Wednesday, May 22, 2013

Focus on the IRS "scandal" creates an opportunity to fix a campaign finance dodge and redefine exemptions

The brouhaha over the IRS’s zeal in investigating conservative political organizations’ application for tax exemption under  a501(c)(4) clause  is one more  episode  of the IRS stepping  into political doo doo.  The current focus  creates an opportunity to fix a problem.
A long standing  interpretation of the laws by the IRS has  opened the door to a dodge of   campaign finance laws.. Unlike other political organizations, the names of  donors to “C4’s” are not required to be disclosed. Requests for the exempt status doubled after the Citizens United Supreme Court decision in 2010 permitting corporations  and labor to donate to political organizations.  The IRS’   triaging priorities for review given   a limited staff  and more work  could be interpreted as  intentionally or inadvertently biased. The Inspector General’s conclusion was the  latter.
 Conservative groups claim  they were singled out for long delays and demands for excessive  documentation . No Tea Party  or Patriot applicant was denied tax exempt status, though one did lose it.   The report conducted by the independent Inspector General and the House hearings  reveal no White House involvement.  Whether   a criminal act was committed  is yet to be seen. 
Abuse of IRS regulations  has happened under the aegis  of both parties.  In 2004, in the Bush administration, the  NAACP complained their applications were singled out by the IRS  and  approval  were delayed for two years.  There are other incidents  involving tax exempt status and politically motivated  audits  over the 100 year history of the IRS .
The most constructive  outcome  of this newest  scrutiny  of the IRS  is to rewrite the tax code to eliminate ambiguities or , better still,  simply to deny exempt status to any political organization that  spends any  money  on  political  ads that intervene in campaigns.. Why should taxpayers have to make up the difference for reduced   income to the Treasury by exempting organizations intervening actively in political campaigns, anyway ?
Why is the IRS caught up  trying to determine whether a politically oriented applicant is primarily spending  resources on political intervention? The law says those getting tax exempt status are  organizations that  operate “exclusively for the promotion of social welfare”. In 1959, the regulators interpreted the law to mean groups “primarily” engaged in helping the community.
  “Primarily” by definition  is   not  the same as “exclusively”.   “Primarily” makes the test more  vulnerable to some underling’s judgment call.  Is the tipping point   50%?, 51% or more?.  Whether either term is followed, the IRS’ burden will always be to  determine how much of an organization’s activity is used for political campaign advocacy and that can only be learned  by asking for evidence.
The devil is also  in defining what  constitutes forbidden  action.  Is it  that a  political organization has paid for advertising urging   votes  for or against an issue or candidate?  Whether that is the situation  or not has been a subject of  court cases and conflicting laws on the state level, including a recent case in Colorado.   
This hearing is an opportunity to fix a problem at the federal level by amending the federal tax laws. The easiest fix, requiring no act of Congress,  is for the IRS   to follow the statute as written:  (C4)’s should spend zero  money on campaigning for or   running ads exhorting voters to cast ballots for or against a specific ballot issue or a candidate.
The House Committee has  provided a public service by exposing the need for  reforms  regarding  (C4)’s.  So long as the GOP does  not   spew turbo charged   rhetoric that gives the impression their goal is mostly to damage the President, the public will  not dismiss the hearings  as just partisan politics .They are in danger. CNN polls as of    Friday, May 17,   showed President’s approval of 53% broke down heavily by  party affiliation.  

A version of this will appear this week in the 

Footnote: Felicia Muftic has been active in government relations in 501(C)(3) and 501(c)(4) organizations  and as an election commissioner and a government official in a career spanning 40 years.  She wrote the handbook for campaign finance disclosures for the City and County of Denver.

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