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IRS Flap


Fri, May 31st, 2013
Posted in All Commentary

It is a given that the Internal Revenue Service has to treat groups seeking tax exempt status fairly and uniformly. It is clearly unacceptable to give more scrutiny to certain applicants. The process should be just as rigorous for all applicants. However, the more important issue is whether most of these groups regardless of their political philosophies are applying for the wrong tax exempt status.

Section 501(c)(4) tax exempt status was meant for groups promoting social welfare and providing a service to the public, non-profits. They are allowed to lobby and participate in political campaigns, but must be “primarily engaged promoting in some way the common good and welfare of the community.” Many groups applying for this status are trying to slip under the radar as their formation has been rooted in purely political motivations, and with this status they don’t have to disclose their donors. Groups are often formed specifically to influence a particular election.

Well known groups enjoying this status include the Sierra Club, which is involved in environmental protection and research, the National Rifle Association, which promotes safe gun use and education, and the AARP, which supports seniors and provides education and services for them. These groups certainly have a political arm, but they were not formed specifically for political motives.

Much of the problem is that the law is blurry. Issue advocacy is permitted by the (c)(4) designation, but isn’t issue advocacy or lobbying by its political nature especially during a campaign? Given the most generous reading of the (c)(4) designation, the government is simply subsidizing lobbying efforts.

Many organizations applying for the tax exempt status in their view are working toward a better community. “In their view” is important, as groups organize for the most part to influence or even manipulate more people to view values through the lens they provide. They use targeted education to increase the numbers that adhere to the values the group wishes to promote. Educational information is provided, but with a political bias. The politics of a group or individual is defined in the Oxford dictionary as “a particular set of ideas, principles, or commitments.”

Charitable groups are tax exempt under Section 501(c)(3). Well known groups with this status include the Red Cross and the United Way. With them there is very limited political activity.

Section 527 of the IRS code allows for political tax exempt status for organizations that intend to influence the outcome of elections. There are no restrictions on who contributes or on how much is contributed. However, these groups ‘must disclose their donors’ to the public. Their work includes issue advocacy and working to get their voters out. This is the appropriate classification for most of the groups with political motivations applying for tax exempt status.

Section 527 is most likely the most appropriate place for many of the groups that have applied for Section 501(c)(4) status. The big advantage for groups with (c)(4) designation is the fact that they don’t have to disclose their donors. For transparency in elections, it is important for donors to be disclosed.

The (c)(4) status should be redefined, strictly clarified to narrow the pool of applicants that could qualify. When rules are vague, it leaves it open for widely varied interpretations of those rules. Most groups that have a political arm should be qualified for tax exempt status under Section 527.

The number of quasi-political groups seeking tax exempt status on (c)(4) has ballooned since the U.S. Supreme Court decision in 2010, “Citizens United.” This decision gave the ability for corporations and unions to spend unlimited amounts on political elections. Essentially, the decision likened money to speech regardless of the source, which is protected under the First Amendment. A second U.S. Court of Appeals case also in 2010, Speechnow.org v. Federal Election Commission, made limits on annual contributions from individuals to groups unconstitutional. Citizens United is among the most flawed decisions passed down by the Supreme Court in my opinion.

Both of these decisions have opened the flood gates letting money flow into politics. Political money imposes influence on political decisions. The courts didn’t see money as a corrupting influence; I can’t agree. Politicians certainly know who butters their bread. Obviously, those individuals or organizations with the money have a much greater influence on elected officials than the ordinary citizen. Big money causes politicians to put the people they represent last, as they are loathe to cut off the money source. It is a virus infecting the political process.

Groups that are trying to influence politics should be required to disclose their donors. Transparency makes it more possible to measure the credibility of the political literature or advertising, providing some clarity. The more secret the source of money in politics, the more suspect the motives.

The ongoing investigations of the IRS for scrutinizing some conservative groups applying for tax exempt status more than other groups should be thorough. Let’s hope the result is a cleaner, black and white law and clearer IRS policy and not just a lot of politicians grand standing for the television cameras.

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