tax exempt

CD028: The IRS Scandal

In this episode, highlights from the House Ways and Means Committee IRS scandal hearing. IRS staffers made a list of keywords including Tea Party, 9-12, Patriot, etc. to help them find social welfare groups applying for tax exempt status that were actually political in nature. This is the scandal you’ve been told about; the real scandal is how many of them have been approved.

Background

How IRS “streamlining” in the 1990s led to mismanagement

In January of 2010, the Supreme Court ruled in the infamous Citizen’s United case that corporations count as people and that corporation donations count as speech, making them protected by the Constitution. This opened the floodgates to large amounts of corporate money making its way into U.S. elections.

At the same time, the IRS saw a sharp increase in the number of groups claiming tax-exempt status under section 501(c)(4) of the U.S. tax code. Groups that qualify do not have to pay taxes to the U.S. government and, more importantly to political groups, do not have to disclose their donors.

The law for 501(c)(4) groups says that they must exist “exclusively” for social welfare purposes, but an IRS regulation from 1959 says that they must exist “primarily” for social welfare purposes. That wiggle room has been applied broadly, to put it mildly, and we now have clearly political groups claiming tax-exempt status as 501(c)(4) organizations.

In March of 2010, the division of the IRS charged with making sure that groups claiming tax-exempt status under section 501(c)(4) of the U.S. tax code were “primarily” social welfare groups, not political groups, made a list of keywords to look for in the names of groups that might indicate the groups were political in nature. The keywords they looked for include:

  • Tea Party
  • “Patriots”
  • 9/12 Project
  • References to government spending, government debt, or taxes
  • “Make America a better place”
  • Statements criticizing how the country is being run.

View the Inspector General report on the IRS scandal

The IRS employees also asked questions that were considered unnecessary when they were finally analyzed by IRS management.

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Although the list was inappropriate, most of the groups analyzed during the same time period had names unrelated to the list.

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In the end, the IRS Inspector General found no evidence of corruption at the IRS; instead, they concluded the problems arouse out of mismanagement.

However, the real problem as far as us American citizens are concerned, is that clearly political groups are being given tax-exempt status, allowing them to keep their donors secret. Out of the 298 applications the IRS Inspector General reviewed, 0 had been denied.

Here are some examples of groups that enjoy tax-exempt status as social welfare groups:

Further Reading

How Real Disclosure Laws Could Help Fix the IRS Problem

Also in This Episode

Bills that passed the House of Representatives this week:

Congressional Dish summary of H.R. 45, the Repeal ObamaCare Act

Congressional Dish summary of H.R. 1062, the Prevent Wall Street Regulations Act

People Quoted in This Episode

Steve Miller, acting Commission of the IRS (has since resigned)

Russel George, Treasury Inspector General for Tax Administration

Rep. Dave Camp of Michigan

Rep. Lloyd Doggett of Texas

Rep. Adrian Smith of Nebraska

How you can help the show...

Congressional Dish Voicemail Line: (339) 707-0307

3 thoughts on “CD028: The IRS Scandal

  1. Pingback: CD063: 2013 The Year in Review | Congressional Dish

  2. dakdekker vroomshoop

    G’Day! Jennifer Briney,
    Thanks for your thoughts, I’m not really smart at the whole IRS stuff and IRS scandal things. Just wondering who could give me a better explanation as to what it is and how it may affect me or America? Thanks.
    BTW great blogpost

    1. Jennifer Briney Post author

      Hi Dakdekker,

      The IRS scandal had to do with organizations that dodge paying taxes. Certain groups are exempt from paying taxes; those include charities and social welfare groups. In theory, these groups assist the government by providing for the poor and so they don’t have to pay taxes.

      In the past 5 years, a lot groups that exist to influence elections have been registering as social welfare groups so that they don’t have to pay taxes. The Republican Party accused the IRS – the part of the government that collects our taxes – of picking out Republican Party groups (Tea Party groups) for audits while ignoring Democratic groups. Keep in mind, Republican and Democratic groups are not social welfare groups and none of them should be getting tax exempt status. The fake scandal – the one that was spread by the the extremely wealthy Republican Party backers – said that this was political persecution. The real scandal was that the IRS didn’t deny any group – not even the supposed Republican “victims” – their tax exempt status.

      How does this effect you in the real world? Well, you are paying more than your fair share of taxes, making up for clearly political groups who are not pitching in to fund the government. On top of that, they are using their tax-exempt money to influence the outcomes out our elections in order to elect business-friendly candidates who write the rules to rig the economy in favor of the businesses, to the detriment of workers and the vast majority of the United States citizens who do not own banks or multinational corporations.

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