It can be hard to figure out any Washington "scandal" without a scorecard, and harder when it involves an opaque agency such as the IRS.
That's the case with one of the scandals du jour, which revolves around the IRS' scrutiny of political organizations seeking a tax exemption. So here -- as a companion piece to my column on the subject, and with the help of a just-released report from the agency's inspector general -- we're providing a quick guide to what's wrong and maybe not-so-wrong with what the IRS was up to.
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Why was the IRS scrutinizing applicants for tax exemptions? Certain nonprofit “social welfare” organizations are entitled to tax exemptions under section 501(c)4 of the tax code -- they’re known as C4s. But they’re not permitted to do significant electioneering. The IRS was trying to winnow out applicants that might have been campaign organizations masquerading as “social welfare” groups.
Why would a political group want to be a C4? Mostly because C4s don’t have to disclose the names of their donors. For some donors, especially corporations and rich persons, anonymity is as good as gold. Starting in 2010, suspicions ran high that campaign groups were seeking C4 designations they didn’t deserve.
What did the IRS do wrong? The inspector general concluded that staff at the IRS used “inappropriate criteria” to identify C4 applicants that might be crossing the line into politics. Starting in early 2010, they screened applicants for names with “political sounding” terms such as “tea party,” “patriots,” or “9/12.”
Did IRS higher-ups OK this? No. The inspector general found that supervisors ordered the criteria changed when they learned about them in mid-2011. Eventually -- in January 2012 -- the criteria were changed to “political action type organizations involved in limiting/expanding government, educating on the Constitution and Bill of Rights, social economic reform/movement.”
Did President Obama or any other administration figures know? The IG report says no. It says IRS officials all state that the screening was not influenced “by any individual or organization outside the IRS.”
Were conservative groups the only ones given special scrutiny? No. Of 298 applications given special attention, only 96 had those three terms in their names. The IG doesn’t characterize the other 202.
Were most of these applicants innocent? Not necessarily. The IG also says that nearly 70% of the applications selected for special scrutiny actually did show indications of “significant” political activity that might have invalidated their C4 status.
Why were IRS staff looking for a shortcut? Because their workload had mushroomed. Applications for C4 status rose from 1,735 in 2010 to 3,357 last year. Meanwhile, budget cuts had reduced the staffing of the Cincinnati office processing the applications.
Shouldn’t this be a routine process? Yes, but it isn’t, because the standards for permissible political activity are vague. The C4 law says an organization must be “exclusively” devoted to social welfare -- it’s designed to cover community groups like volunteer fire departments, homeowner associations and cultural organizations. The IRS has interpreted this to mean that a group can be a C4 if no more than 49% of its activity is electioneering. But it’s unclear how to define this political activity or calculate the percentage. The poor souls on the IRS front lines have to figure that out. The IG says they tried to do so without any help from management.
Did the staff do anything else wrong? The IG says a questionnaire sent to 170 of the 298 applicants was too intrusive. Among the “unnecessary” questions, the IG says, were the names of donors, the plans of officers or directors to run for office, and the applicant groups’ positions on various public issues.
Did the IRS reject tea party groups’ applications? No. None of those with “tea party,” “patriots,” or “9/12” in their names were rejected. Indeed, the IG says that several groups that should have been rejected actually were approved.
Join us for a live video chat at 2 p.m. Pacific with business columnist Michael Hiltzik and Chris Ashby, a conservative election lawyer who has represented Tea Party groups that have been targeted by the IRS. The chat will be moderated by deputy business editor Joe Bel Bruno.
The real IRS scandal
The threat of super-PACs
C4s allow donors to dodge scrutiny