My colleagues Ezra Klein and Evan Soltas wrote about the Internal Revenue Service’s Tea Party scandal this morning:
The IRS does need some kind of test that helps them weed out political organizations attempting to register as tax-exempt 501(c)4 social welfare groups. But that test has to be studiously, unquestionably neutral.
That’s a nice thought. But is such a test even possible? 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 Ezra’s 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”).
Realizing these approaches were both subject to accusations of political bias, in 2012 the IRS traded them for one that meets Ezra’s neutrality test: The IRS will closely examine “organizations with indicators of significant amounts of political campaign intervention.” But this standard is too vague to be useful.