Democracy 21 and the Campaign Legal Center Charge the IRS With Indefensible Abdication of Responsibility
In a letter sent to the Internal Revenue Service today, Democracy 21 and the Campaign Legal Center charged the IRS with an “indefensible abdication of responsibility” in failing “to include the section 501(c)(4) regulations dealing with political activity on the agency’s Priority Guidance Plan” for the next twelve months.
The failure to include a review of the section 501(c)(4) regulations in its planned activity for the next year occurred even though the IRS had told Democracy 21 and the Campaign Legal Center in a July 17, 2012 letter that the agency would “consider proposed changes in this area.”
The letter requested IRS officials to meet with Democracy 21 and the Campaign Legal Center “as soon as possible to discuss our concerns and the urgent need for a rulemaking proceeding to address the problems that exist.”
According to Democracy 21 President Fred Wertheimer:
The IRS has done a grave disservice to the American people by failing to properly interpret and enforce the tax laws as they apply to political activities by section 501(c)(4) “social welfare” organizations.
The IRS wrongly has allowed secret money with the power to corrupt federal officeholders and government decisions to be improperly laundered into the 2012 national elections. Phony “social welfare” groups injected massive amounts of secret money into the 2012 elections without a word of concern being voiced by the agency.
The IRS is abdicating its responsibility to the American people by failing to adopt new regulations and take the steps necessary to prevent the abuses that occurred in 2012 from occurring in future elections. The IRS must stop stonewalling and start working to fix a dangerous problem that the agency is enabling.
According to the letter:
The IRS last week released its 2012-2013 Priority Guidance Plan (Nov. 19, 2012), which “contains 317 projects that are priorities for allocation of the resources of our offices during the twelve-month period from July 2012 through June 2013 (the plan year).”
Inexplicably, however, nowhere on this list of 317 agency “priorities,” which includes a list of 13 priorities specifically relating to exempt organizations, is there any mention of a project to revise and clarify the rules dealing with political activities by section 501(c)(4) groups.
There simply is no basis for the IRS to ignore, as it apparently has done, the widespread abuses that occurred in the 2012 election by groups claiming section 501(c)(4) tax-exempt status and the role that the IRS’s flawed regulations played in contributing to these abuses.
According to the letter, “the refusal of the IRS even to list the regulations governing eligibility for section 501(c)(4) tax-exempt status in its Priority Guidance Plan for 2012-2013 is indefensible, unacceptable and in direct conflict with the interests of the American people.”
The letter stated:
An estimated $400 million in secret contributions were laundered into the 2012 elections through section 501(c) organizations. A large portion of these funds was spent by groups improperly claiming tax-exempt status as section 501(c)(4) “social welfare” organizations in order to hide the identities of their donors from the American people.
In the absence of any action by the IRS to address this problem, even greater abuses of the tax laws are expected to occur in future elections by groups improperly claiming to be “social welfare” organizations. The failure of the IRS to act on this matter is doing great harm to the American people and to their fundamental right to know who is providing the money to influence their votes.
The letter noted:
The November 19 Guidance states that the IRS will periodically update its work plan “to reflect additional items that have become priorities. . . .”
We strongly urge you to add the section 501(c)(4) regulations to the agency’s regulatory priorities and to take timely and effective steps to address the fundamental flaws in these regulations prior to the 2014 campaign. The IRS must ensure that the widespread abuses of laundering secret money into federal elections through section 501(c)(4) organizations does not repeat itself in the future, to the great detriment of the American people and our democracy.
According to the letter:
Democracy 21 and the Campaign Legal Center wrote to the IRS on ten occasions during 2011 and 2012 to request the agency to investigate and take action on serious abuses of the tax laws by groups that were improperly claiming tax-exempt status under section 501(c)(4).
These groups had an overriding purpose to influence federal elections and engaged in campaign activities that failed to meet the eligibility requirements of section 501(c)(4) and court interpretations of the law.
On July 27, 2011, we submitted a petition for rulemaking in which we requested the IRS to initiate a proceeding to clarify and bring into compliance with the law the IRS regulations that govern campaign activity by groups claiming status as “social welfare” organizations.
On July 17, 2012, almost one year later, we received a letter from Ms. Lerner which acknowledged that “the IRS is aware of the current public interest in this issue,” recognized that the existing regulations were more than a half-century old and stated that the IRS would “consider proposed changes in this area.”
Since “social welfare” organizations are not required to disclose their donors to the public, such groups can serve as vehicles for secretly injecting huge contributions into federal elections. Just one such group claiming status as a “social welfare” organization – Karl Rove’s Crossroads GPS – spent $70 million on electioneering communications and independent expenditures in the 2012 campaign.
Not one of the sources of the $70 million spent by Crossroads GPS was disclosed to the public.
As we have previously demonstrated in our letters to the IRS, Crossroads GPS does not meet the eligibility requirements for a 501(c)(4) “social welfare” organization. Rather, it is a campaign organization whose primary purpose in 2012 was to elect Republican candidates.
Crossroads GPS is similar to a number of other groups masquerading as “social welfare” organizations that operated in the 2012 elections to support candidates of both parties. The contributions spent by these groups for campaign activities were shielded from public disclosure because of their claim for exemption under section 501(c)(4).
Our previous letters to the IRS also challenged the eligibility of Priorities USA, a group formed to support the re-election of President Obama, American Action Network and Americans Elect to receive tax-exempt status as section 501(c)(4).
It is a matter of urgent public importance for the IRS to move promptly to fix its rules.
The existing flawed regulations are playing a key role in the massive amounts of secret money being spent in federal elections by groups that are improperly claiming status as “social welfare” organizations. This large-scale abuse of the tax laws to hide political donors is contrary to the Internal Revenue Code, to court interpretations of the Code and to the longstanding national policy of transparency for campaign finance contributions and expenditures.
The letter stated:
Prompt and effective action by the IRS to address this matter is essential to prevent a repeat in 2014 of campaign operatives using phony “social welfare” organizations as conduits to inject secret money into federal campaigns and thereby to frustrate the public’s right to know the sources of money spent to influence our elections.
The letter concluded:
The November 19 Guidance states that the IRS will periodically update its work plan “to reflect additional items that have become priorities. . . .”
We strongly urge you to add the section 501(c)(4) regulations to the agency’s regulatory priorities and to take timely and effective steps to address the fundamental flaws in these regulations prior to the 2014 campaign. The IRS must ensure that the widespread abuses of laundering secret money into federal elections through section 501(c)(4) organizations does not repeat itself in the future, to the great detriment of the American people and our democracy.
