Senate Democrats demanded stricter IRS standards for tax-exempt groups

A group of Senate Democrats, led by Charles Schumer (D-N.Y.), complained to the IRS commissioner in 2012 that political groups were improperly claiming tax-exempt status and possibly allowing donors to wrongly claim tax deductions for their contributions.

The lawmakers promised legislation if the IRS failed to address the issues with specific measures, namely clarifying how much political activity is acceptable for tax-exempt groups, requiring the organizations to document how much of their work is dedicated to non-political purposes and demanding that they tell donors what percentage of their contributions can be claimed as deductions.

Sen. Charles Schumer. (J. Scott Applewhite/AP).
Sen. Charles Schumer. (J. Scott Applewhite/AP)

“We urge the IRS to take these steps immediately to prevent abuse of the tax code by political groups focused on federal election activities,” the senators said.

The IRS on Friday admitted to applying special scrutiny to conservative groups that applied for tax-exempt status during the 2012 election cycle. The targeting seems to have ended by May of 2012, according to documents from an inspector general’s report due for release later this week.

The letter from Democratic lawmakers underscores the concerns that arose after the 2010 Supreme Court decision in Citizens United v. Federal Election Commission, which allowed corporations and labor unions to register for tax-exempt status as long as their “primary purpose” was not political, as well as to raise and spend unlimited sums of money.

With that ruling in place, groups known as “social welfare” organizations can engage in limited political activity as long as it is not their “primary purpose.” But the IRS standards are vague about how much political activity constitutes too much.

“In the absence of clarity in the administration of section 501(c)(4), organizations are tempted to abuse its vagueness, or worse, to organize under section 501(c)(4) so that they may avail themselves of its advantages even though they are not legitimate social welfare organizations,” the Democrats said in their letter.

The letter also highlights the type of pressure that Democrats applied on Congress and the IRS in hopes of mitigating the impacts of Citizens United.

During his 2010 State of the Union speech, President Obama criticized the Supreme Court decision and called on Congress to act.

“The Supreme Court reversed a century of law to open the floodgates for special interests — including foreign companies — to spend without limit in our elections,” he said. “Well, I don’t think American elections should be bankrolled by America’s most powerful interests, and worse, by foreign entities. They should be decided by the American people, and that’s why I’m urging Democrats and Republicans to pass a bill that helps to right this wrong.”

Democrats  expressed outrage on Monday over the IRS’s targeting of conservative groups.

“These actions by the IRS are an outrageous abuse of power and a breach of the public’s trust,” said Sen. Max Baucus (D-Mont.), who added that “the IRS will now be the ones put under additional scrutiny.”

Sens. Tim Kaine (D-Va.) and Joe Manchin (D-W.Va.) also condemned the IRS’s actions, with Kaine calling them “un-American.”

Schumer issued the following statement about the targeting issue on Monday:

“If the IRS showed political bias in scrutinizing these nonprofit groups, heads should roll at the agency. Congress should fully investigate this potential abuse of power and specific reforms must be adopted to prevent this from ever happening again.  As we proposed last year, the IRS must adopt neutral, objective criteria for reviewing applications from groups seeking tax-exempt status and make them clear to the public and to groups that apply.  As long as the IRS guidelines remain murky, the risk remains that the agency will enforce the law arbitrarily or, worse, based on political motives. And that is unacceptable.”

The White House said last week that it supports more formal investigations into the matter, as well as disciplinary action, if necessary. During a news conference on Monday, Obama said he “will not tolerate” misdeeds by the IRS.

“We will make sure we find out exactly what happened on this,” the president said.

The senators who signed the 2012 letter included Schumer, Michael Bennet (D-Colo.), Sheldon Whitehouse (D-R.I.), Jeff Merkley (D-Ore.), Tom Udall (D-N.M.), Jeanne Shaheen (D-N.H.) and Al Franken (D-Minn.).

For more federal news, visit The Federal Eye, The Fed Page and Post Politics. To connect with Josh Hicks, follow his Twitter feed, friend his Facebook page or e-mail josh.hicks@washpost.comE-mail federalworker@washpost.com with news tips and other suggestions.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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Josh Hicks | May 13, 2013