Before there was the Tea Party, there was Big Mama Rag, Inc.
It wasn’t the end of the IRS taking a discriminatory tone toward nonprofit groups that dealt with homosexuality, however. In 1996, the Gay and Lesbian Adolescent Support System, a group devoted to helping young people deal with harassment and prejudice due to their sexuality, applied for tax exempt status. In response, an IRS official wrote that the group could be viewed as “tending to encourage or facilitate homosexual practice and propensities by the young and impressionable,” and asked the group to “describe in detail the procedures and safeguards in place to assure that counselors and participants do not encourage or facilitate homosexual practices or encourage the development of homosexual attitudes and propensities by minor individuals attending your programs.”
Which brings us to the IRS scandal of the moment, in which tax officials screened applications for status as a social welfare organization based on whether they included “Tea Party” or “Patriots” in their name.
The Inspector General’s report on the Tea Party scandal paints a picture of mid-level IRS employees being extraordinarily insensitive to the fact that their method of screening applications to form a “social welfare organization” for possible excessive political involvement was by definition rigged against the conservative groups that exploded in number in the early years of the Obama administration. Even after being told to stop using politically tilted methods of screening the groups for review in 2011, the Cincinnati IRS office charged with reviewing the applications reversed course in early 2012 and went back to screening based on the group’s name.
There are two big similarities with the IRS’s struggles over groups dealing with homosexuality in decades’ past.
The most clear-cut similarity is that when legal standards around nonprofit groups’ tax treatment is vague, it leaves far too much power in the hands of tax collection bureaucrats. In a 1980 ruling on the Big Mama Rag case, the U.S. Court of Appeals found against the IRS, writing that “applications for tax exemption must be evaluated . .. on the basis of criteria capable of neutral application. The standards may not be so imprecise that they afford latitude to individual IRS officials to pass judgment on the content and quality of an applicant’s views and goals and therefore to discriminate against those engaged in protected First Amendment activities.”
Sounds about right. But now, 23 years later, IRS officials have done it again. The Big Mama Rag case was about 501(c)3 tax status, the Tea Party scandal is about 501(c)4 social welfare organizations, but the original sin is the same: The standards for deciding whether a 501(c)4 is engaging in excessive political activity are impossibly vague, which inevitably assigns too much latitude to IRS staff to use their instincts and judgment. They are allowed to engage in political activity, but not as a “primary” activity. Which means the IRS has to decide what counts as political activity, and what counts as primary. As Brad Plumer notes here, the IRS itself calls this a “facts and circumstances” decision, which a whole range of factors are to be weighed against each other. “Politics is not an exact science,” the IRS’s own guidelines say, understating things.
But here’s a second similarity with the anti-gay IRS cases of the past, though this one is harder to prove. When standards are vague, it leaves too much room for IRS agents’ decisions to be colored by their own instincts. They’re human beings, after all.
It’s easy to believe that the IRS officials involved in crafting the comments quoted above in the tax treatment of groups dealing with gays were, on some basic level, a little skeeved out by gay people. This may have colored their skepticism of nonprofit tax treatment of Big Mama Rag and GLASS.
It’s similarly easy to believe that the same applied in the Tea Party situation today. If you’ve spent your life as a tax collector, you’re naturally going to be a little unsettled by a surge in anti-tax activism. And you thus are going to be less attuned to the possibility that you are screening cases in a way that puts an ideological bias into the tax code.
In the investigations and self-examination that will follow the Tea Party case, lawmakers and the IRS need to carve out some time to think about this core issue: How can the rules around political activism by social welfare groups be crafted to make for more specific, quantifiable measures of where the line is, rather than giving so much leeway to the IRS bureaucrats? For example, a 501(c)4 might be allowed to spend 25 percent of its funds on political activity, defined as activity reportable to federal and state electoral conditions. There would still be plenty of disputes over what exactly should count as political activity, but at least there would be a common frame of reference to determine where the lines are.
For the last word, here’s what Jeffrey L. Yablon had to say in 1998. He is a tax lawyer who wrote the article for the “Journal of Taxation of Exempt Organizations” from which the descriptions of the IRS’s issues around gay-focused nonprofits in this piece are derived.
“There is no hint of a cease-fire being called anytime soon in the cultural wars that are being fought on the American political landscape,” wrote Yablon, who is now a partner at law firm Pillsbury Winthrop. “Not surprisingly, some of the combatants believe strongly and complain bitterly that the IRS has become a partisan for the other side. The only solution is to remove the IRS from the battlefield. The current vague and subjective rules must be replaced with a set of bright line’ tests that require little factual analysis and legal interpretation. The war will go on, of course, but there will be less chance of respect for tax laws becoming a casualty.”
Fifteen years later, it is still so.