The IRS should review all 501(c)(4) organizations

“The IRS should be treating all these groups equally and appropriately — which would mean much more harshly. Instead, the IRS has permitted 501(c)4s to grow into something monstrous. And if they cower in the aftermath of this embarrassment, it might make matters even worse.”    ~ Ezra Klein in The Washington Post.

The IRS has recently come under intense criticism for its scrutiny of conservative 501(c)(4) organizations over the past three years. Media reported last Friday that in Cincinnati the IRS has been targeting tax-exempt groups with “Tea Party,” “patriot,” and “9/12” in their names as well as those “critical of the government.” I have written about 501(c)(4) organizations previously. These tax-exempt social welfare organizations are forbidden to promote political candidates or actively campaign. In addition, operating under the 501(c)(4) designation allows them to raise money without requiring them to release their donors’ names.

Since 2010, the number of social welfare organizations has more than doubled, from 1500 to 3400 in 2012. Conservative groups are responsible for most of this proliferation. The increase is no accident. The January 2010 Supreme Court ruling in favor of Citizens United unleashed a tsunami of political fundraising and spending, as Super PACs and 501(c)(4)s organized. It is worth noting that nonprofits outspent Super PACs in the 2010 midterm election cycle. In 2012, conservative groups outspent liberal ones by $451.9 million.*

In light of the increased number of 501(c)(4)s and given the above spending totals, one can understand why they might have been on the IRS’ radar. Still, targeting specific groups reeks of partisanship and politics and degrades trust in government. The IRS is supposed to be a nonpartisan, apolitical agency. Sadly, this debacle provides congressional Republicans another excuse to hold hearings—rightly so in this case—as opposed to legislating.

300 social welfare groups were reviewed and 25% singled out using keywords, but none of these groups’ tax-exempt status was revoked. Opensecrets.org provides a chart for 2012, revealing that “none of the top ten biggest spending politically active nonprofits would’ve been identified by IRS keywords targeting Tea Party groups. The eleventh biggest — Patriot Majority — would have, but it is a liberal group with close union affiliations.” Peruse the 2012 data for yourself here.

Talk show radio host Michael Smerconish tweeted yesterday:

Just imagine if IRS provided NO scrutiny of any group with Tea Party or 9/12 in title, and just conferred tax exempt status? =ly problematic.”

Yes, that would be problematic. Anyone who has been paying attention suspects that many 501(c)(4)s crossed, or are very close to crossing, the line of social awareness into electioneering. Furthermore, keeping donor lists secret sparks suspicion that these groups may be operating outside the rules their tax-exempt status dictates.

Watch-dog groups have been advocating that the IRS more closely scrutinize 501(c)(4)s, particularly the larger ones and those that were established/run by former political operatives and former elected officials. Karl Rove, Dick Armey, and Jim Messina all head up, or headed up, social welfare organizations: Crossroads GPS, FreedomWorks (Armey severed ties in November 2012), and Organizing for Action, respectively.

The current rules for these organizations are vague. The IRS’s major mistake was failure to establish clearer guidelines for reviewing tax-exemption applications once the rapid proliferation of 501(c)(4)s began. If social welfare groups want to focus on political activity, they must relinquish their tax-exempt status, or auditors must reject it. Moreover, if these groups go beyond educating the public about  issues or lobbying legislators and inject their influence into elections, we the people have the right to know who is funding them.

There will be congressional hearings to uncover the full story. Guidelines for reviewing tax-exemption applications must be more clearly stated. Americans need reassurance that government oversight is applied equally. Ezra Klein and Kevin Drum make excellent arguments here and here as to why scrutiny should be increased for all social welfare groups. Klein also warns that this incident, and the associated attacks against the IRS and its employees, could result in IRS auditors becoming more hesitant to perform their oversight jobs. In this age of secret money groups, that would be a shame.

* The total includes political spending from all groups, irrespective of tax designation.

Listen to the NPR report this morning on Morning Edition.

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6 thoughts on “The IRS should review all 501(c)(4) organizations

  1. Pingback: The Running of the Bulls. . .hit | A Voice From the Foothills

  2. Finally! An instance where Conservatives are against profiling! Perhaps this will start a trend. One can only hope.

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