One Straight Out Of The Nixon Playbook

[Lord Jim]

IRS Admits To Targeting Conservative Groups Over Tax Status

The Internal Revenue Service acknowledged Friday that it had inappropriately targeted conservative political groups for additional scrutiny during the 2012 election cycle, an admission that set off a firestorm on Capitol Hill and could damage the Obama Administration.

Lois Lerner, the official in charge of the IRS division that oversees tax-exempt groups, revealed the move Friday at a conference sponsored by the American Bar Association in Washington. Lerner said organizations whose names contained the phrase “tea party” or “patriots” were selected for additional reviews of their 501 (c) (4) tax-exempt status as social welfare groups.

“That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate,” Lerner said, according to the Associated Press. ”That’s not how we go about selecting cases for further review.”

In a conference call with reporters Friday afternoon, the agency said the errors were limited to a group of IRA workers in its Cincinnati office, who singled out 300 applications for tax-exempt status for review. One-quarter of those were conservative groups. None of the groups had their status revoked, but some withdrew their applications in the face of requests to divulge their donors. “Mistakes were made initially, but they were in no way due to any political or partisan rationale,” the IRS said in a statement. [I guess they had to claim that in a written statement because no one could actually say it without bursting into uncontrollable laughter...]“We fixed the situation last year and have made significant progress in moving the centralized cases through our system.”

Workers were looking for signs that the groups were primarily focused on political activity, which would have violated their tax status. Campaign finance groups have long complained that political groups have improperly received tax-exempt designations despite using their money to influence elections.

The admission by the IRS was made ahead of a forthcoming report by the Treasury Inspector General for Tax Administration. It comes a year after Tea Party groups first complained they had been subjected to undue scrutiny because of their political leanings. An IRS spokesperson would not comment on whether any disciplinary actions were taken against the responsible employees.[Everyone involved in this, and everyone who knew about it but did nothing, needs to be fired, period]

The revelations incensed congressional Republicans and appeared to validate Tea Party complaints. “The fact that Americans were targeted by the IRS because of their political beliefs is unconscionable,” Representatives Darrell Issa and Jim Jordan said in a statement. Issa, the chairman of the House Oversight and Government Reform Committee, vowed to begin a probe that would “hold responsible officials accountable for this political retaliation.”

“The IRS has demonstrated the most disturbing, illegal and outrageous abuse of government power,” said Jenny Beth Martin, national coordinator for the Tea Party Patriots. “This deliberate targeting and harassment of tea party groups reaches a new low in illegal government activity and overreach.”

The revelation didn’t sit much better with groups on the left. “Even the appearance of playing partisan politics with the tax code is about as constitutionally troubling as it gets,” said Michael Macleod-Ball, chief of staff of the ACLU’s Washington legislative office.

Senate Majority Leader Mitch McConnell called on the White House to investigate. “Today’s acknowledgement by the Obama administration that the IRS did in fact target conservative groups in the heat of last year’s national election is not enough,” he said in a statement. “I call on the White House to conduct a transparent, government-wide review aimed at assuring the American people that these thuggish practices are not under way at the IRS or elsewhere in the administration against anyone, regardless of their political views.”

White House spokesman Jay Carney conceded Friday afternoon that “there does appear to have been inappropriate action that we would want to see investigated.”

Read more: http://swampland.time.com/2013/05/10/ir ... z2TB9CYZvh

[Econoline]

In order to be "straight out of the Nixon playbook" this would have to have been a top-down directive from the POTUS, and no one has even hinted that there is any evidence whatsoever of this; in fact the statement of White House spokesman Jay Carney indicates that the President agrees that this should be investigated.

And kudos to the ACLU for their stance on this (though I disagree with the article's categorization of them as a "group on the left").

[dales]

Am I correct in assuming that if a republican were POTUS, the screeching from the left would be deafening and non-stop.

[rubato]

Econoline is right. It is called the "Nixon Playbook" because the plays were called by Nixon himself.


yrs,
rubato

[dales]

Am I correct in assuming that if a republican RONALD REAGAN were POTUS, the screeching from the left would be deafening and non-stop.

Edited for meaning and clarity.

[oldr_n_wsr]

And the dems use the same plays now.
All are at fault and should be punished.

Common sense dicatates that it would be fair and balanced to fault all involved in this latest round.

[Crackpot]

Are you guys saying that it is imprudent of the IRS to a research groups that are openly hostile to taxation?

[Lord Jim]

In order to be "straight out of the Nixon playbook" this would have to have been a top-down directive from the POTUS

Econo, I think what appears to have happened here is arguably worse....

In the Nixon case, you had the political executive branch misusing the IRS, which seems to me like an easier problem to solve...

In this case, what seems to have happened is that a group of career IRS employees took it upon themselves to act like a bunch of "Little Nixons"...

They decided on their own that they would corrupt the IRS tax audit system in the furtherance of their own political biases...

And furthermore, it also appears that when this outrageous practice came to attention of those higher up in the food chain at the IRS, little or nothing was done to hold these people to account...

Not only should people have been fired, the whole thing should have been referred to the Justice Department to consider possible criminal charges...

The fact that IRS agents would think it was appropriate to do this, and that those who were above them in the agency didn't seem to view it as serious enough to merit severe disciplinary measures, points to a much more systemic problem than merely having one corrupt Administration...

It seems to me that there's a lot of work that needs to be done in terms of making sure that the employees of the IRS understand what the public expects of them, and what is and is not acceptable behavior...

[dales]

SLIGHT TOPIC DRIFT ALERT:

About 10-12 years ago I carpooled with a woman from the Ukraine. We discussed a wide variety of topics, some we agreed upon others we did not.

One thing she and I both agreed was the the US was becoming more like the USSR that she left in 1990.

Was she wrong?

I don't think she was.

[liberty]

General principle: when you are the leader everything is your fault. If he does not fix it, it belongs to him.

[rubato]

Scientology also infiltrated the IRS for their own purposes:


http://en.wikipedia.org/wiki/Operation_Snow_White


yrs,
rubato

[Econoline]

They decided on their own that they would corrupt the IRS tax audit system in the furtherance of their own political biases...

I may have missed something, but in a quick rereading of the article I failed to find any mention of the word "audit"--nor have I seen any claims by any right-wing groups that they were audited for their political opinions.

The fact of the matter is that gaining IRS 501(c) (tax-exempt) status is fairly rigorous and always subject to review--you can't just call yourself tax-exempt and be done with it. The fact that only a quarter of the 300 applications which were subjected to an extra review were conservative groups, and the fact that none of them had their status revoked, does not exactly seem like a smoking gun (to use another Nixon-era term). It does seem like the IRS had some specific guidelines in place for this process, which some employees in one relatively small office didn't follow. I can't really get too worked up about the lack of mass firings and severe lashings or burnings at the stake, any more than I was upset at the lack of firings and severe public humiliations in the case of QuadDriver...

[Long Run]

As I understand it, these are not audits, but reviews of applications for tax exempt status. Most organizations sail through the application process if they have prepared a complete application and don't trip a higher review by indicating a non-exempt purpose or activity. Routine applications usually take about 4-6 weeks for approval (much better than when it used to take the IRS over a year). However, there are certain types of applications that get moved from the "routine" pile to the "take a hard look" pile, which gets referred to a higher level specialist and slows the process considerably. Examples of hard look categories might be a charity that is doing business in an Arab country, or healthcare organizations that do joint ventures with for-profit entities, or entities that state they are trying to influence the public with respect to legislative issues. The complaint here is that just because an entity had a particular word or words in its name, it was getting moved from the routine pile to the take a hard look pile.

Personally, I think any exempt entity that is doing legislative/social advocacy should be in the take a hard look pile because there is a thin line between educating the public, advocating a position, and being a political entity, i.e., a PAC. A charitable organization under 501(c)(3) can receive tax deductible donations and educate the public on social issues (and can do a minor amount of lobbying for a particular position). The organizations in the story were seeking 501(c)(4) social welfare status, which means they can go beyond educating the public and can actually advocate certain views without limits, but they cannot engage in political activity by trying to get certain people elected. Political Action Committees (PACs) can go beyond and actively seek to elect candidates. Contributions to a PAC need to be disclosed but those to a (c)(4) do not. Thus, the reason to file for (c)(4) status rather than as a PAC if the mission is to advocate for a particular view is to avoid having to disclose where the contributions come from. The problem in the current situation is that organizations from only one-side were being targeted for higher level review, and being done in a stupid way by looking only at the name, rather than the actual description of activities.

[Econoline]

Thanks, LR. That pretty much jibes with what I thought, except that I didn't realize that the routine approval process now took only 4-6 weeks; I remember back when it could take a couple of years.

The problem in the current situation is that organizations from only one-side were being targeted for higher level review, and being done in a stupid way by looking only at the name, rather than the actual description of activities.

Actually, the first part of that might not even be true, since the article in the OP stated that only a quarter of the 300 applications which were subjected to an extra review were conservative groups, but in any event it's clear that some IRS employees were not following proper procedures and there should be an investigation to determine how many and who they were, and some punishment for the guilty parties.

[Andrew D]

For the IRS to target radical-right organizations while not targeting centrist organizations is a flagrant breach of the IRS's duty to aply the tax laws even-handedly. After a thorough and expeditious investigation, the appropriate heads should roll.

But the greater scandal is that nakedly political organizations get tax-exempt status at all. Radical-right organizations such as Crossroads should not be exempt from federal income tax, and centrist organizations such as Organizing for Action should not be exempt either.

The fundamental problem is the IRS's decades-long cavalier disdain for the law. The IRS has perverted the clear meaning of statutory language. And by doing so, it has permitted the proliferation of tax-exempt organizations from across the U.S.'s truncated political spectrum -- organizations which, no matter their political persuasions, should not enjoy tax-exempt status.

As shamelessly pointed out in this article (published under irs.gov):

The law "IRC 501(c)(4) provides for exemption from federal income tax of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare."

But the IRS's regulation "1.501(c)(4)-1(a)(2)(i) provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community."

(Emphases added.)

How did "exclusively" become "primarily"? Does any fluent speaker of English understand "primarily" to be synonymous with "exclusively"?

"Exclusively" means "to the exclusion of all else". "Primarily" is the adverbial form of "primary," which means "Principal, chief, of major importance." (The New Shorter Oxfored English Dictionary (all quotations).)

So Congress passed a law exempting from federal income tax organizations which operate for the promotion of social welfare and not for anything else. But the IRS has twisted that into an exemption for organizations which operate (or, at least, claim to operate) for the promotion of social welfare and for a host of other things.

The Supreme Court should correct that unfounded distortion of the statutory language. (There is virtually no hope that Congress will gird up its loins and do so itself.) The ordinary people of the U.S. would be far better off.

[oldr_n_wsr]

Isn't the IRS poised to adminsitor Obama-Care?

And thanks to the lawyers (and the lay people who can interpret these things) here for their "reading" of the statutes/laws and interpreting and pointing out the relevant passages and wordings. My eyes glaze over when I try and read them. Forget about trying to comprehend those passages.


ETA
Ever read the same sentence 18 times and still not understand what the writer was trying to say? Thats me and these matters.

[Long Run]

The fundamental problem is the IRS's decades-long cavalier disdain for the law. The IRS has perverted the clear meaning of statutory language. And by doing so, it has permitted the proliferation of tax-exempt organizations from across the U.S.'s truncated political spectrum -- organizations which, no matter their political persuasions, should not enjoy tax-exempt status.

As shamelessly pointed out in this article (published under irs.gov):

The law "IRC 501(c)(4) provides for exemption from federal income tax of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare."

But the IRS's regulation "1.501(c)(4)-1(a)(2)(i) provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community."

Actually, it was the Supreme Court that first noted that "exclusively" does not literally mean 100% in the tax exempt context. Better Business Bureau v. U.S., 326 U.S. 279, 283 (1945), the "presence of a single [nonexempt] purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly . . . [exempt] purposes." Thus, an insubstantial amount of nonexempt activity is okay.

In fact, more than a minor amount of nonexempt activity is generally okay, which is why there is the tax on unrelated business income. If "exclusively" truly meant 100% pure in this regard, there would be no need for the UBIT legislative scheme. However, Congress understood that exclusively has been interpreted by the courts and the IRS as "primarily", which in effect provides a real world interpretation that few organizations are 100% pure in their dedication to their mission. State courts in interpreting property tax and sales tax exemptions have come to the same conclusion.

[Andrew D]

Yes, "an insubstantial amount of nonexempt activity is okay." That is not the problem. Indeed, courts routinely hold that it is not their role to deal with insubstantial, unimportant, "de minimis" matters.

The problems are:

(A) The IRS interprets the statutory word "exclusively" in two radically different ways, so it holds 501(c)(3) entities to a much a higher standard than 501(c)(4) entities, even though the pertinent statutory language is identical.

(B) The IRS's interpretation of the statutory word "exclusively" in 501(c)(4) cases is contrary to the standard articulated by the Supreme Court in the tax-exemption context.

And the proper solution to those problems is clear: The IRS should apply to 501(c)(4) entities the same standard that it applies to 501(c)(3) entities (rather than applying its improper 501(c)(4) standard to 501(c)(3) entities).

501(c)(3) exempts from taxation:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals ....

501(c)(4) exempts from taxation:

Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare ....

The pertinent statutory language is identical: The entity must be operated "exclusively" for a tax-exempt purpose in order to have tax-exempt status.

The IRS says that a 501(c)(3) entity loses its tax-exempt status "if more than an insubstantial part of its activities is not in furtherance of an exempt purpose." Thus, if a "substantial" part of what a 501(c)(3) entity does is not in furtherance of an exempt purpose, the entity loses its tax-exempt status.

But the IRS says that a 501(c)(4) entity can devote a much larger part of its activities to non-exempt purposes without losing its tax-exempt status. It will lose its tax-exempt status only if it is not "primarily" engaged in furtherance of an exempt purpose.

The very case which you cite explicitly states that "substantial" means "important," not "primary". The Court considered a statute which exempted from tax entities "organized and operated exclusively for ... educational purposes ...." The Court held that the BBB was not exempt, because "an important, if not the primary, pursuit of petitioner's organization is to promote not only an ethical, but also a profitable business community. The exemption is therefore unavailable to petitioner." (Better Business Bureau v. United States, 326 U.S. 279, 283 (1945) (emphasis added).)

Neither (i) why what the IRS is doing is wrong nor (ii) what the IRS should be doing is difficult to ascertain:

(1) Interpreting the same word in the same way when that word is used twice in the same statute is a fundamental principle of statutory construction. Therefore, the IRS should apply the same standard to 501(c)(4) entities as it applies to 501(c)(3) entities.

(2) When the Supreme Court has defined a word in the same context -- here, the tax-exemption context -- as that word is used twice in the same statute, that definition should apply to that word throughout that context.

(2)(a) Here, the "primarily" standard used by the IRS in 501(c)(4) cases flies in the face of the Supreme Court's "an important, if not the primary" standard for finding an entity not to be "exclusively" acting in furtherance of a tax-exempt purpose.

(2)(b) But the "substantially" standard used by the IRS in 501(c)(3) cases is entirely consistent with the Supreme Court's standard.

(3) Therefore:

(3)(a) The IRS should interpret the statutory term "exclusively" the same way in both 501(c)(3) cases and 501(c)(4) cases; and

(3)(b) The proper interpretation in both 501(c)(3) cases and 501(c)(4) cases is the Supreme Court's standard: A 501(c)(3) or 501(c)(4) entity loses its tax-exempt status if a "substantial" -- "an important, if not primary" -- part of that entity's activity is in furtherance of a non-exempt purpose.

Organizations such as Crossroads and Organizing For Action obviously devote "substantial" parts of their activities to the furtherance of non-exempt purposes. They should lose their tax-exempt status.

[Long Run]

Okay, so you concede that the argument is not that "exclusively" means 100%. But instead the complaint is that "primarily" means one thing for a 501(c)(3) and means much less so for a (c)(4). (As to the bottom line, we are in agreement as I said before that all of these organizations that are in the political arena deserve higher scrutiny.) However, you are incorrect in stating that the IRS does not apply the same standard for "exclusively" in (c)(3) and (c)(4).

By their very nature and legislative design, 501(c)(4) organizations are allowed more leeway than (c)(3)s for the reason stated above (tax deductible donations). The definition of social welfare includes all of the purposes of (c)(3) and then some:

1.501(c)(4) -1 * * * (2) Promotion of social welfare —(i) In general. An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements. A social welfare organization will qualify for exemption as a charitable organization if it falls within the definition of charitable set forth in paragraph (d)(2) of § 1.501(c)(3)-1 and is not an action organization as set forth in paragraph (c)(3) of § 1.501(c)(3)-1.

Look at the words used: "promoting in some way", the "common good and general welfare". Bringing about "civic betterments and social improvements." These are terms that allow organizations to do a wide degree of activities, including to help foster debates about political issues. As noted, (c)(3) education does not allow this level of "side-taking" and any effort to actually sway public opinion on a legislative topic is greatly limited. However, even a (c)(4) cannot engage in electioneering:

(ii) Political or social activities. The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.

The other factor is that the IRS appropriately applies far more scrutiny to 501(c)(3) organizations since those organizations can receive tax deductible donations, thereby depriving the Treasury of tax collections. In contrast, contributions to a 501(c)(4) are not tax deductible, so they cost the taxpayers no money. In applying its regulatory oversight, the IRS correctly applies more time, resources and diligence to making sure that 501(c)(3) organizations are organized and operated correctly, since they are supposed to provide important charitable/educational/religous services in return for their favored tax status.

In summary, what you see as being inconsistent is instead substantial consistency but different results driven by (1) the greater latitude provided to 501(c)(4) organizations in their exempt activities compared to those of a 501(c)(3), and (2) the IRS's appropriate allocation of greater resources to oversee 501(c)(3) organizations to a higher degree than any other type of tax exempt entity due to the much greater potential abuse to the tax system.

[Andrew D]

But instead the complaint is that "primarily" means one thing for a 501(c)(3) and means much less so for a (c)(4).

No. The complaint is that the IRS has construed "exclusively" to mean one thing for a 501(c)(3) entity and a far different thing for a 501(c)(4) entity.

I am not " incorrect in stating that the IRS does not apply the same standard for 'exclusively' in (c)(3) and (c)(4)." On the contrary, it is obvious that the IRS applies two different standards to the same statutory word:

(A) A 501(c)(3) entity loses its tax-exempt status if a substantial -- "an important, if not primary" -- part of its activities are in furtherance of a non-exempt purpose.

(B) A 501(c)(4) entity does not lose its tax-exempt status if "an important, if not primary" part of its activities are in furtherance of a non-exempt purpose. Quite to the contrary, a 501(c)(4) is free to devote "an important, if not primary" part of its activities to the furtherance of a non-exempt purpose. It loses its tax-exempt status only if it is "primarily" engaged in the furtherance of a non-exempt purpose.

It seems to me self-evident that "not primary" and "primarily" are different standards.

Congress used "exclusively" in both 501(c)(3) and 501(c)(4). Nothing in the statutory language indicates that Congress intended "exclusively" to mean one thing in one paragraph of the statute and a radically different thing in the very next paragraph of that statute.

Consistently with the Supreme Court's ruling on the matter, the IRS requires a 501(c)(3) entity not to "carry on, otherwise than as an insubstantial part of its activities, activities which are not in furtherance of one or more exempt purposes" in order to retain its tax-exempt status. The IRS could require a 501(c)(4) entity not to "carry on, otherwise than as an insubstantial part of its activities, activities which are not in furtherance of one or more exempt purposes" in order to retain its tax-exempt status.

But it does not. Instead, it permits a 501(c)(4) entity to "carry on, otherwise than as an insubstantial part of its activities, activities which are not in furtherance of one or more exempt purposes" while prohibiting a 501(c)(3) from doing that very thing.

If "not a primary" means the same thing as does "primarily," then "not a significant" means the same thing as does "significantly," "not an important" means the same thing as does "importantly," and so on. If that is true, then the English language is incoherent, and we should abandon the enterprise entirely (or not entirely, which would be the same thing).