Democracy21

NPR: “Some Lawmakers Want Big-Budget Groups Included In IRS Debate”

admin — Thu, 16 May 2013 17:44:39 +0000

NPR

Some Lawmakers Want Big-Budget Groups Included In IRS Debate

By Peter Overby

Tea Party leaders and lawmakers in the House Republicans’ Tea Party Caucus rallied Thursday on Capitol Hill, expressing alarm over the IRS’s targeting of conservative groups that applied for tax-exempt status as 501(c)(4) social welfare organizations. Rep. Michele Bachmann, R-Minn., invoked the axiom, “The power to tax is the power to destroy.”

But elsewhere on Capitol Hill, some lawmakers want to extend the IRS debate to look at the heavily financed activities of existing nonprofit groups in the 2012 elections.

The agency has been under attack since Friday, when a top official admitted — after years of IRS denials — that groups using “Tea Party,” “patriot” and other likely conservative names had received special scrutiny between 2010 and 2012, with long delays or no action at all. President Obama ousted the and the Justice Department opened a criminal investigation.

Republican consultant Karl Rove and others say the IRS scrutiny was instigated by congressional Democrats. During an appearance on Fox News this week, Rove cited letters from congressional Democrats to IRS administrators.

“Maybe they were influenced by Democrats in the Congress writing them letters saying: ‘Take on these groups or else you’re going to face the consequences in front of us,’ ” Rove said.

But an inspector general’s report says the extra scrutiny started with lower-level IRS employees. And, in fact, those letters from Democratic lawmakers did not deal with 501(c)(4) applicants.

What they did advocate was a crackdown on big-budget 501(c)(4)s that were already active in the 2012 campaign — groups on both sides, including one co-founded by Rove himself, Crossroads GPS.

Sen. Carl Levin, D-Mich., citing a dozen 501(c)(4) groups, liberal and conservative. He said anonymous donors were funneling in millions of dollars.

“They do so covered by a fig leaf that the nonprofit groups to which they donate are dedicated to quote ‘social welfare’ rather than partisan politics,” he said on the Senate floor in July 2012. “That fiction dissolves the moment one looks at these social welfare attack ads that the IRS is so far blind to.”

Meanwhile, Republican lawmakers were warning the IRS to back off, and some outside groups were calling for stronger enforcement.

‘Dead Wrong’

Lawyers from the groups Democracy 21 and Campaign Legal Center wrote to IRS officials more than a dozen times about conservative and liberal 501(c)(4)s. Fred Wertheimer of Democracy 21 says nothing ever happened at the IRS.

“They were dead wrong in going after the conservative groups. And they have been dead wrong in not taking on groups that are abusing and misusing the tax laws,” Wertheimer says.

One basic argument here is that there’s often no difference between TV ads from the transparent political committees called superPACs and ads produced by the secretive social welfare organizations.

For example, take these two ads attacking President Obama.

The first ad comes from Crossroads GPS, with its anonymous funders:

“He’s added $4 billion in debt every day. The economy’s slowing, but our debt keeps growing,” it says.

The second, with almost identical voice-over and music, comes from Crossroads GPS’s sidekick superPAC, American Crossroads, which discloses its donors and is not as well financed:

“He wants more spending, just like his failed stimulus. After trillions in more debt, with nothing to show for it, we can’t repeat those mistakes,” the narrator says.

An NPR analysis found that the big 501(c)(4)s spent more than a quarter-billion dollars trying to shape the 2012 elections.

Paul Streckfus, who edits EO Tax Journal, a newsletter covering the IRS section on exempt organizations, says the IRS’s response was basically: “Can we sort of ignore this? The law isn’t very clear, and we don’t want to make anybody unhappy on the Hill over this.”

Streckfus says the IRS probably should have made an active decision on regulating the social welfare organizations. Then Congress could react, and any unhappy 501(c)(4) groups could sue.

But now it’s too late for that.

The post NPR: “Some Lawmakers Want Big-Budget Groups Included In IRS Debate” appeared first on Democracy21.

NY Times editorial: “Take Politics Away From the I.R.S.”

admin — Thu, 16 May 2013 17:43:48 +0000

The New York Times

Take Politics Away From the I.R.S.

By: The Editorial Board

President Obama’s decision on Wednesday to dismiss the acting commissioner of the Internal Revenue Service was a largely symbolic demonstration of anger and authority. The official, Steven Miller, was not directly involved in the misguided decision to single out Tea Party groups for special scrutiny in granting tax exemptions. What is more important is Mr. Obama’s promise to clarify the extremely vague tax laws, which are the root cause of the problems in both the I.R.S. and the political system.

The report issued Tuesday by the Treasury Department’s inspector general said no one outside the I.R.S. had pressured staff members to look more closely at Tea Party groups. The agency’s mistake was made in-house, and the report uncovered no evidence that it was the result of political pressure from the White House, as many Republicans are charging.

Instead, it was a group of midlevel employees who decided to search for the phrase “Tea Party” and other key words used by conservative groups in identifying and evaluating applications to become tax-exempt “social welfare” groups. Conservative groups were questioned, rejected or left pending with no decision. Those employees “did not consider the public perception of using politically sensitive criteria when identifying these cases,” the report said, adding that “ineffective management” allowed this poor decision-making to go on for 18 months.

The practice was inexcusable, because social-welfare groups of all political stripes, known in the tax code as 501(c)(4) organizations, had for years abused their tax exemptions through excessive political activity, and the I.R.S. should have cracked down on them without regard to ideology. In July 2011, the director of the exempt organizations office, Lois Lerner, told the employees to stop singling out Tea Party groups and instead focus on whether any group might be more active in politics than social welfare, the report said. Yet, just a few months later, the employees were back to using ideological tests.

Nonetheless, there is a clear reason this problem kept arising at the I.R.S., and it is the same reason that social welfare groups were allowed to overrun the political process with secret cash in the last three elections. There are no clear standards for how much political activity a 501(c)(4) group can undertake, or even a clear definition of what political activity is.

For years, the I.R.S. ignored the activities of these groups; when it finally decided to crack down, it did so in a dangerous way.

The tax code says these groups must engage only in social welfare work, but decades ago the I.R.S. began allowing them to dabble in politics, working for or against candidates, as long that was not their primary activity.

Some groups carefully spend only 49 percent of their money on politics, while others, including the one founded by Karl Rove, do nothing but politics while claiming they are engaged in social welfare work. The I.R.S. employees didn’t understand the rules, the inspector general said, largely because the rules barely exist.

Given the confusion, and the years of abuse, it’s time for the I.R.S. to return to the original language of the statute and require these groups to operate “exclusively for the promotion of social welfare,” and not engage in politics. But since even that definition can be squishy, Congress also needs to require that all these groups disclose their donors. Most want the 501(c)(4) designation precisely because it allows secrecy for their donors; otherwise they would take the far easier step of becoming standard political organizations, known as 527 groups, which have to reveal their contributors.

The best way to prevent abuse is to reform this vague statute and eliminate the agency’s discretion. Republicans and Democrats should be joining forces in taking this important step.

The post NY Times editorial: “Take Politics Away From the I.R.S.” appeared first on Democracy21.

Fred Wertheimer POLITICO op-ed: “Inadequate IRS rules helped create scandal”

admin — Thu, 16 May 2013 17:41:51 +0000

POLITICO

Inadequate IRS rules helped create scandal

By Fred Wertheimer

The current firestorm over the wrongful targeting of conservative groups by the Internal Revenue Service is one part of a picture that shows the existing rules to determine the eligibility of groups to qualify as section 501(c)(4) tax-exempt “social welfare” organizations are woefully inadequate.

The other part of the picture is the failure of the IRS to pursue blatant abuses of the tax laws by groups that have improperly claimed section 501(c)(4) tax status in order to hide from the American people the donors who are financing their campaign expenditures.

In fact, both of these IRS scandals stem directly from flawed IRS rules that are contrary to the statute creating section 501(c)(4) “social welfare” organizations and to court interpretations of the statute.

It should be clear at the outset that section 501(c)(4) organizations receive valuable tax and other benefits from the government and the IRS has a statutory responsibility to ensure that groups claiming these benefits are in fact entitled to 501(c)(4) tax-status.

This responsibility does not in any way justify the IRS targeting conservative groups for examination based solely on their names and identified interests. This should never have happened and steps must be taken to ensure that it does not happen again.

But it is also clear that the IRS must enforce the tax laws to prevent groups from improperly claiming tax-exempt status as section 501(c)(4) “social welfare” organizations. This is required in order to protect both the interests of American taxpayers and the integrity of the tax laws.

This has become particularly important following the Citizens United decision, which resulted in a number of groups improperly claiming section 501(c)(4) tax-status in order to launder secret contributions into federal elections. Section 501(c)(4) groups are not required to disclose their donors.

These groups have misused the tax code to deny citizens basic information they have a right to know about the donors financing campaign expenditures to influence their votes.

Both of the current IRS scandals could have been prevented if the IRS had adopted regulations that properly implemented the laws governing eligibility for section 501(c)(4) tax status.

On July 27, 2011, Democracy 21, joined by the Campaign Legal Center, filed a petition with the IRS that challenged the existing eligibility regulations for section 501(c)(4) tax status as contrary both to the Internal Revenue Code and to court decisions interpreting this statute. The petition called on the IRS to conduct a rulemaking proceeding and adopt new regulations that properly implement the statute.

The existing eligibility rules were adopted in 1959, more than a half century ago. In addition to being antiquated and flawed, they do not in any way take account the new groups formed after the Citizens United decision that seek 501(c)(4) status for the purpose of hiding their donors.

Our IRS petition pointed out that the existing regulations did not provide clear guidance regarding when a group was entitled to 501(c)(4) tax-exempt status. The petition also noted that groups claiming 501(c)(4) tax status under the flawed regulations were engaging in far more campaign-related activity that the statute allows.

On March 22, 2012, we sent a follow up letter to the IRS repeating our request for a rulemaking proceeding to establish new rules on eligibility for 501(c)(4) status.

On July 17, 2012, a year after we first submitted our petition, the IRS wrote back to us noting that the agency “is aware of the current public interest in this issue,” that the existing “regulations have been in place since 1959” and that the IRS “will consider proposed changes in this area.”

Ten months later, however, no new regulations have been adopted or are formally being considered.

Our petition noted that the statute creating the tax status for section 501(c)(4) organizations never envisioned that such groups would engage in campaign activity. In fact, the statute requires such groups to engage “exclusively” in “social welfare” activities, and campaign activities do not qualify as such activities under the law.

IRS regulations adopted to implement the statute proceeded to interpret the requirement to engage “exclusively” in “social welfare” activities to mean only that the “primary” activity of a 501(c)(4) group must be “social welfare “activities.

This standard eventually resulted in the nonprofit world concluding that a section 501(c)(4) group can spend as much as 49 percent of its expenditures on campaign activity and still have “social welfare” as its primary activity. The IRS, however, has never established a 49 percent rule and this policy appears nowhere in IRS documents.

Meanwhile, a court case interpreted the term “exclusively” in the statute to mean that a group cannot engage in more than an “insubstantial” amount of non-social welfare activities, such as campaign activities. Other cases found that a group cannot engage in a substantial amount of non-social welfare activity, in essence the same standard as the cases allowing only an “insubstantial” of non-social welfare activity.

It is clear that devoting forty-nine percent of a group’s activity to campaign-related activities does not comply with the court interpretations of how much non-social welfare activity a section 501(c)(4) group can engage in.

Thus, the existing IRS regulations as interpreted by the nonprofit world have allowed section 501(c)(4) groups to argue that they can engage in far more campaign activity than the law and court interpretations of the law actually allow.

Former acting IRS Commissioner Steven Miller recently said that the eligibility requirements for 501(c)(4) tax status is “not always a clear area, and there are no bright-line tests for what constitutes political intervention. Yet, the IRS is tasked with monitoring and enforcing this difficult area.”

That is precisely why Democracy 21, joined by the Campaign Legal Center, filed a rulemaking petition almost two years ago and urged the IRS to adopt new regulations that established a bright-line test for eligibility for 501(c)(4) tax status.

In our petition, we proposed that consistent with court decisions, the IRS establish a bright-line test by limiting the amount a section 501(c)(4) group could spend on campaign activity to no more than a small or “insubstantial” percentage of its total annual expenditures, such as five or ten percent of the group’s expenditures. Or, consistent with the statutory language, the IRS could prohibit section 501(c)(4) groups from engaging in any campaign activity at all.

This would return section 501(c)(4) organizations to their original statutory purpose of serving as organizations focused on “social welfare” activities.

It would also provide a bright-line test for organizations seeking to qualify for section 501(c)(4) tax-status by making clear to the organizations how much, if any, campaign activity they can engage in and still qualify as section 501(c)(4) groups. And it would eliminate the kind of wrongful targeting of groups that has caused the current IRS firestorm, since the test for being a section 501(c)(4) group would be very clear to both the IRS and the groups seeking this tax status.

Any 501(c)(4)group that wanted to conduct campaign activity could do so by forming a separate section 527 political organization. The purpose of such 527 groups is to make expenditures to influence elections and they are required to disclose their campaign contributions and expenditures.

In short, there are concrete steps that can be taken to address the current scandals at the IRS and prevent them from happening again.

The IRS can conduct a rulemaking proceeding, as we proposed nearly two years ago, and consistent with the statute establish a new bright-line test for eligibility for section 501(c)(4) tax status. Or Congress can enact these bright-line rules for section 501(c)(4) groups.

In other words, if the powers that be in Washington really are interested in solving these problems, they can do so by restoring section 501(c)(4) groups to their original statutory role of engaging in social welfare activities.

The post Fred Wertheimer POLITICO op-ed: “Inadequate IRS rules helped create scandal” appeared first on Democracy21.

Fred Wertheimer on CBS News: “Is IRS missing a bigger tax-exempt scandal?”

admin — Wed, 15 May 2013 15:10:53 +0000

CBS News

Is IRS missing a bigger tax-exempt scandal?

By: Wyatt Andrews

The post Fred Wertheimer on CBS News: “Is IRS missing a bigger tax-exempt scandal?” appeared first on Democracy21.

Washington Post Wonkblog Q&A with Fred Wertheimer

admin — Wed, 15 May 2013 15:06:03 +0000

The Washington Post’s Wonkblog

‘Crossroads GPS and Priorities USA were created for the purpose of hiding donors’

By Dylan Matthews

Fred Wertheimer is the founder and president of Democracy 21, a leading campaign finance reform organization. He worked for Common Cause for 24 years, serving as a lobbyist for the Watergate reforms and as a counsel for the organization in the landmark Buckley v. Valeo case before the Supreme Court and as president from 1981 to 1995.

He has been involved in the passage of numerous reform measures, including the Federal Election Campaign Act and its amendments, the Bipartisan Campaign Reform Act (aka McCain-Feingold), and the Honest Leadership and Open Government Act.

We spoke on the phone Tuesday afternoon; a lightly edited transcript follows.

Dylan Matthews: There’s a lot of confusion about what 501(c)(4)s are and aren’t allowed to do. What are the rules here? Can they endorse candidates, run campaign ads, etc.?

Fred Wertheimer: Well, let me take you through it. They are allowed to conduct campaign activity, and the question is “how much?” If you read the statute, the statute says that these groups must engage exclusively in social welfare activity, and IRS regulations state that campaign activity is not social welfare activity. The literal language of the IRS statute says you can only engage in social welfare activity.

The IRS regulations, which are more than a half-century old at this point, say that your primary activity must be social welfare activities — and keep in mind that other IRS regulations made clear that engaging in campaign activity is not a social welfare activity. So we go from a statute that says “exclusively social welfare activity” to the IRS regulations that say “social welfare activities must be your primary activity,” and then to court decisions which have interpreted “primary activity” to mean that you cannot engage in a substantial amount of non-social welfare activity, or, it is sometimes worded, you can only engage in an insubstantial amount of non-social welfare activity.

On top of all this, there has been an established view in the nonprofit world that the “primary” standard means as long as you do less than 50 percent of your activity as campaign activity, you can do it. That view says you can spend up to 49 percent of your annual expenditures on campaign activity, and still be eligible for 501(c)(4) status. That is not a written rule of the IRS, you can’t find it anywhere, but that’s the common understanding in the nonprofit world.

We have challenged the IRS regulation as being contrary to the law, which says “exclusively engaged in social welfare activity” and contrary to these court interpretations. We petitioned the IRS in 2011 to hold a new rule-making, but they’ve yet to do anything about that.

When did these politically oriented 501(c)(4)s start to crop up?

This followed in the wake of the Citizens United decision, and this was a clear reaction to that decision by some groups. Nonprofits are all corporations, so up until Citizens United, the nonprofit groups couldn’t make direct expenditures to influence federal elections, because corporations were prohibited from making those expenditures. Citizens United opened the door to corporations, including nonprofit corporations making expenditures to influence federal elections.

In the summer of 2010, some of these groups started appearing, the most significant one being Crossroads GPS. Democracy 21, joined by the Campaign Legal Center, first wrote to the IRS in October 2010, making the case that Crossroads GPS was not entitled to 501(c)(4) status, and that the IRS should take appropriate action.

We then added other groups that we asked the IRS to investigate, including the pro-Obama group Priorities USA, which was created by two former White House officials, the American Action Network and Americans Elect. We have written about a dozen letters — in 2010, 2011 and 2012 — to the IRS, asking for investigations of these groups and asking the IRS to take appropriate action against them.

In our letters, we have documented why we think none of these groups are entitled to 501(c)(4) status. For example, the Americans Elect group was registering as a political party in a number of states, in order to have the opportunity for a candidate they planned to nominate to run for president. You cannot register as a political party and be a social welfare group. It’s just not possible under the tax law.

In the case of the American Action Network, in 2010 they reported 87 percent of their expenditures to the FEC as either independent expenditures or electioneering communication activities. By the very nature of their reporting, they certainly demonstrated that their primary activity was not social welfare activity. And we documented the cases on Crossroads GPS and Priorities USA as well.

I imagine Organizing for Action, the new Obama group, would be suspect for similar reasons.

They may be. You have to wait and see what they do. You have to see what they are spending their money on. That group just started.

A lot of these groups have super-PACs attached to them. Why?

So American Crossroads is a super-PAC, and they’re affiliated with Crossroads GPS, which is a 501(c)(4). Priorities USA Action was the Obama-supporting super-PAC, and it was affiliated with Priorities USA, a 501(c)(4).

That is simply one part of the case that shows that groups like Crossroads GPS and Priorities USA were created for the purpose of hiding donors. Donors were basically told: “You can give your money to the super-PAC, but you’ll be disclosed. If you don’t want to be disclosed give it to our 501(c)(4), and we’ll hide who you are.”

They weren’t created to be “social welfare organizations.” They were created to hide the donors from the American people, who were financing the campaign expenditures by these groups.

Super-PACs have to disclose, but if a super-PAC gets a contribution from a 501(c)(4), it just discloses that the (c)(4) gave it the money. So this is one way the super-PACs could get undisclosed money. There were some examples of groups that did that in 2012. Not a whole lot, but that could become a growing activity.

Why is the IRS not cracking down on these big groups?

It’s hard to speculate. The IRS has always been sensitive about getting involved in matters that involve the political arena, which makes it very strange to see the choices they made. In our view, there’s no question that they had to get involved in the cases we were bringing to them, because these groups were undermining the integrity of the tax laws and were hiding information that the American people had a right to know.

At the same time, they chose to get involved in a formulaic way in targeting other groups simply because of their names, and that was just wrong, and now they’ve got themselves in a very difficult situation. It’s very hard to know what went on here.

What is clear, in my view, is that the IRS got this wrong twice. They got it wrong in targeting conservative groups for review based on their names and their identified interests, and they got it wrong in not investigating and acting against groups that in our view were blatantly abusing the tax laws by improperly claiming to be 501(c)(4) groups so they could keep the donors paying for their campaign activities secret from the American people.

Just to get really concrete, if I’m a 501(c)(4), am I allowed to put out an ad that says, “Vote for John Smith” or “Vote against John Smith”?

Yes you are, post-Citizens United. Prior to Citizens United, you would not have been able to do that, because no corporation could do that in federal elections, and 501(c)(4)s are corporations. Citizens United opened the door to 501(c)(4)s becoming a vehicle for laundering secret money into federal elections.

How common is it to actually revoke these groups’ status for being too political? There was one group that had that happen to it last year, but is that common?

I don’t think it’s common, but I can’t answer for sure how rare it is. There is a whole other avenue that exists for determining 501(c)(4) eligibility. There’s another standard besides primary activity, and that standard is you can’t use a 501(c)(4) for your own private political interests. We have raised that issue with the IRS in terms of Crossroads GPS, and that’s an area we’re going to explore in other cases. But the bottom line is, I don’t know. I don’t think it’s common to shut these down, but I don’t know how often it happens.

Just to be clear there, if groups are working for themselves and not the “social welfare,” that’s not allowed?

The question is whether they meet the standard of the IRS in terms of being a social welfare organization, or whether the group is being used to advance personal, political interests. My mind has a very hard time grappling with the notion that Karl Rove created Crossroads GPS to engage in social welfare work. He is not known for his social welfare activities. He is known 100 percent for his political and campaign activities.

What would your preferred reforms in this area look like?

We need a couple of major changes here. First of all, we need disclosure legislation, to bring an end to the secret money being laundered into our elections. That would play a very large role in preventing the misuse of 501(c)(4)s for campaign purposes, because it’s being done now as a vehicle to hide donors.

We also need a bright-line test so that it’s very clear what the rules are for being eligible for 501(c)(4) status. 501(c)(4)s were never intended to be organizations that engaged in lots of campaign activity. Go back to the statute. They’re supposed to be exclusively for social welfare purposes, according to the statutory language. There should be a bright-line limit on the percentage of money that can be used for campaign-related purposes, and the limit should be a relatively small percentage of the total expenditure that a 501(c)(4) makes.

If 501(c)(4)s want to do more than that, they should set up a 527 political organization and have those groups spend the money, and those groups are subject to disclosure. We ought to return 501(c)(4)s to their original purpose, which did not include campaign activities, by limiting to a small percentage of their expenditures the amount of campaign activities they can undertake and still quality as (c)(4)s. We also ought to pass comprehensive disclosure legislation so citizens can once again fully know who is financing the campaign expenditures that are being made to influence their votes.

Would that stop people from, say, starting shell corporations to stay anonymous while dispensing cash?

If we were to pass the approach in the DISCLOSE Act, this has protections against that happening. The provisions are designed to deal with people who want to set up dummy organizations in order to hide the donors financing campaign expenditures, and I think it would capture almost all of the efforts to evade disclosure.

The post Washington Post Wonkblog Q&A with Fred Wertheimer appeared first on Democracy21.

Washington Post column: “IRS has been too lax on tax-exempt status”

admin — Wed, 15 May 2013 15:04:48 +0000

The Washington Post

IRS has been too lax on tax-exempt status

By Ruth Marcus

Sputtering adjectives — outrageous, appalling, intolerable — can scarcely do justice to the fiasco involving the Internal Revenue Service’s reported targeting of conservative groups.But the current scandal obscures — and, ironically, threatens to prevent action on — another, equally corrosive failure on the part of the IRS when it comes to scrutinizing political groups.

This less-noticed scandal is the mirror image of the one dominating the front page. It’s not that the IRS has been too tough on such groups — it’s that the agency has been too lax. Groups on the right and left have taken advantage of the tax laws to intervene in elections while hiding their donors from public view.

To be clear: There can be no room for politics, or the appearance of politics, in tax administration. For IRS employees to target groups whose names contain certain, loaded words — tea party, 9/12, whatever — is unacceptable, although my guess is that this will turn out to have been more boneheaded than sinister.

Similarly unacceptable, and again, likely more boneheaded than sinister, is the apparent failure of then-IRS Commissioner Douglas Shulman to provide accurate information to Congress when questioned about the treatment of conservative groups.

But back to the scandal hiding in plain sight. In order to qualify for nonprofit, tax-exempt status under Section 501(c)(4) of the tax code, groups must be “operated exclusively for the promotion of social welfare,” defined as activities “promoting in some way the common good and general welfare of the community.”

However, the IRS has long interpreted “exclusively” to mean “primarily” and allowed 501(c)(4) groups to engage in partisan activity as long as it constitutes less than half their operations. The problem exploded after the Supreme Court’s 2010 ruling in Citizens United, when the number and explicit political involvement of such groups mushroomed.

This was a bipartisan outrage, although a lopsided one: Republicans were far more active on the nonprofit front than Democrats. Still, groups backing candidates from both parties abused the system by spending millions on political campaigns without revealing the identities of their donors. Meanwhile, a passive IRS stood idly by as the groups made a mockery of campaign disclosure rules.

Theoretically — which is to say, under the campaign finance law — the identities of those giving more than $200 to political committees must be made public. The lassitude of the IRS in dealing with these supposed nonprofits, combined with the lassitude of the Federal Election Commission, has created a gusher of so-called dark money.

According to the Center for Responsive Politics, in the 2012 election, nonprofit groups reported spending more than $250 million to support or oppose particular candidates. That’s a heck of a lot of social welfare — and the amount is way understated, because only certain spending must be reported.

The biggest nonprofit spender in the 2012 campaign was Crossroads GPS, founded by Republican strategists Karl Rove and Ed Gillespie. In a Wall Street Journal op-ed in August 2012, Rove was not exactly coy in describing the group’s operations as an adjunct to the Mitt Romney campaign, running more than $50 million in ads “attacking Mr. Obama’s policies or boosting Mr. Romney.”

By Election Day, according to the Center for Responsive Politics, Crossroads GPS had spent $70 million on independent expenditures attacking President Obama and other Democratic candidates, or backing Republicans.

An August 2012 report by ProPublica showed how groups that told the IRS they did not plan to intervene in politics then did exactly that. For example, ProPublica reported, “Even before mailing its application to the IRS saying it would not spend money on elections, the Alliance for America’s Future was running TV ads supporting Republican candidates for governor in Nevada and Florida.”

The current scandal over partisan scrutiny by the IRS now threatens to engulf the underlying one of the agency’s facilitation of bipartisan hidden money. The Senate Permanent Subcommittee on Investigations had planned hearings next month on that issue; Chairman Carl Levin of Michigan and ranking Republican John McCain of Arizona announced on Monday the inquiry would be postponed while the committee broadened its look to include the agency’s targeting practices.

A healthy democracy demands a system in which citizens can trust that their government does not punish political dissenters. It also demands that citizens be able to know what interests are bankrolling their elected officials.

The two needs are not inherently at odds, but the idiocy of the IRS risks making them so. That is a sad and dangerous byproduct of this unnecessary mess.

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Time: “The Real IRS Scandal”

admin — Tue, 14 May 2013 20:29:58 +0000

Time

The Real IRS Scandal

By Alex Altman

The IRS is unpopular on its best days, and the past few have been among its worst. The agency’s admission that it targeted conservative groups for special scrutiny drew condemnation from across the political spectrum on Monday. “Outrageous,” declared Barack Obama. House and Senate leaders from both parties promised an investigation. Some of the Tea Party groups refused to even accept its apology.

All this outrage threatens to obscure an important point: the IRS does need to crack on political groups masquerading as social welfare organizations. Many of the nonprofit groups who claim 501(c)(4) status either flout tax law or flirt with the murky line between electioneering and issue advocacy, all while using their tax-exempt status to conceal their donors. The problem isn’t that the IRS flagged nonprofit groups for additional review. The problem is that it did so poorly, lavishing special attention on Tea Party outfits when it should have been scrutinizing everyone — or at least more egregious offenders.

This is easier said than done. After the U.S. Supreme Court’s Citizens United decision in January 2010, donors flocked to 501(c)(4)s as a vehicle to pump cash into elections without disclosing the source of their contributions. The number of groups applying for social-welfare status has since doubled. In 2012, the news outlet ProPublic examined 72 501(c)(4) applications from groups which claimed to have no plans to spend money on elections. They compared those documents against the subsequent tax returns. Nearly half of the groups found their plans had changed.

In last year’s elections, 501(c)(4) groups spent more than $300 million in dark money, according to Lisa Rosenberg of the Sunlight Foundation, a nonpartisan government transparency group based in Washington. There is no way to police all these groups, Rosenberg acknowledges. But the IRS, deluged with social welfare applications at the same time the Tea Party movement was on the rise, appears to have picked a political filter as a shortcut. “It’s the right thing to do to be looking into which of these groups are legitimate social welfare organizations and which are political organizations. It’s absolutely necessary,” Rosenberg says. “There’s no question the way the IRS apparently went about it was wrong. But the fact that they were doing it is absolutely right.”

The method the IRS used to determine which groups to investigate — singling out keywords like tea party, patriot and other conservative terms of art — was “just backwards,” says Fred Wertheimer, president of the campaign-finance watchdog Democracy 21. “There are a number of groups that have blatantly been abusing the tax laws in order to hide their donors. Those are the groups that the IRS should have been investigating.”

Beginning in the fall of 2010, Democracy 21 and another nonpartisan group called the Campaign Legal Center have urged the IRS to crack down on groups that have improperly claimed social-welfare status. Among the leading offenders, Wertheimer says, are two right-leaning groups, Crossroads GPS and the American Action Network; PrioritiesUSA, which supported Obama’s re-election; and the short-lived Americans Elect, which tried to raise a third-party presidential candidate to compete in 2012 despite registering as a social-welfare nonprofit.

The IRS, Wertheimer says, was provided with evidence that clearly documented how these groups flouted IRS regulations, which hold that they must be “primarily” engaged in social welfare activities rather than electioneering. (Crossroads GPS founder Karl Rove even acknowledged in a Wall Street Journal editorial that his group had funneled millions into an ad blitz on behalf of Mitt Romney.) And yet instead the IRS chose instead to adopt a crude criteria targeting possible Tea Party transgressors.

One of the predictable ironies of the IRS decision is that the scandal has breathed new life into the groups the organization had sought to disrupt. Until last week, the Tea Party had been on the wane. Now it is back in the news, fed by outrage at its persecution. “They came up with a formulaic way of looking at groups simply because of their names,” Wertheimer says of the IRS. ”Which was wrong. And they haven’t dealt with the real abuses that are going on.”

For campaign-finance watchdogs, the fear is that the backlash will spook the IRS out of pursuing major players who are using the loophole to influence elections. “Our concern now,” Wertheimer says, “is to make sure the focus on IRS abuses does not become cover for political organizations that are blatantly misusing the tax laws.”

The post Time: “The Real IRS Scandal” appeared first on Democracy21.

NY Times Editorial: “The I.R.S. Audits Are Condemned”

admin — Tue, 14 May 2013 20:28:40 +0000

The New York Times

The I.R.S. Audits Are Condemned

By the Editorial Board

The Internal Revenue Service was absolutely correct to look into the abuse of the tax code by political organizations masquerading as “social welfare” groups over the last three years. The agency’s mistake — and it was a serious one — was focusing on groups with “Tea Party” in their name or those criticizing how the country is run.

The I.R.S. should have used a neutral test to scrutinize every group seeking a tax exemption for “social welfare” activity — Democrat or Republican, conservative or liberal. Any group claiming tax-exempt status under Section 501(c)(4) of the internal revenue code can collect unlimited and undisclosed contributions, and many took in tens of millions. They are not supposed to spend the majority of their money on political activities, but the I.R.S. has rarely stopped the big ones from polluting the political system with unaccountable cash.

Last year, we supported the I.R.S. in aggressively asking Tea Party groups seeking this special tax status to prove that they were not political activists. We urged the I.R.S. to be just as tough on groups already claiming 501(c)(4) status — like Priorities USA, a Democratic group founded by former White House aides, as well as Karl Rove’s Crossroads GPS group and Americans Elect, a third-party group — as on Tea Party chapters seeking tax-exempt status.

Unfortunately, it appears as though the I.R.S. looked only at conservative groups applying for the exemption, an inexcusable mistake given its power over individuals, nonprofits and corporations, and the potential for abuse. It’s important to point out, though, that this is a far cry from President Richard Nixon’s interest in intimidating his political enemies through selective audits of personal tax records. There is no evidence President Obama knew about the audits by the I.R.S. The groups involved were seeking not to pay taxes on large amounts of income by claiming that they promote social welfare. No one has an automatic right to this tax exemption; those seeking one should expect close scrutiny from the government to ensure it is not evading taxes.

For many years, however, the I.R.S. hasn’t provided it. Democratic groups were the first ones to start abusing their social-welfare tax status in the 2004 election; the Republicans followed suit and became the biggest players in this field beginning in 2008. Far bigger than any Tea Party group, Crossroads GPS nakedly violated the tax code by spending tens of millions on behalf of Republican candidates, claiming it wasn’t political because it ran only “issue ads.” It never lost its tax exemption.

In 2011, when the director of the agency’s tax-exempt division, Lois Lerner, heard about Tea Party applicants being singled out for review through keyword searches in applications, she ordered that the focus be broadened to all political or lobbying organizations seeking such an exemption, The New York Times reported. Agency employees didn’t seem to get the message and kept the focus, wrongly, on conservative groups.

President Obama said on Monday that he learned of the practice only when the public did late last week, and he called it “outrageous.” He promised to take action against those involved — and needs to find out whether any political appointees ordered the practice or knew of it. Inevitably, the stumble by the I.R.S. will now be used by the Republicans as a point of attack. They are gleefully promising months of hearings, and the National Republican Congressional Committee is already trying to tarnish Democratic lawmakers with what it calls “the Obama administration’s use of the I.R.S. as a political tool.”

This will serve as the perfect distraction from issues, like the budget, gun control or immigration reform. And it will probably prevent any real progress on campaign finance reform, which, in turn, will make it vastly more difficult for the I.R.S. to prevent abuse of the tax code.

The post NY Times Editorial: “The I.R.S. Audits Are Condemned” appeared first on Democracy21.

Statement of Democracy 21 President Fred Wertheimer on IRS Improperly Targeting Conservative Groups and Groups Improperly Claiming 501(c)(4) Tax Status

admin — Mon, 13 May 2013 20:31:17 +0000

The IRS was dead wrong to target conservative groups claiming tax-exempt status as section 501(c)(4) “social welfare” organizations based on their names and identified interests. This never should have happened and steps should be taken to ensure it does not happen again.

At the same time, however, it is clear that a number of groups have improperly claimed tax-exempt status as section 501(c)(4) “social welfare” organizations in order to hide the donors who financed their campaign activities in the 2010 and 2012 federal elections.

Democracy 21, joined by the Campaign Legal Center, sent a series of letters to the IRS, starting in October 2010 asking for investigations and appropriate action against certain groups that clearly appeared to be improperly claiming tax-exempt status as 501(c)(4) groups.

The groups included Crossroads GPS, the pro-Republican group created by Karl Rove, Priorities USA, the pro-Obama group created by former Obama White House officials, American Action Network, a pro-Republican group, and Americans Elect, an independent group seeking to run an independent for President in 2012.

In each of these cases, we provided information that documented the groups were not ‘social welfare” organizations and not entitled to 501(c)(4) tax status.

It is these groups and others like them that should have been the focus of the IRS’s attention.

To date, however, the IRS has taken no action against these groups who are improperly claiming tax status as section 501(c)(4) “social welfare” organizations.

We believe the information and supporting materials we sent to the IRS documented an overwhelming case that both Crossroads GPS and Priorities USA are not “social welfare” organizations within the meaning of the Internal Revenue Code and are therefore not eligible for section 501(c)(4) tax status.

Similarly, we believe the cases are open and shut that the American Action Network and Americans Elect are not entitled to section 501(c)(4) tax status.

For example, as we informed the IRS, an article from the Center for Public Integrity’s iWatch News (October 31, 2011) reported that American Action Network spent $30 million in 2010.

According to the article and federal campaign finance reports, $26 million of the $30 million spent by American Action Network in 2010 was spent for “independent expenditures” and “electioneering communications,” as defined by federal campaign finance laws. The article stated:

The conservative American Action Network, a leading independent player in last year’s election, poured $26 million – out of some $30 million in spending – from secret donors into political ads and activities to help Republican candidates. . . .

As required by law, the network reported the $26 million it spent on political activities to the Federal Election Commission before Election Day.

Our letter to the IRS noted that this means that 87 percent of American Action Network’s expenditures in 2010 were made for campaign-related activities reported to the FEC under the campaign finance laws. The article further stated:

“If over 80 percent of a group’s expenditures are for political purposes that require reporting to the FEC, then that organization will not qualify for tax exempt status under section 501(c)(4),” Marc Owens, who was director of the IRS exempt organizations division for a decade, told iWatch News.

Our IRS letter stated that no one understands the tax laws to say that an organization is eligible for section 501(c)(4) tax-exempt status if 87 percent of its expenditures are made for campaign-related activities reported under the nation’s campaign finance laws.

In the case of Americans Elect, we informed the IRS that this group was registering as a political party around the country in order to provide the opportunity for an independent candidate to run for President. At the same time, the group was claiming to be a 501(c)(4) “social welfare” organization so they could keep their donors secret. It is an oxymoron for an organization to be registered as a political party and also to claim to be a 501(c)(4) “social welfare organization.

There is absolutely no basis on which a registered political party can qualify as a 501(c)(4) “social welfare” organization.

These four cases and others like them must not be ignored or swept under the rug because of the wrongful actions of the IRS in the case of the conservative groups who were targeted.

The congressional committees that have announced investigations of the IRS treatment of conservative groups must also investigate the failure of the IRS to address the blatant abuses by groups that have improperly claimed section 501(c)(4) tax-status.

The post Statement of Democracy 21 President Fred Wertheimer on IRS Improperly Targeting Conservative Groups and Groups Improperly Claiming 501(c)(4) Tax Status appeared first on Democracy21.

Reform Groups Call on Congress to Close Gaping Disclosure Loopholes and Maintain Existing Contribution Limits

admin — Thu, 02 May 2013 13:31:22 +0000

In a letter sent today, reform groups urged Senators and Representatives “to pass campaign finance disclosure legislation this year to close the gaping disclosure loopholes in the campaign finance laws. These loopholes resulted in more than $300 million in secret contributions being spent by outside groups to influence the 2012 presidential and congressional elections.”

The organizations include: Americans for Campaign Reform, the Brennan Center for Justice, the Campaign Legal Center, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Demos, the League of Women Voters and Public Citizen.

According to the letter:

The American people have a basic right to know the sources of the funds being spent to influence their votes in federal elections. The Supreme Court made this clear in the Citizens United case when by an 8 to 1 vote the Court upheld the constitutionality of disclosure requirements for outside groups that spend money in federal elections. The Court recognized the important role that disclosure plays in informing voters and providing accountability…

Our organizations supported legislation in the last Congress to close the disclosure loopholes. We continue to believe it is essential to enact effective disclosure legislation to end the hundreds of millions of dollars in secret contributions being spent to influence federal elections.

The letter also challenged any efforts to increase contribution limits and called on Members to maintain the current limits. The letter stated:

We also want to make clear again, as we did in a letter we sent to Senators on January 17, 2013, that we see no basis for increasing federal contribution limits, including the limit on the total amount an individual can give to all candidates, parties and PACs in a two-year election cycle.

Our January 17^th letter to Senators stated with regard to the contribution limits:

These contribution limits are already extremely high. Only a miniscule number of the more than 300 million people who live in the United States can even consider making the current maximum allowable contributions. In fact, only 0.09 percent of adult Americans gave contributions of $2,500 or more in the 2012 election, according to the Center for Responsive Politics.

Raising the existing party contribution limits would serve to further empower a tiny handful of the wealthiest Americans and to increase their ability to exercise undue influence over government decisions. This is wrong and would further damage our system of representative democracy.

The letter spelled out the dangerous consequences of any increase or loosening of the aggregate limit on the total amount an individual can give to all candidates, parties and PACs in an election cycle:

Under the existing aggregate limit on individual contributions, a couple can already give a total of $246,400, or almost a quarter of a million dollars, to candidates, parties and PACs in a two-year election cycle (a total of $123,200 per individual giver per election cycle).

Similarly, if the national parties were not covered by the existing aggregate contribution limit, a Member of Congress could solicit and a couple could give $388,800 to the national committees of a political party in a two-year election cycle (a total of $194,400 per individual giver per election cycle to the three national committees of a political party). Through internal party transfers, furthermore, this total amount of $388,800 could end up in one national party committee and be spent by the party committee to support the election of the Member of Congress who solicited the funds.

The letter stated:

The aggregate limit on individual giving is already far too high and there is no basis for any increase in the limit or any change that loosens how it is applied. Any such increase or change would only serve to increase the access and influence of the wealthiest citizens in the country, at the expense of all other Americans. The aggregate contribution limit was upheld by the Supreme Court in the landmark Buckley case as necessary to prevent corruption.

The letter also pointed out that opponents of disclosure have lost the overwhelming number of cases they have brought to challenge disclosure laws since the Citizens United decision.

According to a summary and chart prepared by the Campaign Legal Center and sent to Members with the letter:

As the chart indicates, both the Supreme Court and the lower courts have rejected the vast majority of challenges to disclosure laws in the post-Citizens United period. The chart documents 31 different cases; only three of these 31 cases resulted in a disclosure law being invalidated. Further, two of these three cases (New Mexico Youth Organized v. Herrera and Sampson v. Buescher) were decided by the Tenth Circuit Court of Appeals, which is an outlier in terms of its jurisprudence on political disclosure. By contrast, the First, Fourth, Seventh, Ninth and Eleventh Circuits have all upheld strong disclosure laws applicable to independent spending following Citizens United. In addition, in four of the 31 cases, the court invalidated or narrowed a portion of the disclosure law, although frequently these decisions left most of the challenged law standing.

The letter concluded:

Our organizations strongly urge you to support the passage of effective disclosure legislation in this Congress and to maintain the existing contribution limits.

The post Reform Groups Call on Congress to Close Gaping Disclosure Loopholes and Maintain Existing Contribution Limits appeared first on Democracy21.