The IRS: Too eager to please?

Never a favorite of anyone, leaders of the beleaguered Internal Revenue Service find themselves under media scrutiny and the microscope of Congress’s top investigators for apparently singling out conservative organizations for increased scrutiny in their attempts to form social welfare organizations. Since the buck stops in the oval office, President Obama is being blamed for the sins that the IRS may have committed. He shouldn’t bear the responsibility of this unfortunate episode. The IRS brought it on itself.

ADVERTISEMENT
Of course, it all started with the Supreme Court’s decision in Citizens United. As everyone knows by now, in that case the court allowed corporations — for profit and not for profit — to make political expenditures, but not contributions. Due to the rules under which nonprofits operate, the donors to these organizations, with a few exceptions, are not made public. Some nonprofits may never engage in politics, such as 501(c)(3) charitable organizations. Some nonprofits may engage in unlimited political activities, so-called Section 527 organizations. For a while, these were the mainstay of political groups that wanted to avoid disclosing contributors. But once Congress changed the law about 15 years ago and made them disclose their donors, 527s went out of favor. A third type of nonprofit, the social welfare organization or 501(c)(4), may engage in some political activities, as long as it is not its primary activity. Once Citizens United made it permissible for corporations to make political expenditures, the politically motivated began to use the veil of donor secrecy enjoyed by social welfare organizations to support their candidates of choice.

At first, it was conservative organizations that took advantage of the new-found authority. That caused a great deal of concern among Democrats and left-leaning publications and activist groups, most if not all of whom were upset with the Citizens United opinion and were trying to pass legislation that would have either rolled back the decision or required greater disclosure of political expenditures. These groups and individuals began calling upon the IRS to closely scrutinize the activities of social welfare organizations in an effort to determine if in fact they were primarily engaged in political activity and, if so, put them out of business. Eventually, liberal groups joined in and, according to some accounts, may have exceeded the expenditures of conservative groups in the 2012 elections.

The Democratic chairman of the Senate committee with jurisdiction over the IRS called upon it to investigate the activities of these organizations, as did Democratic members of the House. So did The New York Times and The Washington Post as well as left-leaning groups such as Democracy 21 and the Campaign Legal Center. None specifically singled out conservative groups and many specifically questioned the activities of the conservative Crossroads GPS as well as the liberal Priorities USA. Did the IRS think that because of the sources, they were only supposed to scrutinize groups supporting Republicans?

Whatever the reason, word began to spread that conservative groups seeking exempt status were being unduly questioned by the IRS. They complained to Congress and thereafter Republican members of the House and Senate asked the IRS if in fact it was singling out conservative groups and if so to cease. The IRS said that it wasn’t, and for a while the issue went away. 

By then, the damage was done. The IRS, apparently whipsawed by both sides of the aisle, involved itself in a political argument that was best settled by Congress. Amid charges that it was inept or worse, the IRS apparently took the bait and began to investigate social welfare organizations. But why focus on the conservative variety? The congressional investigations that will soon begin are sure to shed light on that question.

Is Citizens United to blame? It is true that prior to Citizens United, this was not a problem because not-for-profit organizations were prohibited from engaging in any political expenditure activity. After Citizens United, the issue became not whether but in how much political activity were social welfare groups allowed to engage.

This is an issue for Congress to address, just as it did with 527s. If not, this debate will continue and will grow as more and more organizations are formed. The solutions are many. For example, Congress can prescribe a more defined test for what a social welfare organization can do, it can require more disclosure of donor contributions or it can prohibit outright any political activities just as it does for 501(c)(3) organizations. 

If the IRS blundered into this situation in an ill-advised attempt to handle the increased number of applicants, they should be pitied for their naiveté and political tone-deafness. If, however, it succumbed to pressure from Congress and other entities in their targeting, at a minimum, more jobs will be lost when congressional investigators finish their inquiries.


Spulak is a King & Spalding partner and chairman of the firm’s Government Advocacy and Public Policy Practice Group. He served as staff director and general counsel of the House Committee on Rules, and as general counsel to the House.