Tuesday, May 14, 2013

Ezra Klein Gets the IRS Scandal Right

I've been trying to come up with a way to explain the reason for the "tests" employed by the IRS.  However, Exra Klein has done a good job of summarizing what happened:

It is worth remembering an important fact here: 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.

If we’re not comfortable with that, then we need to either loosen the definition of 501(c)4s or create a new designation that gives explicitly political groups the benefits of the 501(c)4s (namely, they don’t have to pay taxes and they can keep their donors anonymous). But either way, as I wrote on Friday, the only way to make sure this doesn’t keep happening is for the IRS — or the Congress and White House that control it — to make some tough decisions about 501(c)4s.

He then notes above these observations:

The context for all this is that after Citizens United and some related decisions, the number of groups registering as 501(c)4s doubled. Because the timing of that doubling coincided with a rise in political activism on the right rather than the left, a lot of the politicized groups attempting to register as 501(c)4s were describing their purpose in tea party terms. A popular conceit, for instance, was that they existed to educate on the Constitution — even if the particular pedagogical method meant participating in Republican Party primaries and pressuring incumbent politicians.

The non-profit section of the tax code is one of the few areas of the code where I don't have any experience; it's actually become it's own legal specialty.  However, in general terms, Ezra gets the general terms right. The service was looking for some way to screen applicants who were political rather than charitable.  And, as he notes, that coincided with the rise in political activism on the right, hence the original targeting of the name "tea part" etc....

Unfortunately, the service really screwed up on this one.  They should have been far more sensitive to the political implications of what they were doing and come up with a way to screen applicants that was not based on clearly right leaning groups.  Frankly, I think think the proper action would be for all groups trying to use this section of the code to be given stringent applications that attempted to separate the political from the non-political.