Trouble at the IRS: What Were They Thinking?
May 16, 2013
(David Jacobs is director of foundation information management at the Foundation Center. In his last post for PhilanTopic, he blogged about an Open Data Master Class presented by the World Bank.)
Like many Americans, I was shocked to learn last week that the Internal Revenue Service had targeted conservative and Tea Party organizations applying for 501(c)(4) tax exempt status for additional review prior to last year's elections. And like many Americans, my shock turned to disgust this week as additional details -- including the alleged leaking of confidential donor information -- emerged, showing the scandal to be more serious than initially disclosed.
Regardless of whether you believe what happened in Cincinnati was an act of political malfeasance or just a case of monumental governmental ineptitude, the fact that it did happen should be sending shockwaves through the nonprofit sector. One of the bedrock principals of organized philanthropy and nonprofit advocacy in America is the idea that such activity should be tax advantaged, regardless of cause or political orientation, and that, when it comes to the nonprofit sector, the IRS should always operate in a fair and impartial manner. The thought that that might not be the case in every instance should bother and disturb all Americans.
Some apologists for the agency have tried to rationalize its actions by placing them in the context of the Citizens United decision:
The danger of this frame is that it will discourage the IRS from fully investigating all nonprofit groups spending money to influence elections. And it will distract from the core problem behind the IRS's mess: the post-Citizens United explosion of undisclosed electoral spending.
Before the Supreme Court's decision in Citizens United, only a limited number of nonprofit 501(c)(4) groups could spend money to influence elections -- those who did not take contributions from corporations or unions. But Citizens United lifted restrictions on corporate spending in elections, setting the stage for individuals and companies to funnel unlimited money through all corporations, including (c)(4)s and super PACs in an effort to help elect the candidates of their choice.
While no one questions the propriety of fairly vetting any organization applying for tax-exempt status, let's not get sidetracked and pretend that the issue here is beleaguered workers at the IRS who, in a presidential election year, found themselves swamped by new applications:
It's not like the IRS needs a way to flag the new groups that were created in the wake of the Citizens United decision. They have all the information they need to do that without any special filter. They can search for the date of the application. If what you're concerned about is that most of the new groups being created are in fact thinly disguised electioneering vehicles, then what you want to do is take a random sample of the new groups, review them, and see what percentage turn out to be self-dealing or otherwise engaged in inappropriate behavior.
Instead, the IRS method for dealing with the volume was to take an unrandom sample. And how did they decide that you deserved extra scrutiny? Because you had "tea party" or "patriot" in your name. Since the Tea Party was a brand-new movement in 2010, they couldn't possibly have had any data indicating that such groups were more likely to be doing something improper. So how exactly did they come up with this filter? There is no answer that does not ultimately resolve to "political bias."
One of the reasons I have chosen to devote myself to nonprofits and the nonprofit sector is because I see philanthropy and nonprofit advocacy to be quintessentially American activities. What could be more American, after all, than people gravitating to an issue or problem that concerns them and choosing to work to solve it by starting a nonprofit organization or making a donation to an organization that already exists for that purpose? Which is why I am deeply troubled by the thought that other people, including civil servants at one of the most powerful agencies in the federal government, value that freedom much less highly than I do.
While I realize the Tea Party isn't the most sympathetic or popular movement around, I hope that leaders of the nonprofit sector will speak out to condemn what happened in Cincinnati as strongly as they surely would if the IRS had decided to subject groups with words such as "progressive," "marriage equality," or "pro-choice reform" in their names to additional scrutiny.
What do you think? Were the actions of the IRS a case of political bias or just government ineptitude? And what shold the nonprofits and the sector do to let the Obama administration know that the agency's actions are unacceptable?
-- David Jacobs