What exactly makes a group tax-exempt?

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Muscling the right 
How the IRS wielded its ability to shock and awe. But why?
Chicago Tribune editorial, May 14, 2013

Internal Revenue Service targeting of conservative groups startles many Americans because such abuses are rare but consequential: When the House Judiciary Committee approved Articles of Impeachment on a momentous Saturday night in July 1974, one of the most devastating charges was that Richard M. Nixon, "personally and through his subordinates and agents," had exploited the supposedly sacrosanct IRS to target foes on his notorious Enemies List.

A four-day tide of news reports on IRS scrutiny of nonprofit groups with political agendas gets us closer to a first draft of history. Make that a first rough draft of history: An IRS inspector general's report on these practices isn't yet public — and that document isn't likely to resolve where the agency's motivations fell on the spectrum that stretches from bureaucratically clueless to criminally manipulative. For now, then:

How could this happen?

Like your doctor or your confessor, your federal tax collector amasses knowledge about you and, thus, the theoretical power to torment you. Unlike the first two, the tax collector by law is an enforcer, assuring that you're eligible for whatever tax breaks you claim. The IRS had assigned the crucial responsibility of assessing applications for tax-exempt status from so-called "social welfare" nonprofits across the country to an office in Cincinnati. This isn't some dinky regional outpost.

The Washington Post reports that the number of political groups seeking tax-exempt status more than doubled after the U.S. Supreme Court's Citizens United ruling of 2010. One byproduct of that case: Groups can register for tax-exempt status if their "primary purpose" doesn't revolve around electoral candidates. Those developments combined to force the IRS to evaluate more groups using vague standards.

In June 2011, IRS staffers briefed a senior agency official, Lois Lerner, on how they had been scrutinizing groups when "statements in the case file criticize how the country is being run," the Post reports. Lerner objected and the agency switched to more general standards. But in January 2012, the IRS decided it would scrutinize "political action type organizations involved in limiting/expanding Government, educating on the Constitution and Bill of Rights, social economic reform movement," a leaked portion of the IRS inspector general's report states.

Two months later, in March 2012, then-IRS Commissioner Douglas Shulman, a George W. Bush appointee, told Congress that his agency wasn't targeting conservative groups. Was Shulman up to speed on policies in Cincinnati? That's TBD. But in May 2012 the IRS changed its criteria, isolating "organizations with indicators of significant amounts of political campaign intervention (raising questions as to exempt purpose and/or excess private benefit)."

Citing an unnamed congressional aide, the Post says that of 298 groups that received special scrutiny, 72 had "tea party" in their titles, and 13 had "patriot."

How bad is it?

On its face, terrible. Potentially lawless or corrupt. But before we pass final judgment, tell us much more. Specifically:

By what act of stupidity or criminal intent did a 2011 policy likely to skew against conservative groups claw back to life as a 2012 policy likely to have the same effect? Did no one at the IRS say in January 2012: Our enforcement routines always make our policies transparent to groups we examine. Accountants and lawyers watch our every move. And when they see us knocking on the same doors as in 2011, we'll look like stooges for the White House. In a presidential election year!

Yes, tax-exempt status essentially gives charities, churches and nonprofits a valuable subsidy from federal taxpayers. Those beneficiaries deserve hard scrutiny. IRS enforcement, though, should be consistent, evenhanded — and should have no political agenda, appearance or impact.

The probability that a majority of new groups have formed on the right is no excuse for policies that will disproportionately inconvenience groups ... on the right. Forgive conservative organizations besieged by government agents for wondering whether President Barack Obama, "personally and through his subordinates and agents," wanted IRS hasslers to make them stop spending millions to defeat him. We've seen nothing that would confirm such suspicions.

We do expect, and all of us deserve, to learn who, exactly, ordered what, exactly. Then comes what judges in murder trials call the penalty phase of the proceedings.

How do we fix this?

Going forward, Congress or perhaps the courts need to clarify which attributes entitle a group to tax-exempt status. It appears that none of the groups scrutinized here lost their exemptions. Maybe that, too, should trouble us. Consider:

The question isn't whether many of these 501(c)(4) groups on the right and the left have influencing electoral politics as their "primary purpose" and thus are ineligible for tax-exempt status. The question is whether they have any other purpose than influencing electoral politics.

Be it resolved, then, that this area of tax law is a muddle. That for now it's unclear whether, in the future, the IRS ought to be more lenient in targeting political groups, or more strict.

And that we cannot learn too soon how an agency with such authority to shock and awe put so much scrutiny on one end of America's political continuum.
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