Congressional Accountability Project
1611 Connecticut Ave. NW Suite 3A
Washington DC 20009
(202) 296-2787
fax (202) 833-2406

February 16, 1999

Mr. Larry Rogers
Acting Treasury Inspector General for Tax Administration
Internal Revenue Service
1111 Constitution Ave. NW Room 3031
Washington, DC 20224
via telecopier (202) 622-6513

Dear Mr. Rogers:

We request an inquiry into the Internal Revenue Service's (IRS) Technical Advice Memorandum on the Progress & Freedom Foundation (PFF), which is affiliated with ex-House Speaker Newt Gingrich. According to the Memorandum, the IRS issued its ruling to exonerate PFF of tax law violations based on an incomplete factual record, although relevant facts were apparently within the IRS's investigative reach. IRS admits that this incomplete record may have affected its ruling in what it called a "close case." The IRS Memorandum and flawed investigation raise questions about whether political considerations, meddling or intimidation improperly affected the IRS's investigative and decision-making processes in the PFF case.

Consequently, we request an inquiry into the investigative and decision-making process in the PFF case to determine whether any IRS or Treasury Department employee engaged in misconduct involving violation of any standard imposed by law, or applicable rules of professional conduct, or Treasury Department or IRS policy.

This request for inquiry is pursuant to Treasury Order 115-01, which states that "The Treasury Inspector General for Tax Administration (TIGTA) shall exercise all duties and responsibilities of an Inspector General with respect to the Department and the Secretary on all matters relating to the Internal Revenue Service (IRS)."

The IRS Memorandum on PFF is unusual because it takes a position on the propriety of an organization's actions even as it admits the lack of a complete factual record, though the IRS could likely have compiled a fuller, if not complete, record. The IRS is not known for its reluctance to find facts. The blame for this investigative lapse, according to the IRS Memorandum, should be placed on the House Committee on Standards of Official Conduct ("Ethics Committee"), which collected relevant documents and testimony during its investigation in the Matter of Representative Newt Gingrich, but did not provide these materials to the IRS.

The IRS Memorandum states:

* * * * *
The Ethics Committee should have complied with IRS requests for documents, as it was required to do under House Resolution 31, which was approved by the full House of Representatives on January 21, 1997.

But the IRS appears to use the Ethics Committee as a scapegoat for its own investigative failures. Irrespective of credible allegations of Ethics Committee intransigence, the Memorandum does not explain why the IRS apparently did not obtain relevant testimony, documents and PFF "internal memos" from PFF and its employees and officers. Upon what evidentiary materials did the IRS base its Memorandum? The Internal Revenue Manual states that when investigating a tax exempt organization, an IRS investigator:

Furthermore, regarding the extent of IRS investigation of a tax exempt organization, the Internal Revenue Manual instructs investigators: Did the IRS follow its own Manual in the PFF case? Did the IRS meet this standard of investigative diligence in the PFF case? The IRS's power to summon records and persons is broad, including, when necessary, powers to issue summons to third parties for records and testimony bearing on the IRS examination.(4) Plainly, it was within the investigative powers of the IRS to request affidavits from PFF officers and employees, or to issue subpoenas for their testimony, or to obtain internal PFF documents, in order to determine whether or not PFF was operated for educational purposes under section 501(c)(3) of the Internal Revenue Code. The appearance is that the IRS may have conducted an incomplete fact-finding investigation to mollify then-Speaker Gingrich.

That appearance is heightened given the IRS's treatment of then-Speaker Gingrich's longtime advisor, Steve Hanser. The IRS Memorandum states:

Why did the IRS fail to obtain a full explication from Mr. Hanser of his statements to the Ethics Committee, and his understanding of the purpose of then-Speaker Gingrich's Renewing American Civilization course? TIGTA should investigate whether the IRS's investigative reticence is related to the fact that Mr. Hanser "has served for more than two decades as a senior adviser to Mr. Gingrich,"and is, according to Roll Call, "perhaps Gingrich's closest confidant."(5)

A Roll Call article on the IRS Memorandum quotes Professor Fran Hill, a tax expert at the University of Miami, questioning the IRS's apparent investigative sluggishness in the PFF case:

During much of the IRS investigation into PFF, then-Speaker Gingrich issued a series of high-profile political attacks on the IRS, in a campaign to restructure the IRS and to re-write the tax code. Did Speaker Gingrich's political attacks, or any other political interference or considerations, improperly affect the IRS's investigative procedures and Memorandum in the PFF case?

Given the IRS's incomplete investigation of PFF, and the implication of possible political interference with the investigation, we believe that an inquiry into the IRS's investigative and decision-making process is in order. TIGTA should investigate whether any improper political intervention did, in fact, occur. Furthermore, the public deserves a full report explaining why the IRS was so deferential that it did not settle basic questions of fact in the PFF case, and why the IRS took a position on the legality of PFF actions without all the facts.

Finally, the IRS Memorandum on the PFF case seems to enunciate a broad policy shift, allowing 501(c)(3) organizations to engage in activities with apparently substantial non-exempt purposes to benefit private interests. However, the Memorandum does not directly affect organizations other than PFF. Consequently, the appearance is that PFF is held to a less restrictive standard than other 501(c)(3) organizations. Does the IRS intend to issue a ruling applying this new, less restrictive standard to all 501(c)(3) organizations? Or, if not, why is the Progress & Freedom Foundation, with its close ties to ex-House Speaker Newt Gingrich, seemingly treated differently than other charitable organizations?


Gary Ruskin

cc: Senator Daniel Patrick Moynihan
Representative Charles Rangel

1. Internal Revenue Service Technical Advice Memorandum RE: Progress & Freedom Foundation. A copy of the memorandum was obtained from the Progress & Freedom Foundation website at <>.

2. Internal Revenue Service, Manual Handbook, HB 7(10)69-4, 153, 11/18/83.

3. Internal Revenue Service Manual Handbook, HB 7(10)69-6, 161.2, 11/27/91.

4. Internal Revenue Code §§7602-7609.

5. Damon Chappie, "Gingrich Enlists Army, But Top Official 'Wary.'" Roll Call, October 3, 1996.

6. Damon Chappie, "IRS, Ethics Disagree on Ethics; Gingrich Ruling May Create New Campaign Options." Roll Call, February 8, 1999.