Tax Analysts Blog

So the IRS Hounded Liberals Too – But We’ve Still Got a Problem

Posted on Jun 26, 2013

The IRS scandal, such as it is, has gotten less scandalous in recent days. Revelations that the agency scrutinized exemption applications from liberal as well as conservative groups has deflated some of the more overheated conspiracy theories. And rearguard efforts by conservative activists to keep the scandal sufficiently scandalous have the air of desperation -- or at least opportunism.

But as the scandal recedes, the policy issues remain. The real problem has never been the Obama Administration’s supposed political misuse of the IRS (the fevered imaginings of Peggy Noonan notwithstanding). Rather, it’s the misconceived nature – and hamfisted enforcement – of the tax law itself.

Congress should rethink the entire notion of social welfare organizations. Specifically, lawmakers should abandon the fuzzy-headed notion that such groups can be a little political -- just not too much. These organizations -- and the IRS -- need an altogether brighter line to work with.

Much ink has been spilled about the distinction between “exclusively” and “primarily” in the context of social welfare activities. And it’s comforting to think that we could clean up this whole mess by simply directing the IRS to enforce the law as written (rather than as its been interpreted by the agency for the past 50 years or so).

But fixing this problem is going to be harder than that.

Ideally, the IRS wouldn’t be in the business of measuring and evaluating political activity at all. The agency is simply not equipped to handle the task, at least not well. But that administrative burden isn’t likely to disappear. Although it seems reasonable to me, no one is talking about abolishing the tax exemption (and contribution deductibility) for 501(c)(3) organizations. And since that exemption more or less requires a ban on political activity, the IRS will necessarily be required to make at least binary judgments about electioneering and political activity.

Congress should extend that sort of simple evaluation to 501(c)(4) organizations by redefining what social welfare organizations are allowed to do. The category could still be used to exempt civic leagues, local employee organizations, and whatnot. But these organizations would be required to live with the same amount of political activity as a 501(c)(3) – almost none.

Yes, I realize what this means: lots of noble causes and estimable organizations, currently fighting the good fight, would be barred from the political arena entirely. But that seems a tolerable loss. And if such groups can’t abide the political chastity, then let them reorganize as 527 organizations.

That such organizations would then be forced to disclose their donors strikes me as a feature, not a bug. After all, if there’s one thing we need more of at the intersection of money and politics, it’s transparency.

Read Comments (2)

edmund dantesJun 26, 2013

By all means, make the Sierra Club a taxable entity. I recommend eliminating
the charitable deduction entirely, as well as all tax-exempt statuses. Let's
use the tax system to raise taxes, and stop using it for social engineering.
Please. With true tax simplification, you could cut IRS head count in half.

The fact that some BOLOs turned up with liberal code words doesn't get the IRS
off the hook at all. Curious, the absence of any actual numbers. How many
liberal groups were actually snared, compared to the conservatives? How long
were the liberals held up, compared to the conservatives? Silence. Press
coverage in USA Today suggested that liberals, once identified by IRS, were
waved on through.

IRS is stonewalling. Why? What is it that these IRS folks taking the Fifth are
hiding? With this much smoke, do you really think there's no fire?

amt buffJun 28, 2013

"How many liberal groups were actually snared, compared to the conservatives?"
The report I saw said 6. I don't know if any of them were stalled for a year or
two without an answer.

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