By ProPublica

Six Facts Lost In The IRS Scandal

May 22, 2013 3:35 pm Category: Memo Pad, Politics 14 Comments A+ / A-
Six Facts Lost In The IRS Scandal

by Kim Barker and Justin Elliott, ProPublica

In the furious fallout from the revelation that the IRS flagged applications from conservative non-profits for extra review because of their political activity, some points about the big picture — and big donors — have fallen through the cracks.

Consider this our Top 6 list of need-to-know facts on social welfare non-profits, also known as “dark money” groups because they don’t have to disclose their donors. The groups poured more than $256 million into the 2012 federal elections.

1. Social welfare non-profits are supposed to have social welfare, and not politics, as their “primary” purpose.

A century ago, Congress created a tax exemption for social welfare non-profits. The statute defining the groups says they are supposed to be “operated exclusively for the promotion of social welfare.” But in 1959, the regulators interpreted the “exclusively” part of the statute to mean groups had to be “primarily” engaged in enhancing social welfare. This later opened the door to political spending.

So what does “primarily” mean?  It’s not clear. The IRS has said it uses a “facts and circumstances” test to say whether a group mostly works to benefit the community or not. In short: If a group walks and talks like a social welfare non-profit, then it’s a social welfare non-profit.

This deliberate vagueness has led some groups to say that “primarily” simply means they must spend 51 percent of their money on a social welfare idea — say, on something as vague as “education,” which could also include issue ads criticizing certain politicians. And then, the reasoning goes, a group can spend as much as 49 percent of its expenditures on ads directly advocating the election or defeat of a candidate for office.

Nowhere in tax regulations or rulings does it mention 49 percent, though. Some non-profit lawyers have argued that the IRS should set hard limits for social welfare non-profits — setting out, for instance, that they cannot spend more than 20 percent of their money on election ads or even limiting spending to a fixed amount, like no more than $250,000.

So far, the IRS has avoided clarifying any limits.

2. Donors to social welfare non-profits are anonymous for a reason.

Unlike donors who give directly to politicians or even to Super PACs, donors who give to social welfare non-profits can stay secret. In large part, this is because of an attempt by Alabama to force the NAACP, then a social welfare non-profit, to disclose its donors in the 1950s. In 1958, the Supreme Court sided with the NAACP, saying that public identification of its members put them at risk of reprisal and threats.

The ACLU, which is itself a social welfare non-profit, has long made similar arguments. So has Karl Rove, the GOP strategist and brains behind Crossroads GPS, which has spent more money on elections than any other social welfare non-profit. In early April 2012, Rove invoked the NAACP in defending his organization against attempts to reveal donors.

The Federal Election Commission could in theory push for some disclosure from social welfare non-profits — for their election ads, at least. But the FEC has been paralyzed by a 3-3 partisan split, and its interpretations of older court decisions have given non-profits wiggle room to avoid saying who donated money, as long as a donation wasn’t specifically made for a political ad.

New rulings indicate that higher courts, including the Supreme Court, favor disclosure for political ads, and states are also stepping into the fray. During the 2012 elections, courts in two states — Montana and Idaho — ruled that two non-profits engaged in state campaigns needed to disclose donors.

But sometimes, when non-profits funnel donations, the answers raise more questions. It’s the Russian nesting doll phenomenon. Last election, for instance, California’s election agency pushed for an Arizona social welfare non-profit to disclose donors for $11 million spent on two California ballot initiatives. The answer? Another social welfare non-profit, which in turn got the money from a trade association, which also doesn’t have to reveal its donors.

3. The Supreme Court’s Citizens United decision meant that corporations could pay for political ads, anonymously, using social welfare non-profits.

In January 2010, the Supreme Court ruled that corporations and unions could spend money directly on election ads. A later court decision made possible SuperPACs, the political committees that can raise and spend unlimited amounts of money from donors, as long as they don’t coordinate with candidates and as long as they report their donors and spending.

Initially, campaign finance watchdogs believed corporations would give directly to SuperPACs. And in some cases, that happened. But not as much as anyone thought, and maybe for a reason: Disclosure isn’t necessarily good for business. Target famously faced a consumer and shareholder backlash after it gave money in 2010 to a group backing a Minnesota candidate who opposed gay rights.

Many watchdogs now believe that large public corporations are giving money to support candidates through social welfare non-profits and trade associations, partly to avoid disclosure. Although the tax-exempt groups were allowed to spend money on election ads before Citizens United, their spending skyrocketed in 2010 and again in 2012.

A New York Times article based on rare cases in which donors have been disclosed, sometimes accidentally, explored the issue of corporations giving to these groups last year. Insurance giant Aetna, for example, accidentally revealed it gave $3 million in 2011 to the American Action Network, a social welfare group founded by former Sen. Norm Coleman, a Republican, that runs election ads.

Groups that favor more disclosure have so far failed to force action by the FEC, the IRS, or Congress, although some corporations have voluntarily reported their political spending. Advocates have now turned to the Securities and Exchange Commission, which is studying a proposal to require public companies to disclose political contributions.

The idea is already facing strong opposition from House Republicans.

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Six Facts Lost In The IRS Scandal Reviewed by on . by Kim Barker and Justin Elliott, ProPublica In the furious fallout from the revelation that the IRS flagged applications from conservative non-profits for extr by Kim Barker and Justin Elliott, ProPublica In the furious fallout from the revelation that the IRS flagged applications from conservative non-profits for extr Rating:

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Comments

  • Sand_Cat

    No political organization should be considered in any way concerned with “Social Welfare” for the purpose of tax exemption or hiding donors; our corrupt political system has created a bewildering array of tax dodges and secret societies on the public payroll, now culminating in Citizens United…

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    The worst part of the so-called “scandals” is not the fact that it has dominated the news and diverted our attention from the policies that ought to be our top priority to strengthen our economy, create more jobs, improve our standard of living, our national competitiveness and national security; the worst part is that people who lied when they filed their applications for tax exempt status are likely to get away with perjury and continue to enjoy something they do not deserve or need.

    • lana ward

      I knew Romney won the election. Sambo and the IRS stole it. They are finding other companies targeted conservatives too!!! I knew there were more Patriots in America than America haters. Hopefully all of the scum will be removed!!

      • JSquercia

        . Yea Romney won Ohio after telling the Auto workers that HE would NOT have bailed out the Auto Industry . Of course all of us paying more than 14% on our top bracket probably wouldn’t vote for a billionaire who paid less than 14% and hid money offshore .Remember he didn’t release the details of his 2011 return but had his accountant tell us that he did NOT claim all the Charitable deductions ROMNEY was entitled so Mitt could pay a rate less than 14% . I bet that Mitt had already submitted a revised return claiming the “lost” charitable Deductions . I think he lost the election when that video about the 47% came out .

        Where the hell do you get your information from ? The IRS has nothing to do with elections . Incidentally NONE of the Tea Party requests were denied tax Exempt Status . I do know that a progressive group from Maine was DENIED Tax Exempt status .

        • lana ward

          The IRS had everything to do with the election. Sambo and the IRS stole the election. EVERY Tea Party was denied or are still waiting after 3 years. Where the hell do you get your information?

  • disqus_ivSI3ByGmh

    Currently the strictest interpretation of the law regarding 501(c)(4) organizations allows them to spend up to 49.999% of their funds on political items, including advertisements, fliers, direct and indirect sponsorship, etc. This should be changed by Congress to allow NO MORE than 10% of their funds be spent on those functions.

  • charleo1

    As bad as all this is, we should take into consideration, a lot of what flowed
    from the Citizens United verdict, is a relatively new weapon in the corporation’s
    political tool box. And political operatives like Karl Rove, will, no doubt learn
    as they go along. And find ever more effective ways to use this decidedly Right
    Wing, advantage. We know, heavy hitters like Rove’s Crossroads, and Cross-
    roads, GPS, coordinated with Americans for Prosperity, and Norquitst’s Citizens
    for Tax Reform, and others. So they didn’t waste resources covering the same ground. But they would be remiss, if they were to omit the multiplier effect that
    could be achieved by uniting these various groups in a coalition of solidarity.
    The message being, you cross one of us, on an issue of say, gun control, and
    you face all of us, in your next election. Some of these groups score a
    politician’s overall adherence to, “Conservative principals.” But, what they
    describe as Conservative principals, are, in truth, no more than making sure,
    the agenda of big business, and special interests, are not defeated by legislation that serves the best interests, of the majority. Because, to an extent, probably
    heretofore unmatched in our Country’s history. Have the two ever been at
    more opposite ends of the political spectrum. And, never before has the
    spending been more out of control, in influencing, or heck, just, out, and out,
    controlling public policy. And there is no doubt, in the direct relationship, of
    one to the other.

  • 4sanity4all

    Conservatives are doing their usual “we know we are the biggest offenders here, but if we scream about the opposition long and loud enough, they will want this thing to go away, so they will not investigate OUR wrongdoing!”

  • http://www.facebook.com/silence.dogood.9212 Silence Dogood

    How about this for a scandal The Senate will finally confront one of the architects of the subprime mortgage crisis today, hauling a tax-dodging, union-busting, bank-breaking, billionaire member of the “one percent” before the Senate Commerce Committee… to consider her confirmation as Secretary of Commerce in President Barack Obama’s Cabinet.

    In the same week that the Senate grilled the CEO of Apple, Inc. about the low taxes it pays due to maintaining large cash deposits overseas, the Senate will roll out a warm welcome to Chicago heiress Penny Pritzker, who runs what Forbes called “one of the grandest and most successful family tax-avoidance schemes ever.”

    • http://www.facebook.com/silence.dogood.9212 Silence Dogood

      Well…………..?

      • http://www.facebook.com/silence.dogood.9212 Silence Dogood

        Crickets.

  • http://www.facebook.com/alan.pursersr Alan Purser Sr

    Chicago politics obamas crooked

  • disqus_59KZkHgegx

    Lois Lerner pleaded the Fifth.
    Barack Obama swears there is “not a smidgen of corruption” in the IRS.
    How stupid does Dear Leader believe us to be?

  • Grayman

    My issue with the whole affair isn’t whether or not the IRS was right or wrong in questioning some applicants, but rather that it only questioned applicants of one of the two parties while cheerfully granting tax free status to applicants of the other party. Frankly I don’t like either party but when it comes to bureaucratic overseers I expect them to be neutral, and in this case they clearly weren’t. I’d feel exactly the same way if the situation was reversed. Further, in addition to being singled out for being in a single party we hear the applicants were visited by the FBI, the ATF (???) and other government entities. If the IRS wants to decline applications based on the points in this article that’s fine with me, as long as they do it fairly, evenly and across the board.

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