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How Real Disclosure Laws Could Help Fix The IRS Problem

How Real Disclosure Laws Could Help Fix The IRS Problem

Written by Josh Israel

The Internal Revenue Service is under fire from both parties for improperly targeting certain groups for additional scrutiny because their names included keywords such as “Tea Party” and “patriot.” But the challenge of addressing the skyrocketing numbers of “social welfare” groups registering for tax exempt status could be lessened by fixing the broken disclosure laws for political advertisers.

Since the Supreme Court’s controversial 5 to 4 ruling in the Citizens United v. FEC case in 2010, the IRS has seen a more than 100 percent increase in the number of groups applying for 501(c)(4) status — the section of the federal tax code that governs non-profit groups dedicated to social welfare — from 1,500 in 2010 to 3,400 in 2012.

Not all 501(c)(4) engage in political activity of any kind — the United States Chess Federation, for example, is a fairly apolitical group. Political 501(c)(4) groups are required to adhere to certain rules, including that they not be “primarily engaged” in electioneering activity. In a failed attempt to sort out which groups were apolitical and which needed additional scrutiny, the IRS reportedly tried a variety of ineffective screening methods, including flagging “patriot” groups as well as groups that focused on making “America a better place to live.”

As long as it is not their primary purpose, Citizens United allows (c)(4) groups to spend unlimited funds on “independent expenditure” ads aimed at swaying voters and the deadlocked Federal Election Commission allows these groups to avoid any disclosure of who bankrolls these advertisements. And since the 2002 law governing political advertisements came before the ruling, it does not adequately address the specific issue of disclosure for independent expenditure ads.

Because of this loophole, groups seeking to influence elections through campaign ads groups and to avoid having to make their donors public have often registered as (c)(4)s, rather than as super PACs (tax-exempt groups which can also raise and spend unlimited amounts on “independent expenditures,” but must make public all large donors). After bankrolling super PACs in the 2012 elections, mega-donors including millionaire investor Foster Friess and billionaire casino mogul Sheldon Adelson have vowed to keep future political spending secret, by giving to opaque 501(c)(4) committees instead. And good government groups have demanded the IRS investigate whether (c)(4)s like Crossroads GPS, the Commission on Growth, Hope and Opportunity, and the American Future Fund are really just super PACs in disguise.

The guidelines for what is and is not an acceptable level of political activity for a (c)(4) has never been clear — a vague “primary purpose” test — and has been little enforced. With limited staff and resources, even before massive furloughs forced by the sequester, the IRS has proved ill-equipped to monitor which (c)(4)s are really (c)(4)s and which ones are pretenders.

Congressional Republicans have thus far blocked efforts to require disclosure of political ad spending by (c)(4) groups. The proposed DISCLOSE Act and the Follow the Money Act would help bring parity to the disclosure rules goverrning independent campaign ads, without impeding on the legitimate activity of (c)(4)s. But if groups like Crossroads GPS were required to disclose the major donors behind their $70 million-plus campaign ad spending, there would be little incentive for them to masquerade as social welfare groups.

If Congress simply treated all spending on independent campaign advertisements uniformly — allowing voters to know who was really speaking and to evaluate the speech accordingly — the IRS would not have to use these clearly imperfect tests to decide what is and isn’t a legitimate 501(c)(4).

Senate Majority Leader Harry Reid (D-NV) told reporters Tuesday that the IRS is not the agency best equipped to oversee political groups. “DISCLOSE would have taken the IRS out of the business of investigating these groups.” He noted that “not a single Republican voted for” the measure in the Senate, asking “where was the outrage from the Republicans then?” House Democratic Leader Nancy Pelosi made similar arguments Monday. Senate Minority Leader Mitch McConnell (R-KY) told reporters Tuesday that he continues to oppose the DISCLOSE Act, inaccurately claiming it was “designed to give the IRS even more power, directly, to silence the critics of this administration.”

This post was originally published by ThinkProgress.

 

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Photo: saturnism/flickr

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58 comments

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8:34AM PDT on May 28, 2013

It's hard to argue the IRS did nothing rong when they came out and openly admitted they did something wrong. That EXTRA scrutiny involved volumes of paperwork and questions that should have never been asked. ]

Of course ti was all to deter the conservative movement that arose prior to the 2010 mid-terms, to deter the spread of those groups and impact the election of 2012... to assist Obama getting re-elected. They didn't miss a single opportunity to suppress the opposition and promote their political views. Same with Benghazi, as it would LOOK bad if Al Qaedi really wasn't "on the run," as this administration was touting for weeks prior to the attack.

Obama's re-election meant everything to the Dems and they spared no tactic, right or wrong to get that accomplished. It's so obvious, only a blind or kool-aid drinking liberal would see it any other way!!! And the leftist media played right along with them, spreading misinformation, or mostly just ignoring it, hoping the "news" wouldn't spread into their base.

2:08PM PDT on May 27, 2013

Ellen you go course are wrong. Any and ALL 501c4's should be checked to make sure they are truly eligible for tax exempt status.

1:26PM PDT on May 25, 2013

For those of you saying these groups only had to do some extra paperwork and didn't get their applications rejected are living in some la-la land. Seriously ignorant of the facts. Perhaps you should utilize media outlets outside of the ThinkProgress and MediaMatters bubble because these comments are devoid of the truth. If you are getting your news from political activist organizations (i.e MSNBC) instead of legitimate journalists you should at least censor your comments to avoid the transparent parroting of the same-old left-wing talking points. If groups with "Social Justice," " Progressive," and "Pro-Choice" were targeted, you people would likely not be as enthusiastic about the IRS doing their "due diligence."

3:45PM PDT on May 17, 2013

What kills me about all this is that CONGRESS gave the IRS the JOB of scrutinizing pacs.
It doesn't WANT people getting Tax exempt status unless they fit the criteria completely.

1:46PM PDT on May 17, 2013

personally i think that all 501(c)(4) groups should be shut down as none of them do a damn thing except run their mouths about everybody else and make a$%holes out of themselves

7:31PM PDT on May 16, 2013

IRS Sent Same Letter to Democrats That Fed Tea Party Row

The IRS, under pressure after admitting it targeted anti-tax Tea Party groups for scrutiny in recent years, also had its eye on at least three Democratic-leaning organizations seeking nonprofit status.

One of those groups, Emerge America, saw its tax-exempt status denied, forcing it to disclose its donors and pay some taxes. None of the Republican groups have said their applications were rejected.

Progress Texas, another of the organizations, faced the same lines of questioning as the Tea Party groups from the same IRS office that issued letters to the Republican-friendly applicants. A third group, Clean Elections Texas, which supports public funding of campaigns, also received IRS inquiries.

In a statement late yesterday, the tax agency said it had pooled together the politically active nonpartisan applicants -- including a “minority” that were identified because of their names. “It is also important to understand that the group of centralized cases included organizations of all political views,” the IRS said in its statement.

http://www.bloomberg.com/news/2013-05-15/irs-sent-same-letter-to-democrats-that-fed-tea-party-row.html

7:17PM PDT on May 16, 2013

Hmmmmmm not sure how bettered got in there…….it should be neutered.

6:48PM PDT on May 16, 2013

I WILL go on record saying the IRS did do something wrong. BUT the part the right is screaming about is NOT that thing. They are screaming because they were scrutinized at ALL, which is likely why we see such an outcry now. They want THE law the IRS uses to be bettered so they can do whatever they wish with no restriction. The law has, for many years, den implelemted WRONG. Someone illegally tried to soften the intent of the law that held everyone to a particular standard. There has been talk, out of the limelight, of foxing that. I suspect THAT is what the Right is actually MORE upset about..

The IRS did do some things wrong and it will be made public soon I am sure. But the teeth gnashing and hand wringing we are publicly seeing has NOTHING to do with that. It will be fun to watch how this all shakes down. But so far the right has been horribly disingenuous about the public presentation of "the scandal".

4:25PM PDT on May 16, 2013

BSGOPSOB

3:29PM PDT on May 16, 2013

@ Robert H:

They weren't actually even investigated. They were just "subjected to closer scrutiny" and a little extra review of their paperwork before they were granted tax-exempt status.

And let's face it, folks: nobody with the words "Tea Party" or "Patriots" in their name has ever actually merited 501(c)(4) status, because they really are all entirely political, with virtually zero social welfare concern attached. It's the nature of the beast. Political attack ads do not count as "community education."

Yes, everybody should be reviewed equally and without political bias, but when the political bias comes in with the paperwork, pre-installed and waving its little "vote reality out" sign, there's just the tiniest chance it's calling attention to itself. If we were looking for dogs that bite, we wouldn't look as closely at that which appeared to be a cat.

The IRS claimed to have 70 investigations going as of last fall into unnamed 501(c)(4)s to determine if they were actually social welfare organizations and deserving of tax exempt status, but those investigations have nothing to do with this right wing "you dare not see me for what I am" pout fest.

If the groups being subjected to extra scrutiny had been liberal-leaning, these right wing pouters would have cheered and applauded the wonderful extra effort those dedicated IRS employees were putting into the job. It all depends on whose ox is being gored.

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