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Boardman writes: "Karl Rove is the real poster boy for the so-called IRS (Internal Revenue Service) 'scandal' of taking a closer look at applications by political organizations seeking a 501(c)(4) tax status that not only makes them tax exempt but protects their donors with anonymity."

(illustration: Addicting Info)
(illustration: Addicting Info)

The IRS Scandal Is a Supreme Court Scandal

By William Boardman, Reader Supported News

16 May 13-


And who is the poster boy for tax-exempt political hit teams?

arl Rove is the real poster boy for the so-called IRS (Internal Revenue Service) "scandal" of taking a closer look at applications by political organizations seeking a 501(c)(4) tax status that not only makes them tax exempt but protects their donors with anonymity.

That 501(c )(4) is one sweet deal: not only do these organizations get untraceable, tax-free money laundering for their political activities, they get a taxpayer subsidy to do it.

And it gets better: some of these activities used to be illegal, and people working for the Committee to Re-Elect the President (CREEP) – Nixon in 1972 – were convicted of law-breaking, as were some corporate donors. In October 2010 in the New York Times, Jill Abramson noted one illegal Nixon operation was run by "a group of Nixon loyalists, some of whom are leading this year's non-profit push."

Early in 2010, Karl Rove, who was with Nixon in 1972, founded American Crossroads, a perfectly legal, openly political, tax-exempt 527 organization, with no limits on the amount or source of their contributions, and no spending limits. Despite these freedoms, 527s were still prohibited from openly supporting particular candidates, and they had to register with the IRS, disclose donors, and file reports.

The Problem with 527 Organizations Is Some Transparency

527 organizations (a broad category that includes Super PACs) have been an open charade in the democratic process for years, avoiding direct support of candidates while producing material that could only support their chosen candidates. For example the 527 organization Swift Boat Veterans for Truth attacked presidential candidate John Kerry during the 2004 election, without actually expressing direct support for President Bush.

In June 2010, Karl Rove and American Crossroads founded Crossroads GPS (Grassroots Policy Strategies) which, as a 501(c)(4), had even fewer constraints. American Crossroads was one of 1,500 applicants for 501(c)(4) status in 2010.

In 2012 there were some 3,400 applications.

According to the Internal Revenue Code passed by Congress, 501(c)(4) status is reserved for "civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare" [emphasis added]. In 1959, during the Eisenhower administration, the IRS decided to ignore the letter of the law, and wrote rules for 501(c)(4) organizations requiring only that they be primarily for the promotion of social welfare.

Supreme Court Puts Money-ocracy over Democracy

The difference between "exclusively" and "primarily" created a loophole even a non-lawyer could exploit, but it became most useful to $100 million outfits like American Crossroads only after the Supreme Court, with its January 2010 5-4 decision in Citizens United (558 US 310), opened the American political process to virtually any money from any source, with almost no duty to disclose anything.

Similarly, the emergence of 527 organizations derived from another Supreme Court decision, Buckley v Valeo (424 US 1) in January 1976, represented the court's pushback against federal election laws passed by Congress to address some of the recent Watergate abuses. Issued as an anonymous decision "by the court" (with two opposing dissents), Buckley effectively gave money the same legal standing as speech, complete with First Amendment protection, albeit with some restrictions.

Citizens United effectively removed those restrictions.

Who Wouldn't Seek Tax Shelter Under a 501(c )(4) Cover?

Since 2010, the IRS has faced an unexpected flood of applications for 501(c )(4) status from essentially political organizations of all stripes, but especially from conservative organizations. It's hard to find anyone who argues that the IRS responded properly or effectively to this exigency, but it's even harder to find anything but execrable reporting on it either, although there is some good work (by Chris Hayes, Lawrence O'Donnell, Jeffrey Toobin, among others).

Early reporting by the AP (Associated Press) May 11 took the story off the rails in the first sentence by claiming that IRS "agents were targeting tea party groups as early as 2011," attributing the claim to a partial draft of a leaked report, and then repeating the claim in the next sentence. The New York Time story the same day started with a misleading reference to "overzealous audits."

The story got so distorted and detached from reality that even the president in his May 13 remarks didn't have much of a handle on it.

Among the accumulating ironies here is that this is the same AP that so agitated the Obama administration that the Justice Department felt justified in carrying out a wholesale trashing of AP's First Amendment rights. But that was apparently because AP got another leak-based story right.

It's Not as Though the Reality of 501(c )(4) Scams Was a Surprise

The first step toward understanding this IRS story is to realize that 501(c )(4) organizations' carrying out political activity that should be illegal is a real problem and is widely recognized.

Senators Carl Levin, D-Mich., and John McCain, R-Ariz., who co-chair an IRS oversight committee, released a statement on May 13, saying in part:

The Permanent Subcommittee on Investigations has been for several months examining on a bipartisan basis whether the IRS has adequately enforced rules regarding the extent to which tax exempt nonprofit 501(c)(4) groups engage in partisan politics.
We had tentatively planned a hearing on that issue for June. After Friday's announcement that the IRS, to the extent it has been enforcing the law, may have done so in ways that singled out some groups for special scrutiny, we have determined that the subcommittee should investigate that additional issue as well. As a result, we have decided to delay our hearing in order to examine this issue carefully….

In other words, the subcommittee's concern was lax IRS enforcement against a perceived abuse of the tax code, and this concern is reality-based, even though McCain is quoted as talking about "audits" of tea party groups – which is not part of the reality of this issue.

Reality May Never Catch Up with Political Straw Men

There were no audits. There was an evolving and almost comically ineffectual effort by the IRS to sort out 501(c)(4) applications to reduce the number of political organizations seeking tax shelter as "social welfare" organizations.

By May 14, the basic reality of IRS behavior during 2010-2012, while it was still directed by a Bush appointee, still had not emerged. The director of the tax exempt division of IRS said that about 300 applications for 501(c )(4) status were given special scrutiny, and of those about 75 were for "tea party" or similarly tagged organizations.

The IRS has not indicated who made the other 225 applications that got special attention, but they were apparently not conservative or tea party-like groups.

According to the IRS, not one of the applications was denied. According to the head of the Kentucky 9/12 Project, his group refused to answer IRS questions and was approved anyway.

"There's absolutely no targeting" of conservative groups, IRS Commissioner Doug Shulman testified to Congress in March 2012. Shulman is a former Bush appointee who completed his term in November 2012.

Senator Rubio Demands Phantom Resignation

In a letter to Treasury Secretary Jack Lew on May 13, Senator Marco Rubio, R-Fla., wrote – awkwardly – in part:

Furthermore, it is clear the IRS cannot operate with even a shred of the American people's confidence under the current leadership. Therefore, I strongly urge that you and President Obama demand the IRS Commissioner's resignation, effectively immediately. No government agency that has behaved in such a manner can possibly instill any faith and respect from the American public.

Although there is no IRS commissioner currently, Rubio's office said the letter was referring to acting commissioner Steven T. Miller, who was Shulman's deputy and who served as deputy commissioner for services and enforcement during the time alleged "targeting" took place, a position he continues to hold. According to his official biography on the IRS website:

As Deputy Commissioner for Services and Enforcement, Miller provides direction and oversight for all major decisions affecting the four taxpayer-focused IRS Divisions: Wage and Investment, Large Business and International, Small Business/Self-Employed, and Tax Exempt and Government Entities.
He also provides the executive direction and leadership for the IRS Criminal Investigation Division, which investigates income tax evasion and related financial crimes; the IRS Office of Professional Responsibility, which administers the laws and regulations governing the practice of tax professionals before the IRS; and the IRS Whistleblower Office, which receives information on tax cheating and provides appropriate rewards to whistleblowers.

Miller Memo Spikes Tax Collection from Big Donors

Miller, a 25-year career employee of the IRS, published an op-ed article in the May 14 issue of USA Today, saying that "we should have done a better job," adding:

Mistakes were made, but they were in no way due to any political or partisan motivation…. We sought to centralize work in this area in 2010 because our office of Exempt Organizations observed a sharp increase in the number of section 501(c)(3) and 501(c)(4) applications coming from groups potentially engaged in political campaign intervention. Between 2010 and 2012, the number of applications for 501(c)(4) status more than doubled, from 1,591 to 3,398.

On July 7, 2011, Miller issued a memo that stopped an IRS effort to collect gift taxes from five major donors on their gifts to 501(c )(4) organizations such as Crossroads GPS or Priorities USA. The action to stop tax collection was taken in response to a written request to Shulman on May 18, 2011, from six senators: Orrin Hatch, Jon Kyl, Pat Roberts, John Cornyn, John Thune, and Richard Burr – all Republicans.

In a story on Miller's memo the same day, the New York Times reported:

The I.R.S. has said that the White House had nothing to do with its audits, and its original statement said they were begun by lower-level employees and that administration officials were not notified. Frank Keith, an I.R.S. spokesman, said Thursday that the estate and gift tax unit had in fact suspended those audits in March, although the agency's initial confirmation of the audits did not mention any such action.

"All decisions to open, suspend and close the audits were made by career civil servants and were not the result of any outside influence," Mr. Keith said.

Media Makes Up Scandal Based on Little Evidence

All the exaggerated reporting to date has been based on an unquantified fraction of a draft report by the Treasury Department's inspector general that was leaked to AP, Reuters, and perhaps others, by unidentified people, reportedly congressional aides with access to the preliminary report. In others words, the first phase of this "scandal" appears to be a political spite balloon floated by partisan players, with whom major media unprofessionally colluded, either through sympathy or incompetence.

As this is written, the inspector general's report has not yet been released, but that hasn't prevented senators like Mitch McConnell, R-Ky, from suggesting that it describes "thuggish practices" or Joe Manchin, D-W.Va., from calling the unknown scope of activity "unacceptable and un-American."

The absence of a final report hasn't stopped Attorney General Eric Holder from plunging into the melee, telling reporters on May 14 that, in regard to using "tea party" or "patriot" as search criteria, even though these criteria were dropped almost two years ago and replaced by other, more benign criteria several times since:

The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters related to the IRS…. Those actions were, I think as everyone can agree, if not criminal, they were certainly outrages and unacceptable. But we are examining the fact [sic] to see if there were criminal violations.

What Would a Political Reaction from Justice Look Like?

Unlike the president the day before, the attorney general does not allow for the possibility that the alleged behavior may or may not have happened as reported. Instead he rushes to judgment of IRS functionaries in a way he has conscientiously avoided when considering bankers or torturers.

And when the Justice Department and the FBI look for criminal violations, is there any likelihood they'll probe the legality of any fundamentally political organizations getting the benefit of a tax subsidy and secrecy for their fanciful portrayals of "social welfare" organizations?

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. your social media marketing partner


A note of caution regarding our comment sections:

For months a stream of media reports have warned of coordinated propaganda efforts targeting political websites based in the U.S., particularly in the run-up to the 2016 presidential election.

We too were alarmed at the patterns we were, and still are, seeing. It is clear that the provocateurs are far more savvy, disciplined, and purposeful than anything we have ever experienced before.

It is also clear that we still have elements of the same activity in our article discussion forums at this time.

We have hosted and encouraged reader expression since the turn of the century. The comments of our readers are the most vibrant, best-used interactive feature at Reader Supported News. Accordingly, we are strongly resistant to interrupting those services.

It is, however, important to note that in all likelihood hardened operatives are attempting to shape the dialog our community seeks to engage in.

Adapt and overcome.

Marc Ash
Founder, Reader Supported News

+75 # Robert B 2013-05-16 09:15
Suppose someone had a bumper sticker on the back of his car that said, "I HATE COPS!" Even though that's legal to say under the First Amendment, I think it's likely he might get pulled over more often than someone without such a bumper sticker -- not just out of harassment, but to hold such a person to the letter of the law. So along comes the Tea Party people, screaming "I HATE TAXES!" to anyone who will listen. Is it really all that surprising that the IRS might check these people out more closely than other people who haven't made a big deal about being anti-tax extremists? Who is more likely to weasel on their taxes? And is it really so scandalous that the IRS hold these tax-exempt organizations to the letter of the law? I don't see that the IRS (or Obama) was engaging in "screwing their enemies" as Nixon did.
+36 # MainStreetMentor 2013-05-16 09:57
I agree with Robert B. Obama and his legal beagles should be fighting and countering the accusations of the Pea Party with facts (such as this excellent article has pointed out) - instead Obama is capitulating again!
-19 # HowardMH 2013-05-16 10:39
That is our leader Obama the Wimp

What about the scandal of Rove (bushie's brain) and the Millions and Millions he has obtained strictly for political purposes?? Where is the Audit on Him???

Ohhh, sorry I forgot for a minute Bushie talks to Obama the Wimp quite often and told Obama the Wimp to tell his puppet, Holder not to do anything to Rove.
-48 # edge 2013-05-16 11:34
Robert B with his head in the sand!

Yep, they deserved it you say!
PLEASE remember this when a GOP occupies the White House...but you won't because you are only one sided and only want your way like a spoiled brat!

Paybacks are a bitch!
+14 # vgirl1 2013-05-16 17:09
It will be a long time before a TPer gets into the WH.
+7 # RLF 2013-05-17 07:21
What is the difference...Ob ama has basically been Bush. Problem is that the GOP does this type of thing constantly and the Dems. never hold their feet to the fire. It is like the Dems being called 'tax and spend' when it is the GOP that has run up the huge deficits...exce pt the Dems never call them on the BS. Why? probably because the Dems want the same thing as the GOP but don't want to take the blame.
+36 # jwb110 2013-05-16 09:57
The Philistines are at the gate to the Democratic/Repu blic of America. Save killing all these people off, it is going to take a huge backlash of the citizens of this country. The American people have become cowed and speek liberal ideas in hushed tones. It is time that the citizenry talk louder and push farther to straighten out this mess.
For those who have bothered to read history the Evangelism of the the late 1850s was part of a rich against poor, slave against freeman, and regressive ideas versus progressive ideas.
Later in the 1800s, the Golden Age, it was still rich against poor, labor treated as slaves, and regressive support of the idle rich. And where did that lead us? Anarchists, violent and necessary labor movements in which the Federal Gov't sent in troops to put down the strikers. No child labor laws, work houses, tenement housing, low home ownership, specific prejudice about specific groups. The heel of the rich on the neck of the poor and no way for the poor to rise to middle class status.
Now the Anarchy is in the Congress and the cronies like Fox and Karl Rove.
Pitchforks and torches may be the only way to right this terrible wrong.
+5 # RLF 2013-05-17 07:22
Remember good ole child labor!
+42 # mdhome 2013-05-16 10:09
The director of the tax exempt division of IRS said that about 300 applications for 501(c )(4) status were given special scrutiny, and of those about 75 were for "tea party" or similarly tagged organizations.

The IRS has not indicated who made the other 225 applications that got special attention, but they were apparently not conservative or tea party-like groups.

So, it does not sound like only the teabaggers were targeted, is anyone complaining about those 225 that were also looked at? This is the result of the SCOTUS with their treasonous ruling.
-5 # HowardMH 2013-05-16 10:48
The big problem or challenge that we face is getting enough people to actually understand what is happening and get pissed off enough to do something about it.

Having a few thousand screaming idiots on the mall in DC or any other city isn't going to cut it, neither is chaining one’s self to the White House Fence - what a joke that was. They all need to be IN THE Capital Building while congress is in session and raising some very serious hell.

How much success have you had with the TOTALLY NON VIOLENT protests over the last few years?

I’m no fan of Sarah’s but this comment is just so appropriate. So how is that Hopei, Changie working out for you now?
+26 # X Dane 2013-05-16 15:27
Robert B.
The REAL SCANDAL is that these people and organizations are tax exempt

In essence WE are paying for that, because they are using all that SECRET MONEY to subvert our elections. That is more than a scandal.....It is a crime.

And Edge, you are of your rocker, and YOU are a spoiled brat. None of the teaparty creeps were refused the tax exempt status. A DEMOCRATIC outfit WAS refused as being too political. So much for Payback as being a bitch.

+21 # vgirl1 2013-05-16 16:53
100% agree.

IF there had been no Citizen's United, these potentially false non-profits would never have arisen or had to be reviewed for authenticity.

I still suspect that since the IRS did not even eventually deny any of them non-profit status, that many of them got through the review even though they probably should not have.
+27 # vgirl1 2013-05-16 17:08
Where is / was the outrage of the TPRepublicans against the IRS when the IRS, under the same Bush appointee who was in charge when these current events occurred, targeted Black groups like the NAACP? Not only did they target them but also they used the full weight of the IRS and audited them. I saw no TPRepublican, media, Democrat or citizen outcry / outrage over that use of the even more intrusive IRS weapon called the AUDIT. Yet here is just a review of legitimacy to receive a tax waiver/exemptio n as a non-profit and everyone has their pants on fire with outrage. Again, when the government intrusiveness/o versight nvolves Black organizations it appears to be okay. When it involves White organizations it is overreach and big government coming to get "the poor little White guys". What a farcical hypocrisy we seem so willing to allow and perpetuate in this country and when it constantly seems to have overtones of race it is appalling.

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