“The (c) Stands For Cha-Ching”: The IRS Went After Small Fish, But Let The Big Ones Get Away
“Please provide copies of all your current web pages, including your blog posts. Please provide copies of all your newsletters, bulletins, flyers or any other media or literature you have disseminated to your members or others. Please provide copies of stories and articles that have been published about you.”
That’s the Internal Revenue Service calling.
Or, more precisely, sending questionnaires. They went out to scores of Tea Party groups that were seeking tax-exempt status as “social welfare” organizations.
The organizations were targeted for special scrutiny because they had the words “Tea Party” or “Patriot” in their titles. Some questionnaires even requested the names of all donors and the amounts of each contribution.
It was a political abuse of power aimed, ironically, at groups who are pretending not to be political just to get a juicy tax break.
IRS supervisors were wrong to single out local Tea Parties when there’s a host of flagrant, big-time violators controlled by supporters of both major political parties.
The gimmick of choice is Section 501(c)(4) of the revenue code. Groups receiving that golden designation are allowed to collect unlimited contributions without paying taxes.
They’re not banned from political involvement, but by law they’re supposed to be “primarily engaged” in activities promoting “social welfare” and “the common good” — not partisan politics.
It’s a total farce.
Karl Rove’s Crossroads GPS spent untold millions of dollars on behalf of Republican candidates while attacking Democrats during the last election cycle. On the other side, Priorities USA spent a fortune helping Democratic candidates while trashing Republicans.
Both rabidly partisan organizations enjoy tax-exempt status under Section 501(c)(4). They claim to run strictly “issue” advertisements that aren’t really political, which is a hoot.
What’s not so hilarious is that the IRS sidestepped these heavyweight scammers to go after small-time outfits such as the Liberty Township Tea Party in Ohio.
Initially, the tax agency suggested that the crackdown was an isolated operation by agents in its Cincinnati office. However, in recent days it was revealed that a few IRS officials in Washington were aware of the targeting campaign in early 2010, and that similar inquiries of conservative groups had been conducted in other states.
A Treasury inspector general’s report issued last week criticized IRS managers who didn’t stop employees from focusing on conservative groups that were seeking 501(c)(4) designations.
President Obama said the actions described in the report “are intolerable and inexcusable.” He didn’t use the word “stupid,” but it applies.
There’s no sign that the president knew about the IRS targeting campaign, which began a few years ago while the agency was led by Douglas Shulman, an appointee of President George W. Bush.
Owing his job to a Republican, Shulman seems an unlikely instigator of an IRS campaign against conservative groups. No evidence has surfaced that he was aware of it.
After Shulman completed his term last November, IRS Deputy Commissioner Steven Miller became acting commissioner. Six months earlier, Miller had been briefed about some cases involving increased scrutiny of Tea Party-affiliated groups.
However, in letters to Congress, Miller, who’s been with the tax agency almost 25 years, didn’t mention the existence of the Tea Party cases. He resigned on Wednesday at Obama’s request.
The FBI and Justice Department are rightly investigating to see whether the IRS broke any laws by zeroing in on the tax-exempt applications of conservative groups.
Congress will hold long hearings, brimming with outrage.
No such pious fervor exists for investigating and exposing the fraudulent status of large groups like Crossroads GPS and Priorities USA, which collectively take in hundreds of millions of dollars.
They’re not “social welfare” organizations worthy of a tax exemption. They’re wealthy partisan advocacy machines with purely political missions — to promote their candidates, and to influence voters.
They are prized by both parties as safe and bottomless repositories for huge campaign donations, which is why you don’t see congressional leaders declaring war on the 501(c)(4) charade.
The c stands for “cha-ching.”
By: Carl Hiaasen, The National Memo, May 22, 2013
“Crossing The Line”: Tea Party Group Protesting IRS Has History Of Questionable Political Involvement
Tea Party Patriots, originally formed as a 501(c)(4) non-profit corporation in 2009, has a history of questionable electoral activity. Nevertheless, as one of the largest of the movement’s national factions, it is taking advantage of the so-called IRS scandal to re-ignite the anger of Tea Partiers, encourage their (false) sense of victimhood, and increase their ranks.
Dubbed “Rein in the IRS,” nationwide rallies were organized to protest IRS scrutiny of Tea Party non-profit applications. The announcement, posted on the group’s website Monday, called for “anyone and everyone to protest the IRS’ complete abuse of power” at noon local time on Tuesday. Dozens of local Tea Party Patriots chapters around the country emailed their members about the protests.
The Tea Partiers claim that “the IRS has waged a three-year war against the Tea Party, harassing our groups and even auditing our individual members. This abuse of power is unacceptable and un-Constitutional, and it must stop.” No mention was made of the Inspector General’s findings that that not a single Tea Party group has been denied 501(c)(4) non-profit status, and that more than two thirds of the scrutinized Tea Party-like groups had engaged in political activity that would usually disqualify them.
The effort is also being used to fuse anger over several different political issues, from the Affordable Care Act to immigrants. For instance, in sample Letters to the Editor they distributed, the group links the IRS controversy with their attack on comprehensive immigration reform. “The IRS’s abuse of power highlights why the Senate needs to slow down with its amnesty bill. We simply cannot trust bureaucrats to make the right decisions. Immigration policy is too complex and too important for us to delegate to a group of bureaucrats who may be pursuing an agenda that doesn’t match Americans’ best interest.”
It should be noted that until late Monday, the Tea Party Patriots were using the official group website listed on their IRS form 990, and the resources of their 501(c)(4), plus their network of local groups—many of which have filed for 501(c)(3) or 501(c)(4) status)—to organize the protests against the IRS. Suddenly Monday evening, after a day of soliciting volunteers to organize anti-IRS protests, all traffic to the group’s domain name teapartypatriots.org was directed to the group’s political action committee, The Tea Party Patriots Citizen Fund (http://teapartypatriotscitizensfund.com), which features a “protest the IRS” page alongside a photo of Tea Party Patriots co-founder, Jenny Beth Martin.
The new PAC was formed in January 2013. Despite the current enmeshing of the 501(c)(4) and the PAC on the IRS protests, forms filed with the Federal Elections Commission curiously state that the PAC has no connected organization.
The sudden crossover to the group’s political action committee may be at least a tacit omission of questionable activity for a 501(c)(4) non-profit organization. It also begs the question as to why any Tea Party groups so focused on politics would want to be a non-profit rather than a PAC.
Such concern about crossing the line and engaging in political activity was absent from the Tea Party Patriots, Inc. a year ago when the group threw its support behind Wisconsin governor Scott Walker in his recall election.
As IREHR noted last year, Tea Party Patriots, Inc., which registered with the IRS as a 501(C)(4) non-profit organization, may have run afoul of its tax exempt status with this electoral activity. Federally registered non-profit organizations with a 501c4 status are prohibited from devoting a majority of their energy and resources to support electoral campaigns.
On April 29, 2012, local Tea Party Patriots groups across the country voted 98 percent to 2 percent to throw all their energy and resources into Wisconsin for the recall elections. “We are deploying hundreds of volunteers into each of the targeted recall districts,” noted Tea Party Patriots co-founder Jenny Beth Martin in an email to supporters. “That’s 4,000 patriots going door to door and making phone calls” she added.
Tea Party Patriots brought activists to Wisconsin and did door-to-door canvassing, and had others make calls from their homes and spread the word on social media. Some of those activists were sponsored, with their costs covered by Tea Party Patriots.
At times, Martin and other Tea Party Patriots leaders have tried to suggest that the group was just engaged in GOTV (Get Out the Vote) efforts or some form of civic engagement, other times they’ve told their supporters that they’re directly intervening politically: “Tea Party Patriots—in conjunction with other local and national Tea Party groups—will spearhead efforts to help Walker and other candidates.”
There is also a question as to whether the funds of the group are going to “social welfare” as required. In 2010, the organization raised $12 million in fiscal 2010. But only about $3 million of that went to its “social welfare” mission, according to an IRS 990 form filed in May 2012. For fiscal year ending May 31, 2012, Tea Party Patriots raised over $20 million, but spent just $5.9 million on program service. Millions of dollars went to pay professional telemarketing firms, extensive travel costs, and legal fees from suing other Tea Party groups over control of the “Tea Party” brand.
Tea Party Patriots leader Martin has had her fair share of troubles with the IRS before. As noted in Tea Party Nationalism, according to court documents, Martin and her husband, Lee Martin (who served at the group’s “assistant secretary” and was intimately involved in the group’s financial matters), owed over $680,000 in tax debt, including over half a million dollars to the Internal Revenue Service, when the pair filed for bankruptcy in August of 2008.
Whether or not Tea Party Patriots, one of the largest national factions, can turn this scandal into a chance to regain lost ground will, in some measure, depend on the reception their protests receive by an informed public.
By: Devin Burghart, The National Memo, May 23, 2013
“Lost In The IRS Scandal”: The Need To Know Facts About The Big Picture And Big Donors Of Dark Money
In the furious fallout from the revelation that the IRS flagged applications from conservative non-profits for extra review because of their political activity, some points about the big picture – and big donors — have fallen through the cracks.
Consider this our Top 6 list of need-to-know facts on social welfare non-profits, also known as “dark money” groups because they don’t have to disclose their donors. The groups poured more than $256 million into the 2012 federal elections.
1. Social welfare non-profits are supposed to have social welfare, and not politics, as their “primary” purpose.
A century ago, Congress created a tax exemption for social welfare non-profits. The statute defining the groups says they are supposed to be “operated exclusively for the promotion of social welfare.” But in 1959, the regulators interpreted the “exclusively” part of the statute to mean groups had to be “primarily” engaged in enhancing social welfare. This later opened the door to political spending.
So what does “primarily” mean? It’s not clear. The IRS has said it uses a “facts and circumstances” test to say whether a group mostly works to benefit the community or not. In short: If a group walks and talks like a social welfare non-profit, then it’s a social welfare non-profit.
This deliberate vagueness has led some groups to say that “primarily” simply means they must spend 51 percent of their money on a social welfare idea — say, on something as vague as “education,” which could also include issue ads criticizing certain politicians. And then, the reasoning goes, a group can spend as much as 49 percent of its expenditures on ads directly advocating the election or defeat of a candidate for office.
Nowhere in tax regulations or rulings does it mention 49 percent, though. Some non-profit lawyers have argued that the IRS should set hard limits for social welfare non-profits — setting out, for instance, that they cannot spend more than 20 percent of their money on election ads or even limiting spending to a fixed amount, like no more than $250,000.
So far, the IRS has avoided clarifying any limits.
2. Donors to social welfare non-profits are anonymous for a reason.
Unlike donors who give directly to politicians or even to Super PACs, donors who give to social welfare non-profits can stay secret. In large part, this is because of an attempt by Alabama to force the NAACP, then a social welfare non-profit, to disclose its donors in the 1950s. In 1958, the Supreme Court sided with the NAACP, saying that public identification of its members put them at risk of reprisal and threats.
The ACLU, which is itself a social welfare non-profit, has long made similar arguments. So has Karl Rove, the GOP strategist and brains behind Crossroads GPS, which has spent more money on elections than any other social welfare non-profit. In early April 2012, Rove invoked the NAACP in defending his organization against attempts to reveal donors.
The Federal Election Commission could in theory push for some disclosure from social welfare non-profits — for their election ads, at least. But the FEC has been paralyzed by a 3-3 partisan split, and its interpretations of older court decisions have given non-profits wiggle room to avoid saying who donated money, as long as a donation wasn’t specifically made for a political ad.
New rulings indicate that higher courts, including the Supreme Court, favor disclosure for political ads, and states are also stepping into the fray. During the 2012 elections, courts in two states – Montana and Idaho – ruled that two non-profits engaged in state campaigns needed to disclose donors.
But sometimes, when non-profits funnel donations, the answers raise more questions. It’s the Russian nesting doll phenomenon. Last election, for instance, California’s election agency pushed for an Arizona social welfare non-profit to disclose donors for $11 million spent on two California ballot initiatives. The answer? Another social welfare non-profit, which in turn got the money from a trade association, which also doesn’t have to reveal its donors.
3. The Supreme Court’s Citizens United decision meant that corporations could pay for political ads, anonymously, using social welfare non-profits.
In January 2010, the Supreme Court ruled that corporations and unions could spend money directly on election ads. A later court decision made possible SuperPACs, the political committees that can raise and spend unlimited amounts of money from donors, as long as they don’t coordinate with candidates and as long as they report their donors and spending.
Initially, campaign finance watchdogs believed corporations would give directly to SuperPACs. And in some cases, that happened. But not as much as anyone thought, and maybe for a reason: Disclosure isn’t necessarily good for business. Target famously faced a consumer and shareholder backlash after it gave money in 2010 to a group backing a Minnesota candidate who opposed gay rights.
Many watchdogs now believe that large public corporations are giving money to support candidates through social welfare non-profits and trade associations, partly to avoid disclosure. Although the tax-exempt groups were allowed to spend money on election ads before Citizens United, their spending skyrocketed in 2010 and again in 2012.
A New York Times article based on rare cases in which donors have been disclosed, sometimes accidentally, explored the issue of corporations giving to these groups last year. Insurance giant Aetna, for example, accidentally revealed it gave $3 million in 2011 to the American Action Network, a social welfare group founded by former Sen. Norm Coleman, a Republican, that runs election ads.
Groups that favor more disclosure have so far failed to force action by the FEC, the IRS, or Congress, although some corporations have voluntarily reported their political spending. Advocates have now turned to the Securities and Exchange Commission, which is studying a proposal to require public companies to disclose political contributions.
The idea is already facing strong opposition from House Republicans.
4. Social welfare non-profits do not actually have to apply to the IRS for recognition as tax-exempt organizations.
With all the furor over applications being flagged from conservative groups — particularly groups with “Tea Party,” “Patriot” or “9/12″ in their names — it’s worth remembering that a social welfare non-profit doesn’t even have to apply to the IRS in the first place.
Unlike charities, which are supposed to apply for recognition, social welfare non-profits can simply incorporate and start raising and spending money, without ever applying to the IRS.
The agency’s non-profit wing is mainly concerned about ferreting out bad charities, which are the biggest chunk of non-profits and the biggest source of potential revenue. After all, the IRS’s main job is to collect revenue. Charities allow donors to deduct donations, while social welfare non-profits don’t.
Most major social welfare non-profits do apply, because being recognized is seen as insurance against later determination by the IRS that the group should have registered as a political committee and may face back taxes and disclosure of donors. A recognition letter is also essential to raise money from certain donors — like, say, corporations.
But some of the new groups haven’t applied.
The first time the IRS hears about these social welfare non-profits is often when they file their first annual tax return, not due until sometimes more than a year after they’ve formed.
In many cases, the first time the IRS hears about these groups is a full year after an election.
5. Most of the money spent on elections by social welfare non-profits supports Republicans.
Of the more than $256 million spent by social welfare non-profits on ads in the 2012 elections, at least 80 percent came from conservative groups, according to FEC figures tallied by the Center for Responsive Politics.
None came from the Tea Party groups with applications flagged by the IRS. Instead, a few big conservative groups were largely responsible.
Crossroads GPS, which this week said it believes it is among the conservative groups “targeted” by the IRS, spent more than $70 million in federal races in 2012. Americans for Prosperity, the social welfare non-profit launched by the conservative billionaire brothers Charles and David Koch, spent more than $36 million. American Future Fund spent more than $25 million. Americans for Tax Reform spent almost $16 million. American Action Network spent almost $12 million.
Besides Crossroads GPS, each of those groups has applied to the IRS and been recognized as tax-exempt. (You can look at their applications here.)
All of those groups spent more than the largest liberal social welfare non-profit, the League of Conservation Voters, which spent about $11 million on 2012 federal races. The next biggest group, Patriot Majority USA, spent more than $7 million. Planned Parenthood spent $6.5 million. VoteVets.org spent more than $3 million.
None of those figures include the tens of millions of dollars spent by groups on certain ads that run months before an election that are not reported to the FEC.
6. Some social welfare groups promised in their applications, under penalty of perjury, that they wouldn’t get involved in elections. Then they did just that.
Much of the attention when it comes to Tea Party nonprofits has focused on their applications and how the IRS determines whether a group qualifies for social welfare status.
As part of our reporting on dark money in 2012, ProPublica looked at more than 100 applications for IRS recognition. One thing we noted again and again: Groups sometimes tell the IRS that they are not going to spend money on elections, receive IRS recognition, and then turn around and spend money on elections
The application to be recognized as a social welfare non-profit, known as a 1024 Form, explicitly asks a group whether it has spent or plans to spend “any money attempting to influence the selection, nomination, election, or appointment of any person to any Federal, state, or local public office or to an office in a political organization.”
The American Future Fund, a conservative non-profit that would go on to spend millions of dollars on campaign ads, checked “No”in answer to that question in 2008. The very same day the group submitted its application, it uploaded this ad to its YouTube account: http://youtu.be/2oEz3lzgDsI
Even before mailing its application to the IRS saying it would not spend money on elections in 2010, the Alliance for America’s Future was running TV ads supporting Republican candidates for governor in Nevada and Florida. It also had given $133,000 to two political committees directed by Mary Cheney, the daughter of the former vice president.
Another example of this is the Government Integrity Fund, a conservative non-profit that ran ads in last year’s U.S. Senate race in Ohio. Its application was approved after it told the IRS that it would not spend money on politics. The group went on to do just that.
By: Kim Barker and Justin Elliott, ProPublica; Published in The National Memo, May 22, 2013
“Not Too Smart”: How The IRS Planted The Question That Sparked The Tea Party Scandal
Washington tax lawyer Celia Roady acknowledged that at the behest of the IRS, she asked a question at a May 10 conference that would ignite the controversy over inappropriate targeting of conservative groups.
Four days before a damning Inspector General’s report was due to be released, the IRS wanted to get out ahead and potentially defuse some of the backlash.
Roady serves on the IRS Advisory Committee on Tax-Exempt and Government Entities. She asked the planted question to Lois Lerner, the IRS’ director of the tax-exempt division. Within minutes, it sparked shock and a firestorm that the IRS had revealed it inappropriately targeted certain groups, particularly with the words “Tea Party” and “patriot” in their title.
Morgan, Lewis & Bockius, the firm that employs Roady, released a statement on her behalf explaining her role in asking the question:
“On May 9, I received a call from Lois Lerner, who told me that she wanted to address an issue after her prepared remarks at the ABA Tax Section’s Exempt Organizations Committee Meeting, and asked if I would pose a question to her after her remarks. I agreed to do so, and she then gave me the question that I asked at the meeting the next day. We had no discussion thereafter on the topic of the question, nor had we spoken about any of this before I received her call. She did not tell me, and I did not know, how she would answer the question.”
Outgoing Acting IRS Commissioner Steven Miller confirmed during testimony before the House Ways and Means Committee on Friday that the question had been planted.
That led to intense questioning from members of Congress, who wondered why Lerner did not reveal the news during testimony before the committee on May 8, two days before the conference.
Miller said that the plan had been to simultaneously notify Congress after Lerner’s public admission, but acknowledged that “didn’t happen.”
“She has been directly involved in this matter,” Rep. Sander Levin (D-Mich.) said on Friday. “She failed to disclose what she knew to this committee, choosing instead to do so at an ABA conference two days later.
“This is wholly unacceptable.”
By: Bret LoGiurato, Business Insider, May 18, 2013
“The Nakedly Transparent Flouting Of The Tax Laws”: Washington Misses The Point On The Tea Party And The IRS
My pixels have been absent from these precincts while I report a feature story for The Nation, and I’ll have more to say about the ersatz Scandalpalooza being ginned up by Republicans this week, but for now I wanted to drop a quick word about just how overblown the outrage is about the Internal Revenue Service flagging groups with “Tea Party” in their name for extra scrutiny when they apply for 501(c)(4) status. Jeffrey Toobin, in a New Yorker post called “The Real I.R.S. Scandal,” succinctly explains the legal background:
It’s important to review why the Tea Party groups were petitioning the I.R.S. anyway. They were seeking approval to operate under section 501(c)(4) of the Internal Revenue Code. This would require them to be “social welfare,” not political, operations. There are significant advantages to being a 501(c)(4). These groups don’t pay taxes; they don’t have to disclose their donors—unlike traditional political organizations, such as political-action committees. In return for the tax advantage and the secrecy, the 501(c)(4) organizations must refrain from traditional partisan political activity, like endorsing candidates….
Particularly leading up to the 2012 elections, many conservative organizations, nominally 501(c)(4)s, were all but explicitly political in their work. In every meaningful sense, groups like Americans for Prosperity were operating as units of the Republican Party. Democrats organized similar operations, but on a much smaller scale. (They undoubtedly would have done more, but they lacked the Republican base for funding such efforts.)
So the scandal—the real scandal—is that 501(c)(4) groups have been engaged in political activity in such a sustained and open way.
Just how sustained and open a way? Well, in June of last year I reported from the closing weekend of the recall campaign against Republican governor Scott Walker of Wisconsin:
I drive to a microscopic town next to Racine, where a giant open field was a stop on the bus tour in which Americans for Prosperity, the fake grassroots group that fronts for the Koch Brothers, was shipping supporters from, among other places, Illinois, to these here rallies around the state. Not, they claim, to support the Walker campaign—that would violate election law—which they had nothing to do with, but just in the interest of “educating folks in the importance of the reforms.”
The three hundred or so (though National Review counts differently than me) white people—and one black, who stood precisely in the center of the front row and wore an AFP staff T-shirt—heard an AFP staffer hosanna “economic freedom, limited government, and lower taxes.” And that “even Barack Obama’s Bureau of Labor Statistics” said “we’ve created jobs in Wisconsin.” Then he introduced as an “honorary Wisconsinite,” the head of Americans for Prosperity—Wisconsin, Tim Phillips—a Southerner who made a joke about frigid weather. Apparently reverse carpet-bagging is a signal feature of this “grassroots” movement.
Then a third speaker, but I had already wandered off, bored by the conspicuous lack of energy, past a sign reading “Republican’s Are Makers Democrats Are Takers” [sic, of course], and tables featuring free DVDs on both the glories of Scott Walker and the United Nation’s plan to enslave the United States, in the direction of a second, entirely separate, stage across the field put up by the Racine Tea Party. A few minutes later, the rest of the crowd followed me there. For, yes, an entirely separate rally, which had “nothing” to do with the nonpartisan one two hundred yards away that had just ended [wink wink, nudge nudge]. There they heard Walker’s running mate Rebecca Kleefisch rant about the “big union bosses from out of state,” and how the unions were just like Goliath, and her boss was exactly like David.
Me, I fingered my slick Americans for Prosperity—Wisconsin flier, which I later noticed contained the most revealing typo in the history of politics. “The forces of BIG GOVERNMENT would like nothing more than for you to DO NOTHING,” it warned, but promised, “We are gathering citizens together from across Michigan to make phone calls, knock on doors and educate their friends, family and neighbors.”
As Toobin points out, this is the real scandal: the nakedly transparent flouting of the tax laws by groups claiming to be nonpolitical and nonpartisan. Count on the media in Washington to entirely miss that obvious point.
By: Rick Perlstein, The Nation, May 16, 2013
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