IRS "Scandal": A Tempest in a Tea Party

The IRS "scandal" involving its investigation of organizations with "Tea Party" or "Patriot" in their names demonstrates yet again that a little knowledge can be a dangerous thing.  What on first hearing sounds like an abuse of power is actually the IRS's awkward attempt to comply with the law.

Section 501(c) of the Internal Revenue Code identifies a series of organizations entitled to exemption from Federal taxation (a form of government subsidy).  The IRS is responsible for awarding 501(c) designations and for making sure they're not being misused.

Section 501(c)(4) provides the exemption to "social welfare" organizations, which are prohibited from supporting candidates but are allowed to advocate policy positions.  The social-welfare designation has been used by many obviously partisan organizations to whitewash their campaign activities while concealing the names of their donors.  This has been extensively documented; and while there are certainly abuses on both sides of the aisle, it's clear that the social-welfare dodge has been of particular value to Republicans.

Given that fact, and given the statutory requirement that the IRS confirm that  social welfare organizations are indeed what they purport to be, it makes sense that the Service would begin its process by searching for key words associated with Republican crypto-campaigns, including "Tea Party" and "Patriot."  That this turned out to miss the biggest offenders in the make-believe social welfare category is a matter of bad luck, or at worst a statement about the ham-handedness of the IRS Division of Exempt Organizations.

But it's unreasonable to yell and scream and jump up and down about the IRS's doing what the Congress told it to do, which is to make sure that tax-exempt status is used only by qualifying organizations.  And if the IRS is doing a rotten job at this, the Congress has two options: relieve it of the responsibility for ascertaining what's really going on behind that social-welfare blind and hand the burdensome task over to the Federal Election Commission; or fund the IRS at a level commensurate with the huge and varied activities for which it's responsible. Starving the IRS has been a favorite back-door method for starving the government til it's small enough to drown in a bathtub--particularly convenient when the government-starvation idea is so firmly rejected by the democratic process.

Of course elected officials have to pretend to be shocked, shocked that the IRS is doing its job when its job (as in this case) involved afflicting the comfortable; but the rest of us should be clear about what's going on here.

The scandal is not that the IRS tried to investigate whether certain groups were actually social welfare agencies within the meaning of the statute.   The scandal is that the Supreme Court's Citizens United decision turned social welfare agencies into campaign slush funds, making it easy for corporations and wealthy individuals to buy elections.

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  • Unfortunately, though, if IRS agents targeted certain applicants because of their political beliefs, that is a clear violation of the First Amendment, especially if, as reported, the agents bombarded them with applications with requirements not relevant to the exemption.

    The First Amendment bars targeting groups for their political beliefs, as clearly held with respect to the NAACP. Just because you don't like the group does not trivialize the violations.

    The President, who is a Senior Lecturer in Constitutional Law, said that the the Internal Revenue Service's targeting of Tea Party groups "intolerable and inexcusable." Where did you get your legal training?

  • In reply to jack:

    I got my legal training at the same place the President taught; that doesn't require me to agree with him about everything. And, as I said in the posting, I understand why politicians have to pretend to be shocked by this activity, and particularly why the President feels it necessary to nip this latest artificial scandal in the bud. But I'm not a politician, and therefore am not obliged to pretend to be horrified.

    The First Amendment actually isn't implicated here: it doesn't obliged the government to subsidize speech but simply not to suppress it. What we're talking about is whether organizations qualify for a tax exemption, and it's perfectly appropriate for the IRS to ask for information relevant to that determination, like whether these so-called social welfare organizations were actually conducting or aiding political campaigns.

  • In reply to Nonprofiteer:

    I guess you don't buy the Supreme Court theory that money is speech, and hence that the IRS agents' objective was to stifle the speech of a certain political viewpoint, if not by making it more costly, by intimidating the potential speakers by sending questionnaires with irrelevant questions.

    I suppose that whatever nonprofit you support would also have its objective stymied if it didn't get a tax exemption. They certainly couldn't pay you for your consulting services.

    Thus, besides the First Amendment being implicated in the manner I described above, the First and Fifth are implicated if government agents were discriminating against people based solely on their political expression.

  • In reply to jack:

    Jack: No, I don't believe that money is speech (nor that corporations are people). And it's clear that asking questions about tax returns is the IRS's job: if the Service audits me and requires me to prove that my writing is a profession and not a mere hobby that doesn't magically turn its job into a suppression of speech.

    Yes, charities require the subsidy embodied in tax exemptions to exist--if they didn't, what would be the point of the exemption to begin with? All the more reason they should be prepared to demonstrate that they are charities, or philanthropies, or genuine social welfare organizations, and not political action committees. I give to plenty of non-tax-deductible PACs; I don't expect the government to subsidize my decision to do so.

    Government agents were not "discriminating against people based solely on their political expression;" they were investigating whether political activities were taking place in the guise of charity, which the statute prohibits.

  • You are right: a little knowledge is a dangerous thing, and you are fostering the ignorant notion of "business as usual" at the IRS, when clearly the demands placed on some of these organizations go far beyond what is asked for in a 501 (c). In the past I have applied for and been involved in one that focused on education, so you are simply shilling for an administration that you support.

    If these same tactics were used by an administration that you disagreed with politically, you would be howling for a special prosecutor.

    How about a little intellectual honesty?

  • In reply to Richard Davis:

    My knowledge of the nonprofit sector, and Section 501(c), is actually quite extensive: for the past 25+ years I've made my living as a consultant to nonprofits, and I was trained as a lawyer. I believe there's a difference between targeting political opponents and asking political groups to demonstrate that they're entitled to tax exemption (which mostly they're not). You're privileged to disagree, of course, but I don't think my intellectual honesty is actually in question.

  • In reply to Nonprofiteer:

    Your reply would carry more validity if the same standard were held for all organizations on both sides of the political spectrum, but you and I and the Obama administration know that this is not the case.

    It is okay to defend your political position, but trying to cloak these abuses as a minor dust up and following procedure is just not intellectually honest.

  • Honestly, do you have to approve comments? This practice is so discouraging for an ongoing discussion; in addition, it tends to discourage people from visiting your blog and kills your traffic stats. My blog is wide open for comments, and I remove only spam. Thanks. Rich

  • In reply to Richard Davis:

    I approve virtually every comment, and do so promptly. I keep the approval mechanism to enable me to protect myself from people calling me a c**t, a problem not faced by male bloggers but one faced by every woman who blogs about anything more controversial than Bringing Up Baby.

  • fb_avatar

    So you are OK with "Organizing for America" getting 403(c) status without much of an issue, despite the group being a re-naming of the "Committee to Re-elect President Obama" but a group with the word "Patriot" in it should be subject to illegal demands,and see private information released? Sorry, the IRS should be subject to providing equal protection under the law, and in this case, failed miserably. And on top of it, lied to Congress about the extent and knowledge of the practices.

  • In reply to Wayne Driscoll:

    No, actually, I'm NOT okay with OFA's being termed a social welfare organization either, sauce for the goose (Reps.) being sauce for the gander (Dems.). And of course you're right that the IRS must provide equal scrutiny to groups on both sides of the aisle. All I'm pointing out is how searching "Tea Party" and "Patriot" might have seemed a reasonable way for the IRS to begin to discharge its obligation to make sure the tax exemption isn't being used improperly. And when Lois Lerner, the unimpeachably fair and nonpartisan head of the Section on Exempt Organizations, learned of the practice she instructed her staff to broaden the search appropriately.

  • fb_avatar
    In reply to Nonprofiteer:

    " All I'm pointing out is how searching "Tea Party" and "Patriot" might have seemed a reasonable way for the IRS to begin to discharge its obligation." So profiling is acceptable when the targets might be conservatives? Ok, now I understand.

  • In reply to Wayne Driscoll:

    No, "occupy" and "progressive" would be reasonable search terms as well. And there's nothing the matter with non-racial profiling--it's how we distinguish the signal from the noise in most aspects of life.

  • After Hurricane Katrina hit, thousands of scam charities took that name and swooped in to lure gullible donors.

    For any that applied for charitable status, I'd expect the IRS to give them extra scrutiny due to the name they took. Not because I'm against disaster relief agencies, but because there is a higher likelihood of fraud among groups that have the word "Katrina" in their name.

    Similarly, given the number of bogus charities with "veterans" or "autism" in their name (the ones that pay their fundraisers 90 cents of every dollar raised), the IRS sure better be giving these groups extra scrutiny. I would never imagine this means the agency is bigoted against vets and people with autism.

    Throughout the vast charitable sector, key words in an organization's name are both a tool for scammers and a red flag for those charged with enforcement.

    So giving extra scrutiny to groups with a political word or phrase in their name, like "occupy" or "tea party" is just good screening and it is already happening in the above ways, thank goodness. The fuss around this nothing more than a political tactic; chum in the water for people who like to feel aggrieved.

  • In reply to ShawneeSue:

    Shawnee Sue, Well put!

  • Several points that get lost in the discussion.

    First, all organizations filing for a 501(c)(4) determination letter file a Form 1024 which is always reviewed. This distinguishes this case from an audit which takes place on about 2% or less of all returns.

    Second, while the criteria are not publicly disclosed by the Service, all practitioners know that certain activities (e.g, claiming a home office expense) may create a greater possibility of an audit. Why shouldn't reviewers of 501(c)(4) applications create similar "flags" that would indicate possible political activities.

    Third, and this gets lost completely, unlike a 501(c)(3), where a determination letter is mandatory, an organization can fall within the ambit of 501(c)(4) without a determination letter. Why then were there so many 501(c)(4) applications in the wake of Citizens United? Well, if one gets a determination letter, it will operate as a sort of heksher certifying that the organization is not a Section 527 organization. This is of immense benefit since since Section 527 organizations must publicly disclose their donors, but 501(c)(4)'s do not have to do so.

    Let's make this easy:

    1. All 501(c)(4)'s have to publicly disclose their donors and provide a public disclosure of all expenses they incur.

    2. No 501(c)(4) can expend for political activity any amount in excess of some specific threshold, say 10% of all expenses incurred.

    Problem solved.

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    The Nonprofiteer is Kelly Kleiman, principal of NFP Consulting, which provides Board development, strategic planning and fund-raising services to charities and philanthropies. Through her consulting practice and in her guise as The Nonprofiteer, Kelly has spent the past 25-plus years helping small and mid-sized nonprofits organize themselves better and raise more money. These days she focuses especially on helping them use high-skill volunteers. Kelly is also a lawyer and freelance journalist whose reportage and essays have appeared in the New York Times, Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; in the alternative press; on websites including the Huffington Post; and on the radio, including the BBC and WBEZ Chicago Public Radio. She and her fellow "Dueling Critic" Jonathan Abarbanel present a weekly podcast of their reviews of Chicago theater at Earlier in her career she was dean of admissions of IIT Chicago-Kent College of Law and Executive Director of the Chicago Children’s Choir, and practiced real estate and zoning law with the firm of Rudnick &amp; Wolfe. Kelly holds undergraduate and law degrees from the University of Chicago. She was a founding Board member of the Association of Consultants to Nonprofits and also served for 5 years on the Board of the Association for Women Journalists–Chicago. She can be reached ("Dear Nonprofiteer . . .") at

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