Thread: The IRS Was Wrong — But Many Political Groups Should Not Be Tax-Exempt

The IRS Was Wrong — But Many Political Groups Should Not Be Tax-Exempt

By Howard GleckmanMay 14, 20137
Let’s start with the obvious. Those IRS employees who singled out conservative groups for scrutiny over their tax-exempt status were wrong, wrong, wrong. Any whiff of politics at the agency is unacceptable, and this is far more than a whiff. In time, we shall see how far up the agency food chain the scandal goes.
But this unsavory episode should also shine a light on the law that gives tax-exempt status to political groups of all ideological stripes, often described by the code section that grants their exemption—501(c)(4)s. That is especially true since one outcome of this scandal will be to give these partisan groups even more freedom to operate outside of at least the spirit of the law.
The only way to stop the proliferation what are often-secret campaign money laundries is for Congress to change the law that grants these groups this form of tax-exempt status.
(JOE KLEIN: The IRS Mess—and the GOP’s Campaign to Paralyze Washington)
As I wrote in a blog post back in 2010, the tax law is relatively clear about what a (c)(4) can and cannot do. The IRS defines these groups as “civic leagues, social welfare organizations, and local associations of employees.” Their net earnings are supposed to be used for charitable, educational, or recreational purposes. They may lobby and participate in political activities but their primary purpose must not be campaigning.
Thanks to smart lawyers who have exploited an outdated law, the tax-exempt status of many groups may be perfectly legal. But others simply do not pass the smell test. Does anybody really claim the primary activity of these organizations is anything other than getting their favorite candidates elected to political office, or defeating those they disagree with?
If you have doubts, here is what one group, teaparty.org, says about itself on its website:

We are going to build on the foundation of success we used to elect more governors, grab more seats in the House of Representatives and force the Washington establishment to respect the demands of “We The People.”

In contrast to public charities organized as 501(c)(3)s, contributions to (c)(4)s are not tax-deductible. So why would they want (c)(4) status? One reason: It allows them to hide the names of their donors.
In the past, these groups would have claimed tax-exempt status as Sec. 527 organizations. There are no contribution limits, no restrictions on who may give, and no limits on how they spend their money (except they cannot advocate for a specific candidate). But 527s must disclose the names of the fat cats who use them to finance political campaigns. And groups that thrive on political dark money will do almost anything to avoid transparency. So they walked through the (c)(4) door opened by the Supreme Court’s 2010 Citizens United decision.
(MORE: Obama: Targeting by IRS is ‘Outrageous’)
Because the law is so ambiguous and because IRS scrutiny of these groups is so fraught with political landmines (as the recent unpleasantness proves), the IRS had been reluctant to review this issue all. Now it seems, the agency took a much-needed hard look at some groups, but did so in a clumsy and seemingly partisan way.
Regrettably, by apparently focusing only on conservative (c)(4)s, the IRS has only succeeded in making all these groups—on the political right and the left– even more immune from investigation.
The solution, then, is for Congress to change the law. Many of these groups are not social welfare organizations by any reasonable standard. They clearly exist for political purposes. Many are unabashedly partisan—supporting only Democrats or only Republicans.
Last month, Sen. Tom Coburn (R-OK) introduced a bill to eliminate the tax-exempt status of professional sports leagues, such as the NFL (yes, Virginia, the NFL is tax-exempt). That’s an excellent idea, but maybe he ought to expand it to include practitioners of America’s other favorite sport—politics.
Howard Gleckman is Resident Fellow at the Urban-Brookings Tax Policy Center and editor of its fiscal policy blog TaxVox, where this article previously appeared


http://business.time.com/2013/05/14/...#ixzz2TJil5Wky

The IRS should do more, not less, scrutinizing of political groups

Since Citizens United, the super rich are using nonprofits to shield their political spending. They need more oversight

• Arn Pearson
• guardian.co.uk, Tuesday 14 May 2013 16.00 EDT

A Tea Party supporter campaigns against the US debt-limit raise. Photograph: Jonathan Ernst / Reuters/REUTERS

The recent IRS admissions about the use of "tea party" or "patriot" labels to flag applications for nonprofit status for additional scrutiny raise serious questions about political bias, and should receive a thorough and independent investigation.
There is rightly a growing call for House and Senate hearings to answer those questions, but any investigations must delve deeper into the bigger problem facing our democracy after the Supreme Court's decision in Citizen United: the dramatic surge in the misuse of nonprofits to hide political spending by billionaires and corporations from American voters, and the lack of any meaningful enforcement response.
Although the IRS must enforce the law impartially, the agency should not abrogate its responsibility to enforce it in the first place. While Common Cause strongly supports an investigation, we are concerned that partisans on both sides will use this tempest to cow the IRS and forestall enforcement of the tax code.

Reported political spending by 501(c)4s – the kind of non-profit groups at the focus of this controversy – surged to $254m in 2012, almost matching spending by political parties ($255m), according to the Center for Responsive Politics, thanks in large part to the Supreme Court's decision in Citizens United. The vast majority of that spending – 85% – came from conservative organizations, led by Karl Rove's Crossroads GPS group and Americans for Prosperity, backed by the Koch brothers. Given this disproportionate spending on behalf of conservative candidates at this point in history, most of the groups flagged will logically be conservative organizations, even using impartial criteria.
It is patently obvious to American voters that many of these groups, on the left and right, have been formed in order to hide political spending by mega donors who want to influence the outcome of elections while keeping their identities secret.
There is also no getting around the fact that the IRS search criteria at the heart of the current controversy were developed at a time when billionaire political players, led by the Koch brothers and Rupert Murdoch, were bankrolling Tea Party groups. In 2010, there were 129 candidates for Congress and nine Senate candidates running for office under the Tea Party label. The primary focus for many of those groups was taking out members of Congress who voted for the Affordable Care Act, and they played a major role in flipping the US House to Republican control in 2010. Some of the groups evaporated soon after the elections were over.
Targeting groups that have applied for tax-exempt status for additional scrutiny because they appear to have an electoral motive is proper – as long as the same criteria is applied to all regardless of political viewpoints. At a time of unprecedented use of nonprofit organizations to funnel money for use in political campaigns, we need more enforcement to prevent evasion of campaign, disclosure and tax laws, not less.
Common Cause filed a complaint in March 2012 to the IRS about one of those organizations in 2012 – Liberty Central – founded by Justice Thomas' wife Ginni Thomas while he was still deliberating on Citizens United. Based on our research, the primary purpose of that group was to elect Tea Party candidates for Congress in 2010 and defeat congressmen who had voted for the Affordable Care Act. Ms Thomas spent much of her time flying to Tea Party events and rallies, expressly called for the election of certain candidates, and featured a candidate scorecard on her website. Ms Thomas left the group shortly after the elections, and its activity evaporated.
Common Cause challenge to Liberty Central's tax status produced no visible action by the IRS, nor did similar complaints from the Campaign Legal Center and Democracy 21 against other groups on both sides of the political spectrum.
The current IRS controversy does not excuse sham political organizations masquerading as social welfare organizations, and shines a light on the critical need for campaign spending disclosure legislation. The increased pressure on the IRS is a direct result of the abysmal failure of Congress and the Federal Election Commission to enact or adopt common sense disclosure rules, despite the Supreme Court majority's assurance that disclosure would allow voters (and shareholders) to make informed decisions.
The crisis is also a product of the fuzzy "primary purpose" test, based on facts and circumstances, that the IRS has long used to determine if a c4 group is violating its nonprofit social welfare status. Vague standards don't work in the world of campaign finance and, given the increased politicization of nonprofits, they are ill suited to the world of tax law as well. It is time for Congress to adopt a bright-line test for deciding when political activity by nonprofits requires a group to form a "527" political organization and disclose its donors.
Instead of moving the ball forward, partisans will try to use the current controversy to intimidate the IRS from ever enforcing nonprofit tax laws when, in fact, the larger problem here is already inadequate enforcement. The IRS backed off enforcement of the gift tax on large contributions to c4s in 2011 after a political backlash. Will the same thing happen here with enforcement of c4 limits on political activity?
It will take a concerted effort by reform advocates and the media for the "Tea Party" controversy to move the country forward instead of backward.
　
　
http://www.guardian.co.uk/commentisfree/2013/may/14/irs-target-political-groups-citizens-united