Domestic Taxes

IRS takes heat from both GOP, Dems over Tea Party groups’ tax-exempt status

The Internal Revenue Service is taking heat from both Republican and Democratic lawmakers for its oversight of certain groups engaging in political activity, in particular Tea Party organizations seeking tax-exempt status.

In recent weeks, GOP lawmakers have followed up with the agency over complaints from Tea Party groups that feel the IRS is unfairly targeting their applications for tax-exempt status.

{mosads}But on the other end of the spectrum, some Democrats on Capitol Hill have been asserting that the IRS is not looking carefully enough at groups seeking a tax-exempt 501(c)(4) designation, a label given to organizations principally engaged in social welfare.

Doug Shulman, the IRS commissioner, defended his agency’s efforts during congressional hearings last week, stressing that the IRS prides itself on being nonpartisan and that the rules surrounding tax-exempt groups are complex.

Pressed about his agency’s interactions with Tea Party groups, Shulman told lawmakers that the IRS had not changed its policies for dealing with 501(c)(4) applications.

“When we see 501(c)(4) is not using their status right, we’ll look at it,” Shulman told a House Appropriations subcommittee on Wednesday. “That’s our job. That’s written into the tax code. And when people apply, we’ll make sure we try to do our best to understand what is happening.”

The commissioner also said that groups can start acting as 501(c)(4) groups without an application, and the IRS will follow up with those organizations if they have questions about possible political activity. 

Shulman added that a trio of career IRS officials, based outside of Washington, examines allegations surrounding the political work of 501(c)(4)s.

“The notion that we’re targeting anyone, I think, is off because, you know, these people are going through an application process that they voluntarily decide to do that isn’t required under the law,” Shulman said at the Wednesday hearing.

The back-and-forth over 501(c)(4)s come as so-called super-PACs and other outside groups are once again playing a big role in an election year. 

Super-PACs, which can spend unlimited amounts of money and have become significant in the political process since the Supreme Court’s Citizens United decision, do have to disclose their contributions. 

But there has been some concern that the groups are using 501(c)(4) outfits – which, as social welfare groups, do not have to reveal their supporters – to hide super-PAC donors. 

Democratic senators have also expressed concern this month that the IRS is being too lenient in allowing political groups to secure 501(c)(4) status, and have rejected the idea that current tax law on the issue is too complex or ambiguous.

The current thinking is that groups need to keep less than 50 percent of their work political, to ensure that is not deemed their primary purpose.

But the seven Democratic senators say the tax code requires 501(c)(4) groups to be exclusively engaged in social welfare, and want the IRS to implement a stricter definition of primary purpose.

Sen. Al Franken (D-Minn.), one of those seven senators, said at a news conference last week that he also doubted that some 501(c)(4) groups weren’t already doing mostly political work.

“I think there needs to be a look at that even under the laws that already exist – there are people who should be disclosing who aren’t,” Franken said at a news conference for a new Disclose Act, which would take on anonymous spending in campaigns. “And I think that is where we’re seeing the effect of lack of effective enforcement and just oversight.”

Sen. Sheldon Whitehouse (D-R.I.), who introduced the new Disclose Act in the Senate, also told The Hill that he thought much of the current issue with oversight of tax-exempt groups was a “pure enforcement issue.” 

“I think the IRS should be enforcing the law, and I think there’s a clear difference between organizations that are set up to influence elections and the social welfare organizations that were the intention of the 501(c)(4) rule,” Whitehouse said. 

At the same time, Tea Party groups around the country have recoiled at what they call potentially politically-motivated requests for information from the IRS, which the groups say have included questions about their use of social media and how they examine potential members. 

A dozen GOP senators, citing those reports, wrote Shulman earlier this month, seeking assurances that the IRS requests were not based on politics.

Sen. Orrin Hatch (Utah), the ranking Republican on the Senate Finance Committee and one of the lawmakers who signed that letter, told The Hill this week that he had full faith that the IRS was so far acting responsibly. 

“All I want is straight down the middle, honesty in the process,” Hatch said.

The Utah Republican also said that he wanted to ensure that the IRS doesn’t succumb to political pressure from other lawmakers. 

“It’s just always important to just let them know we’re watching, and make sure that there’s no politicization of the process,” Hatch said.

But Rep. Charles Boustany (R-La.), who chairs the House Ways and Means oversight subcommittee, did not share Hatch’s optimism on the IRS’s performance.

Boustany, who has sent multiple letters to the IRS about its oversight of tax-exempt groups, said the response he heard from Shulman last week did not match what he was hearing from Tea Party groups.

“They feel that their First Amendment rights are being trampled on,” the Louisiana congressman told reporters last week. 

Boustany also said he planned to hold hearings on the issue, and suggested that the fact that both parties had taken some issue with the IRS’s treatment of 501(c)(4) groups illustrated the need for more congressional attention.

“The whole area of tax-exempt organizations is an area that has not been investigated from an oversight standpoint for quite a while,” Boustany said. “There is bipartisan interest in looking at the tax-exempt sector.”

Tags Al Franken Charles Boustany Orrin Hatch Sheldon Whitehouse

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