“Scamming The Taxpayers”: The IRS Controversy And The Tax-Exempt Charade
As we’re learning more about the IRS giving heightened scrutiny to conservative groups filing for tax-exempt status, we should make one thing clear: If what we’ve heard so far holds up, the people involved should probably get fired, and new safeguards should be put in place to make sure nothing like it happens again. And let it be noted that liberal publications, at least the ones I’ve seen, have all taken that position and have been discussing this story at length.
Now, let’s see if we can understand the context in which this happened. There’s an irony at work here, which is that it may well be that the IRS employees involved were trying to obey the spirit of the law but ended up violating the letter of the law, while for the organizations in question it was the opposite: they were trying to violate the spirit of the law, but probably didn’t violate the letter of the law.
Let’s take the first part, the IRS employees. When a group files for tax-exempt status, the IRS investigates it, asks it some questions, and determines whether it qualifies under section 501(c)(3) or 501(c)(4). The difference between them is that a 501(c)(3) is supposed to be a genuine charity, like your local food bank or Institute for the Study of Foot Fungus, while a 501(c)(4) is still primarily devoted to “social welfare” but is allowed more leeway to engage in some political activities like lobbying and participation in elections, so long as the political activities make up a minority of its time. The biggest practical difference is that donations to (c)(3) groups are tax-deductible, while donations to (c)(4) groups are not.
Once the Supreme Court said in the 2010 Citizens United decision that (c)(4) groups could engage in “express advocacy” (i.e. explicitly saying “Vote for Smith!”), the IRS got flooded with new applications for (c)(4) groups, and its job was to determine if these groups were actually “social-welfare” organizations that also did some politicking on the side, or if they were groups whose main purpose was actually political, in which case, according to the law, they should be denied (c)(4) status. We know very little at this point about what the IRS employees in Cincinnati did and why, but the generous interpretation is that since so many of the applications they were getting in 2010 and 2011 were from Tea Party groups that looked a lot like their sole purpose was to elect Republicans, they looked for some way to handle them all together, so they searched for applications with words like “Tea Party” and “Patriot” in their names and subjected them to extra scrutiny.
Even if their motivations were innocent and they were just struggling to find ways to wade through all these applications and do their jobs properly—in other words, if there was no violation of the spirit of the law—it was still improper for them to sort the applications this way, because it could mean in practice that an ideological test was being applied to which groups got heightened scrutiny. But now let’s look at the other half of the story, the groups applying for tax-exempt status.
The truth is that a great many of the groups that request 501(c)(3) and 501(c)(4) status, of all ideological stripes, are basically pulling a scam on the taxpayers. Maybe that’s a bit harsh, but at the very least they’re engaged in a charade in which they pretend to be “nonpartisan” when in fact they are very, very partisan. For instance, nobody actually believes that groups like the Center for American Progress on the left or the Heritage Foundation on the right aren’t partisan. When there’s an election coming, they mobilize substantial resources to influence it. They blog about how the other side’s candidate is a jerk, they issue reports on how his plans will destroy America, and they do all sorts of things whose unambiguous intent is to make the election come out the way they want it to. CAP and Heritage, along with many other organizations like them, are 501(c)(3) charities, meaning as long as they never issue a formal endorsement and are careful to avoid any express advocacy, they can maintain the fiction that they’re nonpartisan (keep getting tax-deductible contributions, which are easier to obtain than those that aren’t tax-deductible).
And that fiction is even more exaggerated when you get to the (c)(4) groups, particularly the new ones. For instance, when Karl Rove’s Crossroads GPS applied for 501(c)(4) status, it explained to the IRS that it was a social-welfare organization for whom influencing elections wouldn’t be its primary purpose. Instead, the group said “Through issue research, public communications, events with policymakers, and outreach to interested citizens, Crossroads GPS seeks to elevate understanding of consequential national policy issues, and to build grassroots support for legislative and policy changes that promote private sector economic growth, reduce needless government regulations, impose stronger financial discipline, and accountability in government, and strengthen America’s national security.” It claimed that 50 percent of its activities would be “public education,” 20 percent would be “research,” and the remaining 30 percent would be “activity to influence legislation and policymaking.” On the section of the form where the group has to state whether it plans to spend any money to influence elections, it wrote that it “may, in the future” do so, but “Any such activity will be limited in amount, and will not constitute the organization’s primary purpose.”
As everyone knows, this is a joke. Crossroads GPS was created for one purpose and one purpose only: to get Republicans elected. Maybe they found a way to stay within the letter of the law, but there’s no question they were violating its spirit. And the same is true of Priorities USA, the pro-Obama group created in advance of the 2012 election by a couple of former White House staffers. Both are actually twin groups, a (c)(4) and a super PAC, which allows the people running them to keep within the letter of the law by moving spending around between the two. (Stephen Colbert and Trevor Potter memorably explained how all this can be done.)
Without knowing anything about the particular Tea Party groups that were subjected to heightened scrutiny (we’ve only heard about a few so far), the broader context is that you have a lot of groups of all political persuasions that are essentially trying to pull a fast one on the IRS, and through them, the American taxpayer. Keep in mind that tax-exempt status is a gift that we give to groups that can demonstrate they deserve it. Perhaps this part of the tax code should be made stricter, or perhaps it should be made looser so all these charades can stop. But either way, this wouldn’t be a bad time to start that discussion.
By: Paul Waldman, Contributing Editor, The American Prospect, May 13, 2013
“The UnSub”: Darrell Issa Is An Odd Choice For Grand Inquisitor
House Oversight Committee Chairman Darrell Issa (R-Calif.) receives quite a bit of attention for his unique role on Capitol Hill. In short, he’s the guy whose job it is to create political controversies for the Obama White House, whether they have merit or not.
So, when House Republicans investigated Solyndra’s loan guarantees, it was Issa leading the hearings. When House Republicans tried to turn “Fast and Furious” into a scandal, it was Issa yelling at Justice Department officials. And when House Republicans decided to turn last September’s attacks in Benghazi into a political story, it was Issa who adopted the role of Grand Inquisitor.
But every time I see the California Republican, I think of this Ryan Lizza piece in the New Yorker from a couple of years ago, detailing Issa’s rather remarkable background, and his rise to wealth and power despite several “troubles.”
“Many politicians have committed indiscretions in earlier years: maybe they had an affair or hired an illegal immigrant as a nanny. Issa, it turned out, had, among other things, been indicted for stealing a car, arrested for carrying a concealed weapon, and accused by former associates of burning down a building.”
As we discussed last year, Lizza wasn’t being hyperbolic. Issa really has spent a fair amount of his adult life as a suspected criminal.
Lizza’s report highlighted Issa having one run-in with the law after another, including arrests and indictments. There are also many suspected crimes — he’s accused of deliberately burning down a building and threatening a former employee with a gun — which did not lead to formal charges, but which nevertheless cast the congressman in a less-than-flattering light.
The New Yorker report also noted an incident in which Issa was in a car accident with a woman who needed to be hospitalized. He drove away before the police could arrive because, as he told the person he hit, he didn’t have time to wait. Issa didn’t face charges, but he was sued over the matter, and agreed to an out-of-court settlement.
And in case that weren’t quite enough, the same article also noted instances in which Issa appears to have lied about his background.
The congressman, for example, claimed to receive the “highest possible” ratings during his Army career, despite the fact that at one point he “received unsatisfactory conduct and efficiency ratings and was transferred to a supply depot.” Issa also claimed to have provided security for President Nixon in 1971, which wasn’t true, and said he won a national Entrepreneur of the Year award, but didn’t.
As a rule, people with this kind of background do not run for Congress. If they do and manage to get elected, they’re not generally tasked with leading investigations into others’ suspected wrongdoing.
By: Steve Benen, The Maddow Blow, May 13, 2013
“Willfully Disobeying The Law”: Republican Leaders Refuse To Make Appointments To Key Obamacare Panel
The top two Republicans in Congress informed President Obama on Thursday that they will refuse to fulfill their duty under the Affordable Care Act to recommend members of a new board with the power to contain Medicare spending.
It’s a dramatic power-play driven by the explosive partisan politics of Obamacare and with potentially important implications for federal health care policy.
In a letter to President Obama, House Speaker John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY) noted their original opposition to Obamacare, reiterated their intent to repeal it entirely, and declared that they would not make any appointments to the Independent Payment Advisory Board.
The IPAB is a 15-member panel whose members must be confirmed by the Senate. The President selects three members himself and is required by law to seek three recommendations each from the top Democrat and Republican in each chamber. With Thursday’s letter, Boehner and McConnell refused to make any recommendations.
The IPAB will be stood up in 2014 by Obamacare and tasked with making cuts to Medicare provider payments (it may not touch benefits) if costs exceed economic growth plus an additional percentage point in any given year. Congress can override it by passing equally large cuts with a simple majority or waiving the cuts entirely with a three-fifths majority.
“Because the law will give IPAB’s 15 unelected, unaccountable individuals the ability to deny seniors access to innovative care, we respectfully decline to recommend appointments,” Boehner and McConnell wrote in the letter.
But there is a catch: if IPAB fails to do its work for any reason, the Health and Human Services secretary must order the cuts herself. So in a way, Boehner and McConnell are surrendering some of their power in order to appear as though they’re thwarting Obamacare — when in reality they’re merely turning over more control to the executive branch.
“Under the ACA, if the IPAB fails to make a recommendation as required under the IPAB provision, the Secretary may make a recommendation in its place,” said Tim Jost, a professor of health law at Washington and Lee University. “So if no IPAB is created, it is not fatal.”
IPAB is, however, capable of functioning without all of its members confirmed. But the letter reflects a continuation of broader GOP obstruction of Obamacare implementation. Senate Republicans have suggested that they may filibuster any IPAB nominee, period.
This approach makes it easier for a future Republican president to neuter IPAB by executive fiat. In the short term, it puts the Obama administration more directly in the political line of fire for any cuts that it does approve.
The other political incentive for Republicans to oppose IPAB is that spending Medicare dollars more wisely makes it easier to sustain the single-payer structure of the program, and makes it harder to argue that it needs to be privatized, as the Paul Ryan budget does.
There is some irony as well in Boehner and McConnell refusing to play ball on IPAB — a key cost containment mechanism in Obamacare — while their party is complaining about potential cost increases under the law, and government spending more generally. Limiting Medicare spending and cutting the deficit, part of the rationale for IPAB, are routinely touted as central GOP goals.
“We believe Congress should repeal IPAB, just as we believe we ought to repeal the entire health care law,” Boehner and McConnell wrote. “In its place, we should work in a bipartisan manner to develop the long-term structural changes that are needed to strengthen and protect Medicare for today’s seniors, their children, and their grandchildren. We hope establishing this board never becomes a reality, which is why full repeal of the Affordable Care Act remains our goal.”
By: Sahil Kapur, Talking Points Memo, May 9, 2013
“An Enron End Run”: Using Expensive Legal Claims As Leverage, Top Enron Fraudster Reaches Deal To Slash Sentence
Even when Jeffrey Skilling was first sentenced for conspiring in one of the largest corporate fraud schemes in modern history, he received less jail time than some low-level drug offenders sentenced to harsh mandatory minimums. But this week, Skilling reached a deal with the Department of Justice to cut his 24-year sentence to as little as 14 years, in exchange for abandoning the onslaught of appeals he has launched at his own expense. Reuters reports:
The agreement … could result in Skilling’s freedom in late 2018, with good behavior.
In exchange, Skilling, 59, who has long maintained his innocence, agreed to stop appealing his conviction. The agreement would also allow more than $40 million seized from him to be freed up for distribution to Enron fraud victims.
A resentencing became necessary after a federal appeals court upheld Skilling’s conviction but found the original sentence too harsh.
Once ranked seventh on the Fortune 500 list of large U.S. companies, Enron went bankrupt on December 2, 2001 in an accounting scandal that remains one of the largest and most infamous U.S. corporate meltdowns.
Thousands of workers lost their jobs and retirement savings, and images were beamed around the globe of staff carrying possessions out of Enron’s downtown Houston office tower, past the company’s “crooked E” logo.
Even in 2006, when Skilling was first sentenced, his legal defense was deemed one of the most expensive in history at $65 million, and in the years since he has taken his case to the Supreme Court and back on appeal after appeal. By settling, the Department of Justice not only saved itself the considerable expense of continuing this legal battle; it also gets access to the more than $40 million in seized assets Skilling had previously not agreed to surrender. As a consequence of these negotiations, Skilling’s sentence is even more disparate from the 25-year-plus sentences of drug defendants charged for low-level offenses like selling their own pain pills to an undercover informant.
If Skilling’s reduced sentence is approved by a judge during his June hearing, as is likely, Skilling will nonetheless not have had an ideal run with the criminal justice system. His lawyers made a persuasive argument that the statute initially used to convict him was overly broad. And his sentence was disproportionately high relative to alleged Enron scandal mastermind Andrew Fastow, who got only six years in prison after he testified against both Skilling and Enron Chairman Kenneth Lay. But more severe versions of these problems plague countless criminal defendants, who, rather than having the leverage to shorten their sentence or the legal resources to take down a statute, are coerced into plea deals under threat of draconian prison terms.
By: Nicole Flatow, Think Progress, May 10, 2013
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