The real IRS scandal














Keep that in mind when you hear politicians — and they're not exclusively Republicans — grandstanding about how the IRS actions are "chilling" or "un-American." It turns out that none of the "targeted" groups actually was denied C4 status. Nevertheless, says Sheila Krumholz, director of the Center for Responsive Politics. "There's a sense of discomfort that the IRS was doing much of anything."

The IRS wasn't actually doing much. The biggest C4s, including one founded by GOP operative Karl Rove and another run by ex-Obama campaign staffers, got their C4 status routinely. The little guys got questionnaires.

C4s are curious creatures in the tax code. They're allowed to engage in lobbying, but not ("primarily") in campaign activity. Their donors don't get a tax deduction, but the organizations are tax-exempt. For example, they don't have to pay taxes on income they earn by investing donated funds. But what makes C4s especially attractive to people who want to funnel money into politics is this: They don't have to identify their donors.




Already in 2011, an IRS disclosure that it was auditing five big donors to determine whether they owed gift taxes for donations to C4s had caused a political uproar. (The gift tax can be up to 35% of a donation in excess of $14,000 per recipient and a $5.25-million lifetime exemption, paid by the donor.) GOP lawmakers accused the IRS of "targeting constitutionally protected political speech." As Ellen Aprill, a tax law expert at Loyola Law School, observed later that year, "at that point, the IRS threw in the towel" — even though there was little doubt that the tax levy was proper and plainly constitutional.

The danger inherent in the latest faux controversy is that the IRS will have its wings clipped before its investigation of C4s is fully fledged. Politicos and pundits are in a lather over the questions the agency put to targeted organizations to determine their social welfare bona fides — things like the identity of their board members and the amount of time and money spent on "electoral issues," and endorsements of candidates. These facts would be pretty fundamental to determining whether an organization is political, wouldn't you say?

The IRS also asked some groups for the identity of their donors. The inspector general contends that request was inappropriate. Still, if the IRS discovered that a major donor to a C4 was, say, the politically active billionaire Sheldon Adelson, wouldn't that suggest that the group might not be a plain vanilla "homeowners association"? By the same token, when the pro-Obama C4 Priorities USA disclosed that it had five anonymous donors, one of whom contributed $1.9 million, or 84% of the total, wouldn't it help an investigator to know who that person is?

Let's remember that a tax exemption handed over to any group costs all of us money. It's proper for the IRS to scrutinize applicants. The biggest laugh line uttered in this affair is that the IRS is somehow "harassing" these public-spirited organizations by asking them to justify their status. Here's a good rule of thumb: You don't want to get harassed by the IRS? Then don't claim a tax exemption you may not deserve.



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