The real IRS scandal: not the one the conservative media entertainment complex is obsessing about

Posted by AzBlueMeanie:

I explained the other day "The real scandal with the IRS review of applications for
501(c)(4) tax exempt status from political organizations is that
political organizations do not qualify — and should not recieve
501(c)(4) tax exempt status. Period." The real IRS scandal: the ease with which political organizations have been abusing the 501(c)(4) tax exempt status.

There has actually been some very good reporting on the real scandal (just Google "the real IRS scandal"), but you would never know this if you rely on the Arizona political media or the cable tee-vee.

The New York Times op-ed page has two good pieces today. Sheila Krumholz and Robert Weinberger from the Center for Responsive Politics write, The Real I.R.S. Scandal:

Yes, the I.R.S. may have been worse than clumsy in considering an
avalanche of applications for nonprofit status under the tax code, and
that deserves scrutiny whether or not the agency’s employees were
spurred by partisan motives. After all, some of these “tea party” groups
are most likely not innocent nonprofit organizations devoted to the
cultural significance of hot beverages — or to other, more civic,
virtues. Rather, they and others are groups that may be illegally
spending a majority of their resources on political activity while
manipulating the tax code to hide their donors and evade taxes
(the unwritten rule being that no more than 49 percent of a group’s resources can be used for political purposes).

The near vertical ascent in political spending by these “dark money”
groups was prompted by the Supreme Court’s 2010 decision in the Citizens
United
case, among others, freeing them to be more active in this
realm.

And it’s a bipartisan scandal, though it’s hard to tell that judging by
the names some groups have adopted — as the I.R.S. should know. Can you
tell which of these lean left and which ones right? Patriot Majority
USA, Crossroads GPS, American Future Fund and the Citizens for Strength
and Security Fund. (Nos. 1 and 4 are liberal, 2 and 3 are conservative.)

The majority of the organizations that appear to be most politically
active — from groups that run their own ads, like American Action
Network and Americans for Prosperity, to the mysterious Center to
Protect Patient Rights
[the Phoenix-based "Kochtopus" organization headed by GOP consultant Sean Noble, currently under investigation for money laundering by the state of California], which distributes [launders] money to other political
groups — already have exempt status. There’s little evidence that the
I.R.S. is looking into these groups.

The latest news will make that job more difficult. . .

* * *

[E]ven more regrettable is the long-term damage
to the credibility of the I.R.S. as an impartial arbiter of whether
organizations merit tax-exempt status. This will be difficult to undo,
particularly because of the secrecy required for the agency to
effectively examine organizations without generating doubts about them,
as well as to prevent other organizations from coming up with strategies
to evade scrutiny in the future.

* * *

With the surge of dark money into politics, we need to ensure that the
I.R.S. is capable of rigorously enforcing the law in a nonpartisan, but
also more effective, way
. While we focus on the rickety raft of minor
Tea Party groups targeted by the I.R.S., there is an entire fleet of big
spenders that are operating with apparent impunity.

Congress has already announced hearings and investigations, and the
service’s leadership will be grilled, as it should be. But it would be a
travesty if the misdeeds here undermined the important work that must
now be done to foster greater transparency
, and to bolster confidence
that the I.R.S. is in fact scrutinizing politically active groups across
the board, regardless of their ideological bent.

The Times editorialzes today, Take Politics Away From the I.R.S.:

What is more important is Mr. Obama’s promise to clarify the extremely
vague tax laws, which are the root cause of the problems in both the
I.R.S. and the political system.

The report issued Tuesday by the Treasury Department’s inspector general
said no one outside the I.R.S. had pressured staff members to look more
closely at Tea Party groups. The agency’s mistake was made in-house,
and the report uncovered no evidence that it was the result of political
pressure from the White House, as many Republicans are charging.

Instead, it was a group of midlevel employees who decided to search for
the phrase “Tea Party” and other key words used by conservative groups
in identifying and evaluating applications to become tax-exempt “social
welfare” groups.

* * *

The practice was inexcusable, because social-welfare groups of all
political stripes, known in the tax code as 501(c)(4) organizations, had
for years abused their tax exemptions through excessive political
activity, and the I.R.S. should have cracked down on them without regard
to ideology.

* * *

Nonetheless, there is a clear reason this problem kept arising at the
I.R.S., and it is the same reason that social welfare groups were
allowed to overrun the political process with secret cash in the last
three elections. There are no clear standards for how much political
activity a 501(c)(4) group can undertake, or even a clear definition of
what political activity is
.

For years, the I.R.S. ignored the activities of these groups; when it
finally decided to crack down, it did so in a dangerous way.

The tax code says these groups must engage only in social welfare work,
but decades ago the I.R.S. began allowing them to dabble in politics,
working for or against candidates, as long that was not their primary
activity.

Some groups carefully spend only 49 percent of their money on politics,
while others, including the one founded by Karl Rove, do nothing but
politics while claiming they are engaged in social welfare work. The
I.R.S. employees didn’t understand the rules, the inspector general
said, largely because the rules barely exist.

Given the confusion, and the years of abuse, it’s time for the I.R.S. to return to the original language of the statute
and require these groups to operate “exclusively for the promotion of
social welfare,” and not engage in politics.
But since even that
definition can be squishy, Congress also needs to require that all these
groups disclose their donors. Most want the 501(c)(4) designation
precisely because it allows secrecy for their donors; otherwise they
would take the far easier step of becoming standard political
organizations, known as 527 groups
, which have to reveal their
contributors.

The best way to prevent abuse is to reform this vague statute and
eliminate the agency’s discretion. Republicans and Democrats should be
joining forces in taking this important step.

Can I get an Amen and a Hallelujah!

Michael Hiltzik at the Los Angeles Times makes the same case. The real IRS scandal – Los Angeles Times:

It's strange how "scandal" gets defined these days in Washington. At the
moment, everyone is screaming about the "scandal" of the Internal
Revenue Service scrutinizing conservative nonprofits before granting
them tax-exempt status.

Here are the genuine scandals in this affair: Political organizations
are being allowed to masquerade as charities to avoid taxes and keep
their donors secret, and the IRS has allowed them to do this for years
.

The
bottom line first: The IRS hasn't done nearly enough over the years to
rein in the subversion of the tax law by political groups claiming a tax
exemption that is not legally permitted for campaign activity
. Nor has
it enforced rules requiring that donors to those groups pay gift tax on
their donations.

The organizations at issue are known as 501(c)4
groups (call them C4s for short) after the section of the tax code that
applies to them. They're nonprofit "social welfare" organizations that
by law must be devoted primarily to programs broadly serving their
communities, not private groups . . . In recent years, however, overtly political groups have been claiming C4
status, which allows them to keep their donor lists secret and to avoid
paying taxes on certain income.

Our lunatic campaign finance system is what turned the typical C4
from a volunteer fire department into a conduit of anonymous political
cash
. Big donors were given the green light to spend freely on elections
by the Supreme Court's 2010 Citizens United decision. That wasn't good
enough for some; they wanted to distribute their largess secretly.

C4s
were there for the exploitation, and the result has been a wholesale
decline of donor disclosure on the national level
: As recently as 1998,
nearly 100% of all donors to federal campaigns were publicly identified,
according to the Center for Responsive Politics, a campaign finance
watchdog group. By the 2012 presidential election, that was down to 40%.

The
beneficiaries of the C4 tax break, understandably, will employ any
subterfuge to keep it. That's what's behind the current firestorm over
disclosures that in 2010 and 2011, IRS personnel screened requests for
C4 status by applicant organizations with "tea party," "patriot" or
"9/12" in their names.

* * *

[By January 2012 the IRS] had substituted a screen designed to capture "political action type
organizations involved in limiting/expanding government, educating on
the constitution and bill of rights, [and] social  economic
reform/movement."

Conservatives contend that this is still an
anti-conservative screen. It sounds perfectly neutral to me, unless
someone knows of a conservative organization devoted to "expanding
government," or unless right-wing groups are supposed to have a monopoly
on "social economic reform." In any case, the inspector general found
that most of the 298 selected applications indeed showed indications of
"significant" political activity that might have made them ineligible
for the tax exemption
.

So while these political organizations are crying crocodile tears that they were mistreated and subjected to extra scrutiny when they applied for 501(c)(4) tax exempt status (see this insane piece of reporting in the Washington Post today, For
some groups, a ‘horror story’ dealing with IRS
), the fact of the matter is that these political organizations are engaged in the systematic abuse of tax law to gain a tax exempt status to which they are not entitled. This constitutes tax evasion. And tax exempt really means a "tax subsidy" from other taxpayers who are subsidizing their political activites. This is insane, and it must end.

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