On May 10, Lois Lerner, who leads the Exempt Organizations Division at the IRS, issued an apology admitting that the agency had engaged in “inappropriate” targeting of conservative 501c(4) groups during the 2012 election. According to Lerner, lower-level IRS employees pursued additional review of groups containing keywords like “tea party” or “patriot” that were suspected of violating the conditions necessary to qualify for tax-exempt status.
In a matter of hours, the situation graduated from an internal review of a notoriously dysfunctional branch of the government to a scandal that has the Obama administration playing defense. The conversation surrounding the ordeal has been loud, to say the least. According to a recent Pew Research poll, as many as 42 percent of Americans believe that the Obama administration was somehow involved in the decision to target conservative groups.
Steven Miller, acting director of the Internal Revenue Service, told the House Ways and Means Committee on Friday morning that the targeting of conservative groups for additional review was not based on ideology. Miller — whose resignation was accepted by Treasury Secretary Jack Lew earlier this week — echoed the finding of an audit by the Treasury Inspector General for Tax Administration, and suggested that the ordeal was the result of institutional incompetence, not political conspiracy. However, as the Pew results show, many Americans don’t believe this narrative.
Lawsuits speak louder than words, so it’s not surprising that lawsuits have begun to punctuate the chorus of voices speaking out against the IRS. This week, a government-watchdog group called Citizens for Responsibility and Ethics in Washington and an advocacy group called the NorCal Tea Party Patriots each filed a suit against the IRS, demanding reparation and change for the targeting behavior.
“As the ongoing IRS scandal shows, the 501(Ϲ)(4) regulation is unmanageable. It clearly conflicts with the Tax Code and IRS employees are simply at a loss as to how to apply it. Remarkably, the IRS has known the regulation presents enforcement issues for more than 50 years, but has failed to act,” said CREW Executive Director Melanie Sloan in a statement. “CREW has sued to force the IRS to finally deal with this issue.”
CREW argues that the language in the Tax Code grants tax-exempt status to groups who are “primarily engaged” in promoting social welfare. This has been interpreted to mean that an organization can exist as a tax-exempt 501(Ϲ)(4) and participate in electoral or political activities as long as those activities don’t consume more than 49 percent of annual expenditures. Meanwhile, separate tax laws require that such tax-exempt groups be “operated exclusively” for social welfare purposes.
This discrepancy, the potential for gamesmanship that it creates, and the difficulty in interpreting and enforcing the conflicting messages played a critical role in the targeting ordeal. The number of applications for 501(Ϲ)(4) organizations increased 183 percent in the wake of the 2010 Citizens United V. Federal Election Commission Supreme Court decision, which ruled that the First Amendment applies to political expenditures by corporations and associations.
The environment created by this ruling, and the fact that 501(Ϲ)(4) organizations are not required to disclose their donors publicly, put the IRS on high alert for groups trying to cheat the system.
Meanwhile, the NorCal Tea Party Patriots is seeking group status for “all conservative and libertarian groups targeted for additional scrutiny” between March 2010 and May 2013, together with unspecified money damages for the alleged violation of their constitutional rights and costs of compliance with the unlawful demands.
Mark Meckler, president of Citizens for Self-Governance and former coordinator for Tea Party Patriots, said, “We stand shoulder to shoulder with all those known and unknown who have been abused by a federal government run amok. Instead of just playing defense, it is time for the citizens to go on offense. We are, after all, “We the People.” And when the federal government runs amok, it is up to us reign it in. Neither party in Congress can be relied upon to satisfactorily resolve this issue. They created the IRS, fund the IRS, and oversee the IRS. All of this abuse happened on their watch.”
Here’s a graph of some of the results from the Pew Research survey:
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