501(c) what?

The Real I.R.S. Scandal

Posted by Jeffrey Toobin, The New Yorker

Washington’s scandal machinery, rusty from recent disuse, is cranking back up to speed due to the alleged targeting of conservative groups by the Internal Revenue Service. Darrell Issa, the chairman of the House Committee on Oversight and Government Reform, said, “It’s the kind of thing that scares the American people to their core. When Americans are being targeted for audits based on their political beliefs, that needs to change.” Senator Susan Collins, of Maine, called on the President to apologize. George Will said President Obama could be impeached. Obama himself is taking the path of contrition. At a news conference Monday, the President said, “If in fact I.R.S. personnel engaged in the kind of practices that have been reported on and were intentionally targeting conservative groups, then that’s outrageous. And there’s no place for it.” More hearings, with more outrage, are planned.

In light of this, it might be useful to ask: Did the I.R.S. actually do anything wrong?

The stories began to come to light on Friday, when the Associated Press reported that a draft report by a Treasury Department inspector general had found that the I.R.S. subjected certain Tea Party-affiliated groups to undue scrutiny. Lois Lerner, head of the I.R.S. tax-exempt-organizations division, said the agency was “apologetic” for what she termed “absolutely inappropriate” actions by lower-level workers.

It’s important to review why the Tea Party groups were petitioning the I.R.S. anyway. They were seeking approval to operate under section 501(c)(4) of the Internal Revenue Code. This would require them to be “social welfare,” not political, operations. There are significant advantages to being a 501(c)(4). These groups don’t pay taxes; they don’t have to disclose their donors—unlike traditional political organizations, such as political-action committees. In return for the tax advantage and the secrecy, the 501(c)(4) organizations must refrain from traditional partisan political activity, like endorsing candidates.

(More here.)