When the announcement was made about the hearing, Committee Chair David “Dave” Camp (R-MI) said:

The American public expects the Internal Revenue Service to be apolitical in its enforcement of our tax laws. News that the agency admits it targeted American taxpayers based on politics is both astounding and appalling. The Committee on Ways and Means will get to the bottom of this practice and ensure it never takes place again.

Ranking Committee Member and former Chair Sander M. Levin (D-MI) added:

The American people must have the fullest confidence that organizations requesting tax exemption receive completely unbiased treatment from the Internal Revenue Service and are never singled out by name or political views. The nation deserves a complete understanding of this matter, and as Chairman Camp and I discussed this morning, it is essential that there be a thorough and bipartisan investigation and effective remedial action.”

The timing of the hearing was clearly political. The fact that Congress was beating down the doors for IRS to testify meant that it was going to be scheduled quickly: with about four days’ notice, there was not a lot of time for either side to prepare (though, really, why bother with facts?). It also meant that the process is likely to be finished quickly, not at all like the extended hearings for Bush’s “Lawyergate” or Clinton’s impeachment. That’s likely a relief for the Obama administration (as well as Acting Commissioner of the Internal Revenue Service Steve Miller, who is on his way out).

Steve Miller, and the Treasury Inspector General for Tax Administration (TIGTA), J. Russell George, were the only scheduled witnesses at the hearing. Just prior to the hearing, Miller offered these opening remarks:

Thank you for the opportunity to be here today. Unfortunately, given time considerations, the IRS was unable to prepare written testimony. I would note that I have a very brief statement before I take your questions.

First and foremost, as Acting Commissioner, I want to apologize on behalf of the Internal Revenue Service for the mistakes that we made and the poor service we provided. The affected organizations and the American public deserve better.

Partisanship or even the perception of partisanship has no place at the IRS. It cannot even appear to be a consideration in determining the tax exemption of an organization.

I do not believe that partisanship motivated the people who engaged in the practices described in the Treasury Inspector General’s report. I have reviewed the Treasury Inspector General’s report, and I believe its conclusions are consistent with that. I think that what happened here was that foolish mistakes were made by people trying to be more efficient in their workload selection. The listing described in the report, while intolerable, was a mistake and not an act of partisanship.

The agency is moving forward. It has learned its lesson. We have previously worked to correct issues in the processing of the cases described in the report and have implemented changes to make sure that this type of thing never happens again. Now that TIGTA has completed its fact-finding and issued its report, management will take appropriate action with respect to those responsible.

I would be happy to answer your questions.

And he did. Miller and George answered questions for hours, taking occasional breaks from what was, at times, a contentious hearing. In the end, I don’t think we have a much clearer picture of what went on at IRS: the IRS (and TIGTA) maintained that what went on was “inappropriate” but not illegal.

Miller maintained, as he had previously, that an increase in the number of organizations applying for nonprofit status contributed to a change in the IRS tax exempt application review process. He also insisted that the review was not political and “included groups from across the political spectrum.” He shrugged off accusations that he had lied to Congress, saying that he had answered their questions truthfully, including those posed in July 2012 while Doug Shulman was still in charge at IRS.

That wasn’t enough for some on the Hill who clearly feel that Miller is getting off easy. Specifically Rep. Tom Reed (R-NY) chastised Miller, saying that “[n]othing bad is going to happen to you, you’re going to get your full benefits.” Miller, who resigned in the middle of the scandal, shot back: “Nothing bad is happening to me, Congressman?” He advised, when asked about his resignation, that “I resigned because as the acting commissioner, what happens in the IRS, whether I was personally involved or not, stopped at my desk.”

You can read Miller’s proffered testimony here. You can read George’s testimony proffered testimony here. And, if you have a few hours to kill, CSPAN has archived the hearings for you here.

But don’t expect the controversy to end here. Rep. Camp has already indicated that he expects to have more hearings about potential abuses at the IRS. Worries over what might have happened in terms of disclosures are already making rounds on the internet. Congress is calling for more investigations and at least one more hearing will come this week as former IRS Commissioner Doug Shulman will voluntarily testify before the House Oversight Committee on Wednesday.

Congress is clearly walking a line between wanting to learn more (good) and exploiting those holes for political gain (not so good). There is, however, always the very real possibility that politicians on both sides of the aisle could experience some backlash as a result with the public getting increasingly weary over coverage of the next big scandal. It is entirely possible to have too much of a good thing.

(Image Courtesy of C-SPAN).

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You can watch the hearings at C-SPAN over the web here: http://www.c-span.org/Events/C-SPAN-Event/10737439699/

I’ll have a round-up of the day’s events at the close.

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WASHINGTON, DC - FEBRUARY 14: Office of Management and Budget Federal Controller Danny Werfel testifies before the Senate Appropriations Committee about the potential impacts of 'the sequester' during a hearing on Capitol Hill February 14, 2013 in Washington, DC. (Image credit: Getty Images via @daylife)

One day after President Obama accepted the resignation of Acting Internal Revenue Service Commissioner Steven T. Miller, a replacement is already being talked up. President Obama is expected to name 42 year old Daniel Werfel to the position.

Werfel was named as Controller of Office of Federal Financial Management of the Office of Management and Budget (OMB) by the President in July 2009. Prior to that appointment, he had served in several roles at the OMB: as Deputy Controller; Chief of the Financial Integrity and Analysis Branch; budget examiner in OMB’s Education Branch; and as a policy analyst in OMB’s Office of Information and Regulatory Affairs.

An attorney by trade, Werfel also served as a Trial Attorney in the Department of Justice’s Civil Rights Division. He holds a Masters Degree in Public Policy from Duke University, a law degree from the University of North Carolina at Chapel Hill, and a Bachelors Degree in Industrial and Labor Relations from Cornell University.

Werfel is generally considered well liked in Washington. Even though he was nominated by President Obama to his most recent position, he was a fixture in the OMB under former President Bush, gaining bipartisanship support. With that in mind, while it is mostly unheard of for an Acting IRS Commissioner to be named as IRS Commissioner, there are rumors that Werfel had been discussed as a possible replacement for former Commissioner Doug Shulman.

I’ll have more as the story unfolds.

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A Walmart employee gathers pushcarts as police man the front entrance to a Walmart store in Paramount, California on November 23, 2012 as Walmart employees and their supporters protested nearby. (Image credit: AFP/Getty Images via @daylife)

Wal-Mart Stores, Inc., (Walmart) had mostly good news for Wall Street yesterday when it reported earnings of $3.78 billion, or $1.14 per share, in the first quarter. Those earnings were consistent with Walmart’s expectations of $1.11 to $1.16 per share and just short of analysts’ average forecast of $1.15 per share.

Those earnings were likely a welcome sign for the company who had worried internally this year about slow sales. Those fears were made public when emails were leaked referring to February as “a total disaster.” In the text of those emails, Walmart VP of Finance Jerry Murray reported that Walmart had the worst sales start in seven years.

I had suggested at the time that sluggish sales might be linked to tax season. It turns out that Walmart agrees.

If you don’t think timing and tax policy can be linked directly to the economy, think again. Delayed refund checks due to a late start to the tax season this year and snafus with returns claiming education credits no doubt contributed to slower sales because consumers had less cash in hand. By mid-February, the date that most refunds had been issued in 2012, the Internal Revenue Service was just getting started issuing returns in 2013. Bill Simon, Walmart U.S. president and chief executive officer, acknowledged this week that the delay contributed to slow sales, saying “February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.”

And there was something else: those disappearing payroll tax cuts. Simon mentioned the cuts not once but twice in his remarks, noting at first that sales have likely slowed because families had grown used to the cuts – and will now have to get used to not having them. He said, “[w]e are confident that our low prices will continue to resonate, as families adjust to a reduced paycheck and increased gas prices.” With respect to sales moving forward, he offered that “[w]e continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase.” Despite those delayed tax refunds and payroll tax cuts, it appears that Wal-Mart managed to bounce back.

It wasn’t all bad news on the tax front: the company reported that benefited from a “lower than expected effective tax rate.” The effective tax rate for the retail giant for the year was 31.0%, down nearly two points from last year. Walmart saw its biggest drop in the effective tax rate in fourth quarter, a nearly three point drop to 27.7% as compared to 30.9% last year. The company touted “a number of discrete tax items, including positive impact from fiscal 2013 legislative changes, most notably the American Taxpayer Relief Act of 2012″ for the dip in tax rates.

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On Wednesday, President Obama announced that acting IRS Commissioner Steven T. Miller had resigned. (Image credit: AFP/Getty Images via @daylife)

And he’s outta here!

Earlier today, Acting Internal Revenue Service Commissioner Steven T. Miller offered his resignation to President Obama. The resignation was issued amid a scandal that has plagued the IRS in recent days – and put the Obama administration in clear scramble mode. There have been calls for criminal charges (though for what is not yet clear) and demands for investigations into confirmed reports that the IRS improperly targeted certain applications for tax-exempt status based on keywords and politically charged language.

Miller announced plans to leave next month to IRS employees, saying:

Dear Colleagues:

It is with regret that I will be departing from the IRS as my acting assignment ends in early June. This has been an incredibly difficult time for the IRS given the events of the past few days, and there is a strong and immediate need to restore public trust in the nation’s tax agency. I believe the Service will benefit from having a new Acting Commissioner in place during this challenging period. As I wrap up my time at the IRS, I will be focused on an orderly transition.

While I recognize that much work needs to be done to restore faith in the IRS, I don’t want anyone to lose sight of the fact that the IRS is comprised of incredibly dedicated and hard-working public servants. During my 25-year IRS career, I am profoundly proud to have worked alongside you and to be part of an institution that has worked hard to support the nation. I have strong confidence in the IRS leadership team to continue the important work of our agency.

I want to thank everyone for all of their support and friendship during my career in government service. And I especially want to thank each and every one of you for your continued commitment to the nation’s taxpayers.

Steve

While I’ll admit that the timing of the resignation threw me off, the move didn’t. Those in positions of power have been calling for his head – heck, anyone’s head – since the story was made public last week. Notwithstanding the fact that Miller happened to be in charge when the accusations flew, there was a more damning fact: it has been reported that, in May 2012, former Commissioner Doug Shulman was briefed about the then-percolating scandal. Miller was said to have learned about it at roughly the same time.

The controversy about who knew what and when led Sen. Marco Rubio (R-FL) to write a strongly worded letter to Secretary of the Treasury Jack Lew, calling for Miller’s resignation earlier this week. Or sort of. Sen. Rubio took a lot of flak for his statement that “it is clear the IRS cannot operate with even a shred of the American people’s confidence under the current leadership. Therefore, I strongly urge that you and President Obama demand the IRS Commissioner’s resignation, effectively [sic] immediately.” Here’s the rub: Miller isn’t exactly the Commissioner. He’s the Acting Commissioner. There hasn’t been an actual Commissioner since Bush appointee Doug Shulman resigned in November following a five year stint. I know, it’s semantics but it’s important semantics. Those in positions of power should make an effort to get the facts straight – or at least have a fact checker to do it for them.

As for Miller? He’ll be okay. I suspect he didn’t have aspirations of making Commissioner. Historically, the Acting Commissioner does not accede to be Commissioner, with most acting only a few months (believe it or not, a few have only held the position for a couple of days).

This is the first public hand slapping since the scandal was made public. You can bet that it won’t be the last.

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Logo of the Internal Revenue Service (Photo credit: Wikipedia)

The headlines were filled this morning with accusations, defenses and more about the scandal involving the Internal Revenue Service’s increased, targeted scrutiny of the applications of specific tax exempt organizations.

Details about what actually happened – and who knew what and when – are still murky. An investigation into the timeline and the players in the scandal is ongoing. The U.S. Treasury Inspector General for Tax Administration (TIGTA) was instructed to dig deeper and the Attorney General’s office also ordered the FBI to investigate.

When the matter was made public last week, the IRS acknowledged that mistakes were made and issued an apology (whether or not it was enough is another story). Last night, the IRS released the following statement:

The IRS welcomes the public release of the Treasury Inspector General’s report. The IRS agrees that aspects of the original approach for handling the influx of tax-exempt applications were inappropriate, but it is important to clarify a few points.

The IRS is required by law to determine if organizations are engaging in a legally permissible level of political activity. Centralizing these cases was necessary to achieve consistent treatment. After seeing issues with particular cases, inappropriate shortcuts were used to determine which cases may be engaging in political activities. It is important to note that the vast majority of these cases would still have been centralized based on the general criteria used for other cases. All centralized cases –including the minority of those with the specified names — received similar treatment in which the facts and circumstances of each case determined the ultimate outcome. It is also important to understand that the group of centralized cases included organizations of all political views.

While flaws in our process were corrected last year based on our own review, we only recently discussed this publicly as there had been a concurrent ongoing TIGTA audit of the situation. There was no intent to hide this issue, but rather we waited until TIGTA completed their fact finding, made recommendations, and we reviewed their findings.

I will keep you posted as more information – real information, not just fake, teaser headlines – becomes available.

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US Attorney General Eric Holder speaks at a press conference at the Justice Department in Washington on April 4, 2011. (Image credit: AFP/Getty Images via @daylife)

Just days after the news surfaced that the Internal Revenue Service improperly targeted certain applications for tax-exempt status based on keywords and politically charged language, Attorney General Eric Holder has announced that he has ordered an FBI investigation into the matter. Specifically, the criminal inquiry will focus on “potential violations” of the federal tax code and the federal criminal code, according to Holder, who made the announcement during a press conference earlier today. He did not offer further details.

To be clear, there have been no specific allegations of criminal activity made public. And Holder was as vague as vague could be about the investigation, saying that “The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters. We are examining the facts to see if there were criminal violations.” You have to love those kinds of statements; to quote Ken White over at Popehat: vagueness in legal threats is the hallmark of meritless thuggery.

So, a few things could be happening:

• One, there actually is some evidence that indicates that there might have been criminal wrongdoing. This would be quite remarkable considering how many people – all the way up to former IRS Commissioner Doug Shulman and acting IRS Commissioner Steve Miller – were said to have known about what was going on.
• Two, there is considerable political pressure to find someone to blame. Clearly, the administration doesn’t want to admit if there’s a systemic problem. And talking in nebulous terms about breakdowns in the system won’t make anybody happy. What would make someone happy? A scapegoat.
• Three, this isn’t the best moment for the Obama administration (see Benghazi) or the Holder AG tenure (see AP phone records) and it could be politically advantageous to distract citizens from other matters by bringing up – ooh, look, shiny things!

For its part, the IRS has apologized for its actions. It has, however, maintained that the behavior was not politically motivated but was rather a way (albeit a terrible way) to sort through an increase in applications of organizations attempting to use tax exempt status for political purposes.

Stay tuned.

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WASHINGTON, DC - JANUARY 26: Internal Revenue Service Commissioner Douglas Shulman testifies before the Senate Homeland Security and Governmental Affairs Committee January 26, 2012 in Washington, DC. (Image credit: Getty Images via @daylife)

“IRS Issues Apology for Targeting Tea Party Group”

I’ll admit that headline caught my attention – but probably not for the reasons you think. The targeting bit didn’t give me pause at all – but the apology did. The Internal Revenue Service rarely apologizes. On the other hand, the IRS has always given a second glance to organizations with political ties. Always.

In case you missed the story, here’s what happened: the IRS, in a weak moment, admitted that it had been targeting certain applications for tax-exempt status based on key words and politically charged language. This wasn’t a planned statement but rather popped up when Lois Lerner, the head of the tax exempt organization section of IRS, made the confession at an American Bar Association event last week.

While initial reports said that the IRS targeted groups with “tea party” or “patriot” in their names, reports now indicate that the agency used a much broader brush, applying extra scrutiny to applicants critical of the government or engaging in other kinds of speech that is political in nature. And that part, quite frankly, isn’t a surprise. Let me tell you how the IRS feels about political speech: they are not fans. The IRS is very clear that “[s]ection 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct.”

There are 29 different nonprofit types of organizations under section 501(c) of the Tax Code for tax exempt purposes but the ones that get the most attention are 501(c)(3) and 501(c)(4). The applications that appear to have been targeted most for additional scrutiny in this case are section 501(c)(4) organizations. Those are defined under the Code as:

Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.

While the rules are similar, there is, however, an important distinction here as between 501(c)(3) and 501(c)(4) organizations: the latter may participate in political campaigns and elections, so long as the organization’s primary activity is the promotion of social welfare. Donations are not generally deductible and any income devoted to political activities is not tax exempt.

And while the criteria for the 501(c)(4) does allow for some (with an emphasis on some) politicking, the rules are largely the same as those for 501(c)(3) organizations; in fact, the IRS manual actually states that “there is considerable overlap between IRC 501(c)(4) and IRC 501(c)(3).” The politicking must not outweigh other goals of the organization and the primary activity must still be the promotion of social welfare. The IRS Regs at 1.501(c)(4)–1(a)(2)(ii) make it clear that “the promotion of social welfare does not include participation in political campaigns on behalf of or in opposition to any political candidate.” Additionally, the rules for determining what constitutes intervention in a political campaign for an IRC 501(c)(4) organization are the same as those governing IRC 501(c)(3) organizations.

So what’s the appeal? The key draw is that unlike 501(c)(3) organizations, 501(c)(4) organizations are not required to disclose the the names of their donors publicly; they are also not required to pay attention to those pesky contribution limits for campaign finance purposes. That combination has made the organizations extremely attractive to so-called Super PACs who have been accused of using the organizations to circumvent existing campaign laws.

That makes these organizations extremely controversial. The IRS has shown increasing concern about the potential for abuse. This accelerated a few years ago after the darling of the time, section 527 groups, began to get a bad rap based largely on the Swift Boat saga during the Bush-Kerry 2004 election and Hillary Clinton supporters’ American Leadership Project in 2008. The bad taste those efforts left in the mouths of taxpayers forced political strategists to switch gears – and they focused their sights on 501(c)(4) organizations.

The IRS scrambled to react to this influx of new organizations. And they clearly reacted badly. Very badly. But while it’s easy to make assumptions about who did what and when and why, it’s important to slow down and figure out the facts.

The question that will likely get the most focus is whether this behavior was the result of a directive. So far, there’s no evidence to support such a charge. Realistically, no matter who is President, there is very little direct oversight from the Oval Office over tax exempt organizations: it’s just not a priority for any administration. The majority of the targeted applications were submitted between 2010 and 2012 while President Obama was in office. That is not disputed. Who was at the head of the IRS during that term? Doug Shulman, an appointee of former President Bush. Do I think either of President Obama or former President Bush ordered Shulman to focus on tax exempts? Of course I don’t. In fact, I think the focus on the Oval Office is misplaced in terms of directives (reactions are another issue altogether).

There has also been a lot of discussion about whether this behavior was a violation of the right to free speech under the First Amendment. As Americans, we completely have the right to free speech. Agreed. But let’s take a peek at the text:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

Sure, you have the right to say what you want. Shout it from the mountaintops. Just don’t use the Tax Code to subsidize and/or justify it. While it is a free country and we do have the freedom of speech, the Tax Code has had, since 1954, prohibited tax-exempt organizations “from directly or indirectly participating in, or intervening in, any political campaign on behalf of [or opposing] any candidate for elective public office.” And that includes churches. And every other tax exempt organization. Crossing that line can result in the loss of tax-exempt status. It doesn’t matter if you’re conservative, center or liberal.

In fact, the 2008 election – a few years before this increased scrutiny – saw the IRS investigating a number of incidents of tax exempt organizations (largely churches) using their platforms to support or oppose candidates and issues. First Baptist Church of Buena Park Pastor Wiley Drake was investigated for formally endorsing Mike Huckabee for President on church letterhead – and later praying that those who objected to his endorsement would die. During that same race, Bill Keller of liveprayer.com was called out for advising his followers that a vote for Mitt Romney was a vote for Satan because, writing, “Romney winning the White House will lead millions of people into the Mormon cult…” And, who can forget Pastor James David Manning of Atlah World Ministries, made headlines for repeatedly calling then Senator Barack Obama a pimp before later referring to him as an “emissary of the devil”?

As I wrote that same year:

[W]hether you’re Pastor Manning speaking from the pulpit, Joe Paterno, Coach of Penn State University’s football team on the field or Gail J. McGovern, President and CEO of the American Red Cross speaking from the front lines of natural disasters, your speeches, articles and appearances will be subject to scrutiny (to be clear, the last two folks are merely examples of high profile leaders of tax exempt organizations and are not examples of folks who have said anything inappropriate with respect to the elections). Tax exempt organizations are aware of the rules that govern them – and most have guidelines in place to remind employees and representatives of the dangers of ignoring the rules against politicking. The ramifications, if such rules are broken, can be severe, including loss of tax-exempt status.

Anyone who was aware of what was going on in the tax exempt world after 2008 knew that these 501(c)(4) organizations (and, in fact, a number of 501(c)(3) organizations) were trying their darnedest to get around those rules.

I suggested that the move to expand the role of politics in tax exempt organizations would increase, thanks to the internet, with such organizations becoming “even bolder in their approach.” And that’s what happened.

That’s exactly why I’m not giving IRS a pass here. It could not have come as a surprise to IRS that applications for tax exempt organizations would heat up after the 2004 and 2008 elections. In fact, over the time period that’s now being questioned, those applications doubled. There should have been a strategy in place – and it’s clear now that didn’t happen.

Similarly, to pick and choose which organizations deserve a second glance based on key words is, to quote Lerner, “absolutely inappropriate.” But I don’t even think that was politically motivated per se. I think it’s lazy. And the worst kind of lazy. It’s like pulling over all of the red sports cars because you assume red cars tend to speed more rather than actually get the radar gun out. According to what we know so far, about 75 groups were selected for extra inquiry due to those key words; that constituted about 25% of all of the groups flagged for additional examination. None of those groups were ultimately denied status. That outcome suggests that while there was a link between politics and scrutiny, politics didn’t sway the final determination.

To be clear, I’m not saying that these arguments don’t have anything to do with politics. I think politics have played a huge part in all of this from start to finish. But I think you need to dig a little deeper and not make it a surface “us versus them” issue. That’s the easy way out.

If you look back to 2011, the IRS raised eyebrows when it announced that it would no longer pursue an investigation into certain donors to nonprofit groups for the purpose of political ads. Specifically, the IRS was investigating whether donors to certain tax-exempt organizations organized under – you guessed it – section 501(c)(4) of the Tax Code would be liable for gift tax on those donations. The IRS had taken the position for about thirty years that those transfers were subject to the federal gift tax but they had not made much noise about enforcing it. That’s not surprising since the IRS often has rules on the books that they don’t make an issue until something happens. So something must have happened in 2011 to make transfers to 501(c)(4) organizations an enforcement target. My non-cynical guess at the time was “that the sheer numbers – and dollars – of transfers have increased and that’s attracting attention.”

The more cynical answer circulating at the time was that it was politically motivated. Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, vowed to look into what happened, claiming that he was “troubled that the IRS did not explain why the investigations were started in the first place” and added that he will “continue my investigation until the complete story behind the actions of the IRS has been told.”

Sound familiar?

This week, Sen. Carl Levin (D-MI) seemed to take a page from that playbook by ordering “that the subcommittee should investigate that additional issue as well.” He also vowed to “continue to work… to ensure the integrity of our political process and of enforcement efforts.”

Right. It’s easy for Congress to sit back and complain about IRS’ bad behavior. And again, yes, I think they erred. And they lied about it which is even worse. And those are terrible, terrible acts. But Congress has happily given them plenty of rope.

The IRS has practically begged for clarity on the issue of 501(c)(4) organizations. With respect to the gift tax, for example, they publicly stated that “it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.” And Congress did not. They chose instead to look the other way, as they continue to do. Congress is one of the the biggest beneficiaries here (presidential candidates are a close second) since these organizations are how many election campaigns are supported, even if indirectly.

So mark my words: this round of screaming will end with no real reform. Not with respect to campaign finance. Not with respect to IRS. Not with respect to tax exempt organizations. There will be, instead, lots of hand slapping and finger waggling. The Republicans will crow and the Democrats will vow “to get to the bottom of this” – just like 2011 – and nothing will really happen.

I am not saying that means that we should look the other way. Someone at IRS knew this was happening. It’s clear that those at the top knew something (it has been reported that Shulman was alerted to the issue in 2012) and that it wasn’t the work of a handful of rogue operatives. It was a plan. And then IRS lied about it. And they should be held accountable.

But it still disturbs me that no one in Washington really seemed to care until the behavior went public. When Sen. Orrin Hatch (R-UT) now complains that he asked for answers three times last year because he had heard that there might be issues, it should give you pause. Why didn’t he push harder? Why didn’t anyone ask these kinds of questions publicly? Why wasn’t he – and the President – and every other Washington official that can now get themselves in front of a camera making the same kind of noise last year? Or in 2011?

I would suggest that we all really know the answer.

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Internal Revenue Service (Photo credit: functoruser)

A number of taxpayers will be taking next Friday off by choice. It is, after all, the day before the Memorial Day weekend begins – the perfect time to grab an extra day.

But what if you were forced to take the day off as an unpaid furlough day? That is the plan for the entire IRS workforce:  nearly 100,000 workers. On Friday, May 24, 2013, the IRS will shut down completely and taxpayers and practitioners will not have access to IRS resources. On those days, calls will not be answered, no returns will be processed or refunds issued and all IRS offices will be closed.

May 24 is the first of five scheduled furlough days for the IRS workforce. The move is the result of those automatic cuts to the budget due to sequestration. National Treasury Employees Union (NTEU) President Colleen M. Kelley has previously said, about the cuts, “[f]urloughing IRS employees is further evidence of the ongoing damage sequestration is causing across the country.”

The remaining scheduled furlough days are: June 14, July 5, July 22, and August 30. Each of the furlough days will result in a loss to IRS employees of between $160 to $400 in pay, depending on the employee’s position. For many, the round of cuts follows three years of pay freezes.

Last week, the NTEU held a rally New York’s Federal Plaza to protest the furloughs. In addition to IRS employees, Customs and Border Protection (CBP) employees were also in attendance to rally against the cuts. CBP employees are facing up to 14 unpaid furlough days.

According to Kelley, the CBP collects more government revenue than any agency other than the IRS. By the numbers, currently, the IRS brings in 93% of the revenue used to fund the federal government. Shutting down both the IRS and CBP offices means that revenue will not be collected on those days. The wisdom of sporadically shutting down the government’s main sources of revenue collections during an economic slowdown has been questioned but so far, the furloughs remain in place.

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I wondered for a brief moment, staring at the three of them in that odd mix of noise and quiet, how it was that we could all be so very different and yet, stand there in solidarity as if we were all cut from the same mold.

And the answer, of course, is my mother.

If you read the blog, you already know that my mom is pretty awesome. She has supported me for my whole life – even though I know that she didn’t understand me or my choices. She made me dresses with big crinoline skirts and watched as I played soccer in them. She let me be in pageants even though she realized I had no talent. She drove me to cheerleading tryouts for two years even though my only qualification for cheering was that I was loud (she, on the other hand, had been the captain of her squad). She let me go to residential high school when I was 14 even though I know she wanted me to stay home. She made every amazing birthday cake that I ever had as a kid – from scratch – and yet happily ate the cake I made for her with fish grease (by accident). When I went away to college, something that she didn’t get the chance to do, she made sure that I was settled and sent me care packages. And when I announced I was going to law school hundreds of miles away, she let me go, even though I know that it was super hard for her to imagine me in the “big City up north.” She smiled through the wedding (in a beer hall with a polka band) that I knew wasn’t the one she had dreamed of for me and she cringed when I gave my youngest child a family name (her exact words were “Good Lord, Kelly”). She cheered me on from 500 miles away for my first race (calming me down over the phone for my pre-race panic) and talked me through my bar exam jitters. I’ve called her from the floor of a club bathroom after being dumped; a train station in Cardiff after being robbed and a phone booth in Prague after missing my flight home (it’s a long story) – and even though my adventures were very different from her life, she would calmly remind me that I could get through whatever was happening.

My mom let me grow up believing that I could do anything. She has always been my spirit, that voice inside of my head telling me that I could do it – even if she really didn’t think so or really didn’t want me to do it. And I cannot imagine who I would be without her.

It’s been hard watching my mom get older. She has, in the past couple of years, suffered a stroke and had heart surgery. She’s landed in the ER more times than I care to think about.

And while she has always been the one to take care of me – moving in for nearly a month when I was in my car accident – it is not inconceivable that some day, I’ll be the one taking care of her.

More and more children are finding themselves in a similar circumstances. We are the “sandwich generation” – adults who find themselves in the similar situation of having young children to raise while at the same time, potentially taking care of aging parents.

On the tax side (you knew I’d work tax into this somehow), it’s usually pretty easy to figure whether you can claim the children that you support as your dependent. Generally, for U.S. tax purposes, a dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico (some exceptions apply for adopted children); have a valid tax ID number; and be either your qualifying child or your qualifying relative.

The rules for a qualifying child are pretty straightforward. A person is your qualifying child if that person meets all of these tests:

• Relationship. The dependent must be your child, stepchild, adopted child, foster child, brother or sister, or a descendant of one of these.
• Residence. The dependent must have the same residence as you for at least half of the tax year.
• Age. The dependent must be under age 19 at the end of the tax year; under age 24 and a full-time student for at least five months out of the year; or totally and permanently disabled.
• Support. The dependent must not have provided more than half of his or her own support during the tax year.
• Return. The dependent, if married, must not have filed a joint return with his or her spouse.

Of course, caveats and exceptions apply (for example, college students may still be considered dependents even if they live away from home). There are also exceptions for other temporary absences: children who were born or died during the year, children of divorced or separated parents or parents who live apart, and kidnapped children.

But what about your parents? If you take care of your parents, can you claim one or both of those on your taxes?

The answer is a resounding maybe. For tax purposes, you can claim an adult as a qualifying relative if certain criteria are met. Residency is not a requirement to claim a dependent for a parent: your parent doesn’t actually have to live with you since they are related to you (the test is residency or relationship). Other than that, you generally can’t claim an adult who files as independent or is already claimed as a dependent or files as married filing jointly. You have to pay at least half of the person’s expenses/support (note that this is slightly different than the test for your children) and the person must not have more than $3,700 in taxable income; Social Security benefits are excluded from that amount if they are not taxable.

Even if your parent isn’t actually your dependent, there may be other available deductions for tax purposes, depending on the circumstances. Check with your tax pro if you feel that you have expenses that might be deductible on your own tax return. You need to keep super good records, however, since even if it’s for your mom, the IRS still wants to see receipts and invoices (as one son learned recently).

Of course, I get that taking care of your mom isn’t really about the tax breaks – even if you can claim them. We do it because we love our moms – and because they took care of us for all of these years (my mom still takes care of me – she can now remind me to eat and sleep via text). At the end of the day, that is what is most important.

As for my mom? I talk a lot about how we are different but I suspect we are much more similar than I like to think. At least I hope we are. My mom did an amazing job raising a family, taking care of her own mom after a cancer diagnosis and being kind and generous to those she came in contact with. I hope that someday those that know me think that I really am like my mom – even if I never walk a mile in her gold lamé shoes.

Happy Mother’s Day to my mom. (And yes, that’s her picture at the top. Was she a total hottie or what?)

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Want more taxgirl goodness? Sign up to receive posts by email, follow me on twitter (@taxgirl), hang out with me on Facebook or check out my new YouTube channel. You can also buy my book in print at Amazon.com or as an ebook for the Kindle, the Nook from Barnes and Noble or through Hyperink.