As I've noted in several posts on A Taxing Matter (see links, below), the media and right-wing "hearing" frenzy continues over the purported IRS "scandal" from "targeting" conservative groups for extra scrutiny in determining whether to approve application for 501(c)(4) "social welfare" organization status (referred to herein as "C-4 status"). It's a silly affair. Obama and his minions appear to have apologized not because anything wrong was done but because the (GOP-appointed) Treasury Inspector General for Tax Administration (TIGTA) was issuing a report that suggested the use of a key word that might be in many conservative groups' name was "inappropriate" and that the failure of IRS leaders to correct that represented "mismanagement."
I find it hard to see the reasonable use of a term that most of us associate with political campaigns "tea party" and "patriots" as inappropriate as a keyword for filtering out applications for C-4 status for further review of whether the group is planning to engage in politicking rather than social welfare activities. The mismanagement seems really to go back much further to a pro-taxpayer interpretation that put the IRS in an untenable position. The law passed by Congress states that C-4 organizations are supposed to be dedicated "exclusively" to "social welfare" activities. Regretably, years ago tax administrators recognized that many of these groups were actually doing lots of politicking. Rather than take the (politically) risky step of denying C-4 status to those groups, the regs officially interpreted the statute to require merely "primary" social welfare activity, thus opening themselves up for the impossible task of policing the border between doing some politicking and doing too much and opening the C-4 status up for the games-playing that some wealthy sponsors of organizations have engaged in--that is, hiding politicking behind C-4 status in order not to reveal that a purported 'grass roots' organization is in actuality a corporate-funded lobbying and campaigning organization.
Readers at the New York Times who responded to Frank Norris's finance column, A Fine Line Between Social and Political, New York Times (May 17, 2013) show, on the whole, that they get it. See The Tale of the I.R.S. in Cincinnati, Letters to the Editor, the New York Times (May 21, 2013).
- Russ Weiss (New Jersey) notes that "the fundamental problem here was actually the result of a too passive government. Clearly, political entities ludicrously masquerading as 'social welfare' groups have been allowed by supposed government watchdogs to subvert our political process for far too long."
- Melvin Jacobowitz (a tax lawyer from Miami) explains that "[t]he I.R.S. properly targets a tax-exempt application for further review if there is a likelihood that its operations will be political rather than educational or for social welfare. This can be indicated by the group's name. The application is not denied solely because of the name. ... The I.R.S. would violate its obligations if it failed to target such applications for further inquiry. ...There was no need for an apology."
- Neil Dworkin (Connecticut) adds that non-profit hospitals that apply for charitable status under 501(c)(3)--a provision allowing tax-exemption to the organization and tax-deductible contributrions by donors-- have to "demonstrate a level of community benefit that is at least commensurate to the value of [their] tax exemption. In light of their sometimes murky activities, the I.R.S. should require 501(c)(4) organizations to give some transparent measure of social welfare in order for them to continue to carry that designation."
The one letter to the editor that misses the point is, not surprisingly, from Texas. I say "not surprisingly" because I graduated from high school in Texas when much of Texas was known for its racism and bigotry towards anyone that wasn't "white" or "Christian", with private schools often established to avoid anything but token integration and ensure that "God" and "education" were synonymous for many Texan children. It has since moderated its racism somewhat but at least the part I know best has become radically anarcho-libertarian, pro-gun, pro-business (the word "regulation" is almost a cuss-word in most of Texas), anti-taxes/anti-government and not very charitable towards its poor, its hungry, its homeless, its environment or any kind of intellectual (except in the oases around Austin and, to some extent, around other universities). So what did the Texan commentator have to add to the IRS sham-scandal discussion?
- James Russell (Bellaire, Texas) suggests that it doesn't even matter whether there was intentional or unintentional mistreatment of Tea Party groups. What matters is that "the federal government is an elephant and we are all mice who can be squashed flat at any time."
This is a perfect example of the failure of the right to look at all relevant facts. It ignores the fact that while groups with "tea party" in their names were selected for scrutiny, there is no evidence that any group was denied C-4 status inappropriately. It ignores the fact that failure to scutinize these groups for politicking would essentially be carte blanche for donors to avoid the sunlight required by our laws under the rules for 527s. And it disregards the fact that government is in fact a major provider of the wealth that has created most of Texas--from tax expenditures for the Oil and Gas Industry, to railroads to highways, Texas has depended on government for its economy throughout its membership in the Union.