The real IRS scandal: 501(c)4s. Oh, and liberal groups got that IRS letter, too.


karl rove irs social welfare

Michael Hiltzik has a thing or two to say about the IRS "scandal" in his L.A. Times column. He rightly points out how the real scandal is how "social welfare" groups are allowed tax-exempt status while participating in politics. As Lawrence O'Donnell noted, it's all about the word "primarily":

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[A]ccording to MSNBC’s Lawrence O’Donnell, the real scandal happened long ago.

Section 501(c)(4) of the Internal Revenue Code defines tax-exempt social welfare groups like this:

Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.

In 1959, under the administration of Dwight Eisenhower, the meaning of this section was changed dramatically when the IRS decided the word “exclusively” could, in effect, be read as “primarily.”

Hiltzik agrees, again emphasizing that the real scandal is that "political organizations are being allowed to masquerade as charities to avoid taxes and keep their donors secret, and the IRS has allowed them to do this for years."

By the way, none of the "targeted" groups was turned down for 501(c)4 status. Plus, as is their habit, conservatives are playing victim again. While this is a serious issue that deserves serious attention, liberal groups received the same IRS letter that ignited Tea Party outrage.

And one major negative outcome of this "controversy" is that "the IRS will have its wings clipped before its investigation of C4s is fully fledged."

Here are a few excerpts from Michael Hiltzik's piece:

The bottom line first: The IRS hasn't done nearly enough over the years to rein in the subversion of the tax law by political groups claiming a tax exemption that is not legally permitted for campaign activity. Nor has it enforced rules requiring that donors to those groups pay gift tax on their donations. [...]

Big donors were given the green light to spend freely on elections by the Supreme Court's 2010 Citizens United decision. That wasn't good enough for some; they wanted to distribute their largess secretly. [...]

According to an IRS Inspector General report made public this week, they represented only about a third of the 298 applications selected. That was certainly too coarse a screen, and by January 2012 the IRS had scrapped those definitions. It had substituted a screen designed to capture "political action type organizations involved in limiting/expanding government, educating on the constitution and bill of rights, [and] social  economic reform/movement." [...]

And once again, now that the agency has tried to regulate, the regulated parties have blown its efforts up into a "scandal." It's amusing to reflect that some politicians making hay over this are the same people who contend that we don't need more regulations, we just need to enforce the ones we have. (Examples: gun control and banking regulation.) Here's a case where the IRS is trying to enforce regulations that Congress enacted, and it's still somehow doing the wrong thing. [...]

Here's a good rule of thumb: You don't want to get harassed by the IRS? Then don't claim a tax exemption you may not deserve.

It's well worth reading the entire column here.