Reflections on the IRS "Scandal"

Turns out the big IRS "scandal" was another one of those sound-bites that dominated the news despite the fact the media (along with our elected representatives) had failed to do their homework.

Here's a list of keywords the IRS actually used to identify applicants seeking tax-exempt status that might require extra scrutiny: Tea Party, patriots, progressive, occupy, medical marijuana, foreclosure assistance, Affordable Care Act, disputed territories in the Middle Easts, Israel, and open-source software. Notice how these words span the political spectrum from right - to left.

It is in fact the job of the IRS to determine whether an organization is truly eligible for tax-exempt status. According to IRS Code section 501(c)(4), "an organization must not be organized for profit and must be operated exclusively to promote social welfare. To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community."

Direct or indirect intervention or participation in political campaigns supporting or opposing a candidate for public office is explicitly defined as not promoting social welfare. A 501(c)(3) nonprofit is completely prohibited from political activity of this kind; a 501(c)(4) is allowed to do so provided this is not the organization's primary activity. Here's the rub: up until a few days ago, nothing in the IRS code has defined the word "primary."

One of the best results of this whole brouhaha is that the IRS has now announced a clearer and more streamlined application review process. Organizations can be awarded tax-exempt status within two weeks if they certify that political campaign intervention will involve 40% or less of their spending and time. I must admit I'm skeptical the IRS will actually be able to manage the proposed timeline. And I'm still waiting to see how the IRS plans to monitor political activity over time. But this is definitely a step in the right direction.

Here's my favorite quote from all the articles I have read about the controversy, from Los Angeles Times columnist Michael Hiltzik: "The biggest laugh line uttered in this affair is that the IRS is somehow 'harassing' these public-spirited organizations by asking them to justify their status. Here's a good rule of thumb: You don't want to get harassed by the IRS? Then don't claim a tax exemption you may not deserve."

Every one of these organizations - and the people involved with them - has a First Amendment right to freely support or oppose any political candidate of their choice. They just don't have a concomitant constitutional right to not pay taxes while doing so.