POLITICS
05/16/2013 12:50 pm ET Updated May 16, 2013

IRS Scandal Puts Dems Who Called For Investigation Of Conservative Group In A Bind

WASHINGTON -- During the fall months of 2010, congressional Democrats grew increasingly alarmed that conservative non-profit groups, backed by big-money donors, would tip the scales of the upcoming election.

Many of the groups were filing for 501(c)(4) status, which allowed them to keep donors secret but forced them into policy advocacy -- not political campaigning -- as their primary activity. And Democrats, facing the prospect of tens of millions of dollars being spent against them, complained that these groups were hardly the "social welfare organizations" they claimed to be.

On Sept. 29, 2010, Sen. Max Baucus (D-Mont.) sounded the alarm. The chair of the influential Senate Finance Committee, which plays an important oversight role of the tax code, said he had "serious questions about whether such organizations are operating in compliance with the Internal Revenue Code."

The IRS, it turns out, took those concerns seriously. But in the process of addressing them, the tax agency managed to make itself the scandal.

On Wednesday, the acting commissioner of the IRS stepped down after a report by the Treasury inspector general for tax administration revealed that the IRS had singled out conservative groups applying for 501(c)(4) status for extra scrutiny. The screening actually began in the months before Baucus wrote his letter. Groups with words like "tea party" and "patriots" in their names were asked to provide additional, often unnecessary, information in addition to being forced to wait lengthy periods for clearance. When Republican politicians complained, the IRS changed its criteria. But it continued to say publicly that it hadn't applied those filters in the first place.

When the truth was revealed this past week, the political world pounced. And among the first to express umbrage was Baucus.

“These actions by the IRS are an outrageous abuse of power and a breach of the public’s trust," said the Montana Democrat. "Targeting groups based on their political views is not only inappropriate but it is intolerable."

With congressional hearings (including one to be chaired by Baucus) now set to look into the IRS scandal, lawmakers who once openly asked the tax agency to scrutinize conservative groups are facing a difficult balancing act. How closely do they stick to those prior concerns in light of the new revelations?

In a statement to The Huffington Post, Meaghan Smith, a spokesperson for Baucus, said that the senator still expects the IRS to conduct "proper oversight" to ensure that tax-exempt organizations follow the law. But that oversight, Smith added, had to be "conducted equally across the board."

"Senator Baucus believes we need to ensure that groups of all political persuasions are complying with the political activity rules, and this issue only highlights the broader need for campaign finance reforms," said Smith.

When Baucus called for the IRS to look specifically at conservative groups in 2010, he certainly could not have anticipated that the agency would conduct itself in the manner it did. In light of those revelations, both he and others who warned about the rise of Republican-allied 501(c)(4)s have been forced to recalibrate -– maintaining a need for oversight, while stressing that it has to be equitable.

One and a half years after Baucus' letter, Rep. Peter Welch (D-Vt.) sent one of his own to the IRS urging the agency to "investigate whether any groups qualifying as social welfare organizations under section 501(c)(4) of the federal tax code are improperly engaged in political campaign activity." In a press release announcing that letter, Welch specifically cited Crossroads GPS, "the Karl Rove-backed group" as a potential violator of the law.

In an interview with The Huffington Post Tuesday, Welch did not back off his letter. The IRS, he said, did have a role to play to ensure that the laws were enforced. But the filters it provided were "appalling."

"This is a disaster for its reputation and it is no different than the Nixon use of the IRS to go after political enemies," he said. "You just can't do that. It sets them back, but it doesn't change their obligation to the American people to enforce the Internal Revenue Service code."

Welch's 2012 letter was one of several that Democratic lawmakers sent to the IRS. Sens. Chuck Schumer (D-N.Y.), Tom Udall (D-N.M.), Michael Bennet (D-Colo.), Sheldon Whitehouse (D-R.I.), Jeanne Shaheen (D-N.H.), Al Franken (D-Minn.), and Jeff Merkley (D-Ore.) also asked the agency if it intended to investigate these "social welfare" organizations. In a floor speech in September 2012, Sen. Carl Levin (D-Mich.) warned that there was insufficient regulation of these groups. His select investigative committee also announced earlier this year that it would look into why the IRS had failed to properly probe such 501(c)(4) groups. It's unclear if the investigation will now shape up.

Those senators were cheered on by liberal-leaning outlets, which also urged the IRS to play an active role. A New York Times editorial on May 7, 2012 said, "taxpayers should be encouraged by complaints from Tea Party chapters" that they were being targeted by the IRS. The paper went on to say that the IRS should be applying more scrutiny, "across the board."

About one year later, after the IRS had apologized for its filtering, the Times editorial page wrote that the IRS had been "absolutely correct to look into the abuse of the tax code." The mistake, it added, was applying the criteria it did.

By and large, the lawmakers who had concerns about 501(c)(4) organizations between 2010 and 2012 aren't explicitly backing away from those concerns. Instead, they are trying to move the conversation into the need for broader campaign finance reform. Baucus' spokesperson Smith, for example, stressed that the senator supports a constitutional amendment to overturn Citizens United, which allows unlimited corporate money in elections, and the DISCLOSE Act, which would require groups involved in campaigning to reveal their donors.

Speaking to reporters on Thursday, House Minority Leader Nancy Pelosi (D-Calif.) expressed her belief that 510(c)(4) groups "should be done away with."

Welch, meanwhile, warned that the IRS scandal could end up distracting Congress from the bigger problem of a campaign finance system in tatters. "The larger issue is there is just too much damn money in politics," he said.

Good government groups share that concern, arguing that the current coverage misses another, equally important, point: that the IRS allowed big groups to skirt the law while focusing on smaller organizations that posed a minimal threat.

"I expect the battle for disclosure to go forward on a number of fronts and any delays to be only temporary," said Fred Wertheimer, who is the founder and president of Democracy 21, a pro-campaign finance reform organization. "The IRS fiasco, for example, has demonstrated the need for clear, bright line rules for eligibility for 501(c)(4) tax status and that area will be pursued."

"We are currently exploring a lawsuit to challenge the existing regulations on eligibility for 501(c)(4) tax status," Wertheimer added.

Whether the current political climate will help or hinder campaign finance reform efforts is unclear. But, so far, the landscape seems unlikely to produce legislative action beyond additional reprimands for the IRS. Democrats are rushing to show adequate umbrage with the tax collection agency while Republicans question their motives and sincerity.

"Clearly Senate Democrats recognize their own political vulnerability on this story and they're working furiously to get ahead of it. But that doesn't change the fact that they publicly pressured the IRS to engage in the very tactics they're now condemning, and that's a contradiction that will haunt them politically in the weeks ahead," said Brian Walsh, a former top spokesman for the National Republican Senatorial Committee. "I'm not holding my breath but it would be an appropriate act of bravery and candor if the IRS asked Max Baucus why he's not sitting at the witness table next to them during these upcoming hearings."

UPDATE: 8:35 p.m. -- Democratic Senatorial Campaign Committee spokesman Justin Barasky emailed this statement.

No rational human being including Mitch McConnell thinks that Karl Rove and the Koch brothers are operating social welfare organizations that deserve tax exempt status. However, Democratic senators have been outspoken in their condemnation of what took place at the IRS.

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