I gave this article an attractive title to keep you interested because it's about to get really wonky in here. By now you have heard that the IRS and the Obama Administration are getting an understandable amount of flak over the IRS singling out organizations seeking tax-exempt status using ideological criteria to flag applicants. Use of words like "tea party" or "patriot" would bring IRS agents to your door, requesting all sorts of information about your organization. Very scary!
Unless you understand what has happened to the 501(c)(4) status in recent years. This is a category designed to provide a tax-free status to "social welfare" organizations that serve a common good and are not engaged in politics. A bureaucratic decision was made forty years ago to soften the language to primarily not engaged in politics. This means that the occasional lobbying effort or political action wouldn't automatically get your-tax exempt status revoked.
This appeared to be reasonable, it seems, until suddenly there was an explosion of (c)(4) applications (I couldn't help myself) in the years following an ill-fated Supreme Court decision That Shall Not Be Named.
Imagine you're an IRS agent working in office 501C, and suddenly you receive over twice the amount of applications (up to 3,400 from 1,500) than you had in the years before. And imagine most of them appear to be right-wing political action groups who have singled out the (c)(4) status because of the juicy features the filing offers. Features like unlimited donations, nondisclosure of donors, and of course tax exemption. Remember you're supposed to make sure they aren't primarily engaged in politics, which obviously almost all of them are.
I don't know about you but I think I would target the conservative political action groups as possible abusers of this filing status.
And then bureaucracy collided with politics! Suddenly you have what appears to be a scandal of a liberal president's government giving extra tax scrutiny to his political opponents! How dreadful!
Never mind that these conservative PACs actually WERE abusing the tax code.
The mistake the IRS made was in permitting most of these groups to get their (c)(4) status. They asked intrusive questions, they held up applications, but in the end most of them were allowed to go forward, including the blatantly political Crossroads GPS, run by Karl Rove.
Now, there are two things that can happen. Either the 501(c)(4) rules are rewritten, or written more clearly, so that the term primarily actually has some backbone and the IRS can deny these PACs tax-exemption...
OR, more likely, the IRS will scrutinize 501(c)(4) applicants less. They'll rubber-stamp every application, and our political campaigns will be flooded with even more untraceable, untaxed money as a direct result of...
...wait for it...
Citizen's United.
shudder
