I've been thinking about this for a few days. At first, I was infuriated,
because it did sound like IRS was playing favorites, but as this story
has trickled out, I'm starting to wonder if IRS did anything wrong at all.
The logical explanation for why purported Tea Party movement organizations
were targeted at all is that there were so many of them, and so many were
very new, and a great many were applying for recognition in time for a
federal election. Generally, IRS does a bad job of tax law enforcement
of political organizations, but some of this sounds like it was legitimate.
Kevin D. Williamson, correspondent for National Review, has been quoted by
bloggers. I was looking for a more neutrally written story, but his will do.
http://nationalreview.com/article/347987/irs%E2%80%99s-tea-party-targeting
The IRS's Tea-Party Targeting
5/10/2013
Third, and perhaps most troubling, those tea-party
organizations were sent letters of inquiry demanding
information that would seldom if ever be demanded of any other
applicant in the process. The IRS demanded lists of donors,
names of spouses and family members, detailed information
about political views and associations--all of that "under
penalties of perjury." Many applicants dropped out of the
process. The questions were remarkably invasive: For example,
the IRS demanded to know not only whether political candidates
participated in public forums conducted by the groups,
but which issues were discussed, along with copies of any
literature distributed at the forum and material published
on websites. (The IRS has been less forthcoming with its own
materials related to this investigation.) If the organizations
collected dues, the IRS demanded to know how much they were. It
demanded everything down to the resumes of employees. The inquiry
was not limited to members of the organization, its executives,
or its directors, but included even their family members:
The IRS demanded to know--again, under penalty of perjury
--whether any of their family members might be thinking about
running for office. Its demand for the names of all donors
--and all recipients of grants--is in violation of IRS policy.
Williamson is quite wrong about some of this, but I suspect he has zero
experience in applying to IRS for recognition of tax exempt status. The
process can be quite smooth or quite intrusive, depending on what the IRS
examiner decides to question. And, yes, applications are indeed filed under
penalty of perjury. All of them. Not just the ones on someone's enemies list.
It's not surprising that applicants would drop out of the process.
Copies of literature? Yes, IRS asks for that. Does IRS want to know if
political candidates participated at forums? Yes, indeed. Dues levels?
That's a pretty basic question. Yes, IRS can ask for information about
family members. There are rules about disqualified persons with regard to
enforcing tax laws concerning foundations and excess benefit transactions;
family members are disqualified persons. Foundation rules are unlikely to
come up with regard to these types of organizations as they aren't charities,
but rules on excess benefit transactions do apply to civic leagues and
social welfare organizations described in 501(c)(4).
Political activity (accepting contributions and making expenditures to
influence nomination or election of a candidate but not a referendum)
cannot be the primary purpose of an organization described in 501(c)(4),
but it is allowed to make accept political contributions and make political
expenditures, subject to a tax.
The names of donors and amounts donated are discloseable to the extent
that they were political contributions in aggregate of at least $200 per
calendar year (as of the end of a reporting period, which might be monthly,
quarterly, semiannually, annually, pre-election, or post-election, depending
on the election year calendar).
Numerous 501(c)(4)s have been set up in an attempt to avoid disclosure of
political contributions and expenditures under tax law, Federal Election
Campaign Act, or comparable state campaign disclosure law. They may exist
for a couple of months around election time, raise their money and make
their expenditures, then go out of business, hoping IRS won't be able to
force them to reveal the source of monies.
However, if IRS was trying to force disclosure of the names of small donors,
that's not a method of attempting to catch the Koch brothers and their allies
of tax law violations, and it's bullying.
For an interesting scholarly paper on these issues, read this abstract,
which has a link from which you can download the full paper. It's written
by a professor of tax law after the Citizens United decision.
http://ssrn.com/abstract=2033306
Nonprofits, Politics, and Privacy
Lloyd Hitoshi Mayer
Notre Dame Law School
April 2, 2012
Case Western Reserve Law Review, Vol. 62, 2012, Forthcoming
Notre Dame Legal Studies Paper No. 12-60