May 292013
 

(New York Times photo)

A far more complex and confusing picture emerges on closer inspection of the festering controversy surrounding the treatment of grassroots conservative political groups by the IRS, with the agency admitting that at least one regional office singled out applicants for special tax exempt status that included conservative themes in their organization’s titles.

The incident has quickly become the “scandal” du jour for most Republicans and has led many to pin direct blame for the incident on President Obama, arguing that it is a sacred “right” for these groups to seek and attain a particular government benefit that allows them to raise secret and unlimited amounts of money for political campaigns and highly partisan causes.

Now there are new questions swirl over whether the targeted groups were innocent victims or blatantly operating in bad faith.

New evidence shows that many of the “Tea Party” groups demanding special tax breaks for their “social welfare” campaigns were in fact breaking federal statutes against engaging in overtly political activities by funneling cash they raised to candidates and partisan causes. And while the IRS may have been victimized by this grassroots game of subterfuge, the agency did have one major failure not that it was overzealous in grilling conservative groups, but that it ignored the far more serious breaches of tax-exempt law committed by larger organizations that collectively raised nearly one billion dollars.

A report published by the New York Times this week catalogs the stories behind the dozens of Tea Party or conservative activist groups that applied for tax exempt status but were stonewalled by delays from the IRS that lasted up to two years in some cases.

These groups and hundreds of others were in search of the coveted designation as a “501(c)(4),” a convoluted taxation subcategory popularized by the Supreme Court’s ruling in the Citizens United case that opened the door for unlimited and undisclosed political fundraising — but only by “outside” organizations officially unaffiliated with specific candidates and campaigns.

Bound by federal tax and election regulations to commit most of the money they raised through their tax exemption to “social welfare” endeavors, most of the conservative groups admittedly targeted by the IRS and investigated by the Times were found to have flouted the law and spent most or all of their funds on overtly political activities.

One local “Tea Party” outfit seeking an IRS exemption divulged to officials that there express purpose for raising unlimited money was to “defeat…President Barack Obama.”

When CVFC, a conservative veterans’ group in California, applied for tax-exempt status with the Internal Revenue Service, its biggest expenditure that year was several thousand dollars in radio ads backing a Republican candidate for Congress.

The Wetumpka Tea Party, from Alabama, sponsored training for a get-out-the-vote initiative dedicated to the “defeat of President Barack Obama” while the I.R.S. was weighing its application.

And the head of the Ohio Liberty Coalition, whose application languished with the I.R.S. for more than two years, sent out e-mails to members about Mitt Romney campaign events and organized members to distribute Mr. Romney’s presidential campaign literature.

Representatives of these organizations have cried foul in recent weeks about their treatment by the I.R.S., saying they were among dozens of conservative groups unfairly targeted by the agency, harassed with inappropriate questionnaires and put off for months or years as the agency delayed decisions on their applications.

But a close examination of these groups and others reveals an array of election activities that tax experts and former I.R.S. officials said would provide a legitimate basis for flagging them for closer review.

Even admitting their blatantly partisan status, leaders of some conservative groups singled out by IRS officials complained about the extent of the agency’s prying into their donor lists, future plans and even print-outs of their websites.

But election law experts and former IRS agents say these steps are necessary given the rise in political tax-exempt applicants and the broad nature of the regulations the tax agency is being pressed to carry out in the wake of “Citizens United.” Many groups outside of the targeting case have already been deemed to have broken tax-exempt guidelines in the last two election cycles.

Faced with hundreds of independent organizations seeking a specialized government benefit once the realm of ordinary charities, the government likely had little choice but to use whatever means necessary to uncover the relevant information needed to decipher the intent of  these groups.

The I.R.S. is already separately reviewing roughly 300 tax-exempt groups that may have engaged in improper campaign activity in past years, according to agency planning documents. Some election lawyers said they believed a wave of lawsuits against the I.R.S. and intensifying Congressional criticism of its handling of applications were intended in part to derail those audits, giving political nonprofit organizations a freer hand during the 2014 campaign.

After the tax agency was denounced in recent weeks by President Obama, lawmakers and critics for what they described as improper scrutiny of at least 100 groups seeking I.R.S. recognition, The New York Times examined more than a dozen of the organizations, most of them organized as 501(c)(4) “social welfare” groups under the tax code, or in some cases as 501(c)(3) charities. None ran major election advertising campaigns, according to the Campaign Media Analysis Group, the main activity of a small number of big-spending tax-exempt groups that emerged as major players in the 2010 and 2012 elections.

But some organized volunteers, distributed pamphlets and held rallies leading up to the 2010 elections or the 2012 presidential election, as conservatives fought to turn out Mr. Obama.

……..

I.R.S. agents are obligated to determine whether a 501(c)(4) group is primarily promoting “social welfare.” While such groups are permitted some election involvement, it cannot be an organization’s primary activity. That judgment does not hinge strictly on the proportion of funds a group spends on campaign ads, but on an amorphous mix of facts and circumstances.

“If you have a thousand volunteer hours and only spend a dollar, but those volunteers are to help a particular candidate, that’s a problem,” Mr. Tobin said.

Agents may examine when and for how long a group advocates policy positions, in part to see whether those positions are associated with a specific candidate, which can be relevant to the group’s tax status, tax lawyers and former I.R.S. officials said.

Agents may look at what a group publishes in print or on a Web site, whether it provides funds to other organizations involved in elections or whether a group’s officers are also employed by political parties. They may also consider other public information, former officials and tax experts said, though they are required to ask the organization to provide those materials or comment on them before the information can be included in an application review.

Whether or not the IRS or the Obama administration engaged in a specific and targeted campaign of intimidation against right-wing political organizations may be endlessly debatable. What cannot be disputed is the near-crisis that the IRS found itself in after the “Citizens United” case opened the “floodgates” of political spending.

Ordained by the Supreme Court to raise as much campaign cash as they could collect, hundreds and eventually thousands of “independent” political groups sprang up virtually overnight, seeking to take advantage of the loopholes and exemptions that are at the disposal of those with a so-called “501(c)(4) designation. The IRS division devoted to investigating the propriety of applications for non-exempt status, once a relatively sleepy assignment, became the focus of a political cash bonanza starting in 2010, leaving it badly undermanned and without adequate funding.

The IRS was overwhelmed with a wave of new applications — most from conservative-leaning groups and backed by wealthy Republicans — seeking that special status to raise unlimited and undisclosed money for political means.

Making the situation worse was that this was not the typical job of the agency; they were given an “impossible task.” Instead of collecting taxes or weeding out charities, the IRS had been placed on the front lines of a frenzied — and very expensive — partisan battleground, one that ended up playing a major role in two important national elections.

This was the obvious consequence of an ad-hoc campaign finance system created in the aftermath of “Citizens United,” with little thought put into how a massive fundraising system that popped up almost instantaneously would be regulated.

The IRS didn’t make this mess because its employees are stupid or because they have a political vendetta. It’s because they’ve been given an impossible task: figure out which organizations have missions that are “primarily political” — and come up with definitions for “primarily” and “political” that are neither vague nor politically charged.

Note, when we talk about these groups as “tax-exempt” all that means is they don’t pay tax on their own income. A 501(c)4 group can’t accept tax-deductible donations because it’s not a charity (those are 501(c)3 groups). Instead, a 501(c)4 is a “social welfare” organization: That is, it is supposed to produce benefits that are broadly enjoyed, rather than producing private profits for its funders. By law, (c)4 groups are free to lobby without limitation and also may engage in electoral activities so long as that is not their primary purpose. The main reason political donors want to channel their funds through (c)4s rather than other independent expenditure vehicles isn’t a tax advantage; it’s that (c)4 organizations are not required to disclose their donors.

Since 2010, when the Supreme Court’s Citizens United decision led to an explosion in applications to form such groups, the IRS has tried to thread (this) needle and failed completely. Their first idea was to look for key words like “Tea Party” in organization names. Realizing this would show unfair political bias, they switched to focusing on statements about orientation (“political action type organizations involved in limiting/expanding government”).

Accusations of politically-motivated targeting and widespread policy of intimidation and bias against conservatives and “Tea Party” supporters also fall`away when more closely considered, largely because if such a presidential vendetta did exist during the 2010 and 2012 elections, it was a disastrous disappointment

Most importantly, the supposed political activists within the IRS or any part of the Obama administration failed miserably if the goal of a few targeted delays of right-wing tax exempt applications was to shut off conservative election spending during the 2012 midterm campaign and leading up to 2012.

$1 billion was spent in total by outside groups on the 2012 election, with a quarter of that coming directly from the loophole-ridden “social welfare non-profits” given the federal government’s blessing to raise and unlimited amount of cash from undisclosed donors for the sole purpose of political advertising, not the “welfare” of greater society.

“Social welfare” organizations like Karl Rove’s Crossroads “non-profit charity” drove much of the spending on ads during last year’s election, all aided and abetted by the IRS. Supposed to eschew “overtly political” language in how it spent the secret and unlimited cash it raised, Rove and other groups were hardly shy in pronouncing their preference for Republican presidential nominee Mitt Romney.

More specifically, tens of millions of dollars were raised and spent by conservative non-profit groups given tax-exempt status after 2010, supposedly when the scandalous anti-Tea Party operation commenced. The money collected by these groups far outstripped cash raised by the handful of liberal-leaning activists that received 501c(4) status.

Conservative nonprofits that received tax-exempt status since the beginning of 2010 and also filed election spending reports with the Federal Election Commission overwhelmed liberal groups in terms of money spent on politics, an analysis of Internal Revenue Service and FEC records shows.

Of the 21 organizations that received rulings from the IRS after January 1, 2010, and filed FEC reports in 2010 or 2012, 13 were conservative. They outspent the liberal groups in that category by a factor of nearly 34-to-1, the Center for Responsive Politics analysis shows.

By far the largest driver of the disparity was American Action Network, whose $30.6 million in spending reported to the FEC in 2010 and 2012 made up 94 percent of the conservative total. However, even without American Action Network, spending by conservative groups approved after 2010 was nearly quadruple that of liberal groups receiving exempt status in the same period.

Outdated language allows those on all sides of the political aisle to take advantage of the system and funnel millions of dollars into American politics with virtually no oversight and with the unprecedented benefit of concealing its funding sources. By its very  nature the existing hodgepodge of campaign finance regulations and tax exemptions, balancing the jurisdictions of the FEC and the IRS in a confused nowhere-land, foments myriad opportunitis for mistakes or malfeasance.

Not that the groups at the center of this debate weren’t taking advantage of such a muddled regulatory scenario. Crossroads and Priorities USA, the two largest conservative and liberal 501(c)(4) “non-profits,” were specifically “created for the purpose of hiding donors.”

These two groups, along with several other large conservative-leaning organizations that played significant roles in the billion-dollar election spending spree in 2012, were largely given a pass by IRS officials for their “overtly” political operations.

Government regulators actually ignored repeated complaints lodged by prominent liberal activists in the middle of the presidential campaign against big conservative “non-profits” spending millions on behalf of Republican candidates like GOP  nominee Mitt Romney.

Rather than being hyper-sensitive to all right-wing political activity under their jurisdiction, federal tax officials were likely guilty of selective justice, ignoring the largest and most effective groups while focusing on the dozens of smaller organizations with “Tea Party” sensibilities.

Over the last two years, government watchdog groups filed more than a dozen complaints with the Internal Revenue Service seeking inquiries into whether large nonprofit organizations like those founded by the Republican political operative Karl Rove and former Obama administration aides had violated their tax-exempt status by spending tens of millions of dollars on political advertising.

The I.R.S. never responded.

……..

The I.R.S. has done little to regulate a flood of political spending by larger groups — like Crossroads Grassroots Policy Strategies, co-founded by Mr. Rove, and Priorities USA, with close ties to President Obama — as well as Republican leaders in Congress and other elected officials. And an agency that is supposed to stay as far away from partisan politics as possible has been left in charge — almost by accident — of regulating a huge amount of election spending.

“We’ve complained about a few big fish and we’ve heard nothing from the I.R.S.,” said Paul S. Ryan, senior counsel at the Campaign Legal Center, which filed many of the complaints with the agency. “We would far rather see scrutiny of these big fish — the groups that spent hundreds of millions of dollars to influence elections — than to see the resources spent on hundreds of small groups that appeared to spend very little on elections.”

The only conclusion to draw from the current “scandal” is that rather than being overzealous in applying the laws colored with partisan motivation, federal regulators at the IRS and FEC have done virtually nothing to enforce the existing rules that are meant to apply to outside political groups. These outfits, almost all conservative, have been incredibly successful in beating the system meant to prevent them from raising unfettered and unlimited amounts of money and using it solely for political operations.

mattparker

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