Thursday, May 23, 2013

IRS Scandal: Why Should Tea Party Groups Have Any Tax Exemptions?

The rules for tax exemptions for organizations are not well-understood. They tend to be complicated and, even then not well-enforced. Still, it is fair to ask, when it comes to tax exemption, what makes the Tea Party organizations so special?

It has been really hard to get my head around the recent “scandals” that have “plagued” Obama’s second term. Quotation marks are mandatory in this case since, as far as I can see, the scandals seem to be an imaginative invention manufactured by the Republican Congress and a mainstream media.
(To be sure, there are questions that should be asked to the president about, for example, the handling of such things as Gitmo, the legality of drones, press freedom and other things.)

The investigation of the Benghazi tragedy has dragged along becoming less and less productive and more and more embarrassing for the investigators. All of the rocks have been squeezed and much to their dismay, GOP congressmen have found not even a drop of blood.

However, the most ridiculous of these so-called scandals has been the accusation of the IRS targeting Tea Party tax-exempt organizations. (Daily Kos has called the whole affair a "Scandalnavian nothing-burger.")

Targeting Flaunters

As long-time readers of this blog may know, we have examined the possible violations of both Tea Party and Christian right-wing 501(c)3 and 501(c)4 organizations in the past. The abuse of their tax-exempt status has been openly flaunted. It was clear that something had to be done.

In the run-up to the election, religious organizations, in particular, seem to challenge the administration to take action. A careful reading of the tax codes demonstrates beyond much doubt that these organizations should have come under some kind of scrutiny at least.

And yet, somehow we find the entire argument re-framed as "targeting" and "profiling." Is it really wrong to target those who publicly flaunt the law?

When Leona ("Queen of Mean") Hemsley went on 60 minutes and proclaimed We don't pay taxesOnly the little people pay taxes” would anybody have accused the IRS of targeting super-wealthy hoteliers?
Most people felt she deserved what she got for thinking she was somehow untouchable. Today the Republican party has become the chosen defenders of anybody who would defy  the IRS and the Obama administration, in general. 

It is important to note that these organizations- in order to qualify for their tax exemption- are obliged to follow a few simple rules. For 501(c)3 organizations, for example, they are prohibited from campaigning for or against a candidate. For 501(c)4 organizations, most of their contributions (also tax deductible) should be aimed at charitable works. These groups are supposed to be “primarily engaged” in activities promoting “social welfare” and “the common good” — not partisan politics. (After all, is there really such a thing as a Democratic Tea Party group?)

On the other hand, as independent organizations, they were and are perfectly free to conduct whatever legal campaigning and rabble-rousing they wish. They can endorse candidates to their heart's delight. In doing so, however, according to the laws they agreed to, they would not be eligible to claim a tax exemption.  That also goes for anybody who gave multi-million dollar donations, like the Koch brothers.
Those are the rules. Take it or leave it.

Asking the Right Questions is not Wrong

Ironically, just because the Tea party is a political organization (as opposed to a pure charity), it believes that any questioning of the manner in which it conducts business is unfair. Many would say that if organization want special rights (tax exemptions) then it should follow the rules.
The Los Angeles Times explains:
At the heart of the issue is the murky role occupied by nonprofit "social welfare" organizations, set up under Section 501(c)4 of the tax code, which are allowed under IRS regulations to engage in a certain amount of campaign activity, as long as politics is not their "primary" purpose. The groups pay no tax on the money they bring in. They can accept unlimited donations and, unlike political committees, can keep their contributors secret.
Writer Devin Burghart of The Institute on Education and Human Rights has done what it seems like CNN and other 24/7 news organizations are loathe to do. Simply investigate the claims against the IRS.

His article, The Tea Party and the IRS “Scandal” The Actual Facts of the Case makes excellent points. He reports, for example, that while some of the flagged groups did have their tax-exempt status delayed or did face some additional scrutiny, but “not a single group has been denied tax-exempt status.” Repeat, not one.

But as Burghart notes, many Tea Party organizations paid absolutely no notice of the restrictions to the tax exempt status. 501(c) 4 organizations like Katy Tea Party Patriots in Texas, Louisville Tea Party and The First Coast Tea Party Inc. of Jacksonville, Florida all, according to the article, engaged in questionable activity, in potential violation of the IRS laws.

Take this example involving the First Coast Tea Party.
In an August 30, 2012 Facebook post, for instance, the group advertised a Jacksonville rally for Republican presidential candidate Mitt Romney and his vice presidential nominee Paul Ryan, adding, “bring your chairs and your signs, make sure they know that the First Coast Tea Party is and has been helping their campaign.”
How is this a charitable work or aimed at social welfare? Is it a violation or is it not? Would the IRS be wrong to, at least, investigate? Or would it have been more wrong not to investigate? Don't taxpayers deserve to know why some people are able to skirt the tax laws?

And keep in mind, that’s only one of thousands of possible violations. One of the thousands of groups. As pointed out in the previous post on this matter, when it comes to losing your tax-exempt status, according to the tax codes, all it takes is one major violation. Then you're busted.

After an investigation in 2011, Mother Jones, a liberal magazine, charges that the Tea Party organization was abusing its 501(c)4 status. Additionally, it claimed that any local Tea Party requested information about the group’s expenses, they were ushered out of the umbrella organization and threatened with legal action.

In response, on May 23, 2011, Mother Jones officially filed a complaint with the IRS. On its website, the Tea Party Patriots claim:
We are a non-profit 501(c)(4) organization that does not support any political party nor do we endorse candidates.
And yet, Wikipedia has a large list of Tea Party candidates apparently endorsed by Tea Party groups which are represented by the Tea Party Patriot organization. Doesn’t the IRS have an obligation to investigate complaints?

Endorsements or Not?

Again the California-based Tea Party Express calls itself a 501(c)4 organization- prohibited from direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. 
However, on its website  (even now), we find a long endorsement of Wisconsin governor, Scott Walker. The text reads:
October 12th marks the launch of a new media and grassroots campaign aimed at confronting President Obama’s “Jobs Plan.” With unemployment remaining at record levels, we can no longer rely on the past policies of out-of-control spending and taxation that continue to fail. We must look to leaders the have faced similar economic turmoil, but were able to obtain positive results.
The best example is Governor Scott Walker in Wisconsin.
Is that not an endorsement? Maybe. Maybe not. But it's surely enough to raise questions, isn't it?
Wisconsin has become ground zero in the fight against labor union tyranny. 2012 is a decisive year for our nation’s future, and the momentum from these recalls in Wisconsin will be carried into Election Day in November. This is our chance to stand side-by-side with true conservative leaders and push back against the liberal agenda that threatens the America we know and love.
Sounds like politics is its primary purpose to me. In addition, on the same page you can read:
In March of 2011, State Tea Party Express launched a television campaign that focused on the Wisconsin Supreme Court Race between Justice David Prosser and JoAnne Kloppenburg...
Judge David Prosser held onto his seat after a escaping a narrow victory, proving that the State Tea Party Express’ involvement during this race was pivotal. Conservatives in every state in the union have come to rely on the information provided by State Tea Party Express.
 That's practically a confession. An excerpt from the television campaign:
“This TV ad is just one element in a large campaign to educate and mobilize Wisconsin voters. Justice Prosser is a principled and trustworthy judge with over ten years of experience and hundreds of high-profile endorsements. Those on the radical left are pouring money into this race in an attempt to hijack the election and install an environmental activist judge who would do their bidding from the bench. We are determined to help keep the courts grounded in the Constitution, rather than pandering to special interests.”
So ask yourself, is this not a violation of the tax exemption rules against endorsements? Should the IRS simply ignore all questions about the issue? Why is the Tea Party untouchable when it comes to tax laws?
(Furthermore, there were also many right-wing religious organizations which openly engaged in political activity throughout the campaign. Another big no-no.)
*   *   *   *
Clearly, the agency was at a loss on how to interpret the tax codes, dating back from the Johnson administration, following the Supreme Court decision in Citizens United. According to one source:
The size of the IRS workforce has dropped 9 percent from its 2010 level, and the agency has seen its budget cut in each of the last two fiscal years. This fiscal year, the amount the IRS spends per capita (meaning per citizen) will be 20 percent lower than it was in 2002, according to an analysis by tax expert David Cay Johnston.
The LA Times article quotes one insider:
"The IRS does not have the competence or the expertise to be policing the political activities of tax-exempt organizations," said Robert Kelner, a Washington campaign finance lawyer who heads the political law practice at Covington & Burling. "So even in the best of worlds, with the best of interests, it's a fool's errand to expect the IRS to be able to accomplish this task."
And for all their trouble, all they got for trying to police the system in disarray was public condemnation and firing from an administration apparently afraid to defend itself from phony GOP outrage.

Bigger Fish to Fry

But there really are serious questions to be asked about how the IRS investigates tax-exempt groups. The IRS is perhaps that last line of defense against the predations of corporations and Big money in politics and yet, we now find them cowering against the charges of scandal.

Don’t look to the press for any help. Unfortunately America’s new organizations would prefer to ignore any kind of serious probing of this issue. If they took up that journalistic challenge, the Republican politicians who are now shrilly screaming scandal might have second thoughts about bringing the matter up at all. 

The IRS has interpreted our tax laws to allow big corporations and wealthy individuals to make unlimited secret campaign donations through sham political fronts called “social welfare organizations,” like Karl Rove’s “Crossroads,” the U.S. Chamber of Commerce, and “Priorities USA.”
The National Memo’s Carl Hiaasen agrees. He accuses the IRS of “letting the big fish get away.”
It’s a total farce.
Karl Rove’s Crossroads GPS spent untold millions of dollars on behalf of Republican candidates while attacking Democrats during the last election cycle. On the other side, Priorities USA spent a fortune helping Democratic candidates while trashing Republicans.
Both rabidly partisan organizations enjoy tax-exempt status under Section 501(c)(4). They claim to run strictly “issue” advertisements that aren’t really political, which is a hoot.
What’s not so hilarious is that the IRS sidestepped these heavyweight scammers to go after small-time outfits such as the Liberty Township Tea Party in Ohio.
One reason is not merely cowardice and a reluctance to tackle the major league players in this abuse. The number of groups that sought tax-exempt status as social welfare groups under Section 501(c)(4) jumped from around 1,500 in 2010 to around 3,400 by 2012.

Added to that, after the Citizens United decision, big spenders like the Koch brothers made good use of Tea Party organizations to, in effect, campaign for conservative candidates. 

In light of the very real threat of the Citizens United decision’s threat to democracy, why hasn’t the IRS been more aggressive? What other tools does the government have to keep Big Money from running rampant over the constitution and all representational government?
*   *   *   *
Forbes has some bad news for anybody thinking this so-called scandal has legs.
Sadly for the critics of the president, things are not always as they initially appear to be and the effort to paint the improper IRS activity as a White House directed political dirty trick is unlikely to gain the traction opponents would like to see catch fire.
Quite rightly Forbes notes that the IRS was not searching for evidence of failing to pay taxes. It was, in fact, reviewing of applications filed by the various entities seeking tax-exempt status under the law.
At the time in question, many newly formed political organizations were seeking IRS certification that would allow them to avoid paying taxes on funds raised—the overwhelming majority of these organizations being Tea Party related groups. As the IRS believed that many of those filing for exemptions were stretching the limits of qualification.... In the effort to dig deeper to determine if these groups qualified, the agency people involved asked many of the filing organizations to disclose names of those who had made contributions along with other data they deemed necessary to determine if the group qualified for tax free status.
In other words, with limited means, the IRS was attempting to do its job. Of course, having seen how negligent Congress has been at doing its job, we can see why the Republican politicians would be so upset.

Who knows, maybe this will resuscitate the Tea Party as a political force in the GOP. If so, by 2014, the Republicans are going to regret. The Tea Party candidates didn't suddenly get any saner.

How quickly the Republicans have forgotten the lessons of 2012.