House Minority Leader Nancy Pelosi, D-Calif., said Thursday that she’ll push for a legal change that returns the 501 (c) 4 to its original intention of promoting social welfare.
“So from my standpoint, I think that they should not have any political purpose. And I would hope that we could change the law on that,” Pelosi said.
Republicans aren’t talking about legal changes, instead keeping the heat squarely on the IRS behavior under existing law.
“I want to know how this happened, who was responsible for it,” House Speaker John Boehner, R-Ohio, said Thursday. “Section 7214 of the Title 26 of the U.S. Code states very clearly any officer or employee of the United States acting in connection with any revenue law of the United States who is guilty of extortion or willful oppression under the color of law shall be dismissed from office and, if convicted, be fined up to $10,000 and spend five years in jail.”
A report by the Treasury Department’s inspector general for tax administration faulted the IRS for using unclear criteria to determine tax-exempt status and recommended definitions that are more specific when an application for tax-exempt status is flagged for scrutiny.
“A lot of it is guesswork, and that’s what makes it difficult. There’s also a question of what the IRS should be doing,” said Jeremy Koulish, a researcher at the Center for Non-Profits and Philanthropy at the Urban Institute, a centrist policy think tank. “Somebody has to decide whether organizations deserve the status they are getting, and that has fallen to the IRS. But because the regulatory environment is so muddy, the evidence suggests we need more clarity in the rules.”
Earl Copilevitz isn’t so sure about that. The senior partner in the Kansas City, Mo., law firm of Copilevitz & Canter has helped establish tax-exempt organizations for years. Most of the groups that sound political in nature, he cautioned, still meet the criteria of providing a social welfare function through their education and outreach efforts.
“That’s the mouse hole they’re going through to justify the tax-exempt status,” he said, noting that issues such as gun control or abortion are closely linked to the political debate but still involve a strong social welfare component.
On the issue of qualification, the IRS itself offers a very broad disclaimer.
“Although the service has been making an effort to refine and clarify this area, (section) 501(c)(4) remains in some degree a catch-all for presumptively beneficial nonprofit organizations that resist classification under the other exempting provisions of the code,” the agency noted. “Unfortunately, this condition exists because ‘social welfare’ is inherently an abstruse concept that continues to defy precise definition.”
A tax-exempt designation for social welfare groups dates back to the Tariff Act of 1913, in part because of a push by the U.S. Chamber of Commerce for exclusion of civic groups and organizations that promoted commerce. That same year, the 16th Amendment was ratified, allowing Congress to levy federal taxes, the modern income tax was born and the tax-exempt designation gravitated to the new tax code.
For much of its history, groups under this designation were as advertised. But over the past decade, applications for this designation took on a decidedly more political nature. There were 2,774 applications for the special tax-exempt status in fiscal 2012, vs. 2,033 in fiscal 2000.
William Douglas of the Washington Bureau contributed.