You undoubtedly recall the flap this spring over the alleged bias by the IRS in reviewing tea party-styled applicants for 501(c)(4) tax exempt status. It happens that I have some familiarity with this area since I represented a number of 501(c)(3) tax-exempt hospitals in connection with the tax-exempt finance of their facilities.
I was appalled by the inept coverage of this purported “scandal” by the “mainstream” news media (specifically including the Washingon Post and the New York Times), not to mention Fox News and talk radio. But I had let it go until now because I know what a yawner discussions of the Internal Revenue Code can be.
I have been prompted to address this topic by two things:
1. I am on Congressman Dave Camp’s email list. I recently received a press release which raised the issue anew, commenting on the “outrageous” behavior of the IRS.
2. While reading Glen Arbor summer resident David Roll’s superb biography of Harry Hopkins I came upon this quote from a 1949 Life Magazine. It “warned that ‘once an event or allegation has taken on the compelling quality of “news,” the system allows no pause for reflection and examination’ before the press repeats it ‘like a mindless automaton.’”
Dave Camp is a powerful Congressman, as he is the Chair of the House Ways and Means Committee, which, among other things, deals with tax legislation. He is presently embarked on an effort to substantially revise our tax code. Good for him. But his approach to the IRS-tea party imbroglio makes me wonder whether he is ignorant of the code’s basic provisions or, perhaps, blinded by his own political bias.
Before I explain, let me start with a May 23 quote on the “scandal” from Norm Ornstein, a Fellow at the conservative American Enterprise Institute. “First, let me be clear: There has been political intimidation of the Internal Revenue Service for partisan purposes.” Given his conservative credentials, you may be surprised that he was aiming his comments at Congressman Camp and others of a like mind, not at the Obama administration.
How can this be? First, you should know that there are two routes to tax-exempt status a politically-oriented organization can attempt; namely, Section 501(c)(4) and Section 527. Section 527 is a layup for politically motivated organizations since it expressly contemplates that they will be involved in politics, and that’s okay – they don’t lose their tax exemption.
Section 501(c)(4) is a more difficult route, because it grants tax-exempt status to “civic leagues or organizations operated exclusively for the promotion of social welfare.” Note that word “exclusively” in the statute. Then note that the IRS regulations issued under Section 501(c)(4) state that the organization must be “operated primarily for the purpose of bringing about civic betterments and social improvements.” In what was undoubtedly a bow to Congressional pressure from both parties, the regulations change “exclusively” to “primarily” and surprisingly permit lobbying and political campaign activities if they are not the organization’s “primary activity.” But the the regulations also state that the “promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate for public office.”
Okay, you might ask: If the 527 easy route is available, why would any organization with an obvious political agenda try to qualify under 501(c)(4)? The answer is simple. The identities of contributors to 527 organizations must be disclosed while the identities of contributors to 501(c)(4)’s can be kept secret. And both political parties want to keep their big donors secret.
Now, in this context, is it any wonder that the IRS (whose staff has been downsized) would want to take a close and time consuming look at a glut of applications with political sounding names, often explicitly including “tea party”? Primarily promoting “social welfare”? You gotta be kidding. If there’s a scandal here it is that instead of promptly denying the applications and referring the applicants to Section 527, the IRS took the bureaucrats’ road of obfuscation and delay. They have a healthy fear of the president (who has significant support from 501(c)(4)’s) and both parties in Congress. You know, the people who control their budget.
But wait, it gets worse! After Ornstein’s article, the following was revealed, but scarcely mentioned by the media which had moved on to other “scandals.”
1. Sworn testimony that the White House had nothing do do with the close examinations.
2. The disclosure that the IRS also closely scrutinized 401(c)(4) applicants with a liberal bias (for example, their targets for close examination included those who used the words “Progressive” and “Occupy”). Other applicants with politial sounding programs, like pro-Palestinian groups, also were closely scrutinized.
But why, you might ask, didn’t the inspector general who blew the whistle also mention these liberal or other political groups? He has since stated that he was specifically instructed by the Republicans who launched this to focus on the treatment of tea party-style groups and to not examine the IRS’ approach to others!
I guess I’m not really surprised that both parties are interested in keeping their donors secret. And the Republicans certainly need to motivate their base by finding some kind of Obama adminstration scandal. If there’s a scandal here it lies in the failure of the media to properly grasp the reality of this Republican show and the weakness of President Obama (not for the first time) in throwing a number of IRS people under the bus rather than standing tall and expaining reality to the American people.