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.