Paul L. Caron

Thursday, December 17, 2015

The IRS Scandal, Day 952

IRS Logo 2Los Angeles Times, How the Budget Deal Opens the Door Even Wider for Secret Money in Politics, by Michael Hiltzik:

When Congress legislates at night and in haste, you can be sure mischief is being done. Sure enough, the budget deal announced late Tuesday by House Speaker Paul D. Ryan (R-Wis.), takes an ax to efforts to limit the torrent of big money into politics.

Two provisions buried in the 2,009-page bill -- one on page 472 and the other on page 1,982 -- emasculate efforts by the Internal Revenue Service and Securities and Exchange Commission to force public disclosure of donations by individuals and corporations.

These are donors who represent no one's interests but their own, and their influence over politics and the electoral process has only grown since the Supreme Court's wretched Citizens United decision in 2010.

It's now poised to get even bigger, thanks to the riders' inclusion in an omnibus budget bill that's being handled as must-pass legislation to avoid a government shutdown. As Common Cause President Miles Rapoport said in a prepared statement Wednesday: "The omnibus proposal keeps the government’s lights on in exchange for more secret money in politics."

Here's how the deal protects big secret donors.

The IRS provision prohibits the agency from taking any step toward issuing a rule governing the political activities of so-called 501(c)4 nonprofit organizations. By law, these nonprofits aren't supposed to be involved in politics at all. They're "social welfare" organizations that by law must be devoted primarily to programs broadly serving their communities, not private groups; the category used to be limited to religious groups; cultural, educational and veterans organizations, homeowners associations, volunteer fire departments; and the like.

But they're allowed to keep their donors secret, a benefit that made them into an all-too-tempting instrument for political contributions. Over the years, the IRS loosened its strictures on political activities by C4s, ultimately allowing them to spend money on politics as long as they kept the activity under 50%. (We tracked this evolution starting back in 2012.)

In 2013, the IRS tried to crack down on political C4s masquerading as social welfare groups. The ultimate harvest was the ginned-up IRS "scandal," in which Rep. Darrell Issa (R-Vista) tried, and ultimately failed, to prove that the agency crackdown was focused on conservative organizations.

The real goal of the IRS attackers was to hamstring its regulation of any political C4s, which were too good a funnel for secret money. Instead, the IRS sat down to write bright-line regulations defining the permissible activities of C4s once and for all.

You shouldn't be surprised that front persons for big-money donors -- that is, almost everyone in Congress -- are exploiting the budget negotiations to stop that effort in its tracks. According to the budget bill, no funds can be used by the IRS to "issue, revise, or finalize any regulation, revenue ruling, or other guidance" related to 501(c)4s. Who benefits from this stricture? The secret donors, that's who.

Here is the statutory language (from Brian Galle):

Sec. 127. During fiscal year 2016—
(1) none of the funds made available in this or any other Act may be used by the Department of the Treasury, including the Internal Revenue Service, to issue, revise, or finalize any regulation, revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code of 1986 (including the proposed regulations published at 78 Fed. Reg. 71535 (November 29, 2013)); and 
(2) the standard and definitions as in effect on January 1, 2010, which are used to make such determinations shall apply after the date of the enactment of this Act for purposes of determining status under section 501(c)(4) of such Code of organizations created on, before, or after such date.

Here are additional statutory provisions (from Lloyd Mayer):

  • Division E, Title II, Section 610(a)(2) prohibiting the Executive Office of the President from asking the Treasury or IRS for a determination with respect to a 501(c) tax-exempt organization.
  • Division O, Title V, Section 707 prohibiting the use of funds by the SEC to pursue disclosure of political spending.

And in Division Q, which contains most of the tax provisions (the descriptions are just the headers from the table of contents for the bill):

  • 402. IRS employees prohibited from using personal email accounts for official business.
  • 403. Release of information regarding the status of certain investigations. [Limited to investigations relating to unauthorized disclosure of information or other unauthorized acts and limiting the release to the person whose return or return information is at issue if they provided information relating to the disclosure or act.]
  • 404. Administrative appeal relating to adverse determinations of tax-exempt status of certain organizations.
  • 405. Organizations required to notify Secretary of intent to operate under 501(c)(4).
  • 406. Declaratory judgments for 501(c)(4) and other exempt organizations.
  • 407. Termination of employment of Internal Revenue Service employees for taking official actions for political purposes.
  • 408. Gift tax not to apply to contributions to certain exempt organizations. [Note that it does not cover the estate tax.]

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Gotta love this...."The ultimate harvest was the ginned-up IRS "scandal," "....really?

Posted by: Roux | Dec 17, 2015 9:36:59 AM

Congress is doing the IRS a favor by forcing it to avoid political judgment calls. Those judgments have been and will continue to be biased, due to human nature if for no other reason.

Posted by: AMTbuff | Dec 17, 2015 8:49:33 AM