Koskinen Tells Lawmakers That IRS No Longer Uses Lookout List

Given your important role in ensuring the fairness of the tax system, I want to share with you some updates and clarifications regarding the Internal Revenue Service's Exempt Organizations area. In particular, this follows some media reports questioning the IRS's permanent elimination of the "Be On the Lookout" (BOLO) list following the recent decision by the Court of Appeals for the District of Columbia Circuit in True the Vote, Inc. v. Internal Revenue Service, et al. and Linchpins of Liberty, et al. v. United States of America, et al., ____ F.3d ____, 2016 WL 4151231 (Aug. 5, 2016).

I want to emphasize in clear terms that the IRS Exempt Organizations area stopped the use of the BOLO lists over three years ago. I have repeatedly stated this point in congressional testimony and in public speeches. Other independent parties, including the Treasury Inspector General for Tax Administration in its March 2015 report (2015-10-025), have also confirmed this point. Since the initial TIGTA report (2013-10-053) on this issue in 2013, the IRS and its leadership team have been, and remain, absolutely committed to avoiding any selection and further review of potential political cases based on names and policy positions. There should be no doubt on this point, or regarding the continued, ongoing commitment by the IRS to be guided by the tax law and nothing else.

In its opinion, the D.C. Circuit held that the controversy regarding the IRS's processing of applications for tax-exempt status based on organizations' viewpoints was not moot. The D.C. Circuit's opinion noted the IRS's interim guidance issued in 2013 announcing that it was "suspending" the use of the BOLO lists. The Court construed this to mean that it was possible that the IRS had not conclusively eliminated the use of the BOLO lists.

I want to be clear that no matter how you say it -- whether it's suspended, eliminated or ended -- the IRS stopped this practice long ago and is committed to never using such a list or process ever again.

The IRS's 2013 interim guidance was formally incorporated into the Internal Revenue Manual (IRM) in 2014 by removing any reference to the use of a BOLO list. The agency also conducted significant training for employees on the new procedures. With these actions, there should be no doubt that the use of BOLO lists has not just been temporarily suspended, it has been eliminated.

In 2015, TIGTA noted, "The IRS eliminated the use of Be On the Look Out (BOLO) listings, which TIGTA determined had contained inappropriate criteria regarding political advocacy cases. TIGTA conducted interviews with a random sample of employees, who confirmed that BOLOs or similar listings were no longer being used." However, the D.C. Circuit, while noting the existence of this report, did not consider it because the report was issued after the District Court's opinion in 2014 and, therefore, was not part of the formal court record before the D.C. Circuit.

The D.C. Circuit's opinion also focused on another point, noting that the applications of a few organizations engaged in litigation against the government are still pending. The applications of these organizations remain pending because the IRS has a longstanding policy of ordinarily suspending administrative action on a pending application if an issue involving the organization's exempt status is pending in litigation. After reading the D.C. Circuit's opinion, I have asked the IRS Exempt Organizations leadership to consult the Department of Justice and attempt to resolve the applications that remain pending by making determinations as soon as practicable.

I would note that, in 2013, the IRS offered an optional expedited approval process for organizations whose applications for tax-exempt status under Internal Revenue Code § 501(c)(4) had been pending for more than 120 days as of May 28, 2013. Currently, the applications of 142 of the 145 organizations, or 98 percent, included in the expedited process have been resolved one way or another. The applications of the remaining three organizations have not been resolved because they opted for litigation.

As I have testified on many occasions, the IRS has acted on all of the recommendations made by TIGTA in its May 2013 report describing the use of inappropriate criteria in identifying tax-exempt applications for review. In addition, the IRS acted on all of the recommendations made in the Senate Finance Committee's August 2015 report that are within our control. They include 15 of the report's 18 bipartisan recommendations and six of the recommendations in the separate sections of the report prepared by the Majority and Minority. These actions reflect that the IRS is committed to assuring that no organization applying for tax-exempt status is ever subject to inappropriate selection criteria, information requests or delays.

This is part of a larger, ongoing effort to ensure the IRS runs its tax administration efforts in a fair manner for the nation's taxpayers. This has been a central component of my work as Commissioner, and fairness remains a cornerstone commitment for the IRS.

I hope this information is helpful. I am also sending this letter to Representative Brady, Representative Chaffetz, Representative Cummings, and Representative Levin. If you have further questions, we are happy to discuss them with you to the degree we can given the ongoing litigation. You may contact me or a member of your staff may contact Leonard Oursler, Director, Legislative Affairs, at (202) 317-6985.