Since the Supreme Court’s Citizens United decision, certain independent advocacy groups have played an increasingly large role in political campaigns, spending an estimated $250 million during the 2012 presidential race. Now, news that some Internal Revenue Service employees targeted Tea Party and other conservative groups that engaged in political advocacy has reignited the debate over whether some of these organizations are abusing their tax-exempt status.
And some observers are concerned that the furor over the IRS singling out those groups could result in less legitimate scrutiny if the agency backs away from the political hot potato.
President Obama calls reports that the IRS targeted conservative organizations for extra scrutiny "outrageous."
President Barack Obama on Monday called the targeting of conservative groups “outrageous,” and politicians from both sides of the aisle demanded accountability from the agency.
At issue is a type of nonprofit group called a 501(c)(4). The tax code allows people to form such a group under the rubric of a “social welfare organization” for the purpose of informing the public on issues like vanishing rain forests or gun control.
While contributions to a 501(c)(4) aren’t tax deductible, they do offer one big advantage to donors: The money given does not need to be publicly disclosed.
What 501(c)(4) groups can do is advocate -- through advertising and by other means -- for or against a particular view: that Americans need to take action to conserve energy, for example.
What they can’t do, according to IRS regulations, is spend most of their funds on outright campaigning for a candidate. Campaign election activity cannot be their primary activity.
It’s up to the IRS to determine whether a 501(c)(4) group has crossed the line and has become primarily a campaign group.
The $250 million estimate from the Center for Responsive Politics makes 501(c)(4) groups important, but not dominant players on the political stage. Groups called super PACs, which are required to disclose their donors, spent more than twice as much as the 501(c)(4)s, according to the same estimate.
Lawrence Noble, a campaign finance lawyer who was general counsel for the Federal Election Commission and now heads a group called Americans for Campaign Reform that calls for taxpayer funding of elections, said that the IRS scrutiny of certain conservative groups -- and the resulting furor -- “is not totally surprising since Congress and the IRS have failed to clearly spell out what activity is permissible for a 501(c)(4). Instead, the IRS relies on vague ‘factors’ that come down to a ‘we know it when we see it’ standard. Congress must set clearer rules for what is permissible for these organizations to do.”
The 2010 Citizens United Supreme Court decision changed the playing field for 501(c)(4)s by allowing them to spend money in elections for federal office.
The decision led to “a dramatic increase in the number of C4’s getting involved in politics generally,” said Paul Ryan, senior counsel at the Campaign Legal Center, a nonpartisan group that has called for greater scrutiny of such groups. They “serve as a pretty convenient tool for legally laundering money from other entities -- business corporations, for example -- that might not want their names being disclosed publicly to their customers or to their shareholders.”
But the Citizens United decision did not repeal the IRS regulations stating that campaigning in elections cannot be a 501(c)(4)’s primary activity.
Ryan said his group has long criticized the IRS “for its slow or complete lack of enforcement of the restrictions on 501(c)(4) groups getting involved in candidate elections. Notwithstanding our criticism, we find it wholly inappropriate that the agency used partisan screening criteria in order to decide which groups to take a closer look at.”
The Campaign Legal Center’s position is that the IRS should be scrutinizing all 501(c)(4) groups “regardless of their political ideologies,” Ryan said. “It would truly be an unfortunate development if these recent revelations of IRS missteps led to even less enforcement generally across the board of C4 groups that may in fact be violating or abusing our tax laws.”
Noble sounded a similar note: “My concern is that the wrong lesson will be learned from this incident and it will be used to deter any attempts to make sure that the political activity of C4 organizations stays within the bounds of the law.”
Professor Donald Tobin at the Ohio State University Moritz College of Law, an expert on how tax laws apply to political activity, explained that “the IRS is always in a very precarious position” in trying to enforce rules on 501(c)(4) organizations since “whenever a group is being investigated, it may complain that it is being done for political reasons.”
Tobin said one consequence of the recent IRS revelations is that “it may make IRS even more skittish in its regulating in this area.” He added, “The IRS is not particularly interested in regulating in this area; it does not produce a lot of revenue and it’s outside the agency’s core function of trying to obtain revenue.”
The agency, Tobin said, has a difficult task in searching for abuse of 501(c)(4) status: “The IRS needs some way of culling through the mass of information that they get” in order to figure out which groups need further scrutiny. “The IRS does need some sorting device.”
But, he said, “I wish the IRS had looked for a neutral term like ‘party’ rather than ‘Tea Party.’”