Lerner acknowledged Friday that organizations were singled out because of their names in their applications for tax-exempt status.
The controversy underscores the less than clear line in the tax code distinguishing between organizations that are political in nature, vs. those that broadly promote social welfare.
The line between different types of organizations engaging in advocacy and election activities is very blurry, said Jeremy Koulish, a researcher for the Center on Non-Profits and Philanthropy at the Urban Institute, a centrist policy think tank. That has a lot of implications and it makes it very difficult to enforce the regulations that exist.
In fact, the current IRS firestorm isnt exactly new.
Democrats in March 2012 called on the IRS to look broadly at the political behavior of certain tax-exempt organizations whose political involvement is supposed to be limited to issues and not particular candidates. They had in mind Crossroads GPS, the huge tax-exempt organization run by Republican strategist Karl Rove. Around the same time, GOP leaders such as Senate Minority Leader Mitch McConnell, R-Ky., began complaining that conservative groups were getting unfair attention.
Allegations of IRS meddling go back farther than that. In 2006, houses of worship across the nation reviewed their get-out-the-vote efforts after the IRS probed the liberal All Saints Episcopal Church.
The pastor of that church claimed he was targeted for criticizing the war in Iraq, and clergy of all faiths and religious-affiliated groups complained of undue IRS attention. During the 2004 election cycle, the IRS investigated 110 cases of alleged illegal political activity by churches, McClatchy reported on Oct. 31, 2006.
The Senate Permanent Subcommittee on Investigations has for months been looking into IRS regulation of nonprofit groups engaged in politics.
We had tentatively planned a hearing on that issue for June, said a joint statement Monday from Chairman Carl Levin, D-Mich., and ranking Republican Sen. John McCain of Arizona. After Fridays announcement that the IRS, to the extent it has been enforcing the law, may have done so in ways that singled out some groups for special scrutiny, we have determined that the subcommittee should investigate that additional issue as well.
There are more than 25 special IRS designations for tax-exempt status, including special individual categories for cemeteries, war veteran organizations and social clubs.
The most common status, however, is for charities and religious organizations, named for section 501 (c) 3 of the tax code. The next most common, and most controversial, are the 501 (c) 4s, which are supposed to be social welfare organizations. There were 2,774 applications to the IRS for such a designation in fiscal 2012, with eight denials.
While charity groups enjoy tax-exempt status and their contributors can deduct donations from taxes, donors to social welfare groups dont get such deductions but do get an equally important benefit - anonymity. If donors give to a political action committee, their name and donation must be made public. But if they give to an issue-oriented social welfare group, their name doesnt appear.
The investigative news website ProPublica reported in August 2012 that social welfare organizations had spent to date more than $60 million on ads during the presidential campaign, outspending by $5 million the Super Political Action Committees, formed after the 2010 Supreme Court decision that allowed unlimited political donations from corporations.