IRS: Watchdog Groups Call on IRS to Ignore Efforts to Curb Eligibility Investigations of Political Groups Utilizing Tax-Exempt Status as 501(c)(4) “Social Welfare” Groups

CLC Staff
Mar 9, 2012
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In a letter sent to the IRS today, the Campaign Legal Center and Democracy 21 called on the agency to ignore any “pushback” against IRS investigations that are necessary to determine whether groups are attempting to improperly claim tax exempt status as 501(c)(4) “social welfare” organizations.

According to the letter, an article in The New York Times on March 6, 2012 stated:

In recent weeks, the I.R.S has sent dozens of detailed questionnaires to Tea Party organizations applying for nonprofit tax status, demanding to know their political leanings and activities. The agency plans this year to press existing nonprofits like American Crossroads, on the Republican side, and Priorities USA, on the Democratic side, to justify their tax-protected status as “social welfare” organizations, a status that many tax professionals believe is being badly abused.

The letter said that the Times article further stated that resistance to any such investigations is likely to be “fierce,” and quoted one lawyer as saying, the IRS is engaged in “‘McCarthyism’ tactics” and its investigation is “a coordinated effort by the I.R.S. . . . to stifle free speech activities.”

The letter sent by the watchdog groups to IRS Commissioner Douglas Shulman and Lois Lerner, Director of the IRS Exempt Organizations Division stated:

We strongly urge the IRS not to succumb to such arguments, or to any public or political pressure to back away from carrying out the agency’s statutory responsibilities to enforce the tax laws.

The IRS must enforce the law fairly and without partisan bias.  The agency also must not shrink from enforcing the law against violations of the tax code by political groups.  The stakes here – namely the integrity of our elections and of our tax laws – are much too high for the IRS to walk away from its responsibility to ensure that the tax laws are not being abused for political purposes.

According to J. Gerald Hebert, Executive Director of the Campaign Legal Center:

It is imperative that the IRS enforce the laws on the books and not shrink from political pressure or baseless criticisms leveled at the agency for doing nothing more than verifying that groups applying for special tax status are in fact eligible. Special interest groups and political players have been forming 501(c)(4) organizations so they can impact federal elections and conceal their donors from the public. Many of these organizations are not eligible for the special tax status. If the IRS does not act now to curb these abuses, then the latest vehicle for unlimited and undisclosed political spending will become even more widespread.

According to Democracy 21 President Fred Wertheimer:

We have submitted compelling evidence to the IRS that political groups, including Crossroads GPS, Priorities USA, American Action Network and Americans Elect, are primarily involved in campaign-related activities and are improperly claiming 501(c)(4) tax exempt status in order to keep secret the donors financing their campaign-related expenditures. We have called on the IRS to investigate these groups and the IRS has an obligation to ensure that groups claiming to be 501(c)(4) “social welfare” organizations are actually eligible for this tax exempt status. It is essential that the IRS not back down in the face of political pressure and that the agency properly enforce the tax laws. The integrity of our tax laws and our elections is at stake here.

To read today’s letter to the IRS, click here.

On September 28, 2011, the Campaign Legal Center and Democracy 21 called on the IRS to conduct an investigation into whether four groups claiming tax-exempt status under section 501(c)(4) of the Internal Revenue Code are ineligible for exemption under that provision because they are substantially engaged in campaign activities, not social welfare activities.  The groups discussed in our letter are Crossroads GPS, Priorities USA, American Action Network and Americans Elect.

To read the September 28 letter click here.

On December 14, 2011, the Legal Center and Democracy 21 supplemented their earlier request by providing additional information about the campaign activities conducted by three of the organizations.

To read the December 14 letter click here.

The letters emphasize that the law provides that section 501(c)(4) organizations are required to primarily engage in the promotion of social welfare in order to obtain tax-exempt status under section 501(c)(4).  Court decisions have established that in order to meet this requirement, section 501(c)(4) organizations cannot engage in more than an insubstantial amount of any non-social welfare activity, including direct or indirect participation or intervention in elections

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