Congress, Supreme Court Actions Cause IRS Affair

The country is now dealing with a tax issue that seems to mix the supposedly neutral Internal Revenue Service and partisan politics.

It’s happening because of an IRS rule and a Supreme Court decision that opened the door to secret political donations being made through tax exempt organizations.

Some Republicans want us believe that President Obama either was behind IRS bungling in applying the rule or turned a blind eye to it.

Whatever our political views, we believe that the IRS collects our taxes in a completely neutral manner and keeps out of politics.  And presidents are supposed to keep hands off.

That’s not true, and I should know.  I was on Richard Nixon’s “enemies list.”

The White House told the IRS to investigate people on the list, all of whom were thought to be opposed to Nixon’s re-election in 1972.

At a minimum, we were supposed to be audited, which would take our attention away from the election campaign.

I never heard from the IRS. The Commissioner probably pigeonholed the Nixon directive.   

But I have no doubt that the President had tried to get me.

Nixon was probably not the only president to try to use the IRS against or in favor of others, though these memories have faded

Then, last week the IRS itself confessed, after repeated denials, that it had targeted conservative organizations allied with the Republican Party for special and intensive scrutiny when they applied for tax exempt status.

Non-profit organizations designed to help others benefit from tax exemption under IRS rule 501(c)(3) and avoid the risk of government using taxation to interfere with their activities.

But the organizations under IRS scrutiny that were the object of its controversial screening are a relatively recent creation. Under rule 501(c)(4), they are far from being charities.

Non-profit organizations that educate people on political issues can qualify for that kind of exemption provided they are “primarily engaged” in educational efforts and not in active campaign participation.  They cannot endorse candidates, but can oppose them.

The “primarily engaged” standard requires the IRS to look closely at an organization’s activities to determine if most of them are involved in education or in plain politics.

To do that, the IRS can legitimately ask for information that goes well beyond what it would ask from a social welfare group.

When it opened tax exemption to groups involved in campaigns and lobbying, Congress did not give the IRS strict guidelines, so the tax agency is forced to deal with applications case by case.

A flood of applications for this status came after the U.S. Supreme Court decision in the 2010 Citizens United case.

In that decision, the Court allowed the 501(c)(4) organizations to make contributions to political campaigns and said that these organizations could keep secret the names of those providing the funds.  But the organization could not be “primarily engaged” in doling out political support.

Virtually everybody involved in the political process understood that the IRS rule combined with the Supreme Court case would mainly benefit conservative groups.  Almost immediately, they filed hundreds of applications.

Here is where the IRS made its big mistake.  Seeking an easy way to identify these applications and give them the necessary detailed scrutiny, it flagged certain words like “Tea Party” and “Freedom” in the filings.

This could look like political bias whether or not it was.  When asked, its first reaction was to deny that conservative groups were being targeted.   That smelled of cover-up.

Then the issue became completely politicized.  From being a major bureaucratic error, it became a partisan issue.

Because people want badly to believe that tax administration is neutral and strongly dislike political cover-ups, the issue is fertile ground for the GOP.

Some Republicans immediately linked President Obama to the cover-up, implying the IRS really operates under presidential control. They ignored the fact that the head of the agency when the screening was launched was a Republican appointee.

In response, the Democrats outdid the GOP in denouncing the IRS screening of conservatives.  That way, they could emphasize the agency’s independence from the President.

It appears that no conservative applicants have been turned down, though they have been slowed down.  And nobody has shown that, unlike my “enemies list” experience, the White House ordered the screening procedure.

Public confidence in the IRS is being weakened by the posturing of both parties. 

Even more important, nobody in Washington is seeking repeal of a law allowing a tax-exempt conduit for anonymous political donors.

Eliminate that, and the IRS issue would go away.