The real IRS scandal: David Cay Johnston explains

Posted by AzBlueMeanie:

Former New York Times reporter and Pulitzer Prize winner David Cay Johnston, a columnist for Tax Analysts, and who teaches tax and regulatory law at Syracuse University Law School, explains The other IRS scandal : Columbia Journalism Review:

The burgeoning “scandal” over how the IRS chose for review 75
applicants for tax-exempt status puts on full display an unfortunate
tendency in journalism—to quote people accurately without explaining the
underlying context. Yes, it is as wrong for IRS employees to select
groups to scrutinize based on their names as it is for police to stop
and frisk young people based on the color of their skin. Still, the
facts here are not so black-and-white as with racial profiling.

There is a scandal in all of this—several, actually, and
some are more significant than the one that is getting all the
attention
. As the story unfolds, here are some important points to keep in mind:

•Missing from much coverage is the relevant recent history—the role of the Supreme Court’s 2010 Citizens United
decision and how it prompted a deluge of requests from new
organizations seeking tax-exempt status under tax code Section 501(c)(4)
as “social welfare” organizations—despite the fact that many of these
are blatantly political operations
.

Congress requires
the IRS to review every application for tax-exempt status to weed out
organizations that are partisan, political, or that generate private
gain
. Congress has imposed this requirement on the IRS, and its
predecessor agencies, since 1913.

•When it comes to 501(c)(4) organizations, what the IRS is supposed
to do is draw a distinction between groups that are “primarily engaged”
in politics and groups that really are primarily engaged in “social
welfare”—somehow “promoting the common good and social welfare of the
community.” It’s kind of mushy. Brad Plumer has a good explainer about this on The Washington Post’s Wonkblog.

The first scandal here, meanwhile, is that the social welfare tax
exemption is being used by existing 501(c)(4) organizations, including
some very large ones, to promote partisan political interests—the very
activity Congress has explicitly prohibited for a century
. The New York Times, after a weak political piece on Saturday, had a clear and useful explainer about this on Tuesday.

•Also worth pointing out: None
of the [Tea Party] organizations that the IRS scrutinized as a result of the
ill-considered screening-by-name regime was denied tax exempt status
.

The second—and widely ignored—scandal in this unfolding story is
that the IRS is drowning
. Congress is demanding that the agency do more
and more with less and less, as we have reported here and elsewhere. As David Levinthal reported Tuesday at the Center for Public Integrity:

The IRS’ Exempt Organizations Division, which finds itself
at the scandal’s epicenter, processed significantly more tax exemption
applications in fiscal year 2012 by so-called 501(c)(4) “social welfare”
organizations — 2,774 — than it has since at least the late 1990s.

That compares to 1,777 applications in 2011 and 1,741 in 2010, he reported.

Meanwhile, in real terms the IRS budget has been cut 17 percent
per capita since 2002, even as Congress has piled on other new duties
,
such as hunting for offshore accounts, dealing with the complexities of
the Affordable Care Act, and other expanded obligations.

To hear the IRS’s bureaucrats tell it, it is this combination of a flood
of new work and the challenge of reduced manpower that prompted what an
inspector general’s draft report on this problem[.]

* * *

Meanwhile, maybe reporters could investigate this: Karl Rove, the
Republican strategist, initiated the use of the tax exemption for
501(c)(4) social welfare organizations to promote candidates and causes
when he formed American Crossroads in 2010. He in turn inspired a
Democratic operative—Bill Burton, former deputy press secretary to
President Obama—to do the same, starting Priorities USA in 2011.

Are these organizations primarily political? Here is how Open Secrets described Rove’s 501(c)(4) operation and its political influence and ties:

American Crossroads and Crossroads GPS, both formed in 2010,
are the heavy hitters of the multicandidate outside spending groups.
They were started and continue to operate in consultation with GOP
operatives Karl Rove and Ed Gillespie. American Crossroads, a super PAC,
and GPS, a 501(c)(4) that isn’t required to disclose its donors, spent
more than $70 million that year, according to one of its officials,
though they only reported spending a little more than half that to the
Federal Election Commission. Steven Law, former general counsel of the
U.S. Chamber of Commerce and chief of staff to Senate Minority Leader
Mitch McConnell of Kentucky, is president of both groups. The groups
raised $51 million in 2011, and have said they plan to spend much more
than that in the 2012 elections.

Consider that in the context of a 1963 federal appeals court, which ruled
that to qualify for tax exemption under 501(c)(4), “the organization
must be a community movement designed to accomplish community ends.”

A couple of smaller points: Many news organizations also reported
that the IRS wanted the names of donors, indicating (or quoting
organizations as saying) that this is improper. Actually, disclosing
donors to the IRS is required of most tax exempt organizations on Form
990 Schedule B
, as Lerner told reporters Friday. However, Schedule B is
not made public by the IRS, while Form 990 is
. (The IRS did, improperly,
release some donor information to ProPublica, as it reported here and here.)

After the publication of this post, the Inspector General's report disclosed that liberal groups were also subjected to extra scrutiny, and at least one group, Emerge America, was denied tax exempt status. Report: The IRS also targeted at least three liberal groups. This tends to undercut the crybaby persecution and victimhood meme from the conservative media entertainment complex cult.

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