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Thinking About the IRS Scandal

IRSDuring the past month, a slew of news stories have covered the scandal at the Internal Revenue Service.  Let’s begin with a primer on the IRS.

The Internal Revenue Service operates as an independent agency under the Treasury Department.  The IRS Commissioner is appointed by the President with the consent of the Senate.  Congress requires the IRS to review every 501 (c) (4) application for tax-exempt status to weed out organizations that are partisan, political, or that generate private gain. To secure this status any exempt group must be working to promote “social welfare” and that political action not constitute its “primary activity.”

On May 10, a top IRS official apologized for the agency’s staffers singling out for further scrutiny conservative groups seeking tax-exempt nonprofit status.  Between 2010 and 2012, the IRS set aside about 300 applications for a closer look, 75 of which simply used names like “tea party” or “patriot.”  The IRS grilled them about their members, their donors, their public statements, and who they employed.  Dozens of conservative nonprofit groups, often small organizations without money for lawyers, found themselves caught in a maze of bureaucratic delay and stymied by demands for seemingly endless paperwork.

Whether caused by an administrative mistake or a political vendetta, the IRS’s filtering process created a huge problem.  It’s abhorrent for a powerful agency to target any group just because of their political views.
An angry President Obama called such behavior intolerable.  The acting IRS Commissioner Steven Miller resigned.  The Justice Department is investigating as well as several congressional committees.

Two weeks after revealing the conservative targeting, the IRS released documents indicating that liberal groups were singled out too.  Some liberal groups faced further investigation but not as many nor as systematically as the conservative groups.  It should be noted that none of the screening-by-name organizations, conservative or liberal, were eventually denied tax-exempt status.  The only group that lost its tax exemption was a progressive organization, the Maine Chapter of Emerge America, which trains Democratic women to run for office.

Republican strategist Karl Rove initiated the use of the tax exemption for 501 (c) (4) social welfare organizations to promote candidates and causes when he formed American Crossroads in 2010.  This inspired Democratic operative Bill Burton to do the same, starting Priorities USA in 2011.  In 2012, the Rove-right and Burton-left groups spent hundreds of millions of political advertising dollars, much of it from secret donors.  They function as political front groups masquerading as tax-exempt charities.

Members of Congress and government watchdog groups argue that many taxpayer-subsidized tax-exempt organizations abuse the privilege and violate the legal restrictions on political activity.  The abuse increased in the wake of the Citizens United ruling that invalidated legislative restrictions on corporate and union political dollars.
The real problem that ignited the scandal lies not in the IRS closely scrutinizing the applications from tea party groups, but rather that the agency did not closely scrutinize the applications from other questionable groups as well.

The scrutiny was right, the targeting wrong.

Meanwhile, IRS funding has been cut 17 percent since 2002.  IRS workers have not had pay increases in three years, even as Congress has piled on new duties.  Adding to the agency’s woes, the Treasury Inspector General for Tax Administration reported that the IRS lacked “consistent oversight” for excessive credit card and conference expense spending.

Congress needs to address the regulations governing which groups get tax exemptions in the first place.  The existing standard is porous enough that groups most people define as political (American Crossroads and Priorities USA) are somehow nevertheless declared tax exempt, free to flood campaigns with unlimited money from sources they are not required to disclose.

Ralph Scharnau teaches U. S. history at Northeast Iowa Community College, Peosta.  He holds a Ph.D. from Northern Illinois University.  His publications include articles on labor history in Iowa and Dubuque.  Scharnau, a peace and justice activist, writes monthly op-ed columns for the Dubuque Telegraph Herald.

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