WASHINGTON -- The Internal Revenue Service is under fire for giving extra scrutiny to conservative organizations that asked for tax-exempt status. But the scandal begs a broader question: Why are political organizations getting this government subsidy anyway?
The section of the tax code sought by the tea party groups was established for the benefit of groups that promote social welfare, generally nonprofit operations. Examples on the IRS website involve community service and groups that provide a certain local benefit.
Somewhere along the line, this longstanding classification has become a loophole exploited by groups seeking to elect Democrats, Republicans and most recently tea party candidates and like-minded groups.
Search the membership of state associations of nonprofit organizations and you’ll have to work to find any that are political in nature. The California Association of Nonprofits in San Francisco lists online more than 1,400 members, yet none have patriot, tea party, progressive or similarly political names.
Yet compare that against the applications in recent years to the IRS for this special tax-exempt status, and a good percentage of the applications appear to be organizations that are decidedly political in nature.
The IRS late Wednesday released the names of 176 applications it had approved through May 9 in its controversial specialized review process. That process is at the heart of the controversy since specialists were flagging applications that had tea party, patriot and other politically charged conservative names.
The 176 approved applications include dozens of tea party groups, as well as others with innocuous names such as Charlotte Matters, Kentucky 912 Project and Miami-Dade Taxpayers Alliance. Some appear overtly political, such as the Coalition for a Conservative Majority, both the Denver and Colorado Springs chapters, and Progressives United Inc.
All were applying for a tax-exempt designation under section 501 (c) of the tax code. This section has at least 25 tax-exempt designations, and the tea party groups were applying under a provision – 501 (c) 4 – that would treat them as social welfare organizations. This allows the groups to raise money from donors and get involved in politics, as long as that’s not their primary activity. Importantly, the donors are not disclosed publicly.
Among the existing 501 (c) 4 organizations are giant election-influencing political entities such as Crossroads GPS and Americans for Prosperity on the right, and the pro-Obama Organizing for America and Priorities USA on the left.
“There are two IRS scandals. The other is the IRS allowing big shadowy forces to meddle in elections anonymously through front groups that file false statements with the IRS,” Sen. Sheldon Whitehouse, D-R.I., said on the Senate floor Wednesday.
The investigative website ProPublica last year spotlighted the growing role of these shadowy groups and their “dark money” on campaign finance, noting that as the 2012 election approached they’d outspent traditional political action committees in the purchase of campaign ads.
Senate Finance Committee Chairman Max Baucus, D-Mont., scheduled a hearing for next week and intends to look beyond the narrower question of tea party targeting by the IRS.
“There is another important question that needs to be asked: Is there a fault in the tax code that may have contributed to the IRS taking such unacceptable steps? Do we need a better definition of what organizations qualify for tax exemptions?” Baucus asked.