Last Friday, the IRS admitted that it targeted nonprofit political advocacy groups with the terms "tea party" or "patriot" in their names. That prompted widespread denunciations of the agency for political bias, culminating Monday with President Obama calling the conduct "outrageous."
Why is the IRS even involved with tea party groups?
The groups the IRS was looking at were looking to register for 501(c)(4) status. 501(c) is the section of the Internal Revenue Code that regulates nonprofits, which are exempt from paying federal income tax, unlike for-profit corporations. The groups in question were looking to get that kind of status, which requires IRS approval. (c)(4)s aren't allowed have political activities as their "primary" purpose.
It sure sounds like groups with "Tea Party" or "Patriot" in the name are "primarily political."
It may sound that way, but remember that "political" for the purpose of tax exemption is confined to intervening in ongoing political campaigns. If the groups are mainly lobbying elected officials, that doesn't count.
So, were the groups the IRS targeted engage in that kind of political activity?
Hard to say. My colleague Juliet Eilperin reports that of the 298 groups singled out for extra scrutiny, 72 had "tea party" in the name, 13 had "patriot" and 11 had "9/12", in reference to Glenn Beck's "9/12 movement". The Tea Party movement is diverse, so it's as yet unknown whether these groups were primarily electioneering or doing local lobbying and organizing.
When exactly did the IRS start targeting them?
According to the official leaked timeline from the Inspector General's report on the incident, in March-April 2010 the Determinations Unit, which evaluates applications for tax-exempt status, "began searching for other requests for tax exemption involving the Tea Party, Patriots, 9/12 and I.R.C. § 501(c)(4) applications involving political sounding names, e.g., 'We the People' or 'Take Back the Country.'"
How long did that go on?
In response to the exempt organizations (EO) division head Lois Lerner's concerns about the impartiality of that method, the criteria changed to "Organizations involved with political, lobbying, or advocacy for exemption under 501(c)(3) or 501(c)(4)" in July 2011.
That was considered too generic by the Determinations Unit, and was changed to "“Political action type organizations involved in limiting/expanding government, educating on the constitution and bill of rights, social economic reform/movement" in January 2012.
Finally, in May 2012, the criterion was changed again to "501(c)(3), 501(c)(4), 501(c)(5), and 501(c)(6) organizations with indicators of significant amounts of political campaign intervention (raising questions as to exempt purpose and/or excess private benefit)."
Yikes! Did anyone notice?
Some conservatives did, in fact. Rep. Charles Boustany (R-La.), who chairs the House Ways and Means Oversight subcommittee, pressed Douglas Shulman, the Bush-appointed IRS commissioner, on the issue in March 2012. Shulman denied that the agency was targeting conservatives. Sen. Orrin Hatch (R-Utah) wrote to the agency three times last year on the issue.
Did any groups actually lose their tax-exempt status?
Nope. To date, no conservative groups have been identified that actually had their tax-exempt status revoked because of IRS scrutiny.
So what are they complaining about?
They had to provide a large amount of information to keep that status. From Eilperin's report:
Toby Marie Walker, president of the Waco Tea Party, said the IRS subjected her group to a series of unreasonable requests after it applied for tax-exempt status in June 2010. The requests came in early 2012, Walker said, after being initially informed by an official in the Cincinnati field office that he was “sitting on a stack of tea party applications and they were awaiting word from higher-ups as to how to process them.”The agency asked the group’s treasurer to supply information on its “close relationship” with current candidates and elected officials as well as future candidates, along with detailed information about its contributors and members. It also asked for transcripts of any radio interviews its officials had done and hard copies of any news articles mentioning them.“That would take me years to do,” Walker said, noting that in some cases, Chinese media outlets referred to her organization. “Am I responsible for every news article across the globe?”The group had even more difficulty providing transcripts and details of speakers at its events, since they hosted informal gatherings such as “rant contests” where anyone could come and express their views.While the IRS awarded the Waco Tea Party tax-exempt status about six weeks ago, Walker said the group was now considering suing the agency since the process not only consumed time and effort but prompted the group to scale back its 2012 get-out-the-vote operation. “We were afraid to do it and get in trouble,” she said.
Were liberal groups targeted?
Apparently not, though Emerge America, a liberal group that trains female Democratic candidates, lost its tax-exempt status last year when the IRS judged it too partial to the Democratic Party.
Which part of the IRS was responsible for this?
An office in Cincinnati, apparently, which was tasked with evaluating these applications. However, IRS officials in Washington and California were also engaged in scrutinizing conservative groups. President Obama has claimed that he did not know about the issue until this past Friday, when initial news reports surfaced.
What's their explanation?
We don't know the full story yet, but part of it is that the number of new applications for 501(c)(4) exempt status spiked in recent years, going from 1,741 in fiscal year 2010 to 2,774 in 2012, while the staff of the Exempt Organizations Division actually fell. That seems to be part of why the IRS resorted to shortcuts for determining who to scrutinize.
There's that weird "(4)" part again. What's up with that?
There are all kinds of 501(c)s. 501(c)(3), for example, is the provision regulating charities and foundations (and unlike (c)(4)s, donations to them can be deducted from individual income taxes). 501(c)(4)s fall into one of two categories: "social welfare organizations" and "local associations of employees." And 501(c)(4)s have another neat advantage too: Their donors can remain anonymous.
So "social welfare" just means political? I thought you said they couldn't be political?
Not exactly. Social welfare organizations "must not be organized for profit and must be operated exclusively to promote social welfare." That rules out, say, private clubs or groups advocating for employees of a particular company. Since those aren't even arguably about promoting the general good of the community, they aren't eligible; social clubs (including fraternities/sororities, yacht clubs, and country clubs) are generally organized as 501(c)(7)s.
But it does include a whole lot of other nonpolitical groups. An organization formed to beautify a town center, for instance, would count as a 501(c)(4), as would a group that runs a community art show.
Why do political groups like being 501(c)(4)s then?
Because it lets them lobby. Unlike 501(c)(3)s, 501(c)(4)s are allowed to engage in unlimited lobbying, as long as it's related to their core purpose. They have to register with the Clerk of the House and the Secretary of the Senate, however, and must either alert their members as to how much they're spending on lobbying or else pay what's called a "proxy tax" to the IRS. They also can't deduct lobbying or political spending as business expenses.
Can they engage in other political activities?
Yes, 501(c)(4)s "may engage in political campaigns on behalf of or in opposition to candidates for public office provided that such intervention does not constitute the organization's primary activity." Generally, such groups avoid directly endorsing or calling for a vote against particular candidates, so as not to arouse IRS suspicion that their primary purpose is not social welfare, but they can actually engage in a limited amount of that, too. Update: Josh Barro notes that Club for Growth is a notable example of a 501(c)(4) that endorses candidates frequently. Update II: It turns out CFG only endorses through its PAC, not its 501(c)(4). Campaign finance is really complicated you guys.
How is this different from super-PACs?
Super-PACs are allowed to have campaigning as their primary purpose, and can take in unlimited money from corporations, individuals and unions to openly support or oppose candidates. They also must reveal their donors at least quarterly, whereas 501(c)(4)s are allowed to keep their donors secret from the public, and only have to report how much they spend.
However, super-PACs can get around these restrictions by having an affiliated 501(c)(4), and funneling money from that to the super-PAC. This is why Crossroads and Priorities USA, to name two major superPACs, also run 501(c)4s.
Did Citizens United change anything?
It didn't change what 501(c)(4)s were allowed to do, but it did change who was allowed to give them money. Corporations and unions were allowed to give unlimited amounts, just like individuals, for the first time.
How important were these groups in 2012?
That's the subject of considerable debate, but they sure spent a lot of money. Super-PACs spent about $610 million, while 501(c)(4)s spent $254 million.
So were the big 501(c)(4)s that played a big role last year targeted?
Oh no. Despite dozens of entreaties from watchdog groups, large organizations like Karl Rove's Crossroads GPS and the Obama-backing Priorities USA were not given the kind of scrutiny that small Tea Party groups faced.