Don’t Throw the IRS Under the Bus

By way of back ground I often work with clients seeking to set up non-profit entities that seek exempt status determinations from the Internal Revenue Service.   The forms are lengthy and require attention to detail and a lot of supporting documentation.  If not prepared properly and correctly documented, you WILL get enhanced scrutiny.   In doing review, the IRS focuses on possible political activities, but it also looks at whether or not the entity is being established as a means to enrich private individuals rather than support the entities avowed purpose.   One need only think of the large six figure salaries pulled down by Maggie Gallagher and Brian Brown at NOM or Bill Donohue at the Catholic League to realize that "non-profits" can be most lucrative.  A piece in The Daily Beast makes the case that we should not be too quick to throw the IRS under the bus.  Here are highlights:

Since the hullabaloo over IRS investigations of Tea Party groups broke last week, Democratic partisans have mostly been telling President Obama the same thing. First, clear this scandal off your plate so you can focus on the others. Second, the people responsible for this mess, at least according to the Inspector General’s report, were bureaucratic grunts and Bush appointees—you don’t owe them anything. Third, everyone hates tax collectors anyway. In other words, stand aside as congressional Republicans beat the IRS to a pulp.  That would be a terrible mistake.

It would be a mistake because while Obama is not personally implicated in the IRS controversy, the things he believes in most deeply are. Conservatives love the IRS scandal because it supposedly rips the smiley-face mask off government and reveals it to be a “sinister” (Peggy Noonan), “arrogant” (Noonan), “ravaging tyrant” (David Brooks) abusing largely powerless American patriots. As a perennial warning against the abuse of government power, that story has merit. But as a description of the actual relationship between the public and private sector in America today, at least outside the national security realm, it’s mostly nonsense.

The right’s tale of powerful IRS ideologues preying on weak and naïve citizens’ groups bears little relationship to reality. In truth, as an invaluable New York Times investigation explained yesterday, the Cincinnati office that reviewed the Tea Party applications was an “understaffed,” “unglamorous” “backwater.” Its ill-trained, “low-level” staffers “rarely discussed politics.” What they did discuss, according to the Times, was the fact that they were “overrun with applications” that they could not competently process.

In 2010, the fewer than 200 employees of the IRS’s Determinations Unit were already struggling to respond to tens of thousands of applications for tax-exempt status from 501(c)3 nonprofits threatened by a change in the tax code. Then along came the Supreme Court in Citizens United, which made it clear that corporations could contribute directly to another category, 501(c)4 nonprofits, which could spend vast sums to influence elections without having to disclose their donors. Soon, boatloads of new political organizations began asking to be designated as 501(c)4s, a category traditionally meant for groups that perform “social welfare” functions like volunteer firefighting and maintaining community gardens. (Those are some of the actual examples used on the IRS website.)

Since 501(c)4s cannot make political activity their “primary purpose,” it made sense for IRS staffers to look carefully at the politically oriented applicants. (“Which do you think deserves special attention to determine possible violations of the political rules?” writes Kurt Eichenwald in Vanity Fair. “Patriots for Obamacare? Or the Laurel Garden Club?”) As the “review process slowed to a crawl” under the weight of all these new applications, IRS staffers in Cincinnati, few of whom were experts in tax law, began using keywords like “educating on the Constitution” and “social economic reform/movement” to screen applicants. These short cuts didn’t only flag right-of-center groups. Contrary to Noonan’s claim that “only conservative groups were targeted,” more than 24 liberal groups were lumped into the same category.

What happened at the IRS Determinations Unit wasn’t OK. It was a mess. But it was a mess born less of over regulation than under regulation. The core problem was that after Citizens United, a section of the tax code designed to allow people to donate anonymously to garden clubs became a popular way for billionaires to secretly funnel vast sums to Karl Rove (and his Democratic equivalents) to savage political opponents and sway elections.

Obama can’t let the GOP’s tale of totalitarian regulators and oppressed Tea Partiers go unchallenged. When it comes to the relationship between government and the market, we do not live in an age of tyrannical government power. To the contrary, we live in a second gilded age in which the people who benefit most from America’s exploding income inequality have used their wealth to disembowel the regulatory systems through which government protects ordinary Americans.

A right-wing Supreme Court has made it virtually impossible to regulate money in elections. And now Republicans are casting the Tea Party—a movement founded in part by robber barons like the Koch Brothers—as the victim of a mythic, all-powerful IRS in order to further neuter an actually existing IRS that is already too weak to make the rich pay their taxes or respect the rules of democratic fair play. With any luck, the GOP will render it unable to help competently implement Obamacare as well.

It might seem shrewd for Obama to sit out the IRS scandal while he focuses on bigger fights. But this scandal is about government’s capacity to make private wealth serve the public interest, and for a progressive president, there’s no bigger fight than that.