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[The IRS], 501(c)(4)'s, and Political Activity
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So, exactly the problem then.
Except if you'd read the report, you'd already know the answer to this part since it's in there.
And the answer is that almost all the potential political cases (of which only about 1/3rd were tea-party-related) were delayed.
Indeed. Especially since 510c4s are not supposed to be primarily political.
So needing to get one up in time for a specific election is ... rather suspicious.
Since one of the major things about being a 501c4 is that you can participate in campaigns and elections, I would say that wanting to participate in a particular election is in fact, not suspicious.
Yes, but the delays varied in length. About 20% only waited one year. Additionally I didn't see a breakdown provided sorting the cases selected for extra scrutiny correlating delay with political affiliation (and indeed, it would be somewhat sinister if there was).
If you know of a specific progressive group that had to wait 2-3 years, feel free to point it out. I would not be at all surprised there is one (or even more than one). I just don't think from the report you can automatically assume one exists, although I think it is probable. But who knows? It could have just been a mad rush of conservative groups trying to create 501(c)(4)'s and so 80% of the ones forwarded for extra review were conservative, only about 1/4 of which were part of the tea party filter, and the 20% that were not conservative got approved in one year.
Unlikely, but possible.
That's not suspicious at all.
Not being primarily political is not at ALL the same thing as not being political.
I could easily see a group concerned about environmental issues wanting to form before an election because one of the people in it has a strong environmental record and the other pumps pollutants into rivers, even if the groups primary focus is not political.
But you would expect lots of scrutiny of that behaviour to ensure you were legitimate and not just forming just to influence the election, no?
The irs FAQ page for this mess indicates that no political biases were found by any investigating parties, but what else are they going to say? You can download a list of all tax exempt groups that exist, and a shorter list of all the ones approved since they centralized the review process, but both are alphabetical with no indication of acceptance date. Obviously both conservative and progressive groups appear on both.
If evenly applied, sure. But we know it was not.
The point is I would assume that virtually every single entity filling for a 501c4 does so with the intent of participating in an election.
If your filter is "everyone who wants to participate in an election." Then you're picking pretty much everyone. Which is fine, if you're actually looking into everyone.
The IRS doing anything is enough to make conservatives think 'the IRS is out to get us.' Its mere existence is an abomination to them that they want it erased from government.
- The job of the IRS is to make sure groups applying for tax-exempt status aren't exclusively political.
- During 2009 and 2010, there were a slew of groups forming that were probably exclusively political in nature; many of them would have been Tea Party groups given the political climate surrounding the ACA.
- To deal with this avalanche of new applications, the IRS uses specific phrases that would be tied to Tea Party groups as an heuristic device, despite the ridiculous ease with which this could appear as an impropriety.
Where is the scandal? Unless these folks were only targeting Tea Party groups -- which would be a problem -- I just don't see it.Imagine you have a DWI check point, where you stop every driver that appears drunk, and every driver that appears black.
I mean, if they were targeting only black people, that would be a problem, right?
Being conservative isn't a class or race related issue. They're also organizations, not individual people. The IRS is a law enforcement agency, it is vital that they be able to narrow down suspects.
They approached it with appropriate scrutiny, it's just that their method was too selective. They are typically understaffed, but certain keywords on returns will typically flag a return for agent review. They just happened to add "patriot" and shit to the computer. Which was, you know, lazy.
If standards were applied evenly, then I don't see a problem. The imaginary persecution complex of the US right-wing may disagree, of course.
Lawrence O'Donnell has been going apeshit about this scandal, and it seems like if you read the actual law for 501c4s, they shouldn't be participating in campaigns at all. Here's the exact text for the section that exempts them from corporate taxation:
The IRS interpretation from more than half a century ago was to change the word exclusively to primarily for the purposes of social welfare, which of course does not mean the same thing. And it looks like they've devolved from "primarily for the purposes of social welfare" to "aw fuck it, open the floodgates" since Citizen's United.
The last clause on the sentence really suggests that the law was intended to be very narrow in this exception, since exclusive usage of net earnings to charitable, educational, or recreational purposes doesn't leave much space for spending on political campaigning. So while I could see an organization that say, sets up a creationism museum or instead has workshops that teach about the wonders of socialism could wiggle their way in to this tax exemption by claiming that they are educational or recreational, I see no way how you could interpret this to allow political campaigning groups tax exemption.
Basically, it seems like none of these political groups should be given corporate tax exempt status at all under this section, no matter where they fall on the political spectrum. Citizen's United still means they can do political campaigning of course, they just aren't entitled to nice perks like tax exemption and anonymous donors.
That's profiling!
I agree, but I am not aware of any keyword based flagging like this having been done before. It isn't just lazy. It's lazy in a novel way. And the IRS is many things, but it is rarely novel.
"There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." -- Andrew Jackson
The answer is in the regulations:
Note that the disqualified activities are limited to those focused on a single candidate, not a political party or an election. This is a very important distinction from 501(c)(3)s and is actually the main reason to elect (c)(4) status.
"There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." -- Andrew Jackson
How else would you go about organizing their categories? Keep in mind this isn't a multi-national corporation with "fuck you" money.
Wanted to pop in to throw out a quick clarification: Super PACs are not 501(c)(4) organizations. They're 527's that file quarterly with the FEC, which recognizes them as "Independent Expenditure-only filers."
It's an entirely different section of the law and a different problem.
I propose that they don't. I think they should just continue to assign applications to examiners and review them in sequence, just like they always have. The sorting didn't actually reduce work load,mince each application still needed to be a signed to a reviewer. . .
"There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." -- Andrew Jackson
The state of New York has a system that looks for keywords and is also able to recognize trends and ratios to determine if something is cockeyed. When it determines that, it'll flag a return for closer inspection.
http://www.rgbrenner.com/blog/2012/01/24/watson-assisting-ny-state-to-catch-tax-cheats/?doing_wp_cron=1368754539.9994480609893798828125
The IRS apparently has,allegedly, something like this in place now.
The main argument from O'Donnell and co. is that the IRS regulations on the subject are inconsistent with the law and the English language, and have been for a very long time. Mostly centering around how they inserted the word "primarily" to replace "exclusively" for the purposes of social welfare.
But again, the last clause of the law seems pretty clear that the activities that should constitute promotion of social welfare are pretty narrow, and not subject to the sorts of games that the subsequent IRS regulations have allowed. For example, spending on a political party seems like it is directly contrary to having the earnings "devoted exclusively to charitable, educational, or recreational purposes", and the tax exemption should be denied outright. It doesn't seem like you need to be a lawyer to understand what the base law says. It's worded so "you can only be doing these things and get this tax exemption," not "as long as you don't do anything specifically prohibited, you get tax exemption."
I know these folks like to play somewhat childish games like "you said I couldn't do X, but you didn't say I couldn't do Y which is essentially the same!", but the consequence of this scandal is that they should update the regulations to be more straightforward and follow the law much more closely. Which to my reading means they should basically eliminate the 501c4 tax exemption for most if not all of these political groups.
This is what they should have done. Then when people start bitching about the process taking too long, they can kindly point out that they are understaffed and it's not their problem if people at the back of the long get screwed since everyone is getting the same scrutiny. If they really want to be slick they can then pull up several of federal and state level programs with awful waiting lists for other services just to drive the point home that it isn't unique to the IRS.
Worst case, the right bitches how useless government is and that things should be privatized because they are incapable of seeing that this is a case of "getting what you pay for." in this case, it's long waiting periods for people at the back of the line when the agency in charge doesn't have enough people. Best case, maybe enough people on the right will briefly remove their heads from their asses and realize that maybe they shou . . . pfhahahahahah can't finish the sentence because it's just won't happen with the chucklefucks running the current GOP. Those guys believe in too much fairy dust and bullshit to make any progress towards effective governing.
It is extraordinarily difficult to prevail on a claim that the treasury regulations are inconsistent with the code, since the department of treasury is charged with interpreting the tax code, and is entitled to signifigant deference in its determinations. Congress can always overrule regulations with changes to the code though.
"There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." -- Andrew Jackson
Congress won't be helping any regulation agencies any time soon. The GOP have made sure of that.
So...if the executive branch is entrusted with interpreting the tax code, presumably they could update the interpretation, yes? I mean, it seems a large part of why we are having this scandal at all is because the regulations are full of holes and hard for the IRS agents to interpret, so there would be an impetus both from the political and civil service sides of the treasury department to make some changes to make this mess go away.
I'm not saying that the IRS needs to eat a lawsuit or have congress throw the book at them, but one way or another the 501c4 regulations should be changed because they are messed up and are leading to lots of tax exemptions that clearly don't match up with a plain reading of the law. I could understand there being some complications with the regulation in gray area cases, but spending on political campaigning is well outside of any gray area.
Like most sections if the code dealing with exempt orgs, 501(c)(4) is a huge morass. We could really do with substantially longer, updated regulations, but the IRS is already so understaffed that the rarely have time to rewrite regulations. They still have so many sections that are missing regulations and have been for years. The tax exempt group, in collaboration with the executive compensation group, has been promising regs for nearly a decade under section 457 (dealing with certain retirement plans for nonprofits) and they still aren't here.
You are absolutely correct that they can change their I reforestation though, but there are procedures for doing so. If they want to initiate a change in interpretation, they need to do it through the formal rule making process where they publish the proposed guidance and give people a chance to comment, then publish a final rule. They can only avoid this in their adjudicative function, but they can't be proactive here. They need to wait for someone to ask for a letter ruling on the issue, but they can't issue a letter ruling on whether something can be a 501(c)(4), because that is a factual determination, and letter rulings can only be on conclusions of law.
Maybe they could issue a revenue procedure describing a new way of processing applications, but that would be subject to notice and comment and there is no way that a rev proc proposing a keyword based sorting system would survive. The out cry would be too great (especially now).
"There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." -- Andrew Jackson
Indeed they should. but you can't expect them to do it 100% smoothly with a fundamental game changer like Citizens United and not a lick of assistance from our legislators. The entirely playing field changed overnight and we left the IRS to twist in the wind and figure it out.
Yes, the accusation is that the standards were not applied evenly. Which is why there is a problem.
This person would be who exactly?
An applicant or filer covered by the relevant section of IRC.
I am honestly surprised to discover that all of these incredibly sketchy applicants weren't just applying so that they could be denied, at which point they could ask for a new ruling that would allow them to undermine campaign finance disclosure even further than it already has been. Independent Expenditure-only and hybrid 527 filers (the so-called super PACs) can already do basically everything a 501(c)(4) can do with the exception of collect money without disclosure. And 527's can do it better because they are explicitly allowed to have electoral activism at the heart of their organization's mission -- and they're still tax exempt. In the wake of citizens united removing the limitations on IE-only 527's with respect to contribution limits and eligible donors, the rapid proliferation of 501(c)(4)'s with explicitly political mission statements felt to me like it was basically bait to start a court case about whether those unlimited and unrestricted contributions really needed to be disclosed after all.
Basically I figured that ultimately, increased scrutiny and the potential for rejection is what these applicants wanted in the first place, their protestations aside.