Hello Everyone,

You haven’t heard from me for awhile – and some of you no doubt count that as a blessing.

But, amidst the hullabaloo of three recent political controversies (Benghazi, Associated Press and IRS), some of my more stridently-oppositional readers have ended their post-election silence and have been in touch.  Therefore, so should I.

I’m going to focus here on the IRS controversy surrounding so-called “501(c)(4) tax-exempt organizations”. Don’t stop reading, please.  This won’t be too deathly dull. 

The Real Scandal

The real scandal here is not the profiling of some tiny conservative groups by the IRS, as bad as that was, but the perversion of the tax code to avoid limits on political contributions and to hide the identities of those contributing to very large groups.

I do not intend to broadly defend the IRS.  But, I think we should be focusing on the real problem here, not simply on political theater.

Seeking Obstructions

The Republicans lost the last election. Many of their top issues in the last campaign seem to have lost their sting: the economy is growing and joblessness is declining (albeit slowly), housing is recovering and the deficit is shrinking.  Even the stock market indices are at all-time highs. 

No wonder the Republicans are eager to embrace these controversies as new ways to thwart the President.

The Internal Revenue Code

Section 501(c) of the Internal Revenue Code enumerates twenty-eight types of “nonprofit” organizations which are exempt from some federal income taxes.  They are identified by paragraph number.

Perhaps the most familiar are those that fall under paragraph 3 of this section or “501(c)(3) organizations”, such as foundations, colleges and religious institutions.  Our Lewis-Sebring Family Foundation, of which I am chair, is closest to home.

Most of us probably think that the two primary defining characteristics of “tax-exempt or nonprofit” entities – like those subject to section 501(c)(3) – are that a) contributions to them are generally deductible and b) their income is exempt from taxes.  That is not the case with all tax-exempt entities.

Section 501(c)(4)
The next paragraph of the Code – Section 501(c)(4) – is  the source of the current controversy.  The Code simply states that organizations benefitting from this paragraph must be “Civic leagues or organizations…operated exclusively for the promotion of social welfare…[emphasis added] ” Those 3 words are the crux of the matter: “exclusively” and “social welfare”.  Elsewhere, the IRS confuses matters by defining “exclusively” as ”primarily”.  This doesn’t lessen the scandal.

Abuse of Tax-Exempt Status

As “The Nation” (an admittedly a liberal magazine) put it just last month:

The real scandal has been the blatant abuse of 501(c)(4) status by dozens of lobbyists and operatives who have set up such tax-exempt organizations as political slush funds to conceal money in political campaigns.  [They have] operated as Super PACs – raising and spending tens of millions…without disclosing a dime of their contributors. 

Violations of the Law?

In October 2010, Sen. Richard Durbin of my home state, wrote the following letter to the IRS Commissioner:

I write to urge the Internal Revenue Service to examine the purpose and primary activities of several 501(c)(4) organizations that appear to be in violation of the law.

One organization whose activities appear to be inconsistent with its tax status is Crossroads GPS, organized as a (c)(4) entity in June.  The group has spent nearly $20 million on television advertising specific to Senate campaigns this year [and over $70 million overall in 2012].  If this political activity is indeed the primary activity of the organization, it raises serious questions about the organization’s compliance with the Internal Revenue Code.

 

In addition to its tax-exempt status, an entity organized as a 501(c)(4) is not required to disclose to the public the sources of its funding…

I ask that the IRS quickly examine the tax status of Crossroads GPS and other (c)(4) organizations…

Clearly nothing came of the Senator’s request.

In today’s New York Times, in a column entitled “Promoting ‘Social Welfare’ by Defeating Gun Control,” Andrew Rosenthal sheds light on how “many 501(c)(4)s brazenly disregard this whole ‘primary activity’ thing.”  That’s the real scandal (see Attachment.)

Last month, The “Nonprofit Quarterly” wrote:

 …The 501(c)(4) regulation was enacted in 1958, an era with politics quite different from today’s…the parameters of politics have changed in just the last three years, not to mention over 50 years…there are organizations that should clearly be 527s [another section of the code] that …have to disclose their donors, but they’re choosing the option of being 501(c)(4)s in order to engage in political activities while keeping their donors secret…[it seems] like the IRS had “targeted” to use the word of the moment, small organizations like local Tea Party groups and others, but sidestepped taking on the big misusers of 501(c)(4) status, such as Karl Rove’s Crossroads GPS and its liberal Democratic counterpart, Priorities USA.

Obfuscation

Politicians and the media should be focusing on “what appears to be violations of the law,” as Sen. Durbin put it, which are much more serious than the profiling charges. Some groups are clearly posing as “social welfare” organizations in order to attract unlimited donations to be used for political purposes while hiding the identities of their donors. 

In fact, this fiasco is far less about tax exemption than it is about obfuscation.

By contrast, when I make a donation to Sen. Durbin, I am limited to $2,600 per election cycle (primary and general) and my identity becomes part of the public record. I abide by the rules and have nothing to hide.

Profiling is bad. But, perversion of our tax laws inflicts far greater harm on our body politic. 

Please, as always, pass it on.  And, remember that previous Obamagrams are stored on www.obamagrams.com  

 Chuck

adobe pdf fileAttachment – Promoting ‘Social Welfare’ by Defeating Gun Control – Rosenthal – NYT – 6-4-13

 

 

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