Huffpost Politics

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Walker Bragman Headshot

The Real IRS Scandal

Posted: Updated:

As Congressional hearings commence to investigate the IRS targeting of conservative groups applying for 501(c)(4) status, Republicans nationwide are up in arms. They assert that the IRS overstepped its regulatory role, persecuting applicants based on their political beliefs. Several members of the House GOP have even stated, as a matter of fact, that President Obama is involved. Thus far, however, there is no evidence to support such claims, and based on what is known for certain, the whole narrative is shaky.

The targeting began after the Citizens United Supreme Court decision which removed the spending limit for political advocacy for corporations and unions. Following the 5-4 ruling, there was a massive increase in the number of nonprofits clambering for 501(c)(4) status, which is supposed to be reserved for groups whose primary focus is the promotion of "social welfare." This means that earnings must be spent on educational, charitable, or recreational purposes. What's appealing about 501(c)(4)s is that they do not have to reveal their donors to the public, and can spend money on political advocacy,

Over the years the line between promoting social welfare and promotion of a political message has been blurred considerably. As PBS explains, "While these nonprofits have always been allowed to lobby for change, in 1959, regulators opened the door to political activity by interpreting 'exclusively' to mean that groups had to be 'primarily' engaged in social welfare and helping the community." Lately, the prevailing understanding is that as long as these groups don't spend at least 50 percent of their budget on political spending they can claim to be a social welfare group.

The trouble lies in determining what qualifies as political spending. According to FEC guidelines it is defined as spending on express advocacy ads, which call for direct election or defeat of a candidate. These expenditures must be reported as political activity. However, issue advocacy ads do not fall under this definition, and thus do not need to be reported, unless they mention a candidate and are within a given window of time before an election, primary, caucus, or convention -- a loophole which undermines the regulatory capabilities of the IRS and the FEC.

Today, 501(c)(4)s are too often political machines. The donor anonymity feature has earned them the name "dark money." Through these groups wealthy individuals can influence politics without ever stepping into the national spotlight which creates a potential for corruption that is unfathomable. This is precisely the problem the IRS was trying to crack down on with its targeting. But why single out conservative groups?

In the 2012 election cycle, dark money spent a total of $322 million, 84 percent of which came from conservative organizations in efforts to elect Republicans. The two highest rollers were Karl Rove's Crossroads GPS, and Charles and David Koch's Americans For Prosperity (AFP). In 2012, Crossroads spent $165,062,250, and AFP spent $36,352,928. Gauging actual political expenditures or actual political activities is difficult, however, because we can only report on what has been disclosed. AFP's Tea Party nationwide seminars to build up support for conservative policies, are not necessarily counted.

As the hearings progress, various conservative groups are speaking out about what they call political "intimidation" by the IRS, but this narrative overlooks a few key points: several liberal groups were also targeted. Then there's the fact that issue advocacy groups are not primarily focused on social welfare. For example, of the witnesses to testify was Becky Gerritson of the Wetumpka, Alabama Tea Party. In her tearful testimony she claimed that she was targeted for her beliefs. However, a quick look at the group's website reveals that their stated goal is to "encourage all citizens to be active in the political process so we can restore fiscal responsibility, constitutionally limited government and free markets to our nation."

The real scandal is the loophole that allows such groups to claim 501(c)(4) status. It is clearly a bastardization of how the law was intended to be interpreted. The takeaway from this "scandal" is the IRS needs broader regulatory powers.