The IRS "Scandal" Goes On

By William Boardman, Reader Supported News

26 February 14

It's not easy to keep a "scandal" going where there's no scandal

hatever you hear about tax exempt, 501(c)(4) organizations these days, someone is probably playing politics, or simply lying (for the sake of playing politics). And even if you're not hearing about it, they're still lying about it. This is all about bi-partisan deceit designed to defend the flow of dark money from secret donors.

The focal point of the "IRS scandal" these days is a new set of regulations announced by the IRS in November and currently open for public comments, which total more than 69,000 just days before the comment period is to close, on February 27.

In case you missed it, Republicans on the House Ways and Means Committee, led by Rep. Dave Camp of Michigan, have introduced a bill that would block any new regulations, and would also, in effect, make it against the law for the administration to follow the law. That's literally true. The proposed legislation, H.R.3865, has a fictional title: "Stop Targeting of Political Beliefs by the IRS Act of 2014" and really, who could be against that?

It would be like opposing the "Stop Brainwashing of Our Children by the Dept. of Education Act of 2012," which is an imaginary response to an equally imaginary threat. Just like the IRS targeting of political beliefs. Of course Imaginary threats can be more powerful than real ones sometimes, like those WMDs in Iraq that are still imaginary and still exploding people's heads at home and abroad more than a decade after their mushroom clouds were first inhaled.

More than 5,000 applications for 501(c)(4) status swamped the IRS by 2012

Before exploring H.R.3865 further, let's recall the reality of the IRS non-scandal of 2013, which continues to be widely misreported to this day (on February 13, the New York Times falsely described the essential issue as "heightened scrutiny the IRS gave to non-profit applications from Tea Party-affiliated groups" – never mind that it didn't happen, at least not at all like that).

The Supreme Court's 2010 decision in Citizens United v. Federal Election Commission unleashed huge amounts of previously dirty money into American politics, giving a lawful competitive advantage to everyone with money to burn. Not that those people were previously disadvantaged. They already had 527 organizations to take as much money as they had to give, but the 527s had the unfortunate legal requirement of having to report publicly who gave them money, and how much. And this was unfair to rich people who are shy about revealing the politicians they buy.

Citizens United also contributed to the rush to set up 501(c)(4) non-profit vehicles, which had the enticing additional option of being able to keep its donors secret. Citizens United, the organization, is itself a 501(c)(4) with a pretty clear political/ideological bias. The case it took to the Supreme Court began when it was prevented from running a documentary hit piece against Hillary Clinton in 2008. Now Citizens United is threatening another lawsuit should the IRS try to enact new rules controlling 501(c)(4) activities.

In other words, the fake IRS "scandal" was a very real part of a much larger Supreme Court scandal. Karl Rove was one of the first in a rising tide of 501(c)(4) applications during 2010-2012. According to reports, from roughly 1750 applications each in 2009 and 2010, the total rose to 2265 in 2011 and 3357 in 2012. The IRS was swamped and casting about for ways to triage the applications and handle them more efficiently. And there's the rub. That would have been easy under the original law, the Revenue Act of 1913, as codified in the U.S. Code, in its relevant entirety:

26 U.S.C., Title 26 Ch. 1, Part 1, sec. 501(c)(4)…. [Internal Revenue Code]

(4)(A) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes. [emphasis added]

(4)(B) Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.

Just follow what the law says on its face – approve an entity "exclusively" for the enumerated purposes – and there's no problem at all. None. Follow the law, and NO organization with the slightest whiff of political activity is eligible. Such organizations are, by definition, excluded.

So what went wrong? In 1959, for reasons that remain obscure, the IRS decided to issue regulations that contradicted "exclusivity." The exact, fundamentally irreconcilable language the IRS adopted by regulation (the statute remained unchanged) created an impossible quandary for a regulator: "An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community."

How can anyone square that circle? For some reason 501(c)(4) organizations remained non-controversial for more than fifty years. And the controversy arose only because right-wing politically-engaged Tea Party groups in large numbers were trying to take advantage of a fundamental irrationality in tax regulations. There's a kind poetry in that, as these willful, would-be tax cheaters created an inflated, politicized, made-up problem that still obscures the real problem: trying to enforce incoherent law.

In June 2013, the Inspector General for Tax Administration reported that, of the 5,000 or so relevant cases, the IRS identified 298 as "potential political cases," less than 6 per cent of all cases. And for all the accusations hurled by Tea Party groups and their allies about unfair treatment, in the end, none of their applications – not a single one – was denied 501(c)(4) status by the IRS. Further underlining the political speciousness of the right-wing lie machine, IRS rules allow 501(c)(4) status to apply to anyone who CLAIMS it, whether they've applied yet or not.

Inspector general's behavior prompts call for investigation

Yes, the IRS inspector general identified 298 "political" cases (and a few others in grey areas) out of the 5000-plus reviewed – but of those 298, the inspector general found only 96 identified by "Tea Party," "9/12," or "Patriots," but did not identify the names attached to the other 202 "political" cases, thus blurring the apparent reality that Tea Party type groups, despite the overt political nature of their names, still represented only a minority of the "political" applications reviewed. The facts seem to suggest some even-handedness by the IRS, whatever tactical clumsiness it may have had in engaging a standard that had no reliable meaning.

The suspicious sloppiness of the inspector general's report, which fed the paranoid fantasies of the unpersecuted right, has contributed to a recently-filed ethics complaint against the inspector general himself. On February 5, two House Democrats – Gerry Connolly of Virginia and Matt Cartwright of Pennsylvania – filed a 22-page complaint prompted by the inspector general's having briefed only Republicans on aspects of the Affordable Care Act, as well as the inspector general's numerous meetings with congressional staffers on Republican Rep. Darrell Issa's staff, meetings from which Democrats were excluded.

The inspector general, who is a Republican and a former Congressional staffer, was criticized for the apparent bias of his report as soon as it was released. His report also omitted the fact that his staff had reviewed thousands of IRS emails and had found no hint of political motivation for the ISR procedures. Subsequent reports have reinforced the conclusion that the IRS did nor "target" or "single out" any particular political ideology in their efforts – which ended up approving every application.

The ethics complaint filed with the Integrity Committee of the Council of the Inspectors General on Integrity and Efficiency (CIGIE) questions the inspector general's "independence, ethics, competence, and quality control." The Council, which includes members of the Office of Management and Budget and the FBI, has not announced a schedule for its investigation into the complaint.

FBI confirms lack of IRS wrongdoing. Right wing fumes.

The Wall Street Journal, reporting on January 13, continued to assert that the unproven "heightened scrutiny" was a reality:

"The Federal Bureau of Investigation doesn't plan to file criminal charges over the Internal Revenue Service's heightened scrutiny of conservative groups, law-enforcement officials said, a move that likely will only intensify debate over the politically charged scandal. The officials said investigators didn't find the kind of political bias or 'enemy hunting' that would amount to a violation of criminal law. Instead, what emerged during the probe was evidence of a mismanaged bureaucracy enforcing rules about tax-exemption applications it didn't understand…."

Clearly The Wall Street Journal doesn't understand, or doesn't want to understand, that in this instance, the "rules about tax-exemption" are not merely incomprehensible, but violate the underlying law. But the Journal story goes on for most of its length editorializing about its hopes that the continuing investigation will finally turn up something against someone.

Later the same day, Fox News pushed the surreality of the right's presumption of guilt by somebody somewhere a little harder, albeit with a belated "allegedly" after treating the "scandal" as a fact:

"The FBI has so far found no evidence that would warrant the Justice Department filing criminal charges in its investigation into the IRS targeting scandal, federal officials confirm to Fox News. The findings, which were first reported by The Wall Street Journal, could intensify the debate over the scandal, in which the IRS allegedly targeted Tea Party and other conservative groups applying for non-exempt tax status for special scrutiny." [emphasis added]

Headline: "New Dark-Money Rules Won't Stop Dark Money"

Under that headline, Mother Jones responded to the proposed new IRS rules on 501(c)(4) non-profits with four reasons why they wouldn't matter much. For one, the rules don't define what "primarily" means, so there's no guideline for how much political activity is too much. Also the proposed rules apply only to 501(c)(4) non-profits, not any of the other dark money pipes – for example, the rules don't apply to 501(c)(6) non-profits, which the Koch Brothers used to distribute $250 million in dark money in 2012. And in any case, the proposed rules are only "proposed" and may never be enacted.

Mother Jones also points out that the IRS, in the midst of recent budget cuts, job cuts, and political attacks, is afraid of seeming partisan and so prefers to do as little enforcement as possible.

Mother Jones does not mention that none of their analysis cuts to the basic problem in the law: that no 501(c)(4) non-profit organization is allowed by law to do ANY political activity. There is no mention of the obvious Gordian Knot solution to the problem: scrap the rules, just enforce the law. Nobody wants that. Not Republicans, because they're awash in dark money to such an extent they hardly know where to spend it. And not Democrats, who get enough dark money to keep hope alive that someday they'll get as much as Republicans.

Adding to this bipartisan morass of meaninglessness, the Republican majority of the House Ways and Means Committee, on a straight party-line vote on February 18, approved H.R.3865 and sent it to the full House for a vote that may or may not happen. Introducing the bill a month earlier, committee chair Dave Camp began by asserting a new bogus argument in this already largely fact-free debate:

"Over the past six months, this Committee has investigated the Internal Revenue Service's targeting of conservative groups. Though our investigation is not complete, and the IRS still has many more documents to provide to the Committee, we have discovered a concerted effort by the IRS to limit the ability of those targeted conservative groups to operate and engage in constitutionally protected public debate."

Republican: First Amendment demands subsidy for rich folks' speech

When Dave Camp says "constitutionally protected public debate," he's calling on the free speech rights of the Constitution's First Amendment, and he's doing it with the purest dishonesty. There is NO free speech issue involved with 501(c)(4) organizations. People in those organizations can say whatever they want (usual restrictions apply) and suffer no penalty.

The sole relevant point of tax-exempt status is that it provides a government subsidy for the approved activities. That subsidy takes the form of reduced taxes for donors to tax-exempt organizations, a donor class dominated by the rich. It other words, it's another form of welfare for the wealthy, justified by the argument that the money is going to support the general welfare as recommended in the Constitution's preamble.

For Dave Camp and his ideological clones, rich people deserve to have their political speech subsidized by the government in order to protect their First Amendment free speech rights, while keeping their identities secret – a perfectly egalitarian position, since anyone, no matter how poor, is free to make the same donations and get the same tax benefits and secrecy. That's a patently dishonest argument the powerful have long made and too few have challenged.

In the 2012 election cycle, outside groups who reported to the Federal Election Commission spent more than $1 billion to influence the vote. About a quarter of that was 501(c)(4) spending. This sector of non-profit political spending amounted to $1 million in 2006. The total was up to $92 million in 2010 and went over $250 million in 2012 – all subsidized by a federal government that allows donors to hide their identities.

The original law covering 501(c)(4) tax-exempt organizations [see above] is really clear: to be tax-exempt, you cannot do any politics. No one in authority anywhere seems to want to enforce this law as it stands. Democrats propose ineffective new regulations to replace the ineffective old regulations, even though none of these regulations are based in the law. Republicans argue for a new law which will block any enforcement of the currently unenforceable regulations in order to have their IRS witch hunt go on distracting the credulous.

In July 2011 – almost two years before the "scandal" was manufactured – three organizations (Public Citizen, Democracy 21, and the Campaign Legal Center) and a congressman (Democrat Chris van Hollen) filed a petition with the IRS requesting that the IRS revise its 501(c)(4) regulations to conform to the law. The IRS did not start work on new regulations and did not respond substantively in any other way. In the summer of 2013, these same plaintiffs filed a complaint in U.S. District Court for the District of Columbia, asking the court to order the IRS to follow the law. In the words of the complaint:

"Defendant Internal Revenue Service (IRS) has for many years violated the Internal Revenue Code (IRC) by allowing tax-exempt social welfare organizations to expend substantial sums on electoral activity. The IRC [code] provides that tax-exempt social welfare organizations must be 'exclusively' engaged in 'promotion of social welfare.' IRC sec. 501(c)(4). The IRS' implementing regulation recognizes that electoral activity does not fall within the scope of activity promoting social welfare. Treasury Regulation (TR) sec. 1.501(c)(4)-1(a)(2)(ii). But the IRS's regulation also purports to provide that an organization operates 'exclusively' to promote social welfare as long as it is operated 'primarily' for social welfare purposes. Id. Sec. 1.501(c)(4)-1(a)(2)(i). By redefining 'exclusively' as 'primarily' in violation of the clear terms of its governing statute, the IRS permits tax-exempt social welfare organizations to engage in substantial electoral activities in contravention of the law and court orders interpreting it." [emphasis added]

In September 2013, District Judge John D. Bates granted a motion to consolidate this case with another filed on the same issue. He also denied an IRS motion to dismiss the complaints. Since then, there has been no further development on the case.

Altogether these elements comprise the dominant paradigm for American governance in the early 21st century: Republicans keep on lying. Democrats keep on shucking and jiving. Bureaucrats run for cover (except the partisan ones). The Court delays. Most of the media follow the food fight rather than the statute or the facts. And pretty much everyone everywhere ducks the essential, underlying question: Is there ANY rational argument to be made for taxpayers subsidizing any random political activity by anyone anywhere?

William M. Boardman has over 40 years experience in theatre, radio, TV, print journalism, and non-fiction, including 20 years in the Vermont judiciary. He has received honors from Writers Guild of America, Corporation for Public Broadcasting, Vermont Life magazine, and an Emmy Award nomination from the Academy of Television Arts and Sciences.

Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.