Since I last wrote about this issue, the acting commissioner of the IRS Steve Miller has been forced to resign, and another IRS official has also been fired. Heads are rolling because the tax-exempt office used what seemed a likely efficient filter (the use of tea party or patriot in group names) to select applicants for C-4 status for review to see if they should be applying instead as 527s, groups that are allowed to be politically active. C-4 groups are supposed to operate "exclusively" for social welfare purposes, although the IRS has, through administrative interpretation in regulations, permitted such groups to qualify even when they do not satisfy the letter of the law, so long as they operate "primarily" for social welfare purposes.
But Majority Leader Boehner isn't happy with a few heads rolling and a media feeding frenzy over the purported "scandal"--he wants people to go to jail. See Rayfield, Boehner on IRS: Who's going to jail over this scandal, Salon.com (May 15, 2013). And Rep. Camp at the Friday hearing, in which Republicans indulged in egregious insults to government employees, called the issue just the "latest example of a culture of coverups", "a problem of the IRS being too large, too powerful." Rubin & Tiron, Existing IRS Cheif Miller Denies Targeting as Republicans Pounce, Bloomberg.com (May 17, 2013).
And the Treasury Inspector General on Tax Administration (TIGTA) report has been released, described by his testimony Friday at what promises to be the first of many hearings conducted by Congress on this matter. See Inspector General's Report on the IRS, New York Times (May 14, 2013) (full report available). Note that the reason the Inspector General considered the use of "tea party" or "patriot" problematic wasn't that it was not a potentially good indicator of whether a group was engaged in too much political activity, it was that the tag would capture every group that had "tea party" in its name, unlike the use of less targeted searches, which would capture some but not all groups. So he thought it was an inappropriate way to select groups for scrutiny, but he did not think the groups were politically or ideologically targeted by the IRS. He just thought there was a poor management problem.
All those on the right who have been repeating the "big, bad government" meme are nonetheless having a ball. They have long targeted taxes, and the IRS as the administrative agency responsible for collecting them and going after tax cheaters, as the preeminent symbol of all they hate about the American experiment in self-government and their desire for a free hand for, and rule by, the corporatist and wealthy elite. Taxes permit government to act on behalf of all the people, rather than just catering to the needs of those who can buy access. And so taxes are a prime target for moneyed groups on the right.
So they are playing this as a rogue government agency out to get ordinary people. See, for instance, the right-wing Institute for Policy Innovation's latest release (from TaxBytes.email@example.com, May 15, 2013), in which it uses the tax-exempt office's use of tags like 'tea party' to identify C-4 applications for scrutiny to support its claim that "our freedom is in peril" from government agencies, because "we can't trust the IRS". So the IPI complains about providing personal financial information to the IRS and the concern that "they" can't be trusted with the info is used as a basis for arguing for moving from an income tax (which is progressive) to a consumption tax (which is regressive--not taxing capital income of the wealthy). Then it goes on to claim that the inability to trust the IRS is just another reason to repeal the health care reform (which is mildly progressive) enacted under Obama. And a reason to object to the development of a "real-time tax system" that would allow the IRS to compute tax liabilities for taxpayers (which is progressive, since the wealthy hire whatever tax advisers they need, but many an earned income tax credit goes unclaimed because the working poor don't know they are eligible for it), since a system that allows the taxpayer to submit information and let the agency (using computers) calculate the tax due is "an affront to our system of voluntary tax compliance." The fact that an office used what seemed like an efficient label for separating out likely candidates for disqualification for C-4 status is used to argue that there are "powerful enemies within the Government Class" that are using "IRS harassment, purposely delaying flights, or releasing felons" to "fight back" against the purportedly righteous effort by the right to "limit the spending and power of the federal government."
The facts suggest otherwise. As Stuart Levine commented on an earlier posting here,
An organization seeking to qualify under 501(c)(4) does not need a determination letter. Why then were they seeking these letters? Well, the (likely well-founded) suspicion of the people in Cincinnati was that these organizations wanted a determination letter under 501(c)(4) to assure donors that they weren't 527 organizations and that their political donations would be anonymous.
[He notes further that] the applications for all organizations seeking a determination letter are reviewed. That's 100% subject to review, not 1% or 2%. Second, one of the issues that has to be focused on in a 501(c)(4) review is whether the organization was engaged in an undue amount of political activity.
The IRS has stated in its Q&A on the topic that "it started using 'tea party' as a shorthand in examining non-profit groups because employees had specific concerns about some groups with that name. IRS employees had seen cases of organizations with the name Tea Party in which political activity was an issue that needed to be reviewed for compliance with legal requirements." The IRS Q&A goes on to say that was an "inappropriate criterion"--it could have used "politically neutral" terms to get at the same groups that would be reasonably subject to greater scrutiny. Personally, I doubt that selection of groups with "tea party" would have been considered inappropriate in a world that didn't have a dysfunctional Congress with a partisan divide so wide you could drive a Mack truck through it.
Further, the IRS targeted Democratic-leaning organizations for greater scrutiny in the same period that it targeted tea party groups. Emerge America, a liberal group that trains women for public office, had its status as a C-4 denied and was forced to file as a 527--disclosing its donors and paying some taxes. Julie Bykowicz & Jonathan D. Salant, IRS Sent Same Letter to Democrats that Fed Tea Party Row, Sources Say, 94 DTR GG-2 (May 15, 2013). Progress Texas, a liberal group, faced the same line of questioning, according to the Bloomberg report. The two law firms that represent 33 Republican-leaning organizations claiming they were targeted by the IRS acknowledged that none of their clients was rejected for tax-exempt status. Id.
The problem isn't targeting of potentially political groups--it's that the IRS has administratively applied the law (requiring "exclusive" operation as a social welfare organization) to permit organizations to conduct a great deal of political campaign intervention activity--so long as it isn't the "primary" activity of the organization. This allows both Democratic and Republican groups to "game a system [that is] intended to encourage citizens to engage in charitable endeavors and support projects or programs that braodly benefit communities." Julie Bykowicz, IRS Probe Sheds Light on Nonprofit Election-Year Activity Boost, Bloomberg.com (May 17, 2013).
As notes Melanie Sloan, executive director of Citizens for Responsibility and Ethics: "The real problem is that phony 501(c)(4) groups are exploiting the tax laws to protect donors who don't want to be held accountable for vicious, deceitful political ads." Julie Bykowicz & Jonathan D. Salant, IRS Sent Same Letter to Democrats that Fed Tea Party Row, Sources Say, 94 DTR GG-2 (May 15, 2013).
Baucus (registered as a Democrat but comporting himself on tax issues like a Republican) and Camp (a dyed in the wool GOPer) both claim that this controversy should provide "momentum" for their ideas about "tax reform"--ideas which involve "broadening the base" and "lowering the rates" (an idea whose time came more than a quarter-century ago and shouldn't be revisited now when we need to raise revenues to support education and infrastructure development). See Rubin & Cook, IRS Scandal Bolsters Case for Tax rEvision, Camp and Baucus Say, Bloomberg.com (May 16, 2013).
That's silly--what this episode shows more than anything seems to be that we have underfunded the IRS, so that there is insufficient training of employees and insufficiently skilled management leading all of the various offices. We need to raise more tax revenues to fund necessary government functions adequately, as well as deal with the many problems we have deferred for decades as we have moved to the right, such as climate change, infrastructure decay, and educational funding.
Ron Wyden has a better idea for combatting the "problem" demonstrated by the potential for bias in groups picked for scrutiny in the tax-exempt application process: make all groups that spend any money driectly on politics disclose their donors. That eliminates the kind of difficult line-drawing that requires discretionary decisionmaking by low-level functionaries and instead provides a workable bright-line rule that politicking requires disclosure. Outside groups spent $1 billion in the 2012 elections, id., a result of the Supreme Court's worrisome Citizens United decision granting corporations a First Amendment right to intervene in political campaigns as "persons" under the law, even though corporations can't actually vote. (One wonders whether they don't get even better selection of political handymen through their liberal use of money.) Let them all reveal just who put up that money, to support which positions. That way, voters can decide, with full information.