We just had five congressional hearings about the Internal Revenue Service, full of sound and fury, but, we now know, signifying nothing. Despite all the hoopla and headlines about IRS personnel targeting conservative tax-exempt organizations, there is no real scandal here. IRS staffers acted not only legally but, given their impossible task, quite rationally. They forgot, however, that they not only work in a political fishbowl, they swim in a sea of politics. Faced with internally contradictory regulations laid out in vague terms, and with little guidance from higher-ups, they botched it. Republicans may now finally get the chance to pour unlimited amounts of secret money into elections. The Internal Revenue Code provides a tax exemption under section 501(c)(4) for nonprofit groups “operated exclusively for the promotion of social welfare” (emphasis added). In classic oxymoronic bureaucratic doublespeak, however, a 1959 regulation decided “exclusively” really meant “primarily.” Though the courts have ruled that a tax-exempt group’s political activity must be “insubstantial,” lawyers have argued this means it can be as much as 49 percent – and the IRS has gone along. Even that has been flagrantly violated by both Democratic and Republican 501(c)(4)s.
The regulation also states “direct or indirect participation in political campaigns” to support or oppose political candidates “is not considered ‘promotion of social welfare.’” “Participation” in a political campaign is determined, however, by considering “the facts and circumstances.”
This provides no real guidance. Not surprisingly, the Treasury inspector general for tax administration, who investigated the IRS “scandal,” concluded that personnel in the Exempt Organizations Division “lack knowledge” of what 501(c)(4)s are allowed to do.
This division receives about 60,000 applications for nonprofit status each year, largely for 501(c)(3)s that don’t engage in any political campaign activity. Yet, with so many applications, the division has a heavy backlog. After the 2010 Citizens United and SpeechNow decisions, the floodgates were further opened to huge amounts of campaign money whose donors wanted secrecy. As one Tea Party leader noted: “It would have a very chilling effect on our donor base if they thought [their names] would be made public.” So 501(c)(4)s became the most-favored campaign vehicle.
To operate as a 501(c)(4), it is not necessary to be officially approved. Nonetheless, the number of these applications, many involving complex questions, almost doubled in less than two years, from 1,741 in 2010 to 3,357 in 2012. All the 2010 applications went to the Cincinnati exempt organization office, which was quickly overwhelmed.
In addition, the IRS budget was cut by 8 percent, or nearly $1 billion. The original EO roster of 946 employees was reduced to 876. Employee training has been especially hard-hit, falling 83 percent since FY 2010.
Full Article: The real IRS scandal | The Great Debate.