IRS Scandal: If the IRS Did Target Conservative Groups, They Were Right

If you've even briefly glanced at a source of news in the past few days, you've probably heard about the growing scandal engulfing the Internal Revenue Service. The IRS admitted to placing applications for tax-exempt status from conservative groups, particularly those with "tea party" or "patriot" in their name, under additional scrutiny.  

As one might imagine, the general reaction to this revelation has been revulsion and condemnation. The IRS's actions seem to imply a threat to American democracy, calling to mind the tactics of politically oppressive regimes such as Iran or North Korea. Upon closer inspection, however, the facts don't quite live up to the hype. In fact, the actions of the IRS were understandable, even justifiable, given the extraordinarily confusing status of campaign finance, and the complete lack of guidance from those at the top.

As a result of the Supreme Court's 2010 decision in Citizens United v. FEC to allow virtually unlimited political spending by third parties, the number of organizations applying for tax-exempt status as a 501(c)4 social welfare organization has doubled. Under this designation, organizations are allowed to engage in unlimited lobbying and political activity without disclosing their donors, as long as politicking is not their primary purpose and they're not explicitly supporting a particular candidate or party. The effects have been profound, as non-profits outspent the infamous superPACs by a 3-2 margin in 2010.

This explosion of tax-exempt advocacy coincided with a surge of Tea Party and conservative grassroots activism, as conservative groups seized the opportunity presented by Citizens United. In 2010 and 2012, the majority of "dark money," as such untraceable political spending has come to be known, was spent by conservative organizations. In fact, 84% of political spending by 501(c)4s in 2012 came from conservative-affiliated groups. Liberal groups, on the other hand, accounted for only 12%, with non-partisan organizations making up the rest.

In theory, of course, a group whose primary purpose is campaigning should not be granted 501(c)4 status. They have their own category, the 527. The problem is that nobody really knows where the line is. An absence of clear guidelines on the subject has forced the IRS, whose actual job is enforcing the established tax code, to create and implement new campaign finance policies.

"Because Congress and the Treasury have left both the definition of political activity and, for [social welfare organizations], the amount of permitted political activity uncertain," says Lloyd Mayer, a law professor at the University of Notre Dame, "the I.R.S. is required to make broad inquiries and to use politically sensitive criteria to decide if a given organization qualifies for tax-exempt status."

This confusion has been exploited by many organizations, including many conservative groups, to directly influence electoral politics. A prime example is the Karl Rove-founded Crossroads GPS. When it applied for tax-exempt status as a 501(c)4, Crossroads acknowledged that it would be involved in electoral campaigning, but that "any such activity will be limited in amount, and will not constitute the organization's primary purpose."

The organization's actions, however, indicate otherwise. In the 2012 election, Crossroads GPS spent $70 million on ads and phone programs encouraging voters to support Republican candidates, and another $50 million attacking President Obama.

As the very least, Crossroads GPS has stretched the limits of 501(c)4 organizations, if not crossed them entirely. And they're not the only ones. ProPublica has conducted an extensive investigation into how groups are exploiting the 501(c)4 designation to influence elections while shielding their donors and financial information.

So, we have an increase in organizations seeking 501(c)4 status for the purpose of political advocacy, the majority of which are conservative, and many of whom are exploiting the vagaries of their status for explicitly political ends. And we have an IRS with little to no guidance as to where the boundaries lie, but who is responsible for enforcing them nonetheless. Is it really surprising that the IRS focused additional scrutiny on these organizations?

Ezra Klein explains: "The IRS is supposed to reject groups that are primarily political from registering as 501(c)4s. If they're going to do that, then they need some kind of test that helps them flag problematic applicants. And that test will have to be a bit impressionistic. It will mean taking the political rhetoric of the moment and watching for it in applications. It will require digging into the finances and activities of groups on the left and the right that seem to be political even as they're promising their activities are primarily non-political."

Undeniably, the test used by IRS employees was poorly designed and improperly applied. It was an imprecise shortcut, designed to ease the increasing burden of acting as electoral finance regulator as well as tax collector, and it was wrong. But in the end, perhaps the greatest question is not, "why was the IRS investigating conservative groups?" but "why wasn't the IRS investigating ALL politically involved groups?"

An investigation and even congressional hearings should be conducted bring all the details to light, and the employees responsible should face consequences. But we can't stop there. The current campaign finance situation is desperately in need of reform, or at least simplification. We need to hold policymakers accountable for creating an environment in which such actions were possible, even necessary, and we need to make sure they can never happen again.