People are Drawing the Wrong Lesson from the IRS 501(c)(4) Scandal: We Need to Rethink the Whole Concept of Tax-Exempt Organizations
Author: Ed Dolan · May 20th, 2013
"President Obama is shocked and angered that the IRS targeted certain conservative organizations for special scrutiny when they applied for 501(c)(4) tax exemptions as “social welfare” organizations. Republicans are just as shocked. The whole Washington political establishment is shocked, just shocked, that anyone, let alone the IRS, would try to stem the flow of political money that pours through this gaping loophole in the federal tax system.
The campaign finance reform organization Democracy 21 has tirelessly documented abuse of the 504(c)(4) loophole by political organizations. Its president, Fred Wertheimer, is quick to agree that the IRS was wrong to single out Tea Party affiliated organizations for scrutiny. However, Wertheimer does not suggest that the IRS should evenhandedly rubber stamp all 501(c)(4) applications. Instead, he argues that it should aggressively clamp down on loophole abusers of the right, left, and center. His list of targets includes Carl Rove’s Crossroads GPS, the pro-Obama group Priorities USA, and Americans Elect, an organization that sought to run an independent candidate for president in 2012.
There seems to be an informal premise, supported by past practice of the IRS, that a self-proclaimed social welfare organization is abusing its tax status if it spends more than half of its budget on overtly political activities. As Wertheimer points out, the IRS does not enforce even this generous limit. Many 501(c)(4)s cross the 50 percent line with impunity, and some have even registered as political parties. However, as he recently told the Washington Post’s Dylan Mathews, the 50 percent limit, even if strictly enforced, is already too generous. According to the relevant statute, it should be zero.
Although I applaud Wertheimer’s efforts to get the IRS to obey the law, I think his focus is far too narrow. The 501(c)(4) “social welfare” designation is only one of many tax exemptions that needs a rethink. The IRS code includes more than two dozen types of 501(c) organizations, ranging from credit unions to insurance companies, that qualify for various kinds of tax privileges.
The 501(c)(4) social welfare groups that are at the center of the current IRS scandal are sometimes lumped together with their close cousins, 501(c)(3) charitable organizations. They share some tax privileges such as not having to pay tax on income they earn and exemption from gift taxes. In other ways they differ. The big draw of 501(c)(3) status is the right of donors to deduct contributions from their federal income taxes. The main attraction of 501(c)(4) groups, instead, seems to be their right not to reveal the identity of their donors. For some donors, anonymity is apparently even more valuable than a tax deduction...
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The bottom line: The scandal over the apparent political bias in the IRS treatment of 501(c)(4) groups is nothing compared to the broader scandal of a tax system that is corrupt and inefficient at every turn. We need to attack the code with an axe. In doing so, we should not to flinch at chopping off the 501(c)s with all their rotten branches." - See more at:
http://www.economonitor.com/dolanecon/2013/05/20/people-are-drawing-the-wrong-lesson-from-the-irs-501c4-scandal-we-need-to-rethink-the-whole-concept-of-tax-exempt-organizations-2/#sthash.FpTcZhfb.dpuf
The IRS did not "target" conservative groups. There were simply more of them. When the IRS was planning to audit Karl Rove's activity, something had to be done...that was when Darrell Issa and a Bush holdover in Treasury decided to 1) ask the IRS specifically to investigate "tea party" groups, and 2) create a scandal out of the specific actions they had themselves requested.