IRS 101: Seven questions about the tea party scandal
How the tables have turned: The Internal Revenue Service is the one under the microscope now, as revelations emerged Friday that the agency wrongly targeted conservative groups seeking nonprofit status. The revelations quickly amounted to a scandal that has taken a partisan turn, threatening to derail bipartisan efforts on guns, immigration reform, and the federal budget.
Here’s an accounting of what has happened, along with the ramifications.
- Husna Haq, Correspondent
1. Why is the IRS under fire?
The agency acknowledged Friday that it gave extra scrutiny to conservative groups applying for tax-exempt status during the 2012 election cycle.
To deal with a flood of applications from so-called social welfare groups, employees at the IRS’s Cincinnati branch and possibly two California branches began flagging groups with the words “tea party” and “patriot” in their names for additional review, as well as those that sought to “criticize how the country is run” or educate the public on how to “make America a better place to live,” according to Lois Lerner, IRS director of exempt organizations.
IRS officials in Washington also participated in the process, The Washington Post reports.
Moreover, the agency was looking for “applications involving political sounding names” like “We the People” or “Take Back the Country,” according to an audit by the Treasury inspector general for tax administration.
In all, some 75 applications for 501(c)(4) status, almost all from conservative and tea party groups, were set aside for detailed review. The groups were asked to provide additional information that the IRS doesn’t typically require, such as donor lists.
2. Why is this such a big deal?
There’s a reason entities across the political spectrum, including House Speaker John Boehner (R), Sen. Susan Collins (R) of Maine, President Obama, and the American Civil Liberties Union, have called the revelations “outrageous” and “chilling.” As an agency with immense power and ability, the IRS is charged with being nonpolitical, nonpartisan, and neutral – in other words, not being an organization that would target groups for their political positions.
That’s why the ACLU’s Michael Macleod-Ball called the situation “about as constitutionally troubling as it gets,” and Rep. Darrell Issa (R) of California called it “the kind of thing that scares the American people to their core, when Americans are being targeted for audits based on their political beliefs.”
And then there’s the specter of Watergate, when the Nixon administration used the IRS to target political enemies. Those activities were among the articles of impeachment filed against President Nixon before he resigned. They also resulted in additional legislation to ensure that the agency wouldn’t be used for intimidation or abuse.
3. What is a 501(c)(4), anyway?
The groups that were targeted by the IRS were applying for 501(c)(4) status, a designation under the tax code for nonprofit groups promoting social welfare causes. Such groups are allowed to participate in politics and can even influence elections through advertising, but their primary focus must be social welfare – which, confusingly, can include advocating legislation and issues.
As such, 501(c)(4)s are restricted to spend less than 50 percent of their money for political purposes.
4. Why the sudden scrutiny of 501(c)(4)s?
This goes back to action at the US Supreme Court. The justices’ landmark Citizens United decision in 2010 allowed corporations and labor unions to raise and spend unlimited sums of money on elections. One channel through which to do so was section 501(c)(4) of the tax code. This carried with it two added benefits: Groups that qualify don’t have to pay taxes or identify their donors.
It’s not surprising, then, that following the high court’s ruling, applications for this designation more than doubled. This coincided with two other things: a rise in political activism on the right (2010 was a peak year for the tea party movement) and heat from campaign-finance watchdogs to crack down on abuse of the 501(c)(4) tax exemption, “which is routinely granted to overt political advocacy groups with little or no social welfare work,” according to a report in The New York Times.
Flooded with applications and pressured to weed out tax-code abusers, it appears IRS officials began using shortcuts – namely key words and phrases – to target certain applications.
4. Why the sudden scrutiny of 501(c)(4)s?
This goes back to action at the US Supreme Court. The justices’ landmark Citizens United decision in 2010 allowed corporations and labor unions to raise and spend unlimited sums of money on elections. One channel through which to do so was section 501(c)(4) of the tax code. This carried with it two added benefits: Groups that qualify don’t have to pay taxes or identify their donors.
It’s not surprising, then, that following the high court’s ruling, applications for this designation more than doubled. This coincided with two other things: a rise in political activism on the right (2010 was a peak year for the tea party movement) and heat from campaign-finance watchdogs to crack down on abuse of the 501(c)(4) tax exemption, “which is routinely granted to overt political advocacy groups with little or no social welfare work,” according to a report in The New York Times.
Flooded with applications and pressured to weed out tax-code abusers, it appears IRS officials began using shortcuts – namely key words and phrases – to target certain applications.
6. And for the GOP?
Not surprisingly, the party is hopping mad that the IRS appears to have targeted conservative groups, and Republicans have fanned out on the airwaves to express outrage at the administration.
Senator Collins called the singling out of conservative groups by the IRS “absolutely chilling,” Rep. Michele Bachmann (R) of Minnesota called it a “stunning abuse of power,” and former Alaska Gov. and vice-presidential candidate Sarah Palin (R) called it proof of the “corruption at the heart of big government.”
The scandal is reenergizing conservatives and giving them a golden opportunity to unite against a common foe, as the NYT suggests:
“[T]he accusations of I.R.S. abuse are sure to fuel an effort that appears to be uniting dispirited Republicans and their conservative political base: investigating Mr. Obama and his administration,” one story reads. “Republicans are pushing a portrayal of an administration overreaching its authority and punishing its enemies.”
7. What now?
At least two House committees (Ways and Means, and Oversight and Government Reform) and two Senate panels (Finance Committee and the Permanent Subcommittee on Investigations) have said they will investigate the revelations and hold hearings.
Also, the Treasury inspector general for tax administration is releasing a report on the practice.
Among the questions remaining is to what extent then-IRS Commissioner Douglas Shulman was aware of the situation when he testified before Congress, in March 2012, that conservative groups were not being targeted. Investigators will also seek to determine who at the IRS knew about the targeting and when.
Whatever revelations are to come, the IRS scandal is likely to stay in the headlines for some time to come.
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