Most of the media have misrepresented the IRS harassment of Tea Party and Conservative organizations as either innocent mistakes or deserved scrutiny of shadowy groups with suspicious motives. But a review of the documented experience of these groups leads to the inescapable conclusion that it was deliberate, politically motivated intimidation.
Non-profit organization are tax exempt. That is, they are not set up to generate profits for the benefit of owners or shareholders and thus are not subject to income tax. Executive and staff employees of non-profit, tax exempt organizations do pay personal income tax on their salaries and wages.
Non-profits fill out and submit exhaustive, 25-40 page application forms to the IRS, seeking it’s “determination” that they qualify for tax exempt status. The tax code sets forth several types of tax exempt organizations, two of which are 501(C)(3) and 501(c)(4). All the Conservative groups who experienced the harassment and delays that Congress is now investigating applied for one of those two designations. Liberal or progressive groups who applied for the same designations did not.
The IRS’s legitimate function is to review applications for tax exempt status to:
- ensure that a fraudster doesn’t use a non-profit organization as a front to generate untaxed income for himself;
- ensure that 501C organizations comply with political spending regulations.
Regarding the current controversy IRS officials and most of the media have echoed acting (and outgoing) IRS Commissioner Steven Miller’s testimony before the House Committee:
Generally, 501(c) applications are centralized for review if there are indications in the application that the organization may engage in political campaign intervention, lobbying or advocacy. This was done to sure that the legal requirements related to these applications are applied in a fair and consistent manner.
That word “centralized” is internal IRS jargon that apparently means applying consistent procedures to similar applicant organizations. Mr. Miller acknowledged what he could not deny after the Inspector General’s report, that for Conservative-leaning groups his “centralization” became harassment and years of delay. Even though the IRS demanded that these groups provide hundreds of pages of extra, irrelevant information that presumably IRS staff would have to read and evaluate, Mr. Miller’s preposterous testimony before Congress was:
I think that what happened here is that foolish mistakes were made by people trying to be more efficient in their workload selection.
To help us understand the 501C designations we turned to Attorney Clita Mitchell, who is perhaps the nation’s foremost expert on the intersection of tax law and campaign finance laws. She is now representing several of the victim, Tea Party groups in a lawsuit against the IRS. She provided clarification that so far have been missing from media commentary.
Regarding Mr. Miller’s claim that organizations plans to engage in political campaign intervention, lobbying or advocacy prompted extraordinary IRS scrutiny:
- The Internal Revenue Code defines lobbying as an expenditure to influence legislation. It also says both C3 and C4 are permitted to spend on lobbying. In fact, if they wish C4s can spend 100% of their funds on lobbying. C3s can spend part of their funds on lobbying.
- Advocacy is not defined or prohibited by the Internal Revenue Code. All non-profit, tax exempt groups engage in advocacy, from exhorting us to aid needy people or medical research or helpless animals, to espousing religious, cultural, environmental, or political ideas and beliefs.
So neither potential lobbying nor potential advocacy were legitimate reasons for the IRS to subject applications to extraordinary scrutiny and delay. The IRS has no legitimate reason to treat advocacy or lobbying as suspicious or sinister activities.
- Political Campaign Intervention is narrowly defined in the tax code as spending funds on “partisan campaign intervention” which means a campaign for or against a candidate. C4s are allowed to spend on candidate campaigns as long as that spending adds up to less than half of their total annual expenditures and they pay taxes on those amounts. C3s are prohibited from spending on such campaigns. Both C3s and C4s are allowed to spend money to advocate for their causes without restriction.
So what is the job of IRS ? To review C3 and C4 applications and determine if the groups intend to comply with these political campaign spending rules. The standard application forms provide more than enough information to make that determination.
Following are some examples of additional questions that were asked of Clita Mitchell’s clients. As you read each of these questions try to put yourself in the place of the leader of the organization. Will the answers help the IRS to determine if you intend to obey campaign spending rules? OR, is the purpose of the question to harass and intimidate you? Keep in mind that you are required to sign and enclose a statement under penalty of perjury that your answers are complete and correct:
Provide details of all your activity on Facebook and Twitter.
The question is absurdly vague, yet under penalty of perjury your answer must be precise. What does “details of your activity” mean? Who does this include? Just you, the organization’s leader? Does it it include your employees? Your volunteers? IRS doesn’t say. Does it include personal as well as organization-related communication on Twitter and Facebook? It doesn’t say.
Provide a list of all issues that are important to your organization. Indicate your position regarding each issue.
You could be on any side of any issue and either comply with or violate the campaign spending rules. Thus, your answers to these questions are utterly irrelevant to IRS’s task. IRS has no reason to ask about your beliefs except to intimidate you.
Provide a print-out of each of your website’s pages or proposed website’s pages…
If you already have a website, why can’t IRS personnel simply look at it? If your website is only in the “proposed” stage, how can you print out it’s pages?
How many employees do you have, full time, part time and seasonal. If they work part time when do they work? If hey are seasonal, during what season do they work?
How many volunteers do you have? How many volunteers were devoted to each activity of the organization throughout the year? How many and what sort of resources are devoted to volunteer activities?
If you had fifteen or twenty volunteers coming and going on their own schedules how would you be able to answer this? Did you make the volunteers fill out time cards? Again, these questions are irrelevant to the task of determining if you intend to comply with campaign finance spending rules.
Provide a listing of all of your past activities. Indicate the percentage of your time spent conducting the activity and the percentage of your funds spent conducting the activity
Provide a listing of all of your planned activities. Indicate the percentage of your time you will spend conducting the activity (total of all activities should equal 100%) and the percentage of your funds you will spend conducting the activity (total of an activities should equal 100%)
You could spend days answering these two items and still risk inaccuracy. Will the IRS investigate your activities of the past to see if it can find information that contradicts your response an then charge you with perjury? Again, your responses provide absolutely no information that is relevant to the IRS’s task.
Has any person or organization provided educational services to you? If yes, provide The name of the person or organization, a full description of the services provided and the political affiliation of the person or organization.
Provide details regarding each training you have provided or will provide. Indicate who has received or will receive the training and submit copies of the tracking material
Again, these are intrusive, intimidating questions and the answers are irrelevant to the IRS determination process.
Several of the victim groups have come forward with scores of questions like these that are difficult and time consuming to answer and provide no relevant information to the IRS.
IRS’s job is, literally, to follow the money, to determine what portion, if any, of the organization’s funds will be spent on political campaigns for candidates. The answers to these questions do not help the IRS follow the money. It appears that their only purpose is to harass and intimidate.
The media’s latest distraction is an attempt to cast the whole matter as a partisan personality conflict between Daryll Issa the Republican Chairman of the House Government Oversight and Reform Committee and Democrat Committee Member Elijah Cummings. But the only reasonable conclusion one can reach is that the purpose of these questions and the years of unexplained delay was to prevent Conservative groups from receiving tax exempt determinations, without raising the red flag of an unjustifiable denial.
Was the motivation political? Of course! No other motivation is plausible. The only question that remains is who harnessed the bureaucracy to punish the President’s political adversaries?