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Monday, May 13, 2013

The Deepening IRS Scandal

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2013/05/the-deepening.html

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Comments

Could we back up a minute? The Tea Party groups, such as they are, are a part of the Republican Party. They are political in their organization and aims, and support Republican candidates exclusively. If you are looking for non-qualifying 501(c)(4) applications--nonqualifying because they are political--does it not make sense to give special attention to groups bearing the Tea Party label? Duh.

Posted by: Publius Novus | May 13, 2013 7:07:44 AM

I'm not a tax lawyer but I wonder if you could do the following. Form a "for-profit" benefit corporation that would engage in political activity. The corporation would issue non-voting common stock in exchange for what we would call "donations" in another context; whatever amount you pay to the corporation, you'd receive one share of non-voting common stock. The revenues from the sale of common stock are not taxable, they are capital contributions. The corporation loses money every year because it spends all its money on political campaigns. So it has to file tax returns, but it doesn't owe any income taxes. Would this work?

Posted by: Douglas Levene | May 13, 2013 7:15:43 AM

Publius Novus:

Progressive/Liberal groups are a part of the Democratic Party but no allegations of equivalent scrutiny have been made to date.

Some of the information requested goes a bit beyond "special attention" and seems to be more like "extraordinary attention".

The applicants were given 2 weeks to gather and submit all the required information to the IRS or the case would be closed.

http://c0391070.cdn2.cloudfiles.rackspacecloud.com/pdf/irs-questions-aclj-tea-party-clients.pdf

http://media.aclj.org/pdf/issa-jordan-letter-to-irs-regarding-intrusive-tea-party-questionnaires.pdf

Posted by: Hal Duston | May 13, 2013 8:55:33 AM

the only similarity between this and Nixon tactics is the IRS. Nixon ordered the IRS to investigate. There is no indication that Obama did so. Further, there is no indication that the IRS Commissioner was involved (and, he was a Republican). In fact, when a high-ranking official (presumably a non-political appointment and SES level employee) heard of this, a stop order was issued. And, this came out during the presidency, not sometime after, which would lessen the likelihood of a cover-up.

Posted by: Allan | May 13, 2013 9:58:28 AM

No, Allan, it wasn't a "stop order." According to the TIGTA report, at App. VI, in Jan. 2012 the criteria were changed to “Political action type organizations involved in limiting/expanding government, educating on the constitution and bill of rights, social economic reform/movement.” So the criteria was actually broadened to include more conservative oriented groups. I doubt they put Soros' 501(c)(4) group, the Open Society Policy Center, on this list. The impact of this scandal will hopefully be far reaching. Remember, it is the IRS which is entrusted with enforcement of parts of Obamacare and is in charge of exchange of information about US taxpayers with foreign countries.

Posted by: TexEcon | May 13, 2013 4:17:16 PM

AS far as I am concerned they should get rid of all tax exempt organizations...that would solve the problem and cut expenses...no more tax exempt examiners, etc....

Posted by: Sid | May 13, 2013 6:25:49 PM

Could a knowledgeable reader clarify one aspect here?

The statement from the IRS that only Cincinnati staff were involved encourages the inference that the problem was local, not affecting organizations anywhere else in the country.

Did the Cincinnati staff have the charter to pass judgment on ALL 501(c)(4) applications for tax exemption NATIONWIDE? What was the scope of authority of this staff?

Why didn't the original reports and statements make their scope of this action clear?

Posted by: AMT buff | May 13, 2013 7:20:09 PM

What about the even more vulnerable, anonymous individual taxpayer that is singled out and harassed by IRS? there must be millions of those!

Posted by: laryngitus | May 13, 2013 8:52:59 PM

@Publius 501c4s are allowed to engage in political activity. In fact, political activity can constitute 49% of their activities and that 49% doesn't even include things like polls, canvassing, and other activities that are politically-related. So I'm not sure what your point is.

Posted by: Liam | May 14, 2013 8:02:32 AM

AMT buff:

According to http://www.irs.gov/Charities-&-Non-Profits/How-to-Contact-the-Tax-Exempt-and-Government-Entities-Division it appears as if the Cincinnati office is where ALL 501(c)(4) applications for tax exemption are initially processed. E.g. it is THE Exempt Organizations Determination Office NATIONWIDE. Elevations (appeals?) appear to be handled regionally by the Tax Exempt/Government Entities Division which appears to manage the EOD office.

Posted by: Hal Duston | May 14, 2013 9:37:00 AM

First, Cincinnati staff have national responsibility for all 501(c)(4) applications.
Second, something of this nature would never be done solely by "low level staff" without higher ups either approving or getting briefed.
Third, Who cares who appointed whom. Pull all individuals involved and probe their backgrounds - voter cards, political contributions/activities. Bet you find out all or almost all are progressive statist in orientation.
Finally, this is sound of the death of the republic. Using the arms of the government to harass, threaten and punish those who disagree with it.
All involved from POTUS on down to the Janitor in Cincinnati- need to be investigated and prosecuted and jailed.

Posted by: armst | May 14, 2013 11:04:40 AM

Liam: I am familiar with the IRS' excessively liberal interpretation of section 501(c)(4). The <50% requirment makes my point more cogent, not less so, simply because it is a closer question. The closer the question, the more difficult the decision, the more information necessary to properly resolve the issue.

Posted by: Publius Novus | May 14, 2013 11:18:14 AM

Thanks for the answers.

Because the location of the centralized staff is irrelevant to the scandal, it appears to me that Cincinnati was mentioned for the purpose of misleading anyone not intimately familiar with the organization of the IRS.

At the ABA Conference, perhaps Lerner did explain that all the determinations for the country were handled by this one office. If so, every reporter I've read on this subject chose a misleading presentation of the facts. Example: "Lerner said the practice was initiated by low-level workers in Cincinnati and was not motivated by political bias." from http://cnsnews.com/news/article/irs-apologizes-targeting-tea-party-groups

Did the "Cincinnati only" half-truth came directly from Lerner? If so, this would be one more instance of politicized behavior by the IRS.

Does anyone have the full text of Lerner's statement at the ABA convention?

Posted by: AMTbuff | May 14, 2013 3:21:34 PM