A former deputy to Lois Lerner — who oversaw the IRS division accused of targeting conservative groups during the Obama years — was placed on leave after lawmakers raised alarms that a new sub-department she was leading was becoming politicized.
In 2013, Lerner was hauled before Congress, where it was revealed her agency had wrongfully scrutinized tax-exempt applications related to the phrases ‘Tea Party,’ ‘9/12’ and ‘Constitution.’ The Treasury’s inspector general later confirmed ‘inappropriate criteria’ was used to target conservative groups and criticized ineffective oversight of systemic bias.
IRS Commissioner of Large Business and International Division Holly Paz – Lerner’s then-deputy – was placed on leave last week as lawmakers drew attention to a subordinate work-unit aimed at auditing pass-through businesses that Biden-era Commissioner Danny Werfel had created and assigned her to lead.
Werfel called the new work-unit a big step in ‘ensur[ing] the IRS holds the nation’s wealthiest filers accountable,’ and Paz called it an ‘important change’ in the IRS structure.
However, by 2025, lawmakers, including Sen. Marsha Blackburn, R-Tenn., warned that the pass-thru-business compliance unit had transformed to be ‘motivated by ideology rather than principles of sound tax administration.’
‘Pass-through entities form the bulk of Main Street businesses across the country. This includes countless family businesses, professional services firms, and real estate ventures that serve as the backbone of our local economies,’ Blackburn and Senate Majority Whip John Barrasso, R-Wyo., wrote to the Treasury in May.
Around that time, Sen. Joni Ernst, R-Iowa., warned Treasury Secretary Scott Bessent that Paz’s team ‘has made tongue-in-cheek political comments,’ including their stated wish to ‘make basis great again’ – a phrase regarding taxation loss/gain that hearkens to President Donald Trump’s MAGA slogan.
In that regard, Rep. Lloyd Smucker, R-Pa., wrote to IRS Commissioner Billy Long in July that a Biden-era ‘basis-shifting transaction rule’ had ‘extended the scope’ of enforcement.
‘American taxpayers and businesses deserve clear and consistent tax rules that allow them to confidently comply with the law,’ Smucker wrote, adding he and Rep. Mike Kelly, R-Pa., are seeking to have that rule ‘reconsidered’ for the sake of unburdening ‘Main Street’ businesses.
Chuck Flint, a former top aide to Blackburn and president of the Alliance for IRS Accountability, told Fox News Digital on Tuesday that Paz’s past targeting of conservative groups makes her ‘unfit for government service.’
Flint said her statements to Congress and role as LB&I chief ‘places a cloud over the IRS.’
‘Paz’s Biden-era pass-through unit is now bludgeoning conservative businesses with fines and must be disbanded. Commissioner Long is flexing his muscles on the IRS Deep State and sending a signal to rogue bureaucrats by placing Paz on leave.’
Blackburn warned in her letter to Bessent that an IRS news release referencing targeting ‘complex arrangements’ lacked clear definitions and created the impression that legitimate business structures could be unfairly targeted based on legal structure versus actual tax compliance risk.
‘Even more concerning, the announcement explicitly states that the bureaucratic changes were designed primarily to ‘achieve its goal of increased audit rates in this complex area’.’
‘This focus on increasing audits rather than improving compliance suggests an agenda-driven approach to enforcement,’ Blackburn said.
In her letter, Ernst warned Bessent that Paz’s team members ‘have also undermined their appearance of impartiality by comparing legally acceptable transactions to obscene material, saying, ‘It’s one of those ‘You know it when you see it’ – a joking reference to [Supreme Court Justice Potter Stewart’s] attempt to define pornography.
‘This team is reportedly acting independently and duplicating existing IRS processes, wasting taxpayer money, and not coordinating with the pre-existing offices,’ Ernst said.
‘Most concerning of all, the new pass-through auditors even use a new template for requesting taxpayer information they’ve deemed ‘The Art of the IDR,’ (versus ‘The Art of the Deal’) which treats taxpayers as guilty until proven innocent.’
‘Unfortunately, the Biden administration picked up right where Ms. Lerner and her team left off. On September 20, 2023, then-Commissioner Daniel Werfel announced, with language that resembled Democrat talking points, the creation of a duplicative new work unit [led by Paz] to specifically audit pass-through businesses and partnerships. The new office subjects these businesses to potentially two separate IRS examinations in the same year.
‘One would think Commissioner Werfel would go to great lengths to avoid hearkening back to previous scandals. Instead, he thumbed his nose at taxpayers by placing Lois Lerner’s deputy— Holly Paz—at the helm,’ Ernst wrote.
Lerner was front-and-center during the Obama-era scandal, testifying before Congress as head of the tax-exempt organizations division, as a deluge of reports of targeting right-leaning nonprofits abounded.
During the 2013 investigation by the House Oversight Committee, Reps. Jim Jordan, R-Ohio, and Darrell Issa, R-Calif., demanded Paz answer for ‘inconsistencies’ from a transcribed interview with committee staff involving statements about ‘intervention’ against Tea Party groups.
A 2015 report by then-Senate Finance Committee leaders Orrin Hatch, R-Utah, and Ronald Wyden, D-Ore., found that in other cases, some liberal terminology was also flagged, including ‘ACORN,’ ‘progressive’ and ‘medical marijuana.’
‘While handled poorly, groups on both sides of the political spectrum were treated the same in their efforts to secure tax-exempt status,’ Wyden said at the time, while then-Rep. Kevin Brady, R-Texas, said Democrats should be equally outraged as Republicans.
Fox News Digital reached out to Treasury, the IRS and an email connected to Paz for comment.