Texas Nonprofit Is Cleared After GOP-Prompted Audit

Group Says Probe Was 'Political Retaliation' by DeLay Allies

The Internal Revenue Service recently audited the books of a Texas nonprofit group that was critical of campaign spending by former House majority leader Tom DeLay (R-Tex.) after receiving a request for the audit from one of DeLay's political allies in the House.
The lawmaker, House Ways and Means Committee member Sam Johnson (R-Tex.), was in turn responding to a complaint about the group, Texans for Public Justice, from Barnaby W. Zall, a Washington lawyer close to DeLay and his fundraising apparatus, according to IRS documents.

Johnson, a member of the subcommittee responsible for oversight of the tax agency, sparked the IRS's interest by telling IRS Commissioner Mark W. Everson in a letter dated Aug. 3, 2004, that he had "uncovered some disturbing information" and received complaints of possible tax violations.
Johnson said he was sure the IRS would follow up. "I ask you to report back your findings of each of these investigations directly to me," he told Everson in the letter, according to a copy obtained by The Washington Post.
The IRS sent two auditors last year to comb the 2003 books of Texans for Public Justice and an affiliated foundation that collected donations for the organization. No tax violations were found, according to a letter the IRS sent the group.
But the circumstances behind the effort -- which were uncovered by the group's director and founder, Craig L. McDonald, using the Freedom of Information Act -- prompted him to allege that the audit was an abuse of the IRS's mandate. He said there was no evidence of wrongdoing in the complaints.
"This audit was political retaliation by Tom DeLay's cronies to intimidate us for blowing the whistle on DeLay's abuses," McDonald said. "Enlisting the IRS to intimidate critics is a dirty trick reminiscent of Richard Nixon. . . . It is not a crime to report a crime, as we did with DeLay."
IRS spokesman Terry Lemons said that federal law barred him from providing a detailed response. But he said, "The IRS makes its audit decisions based on the law. Political considerations do not play a role. We are an agency of career civil servants," excluding Everson and the IRS chief counsel.
Steven T. Miller, the senior IRS official in charge of tax-exempt organizations, said that though he could not address how Johnson's request was handled, referrals related to improper political activity generally must be judged reasonable by two career employees before an audit can proceed.
Texans for Public Justice, based in Austin, has been a thorn in the side of the state's politicians since its founding in 1997. It bills itself as "a non-partisan, non-profit policy and research organization which tracks the influence of money and corporate power in Texas politics." According to McDonald and the group's tax returns, about 45 percent of its $310,000 budget in 2003 came from individual donors. The rest came from an affiliated, tax-exempt group the IRS also audited, the Public Justice Foundation of Texas.
The group regularly publishes detailed reports on campaign spending and corporate lobbying. It is perhaps best known for its March 2003 allegation of illegal spending by corporations during DeLay's successful 2002 campaign for a Republican takeover of the Texas legislature -- claims that culminated last year in the indictment of DeLay and two campaign aides for money laundering and conspiracy to hide corporate donations.
The events leading to the IRS probe are laid out in documents the agency released to McDonald in response to his request for all records related to allegations of wrongdoing by the foundation. It began when Zall wrote a July 19, 2004, letter to Johnson complaining about the Texas nonprofit group and noting that the lawmaker had "jurisdiction to review the Internal Revenue Service's supervision of tax-exempt organizations," according to a copy.


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