, helped develop the agency’s guidelines for investigating the Tea Party groups.4 As a result, critics of the IRS have good reason to think that the scandal reaches the highest levels of our government.

The public’s outrage over this scandal is, of course, entirely appropriate. If the government can enforce laws based on nothing more than one’s political views, then both freedom of speech and the rule of law are dead. But the outrage over the IRS’s focus on conservative groups obscures a far more important question: Why was the IRS investigating the political activities of any group? The answer to that question is more troubling than the possibility of rogue IRS agents, biased law enforcement, or even abuses of power at the highest levels. As bad as all of those things are, the bigger threat to freedom is a legal regime that requires scrutiny of Americans’ political activities and a political and intellectual culture that applauds such scrutiny and openly calls for more of it.

This is the situation in America today. Our tax and campaign finance laws impose a host of regulations on Americans based on how much time, effort, and money they spend on political speech, and many opinion leaders agitate for even more laws and investigations every day. Against this backdrop, the IRS scandal should not surprise us. Our politicians and intellectuals demanded regulation of some of the loudest voices in our political debates, and the IRS delivered.

Unfortunately, far too many critics of the IRS have accepted the premise that our laws should distinguish between groups that spend money on political activities and groups that do not. Expressing this view, Washington Post columnist Ezra Klein has argued that the real scandal was that the IRS did not treat all nonprofits as harshly as it treated the Tea Party groups.5 Using the same reasoning, congressional Democrats have attempted to blunt the scandal by claiming that the IRS also investigated some groups on the left.6 It appears that these claims are untrue, but the message is clear: As long as the government is scrutinizing everyone’s speech equally, then there is no scandal.

But this is the opposite lesson to learn from the IRS scandal. For anyone who cares about freedom of speech, the real scandal is that the government regulates Americans’ campaign spending at all. So long as laws remain on the books that do so, scandals such as this one—and far worse—are inevitable. But to understand why that is so requires a deeper understanding of the premises on which the laws are based and how the laws operate in practice. . . .

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1 “Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review,” Treasury Inspector General for Tax Administration, May 14, 2013 (Reference Number: 2013-10-053), pp. 3–4, 9,

2 “Inappropriate Criteria,” p. 9.

3 “Inappropriate Criteria,” pp. 11–12. See also Zachary A. Goldfarb and Kimberly Kindy, “How the IRS Seeded the Clouds in 2010 for a Political Deluge Three Years Later,” Washington Post, May 19, 2013, politics/how-the-irs-seeded-the-clouds

4 Josh Hicks, “IRS Chief Counsel’s Office Involved in Targeting Controversy,” Washington Post, July 17, 2013.

5 Ezra Klein, “The IRS Was Wrong to Target the Tea Party. They Should Have Gone After All 501(c)(4)s,” Washington Post, May 10, 2013,

6 Teresa Ambord, “IRS Scandal Shifts Focus to Russell George,” AccountingWeb, June 27, 2013,