IRS "targeting" of non-profit groups.
Issue:
Congress and the media have worked themselves into a foment over the Internal Revenue Service's decision to scrutinize conservative groups applying for 501(c)(4) tax-exempt status, labeling it a scandal worthy of congressional hearings and investigations. [See End Bar for explanation of 501(c)(4).]
Deception:
The IRS is accused of engaging in abhorrent and even criminal actions that may have involved the Obama Administration. This is deception and serves only to distract us from the true problem, which lies in the complexity of the United States tax code and undemocratic law regarding campaign contributions.
Reality:
The real scandal here is attributable not to the IRS or the Obama Administration but to three other parties:
Under U.S. law the IRS is not to discriminate on the basis of political affiliation (among other factors). To whatever degree this may have happened in the situation being debated, it is vitally important to acknowledge the following:
Note: It is worth observing that the "Citizens United" case was brought by a political nonprofit that wanted to air a documentary critical of presidential candidate Hilary Clinton during the 2008 presidential primary campaign; and that the cutbacks to IRS staffing were encouraged by self-proclaimed conservative groups in the interest of reducing the federal budget deficit.
Resolution:
Congress must clean up the U.S. tax code, a set of laws so vast and complex that no one person can possibly comprehend all of it or even a substantial part of it - including the Congress members that sustain it and the IRS employees charged with its enforcement. The tax code is rife with exceptions based on everything from political favoritism to corporate lobbying to efforts at managing the social welfare of our society. The use of 501(c)(4) groups to evade donor identity is symptomatic of this complexity.
This complexity has created the need for an expensive and cumbersome bureaucracy - both governmental and private - to deal with compliance and evasion. Whether it is the IRS paying staff to monitor the finances of individuals, businesses and organizations; the obscene expense of paying accountants and lawyers and tax-preparers to reduce tax liability and to ensure compliance with - or evasion of - tax obligations; or the undemocratic practice of shielding campaign donor identities by hiding them behind nonprofit groups; this game should have ended long ago. That is the responsibility of Congress and their failure to stop playing this game is the real scandal - not the IRS' use of profiling.
As for the Supreme Court, their decision in Citizens United was a blow to transparency, accountability and fairness in our politics and taxes because it allows private contributors to campaigns for public office to shield their identities behind nonprofit groups across the political spectrum. A basic fundamental of U.S. democracy is the open and free debate of the public square. The Supreme Court, in cahoots with Congress, has seen to it that this debate is neither open nor free.
As for the nonprofits: hiding the identity of their donors is undemocratic in any case. A free society depends on transparence, accountability and above all, fairness. Nonprofits that utilize the 501(c)(4) to hide the identities of contributions to political campaigns - and the Congress members and Supreme Court justices that allow them to do so - are the true culprits.
Congress and the media have worked themselves into a foment over the Internal Revenue Service's decision to scrutinize conservative groups applying for 501(c)(4) tax-exempt status, labeling it a scandal worthy of congressional hearings and investigations. [See End Bar for explanation of 501(c)(4).]
Deception:
The IRS is accused of engaging in abhorrent and even criminal actions that may have involved the Obama Administration. This is deception and serves only to distract us from the true problem, which lies in the complexity of the United States tax code and undemocratic law regarding campaign contributions.
Reality:
The real scandal here is attributable not to the IRS or the Obama Administration but to three other parties:
- The U.S. Congress in its failure to reform the criminally complicated United States tax code, for which it holds responsibility, as well as its failure to adequately fund IRS compliance operations. Both of these failures set the stage for this problem.
- The U.S Supreme Court in its decision to loosen the restrictions on political campaign financing by the private sector in its 2010 Citizens United vs. Federal Communications Commission ("FCC") case ruling, which weakened the original 501(c)(4) tax-exempt classification and vastly increased applications for its use by political nonprofits.
- Nonprofits in their use of the 501(c)(4) classification, which allows them to shield the identity of their donors and funnel money to SuperPACs (Political Action Committees) for unbridled use in campaigns for public office.
Under U.S. law the IRS is not to discriminate on the basis of political affiliation (among other factors). To whatever degree this may have happened in the situation being debated, it is vitally important to acknowledge the following:
- This is not an issue of conservative groups being selectively targeted. The IRS has "targeted" both conservative and liberal nonprofit groups in its efforts to ensure their compliance with U.S. laws, a fact which has been conspicuously absent in the current debate - the absence of which has enabled conservative groups to leverage this issue for political gain.
- It is acceptable practice for the IRS to "profile" both taxpayers and tax-exempt organizations such as nonprofits in its effort to monitor and ensure compliance based on IRS profiling guidelines that analyze income, expenditures, deductions and activity for signs of possible non-compliance. In the case at hand the IRS used profiling tactics on organizations applying for tax-exempt status.
- Monitoring such compliance requires staffing of the IRS Tax Exempt and Government Ethics Division. As noted above, Congressional cutbacks to IRS funding and the increase in applications by nonprofit groups for 501(c)(4) status due to the Citizens United ruling have undercut the agency's ability to monitor these applications even as Congress mandates that they must do so to determine the validity of nonprofits seeking the 501(c)(4) status.
- The decision to streamline the review of applications by flagging those from conservative groups was ostensibly made because they constituted the vast majority of new applications. This process caused unfortunate delays for those applications and while the intent appears to have been related to efficiency, less possibly partisanship, the action was poorly executed and appears to be in violation of U.S. law. To whatever degree this was or wasn't legal, the focus should first be on the harm the 501(c)(4) itself creates in a democracy, and second on the use of profiling by the IRS under both Democratic and Republican administrations.
Note: It is worth observing that the "Citizens United" case was brought by a political nonprofit that wanted to air a documentary critical of presidential candidate Hilary Clinton during the 2008 presidential primary campaign; and that the cutbacks to IRS staffing were encouraged by self-proclaimed conservative groups in the interest of reducing the federal budget deficit.
Resolution:
Congress must clean up the U.S. tax code, a set of laws so vast and complex that no one person can possibly comprehend all of it or even a substantial part of it - including the Congress members that sustain it and the IRS employees charged with its enforcement. The tax code is rife with exceptions based on everything from political favoritism to corporate lobbying to efforts at managing the social welfare of our society. The use of 501(c)(4) groups to evade donor identity is symptomatic of this complexity.
This complexity has created the need for an expensive and cumbersome bureaucracy - both governmental and private - to deal with compliance and evasion. Whether it is the IRS paying staff to monitor the finances of individuals, businesses and organizations; the obscene expense of paying accountants and lawyers and tax-preparers to reduce tax liability and to ensure compliance with - or evasion of - tax obligations; or the undemocratic practice of shielding campaign donor identities by hiding them behind nonprofit groups; this game should have ended long ago. That is the responsibility of Congress and their failure to stop playing this game is the real scandal - not the IRS' use of profiling.
As for the Supreme Court, their decision in Citizens United was a blow to transparency, accountability and fairness in our politics and taxes because it allows private contributors to campaigns for public office to shield their identities behind nonprofit groups across the political spectrum. A basic fundamental of U.S. democracy is the open and free debate of the public square. The Supreme Court, in cahoots with Congress, has seen to it that this debate is neither open nor free.
As for the nonprofits: hiding the identity of their donors is undemocratic in any case. A free society depends on transparence, accountability and above all, fairness. Nonprofits that utilize the 501(c)(4) to hide the identities of contributions to political campaigns - and the Congress members and Supreme Court justices that allow them to do so - are the true culprits.
End Bar:
There are three types of nonprofits that are key in this matter because the use of two of them for political advocacy is the core reason for the IRS "scandal". None of them pay taxes:
There are three types of nonprofits that are key in this matter because the use of two of them for political advocacy is the core reason for the IRS "scandal". None of them pay taxes:
- 501(c)(3) - tax-deductible contribution, no political advocacy: When you make a donation to a nonprofit it will typically have this status, which makes your contribution tax-deductible on your tax return. These nonprofits are considered to be charities and are not to openly support a candidate for public office; instead they are to focus their efforts on charitable causes.
- 501(c)(4) - non-tax-deductible contribution, some political advocacy, secrecy: Your donation to this type of nonprofit is not tax-deductible but your name is shielded from the public (anonymous), a distinct political advantage for both you and the nonprofit. While these nonprofits are classified as "social welfare organizations" a minority portion of their funds may be used to openly support a candidate for political office, per the Supreme Court's ruling in Citizens United.
- SuperPACs - non-tax-deductible contribution, full political advocacy, no secrecy: Your donation to this type of nonprofit is not tax-deductible and your name is not shielded from the public, but all money raised by a SuperPAC may be fully used for political advocacy.