Taking on the IRS — for the right reason

Taking on the IRS -- for the right reason

A tip of the hat to Rep. Chris Van Hollen, D-MD, who along with some of Common Cause’s allies in the campaign finance reform community is making a valiant effort to re-focus and maybe re-energize the continuing debate over the tax status of politically-active non-profit groups.

Van Hollen, the Campaign Legal Center, Democracy 21, and Public Citizen sued the Internal Revenue Service this week, asking a federal court in Washington to order strict enforcement of a law that allows the IRS to confer tax-exempt status on “social welfare” organizations.

Since the Supreme Court’s 2010 decision in Citizens United, hundreds of politically-minded groups from across the ideological spectrum have asked the IRS for the social welfare tag. The classification under Section 501(c)(4) of the Internal Revenue Code allows the groups to conceal the identity of their donors.

Van Hollen and his co-plaintiffs argue that section (c)(4) specifies that covered groups must focus “exclusively” on social welfare. But the tax agency has adopted rules that permit the groups to spend money influencing elections, just so at least half of their budgets are devoted to “social welfare;” hundreds of (c)(4)s took advantage of that as they pumped more than $300 million from anonymous donors into the 2012 election.

Van Hollen told reporters the IRS can’t legally justify granting these groups the right to electioneer and hide donors. “What do you want us to do, put an exclamation point after exclusively?” he asked.

Since May, when news broke that the IRS has given special scrutiny to Tea Party groups seeking (c)(4) status, conservatives in Congress have been up in arms against the agency. The furor has ebbed a bit in recent weeks with revelations that the IRS also has taken an extra hard look at applications from some progressive groups.

Van Hollen’s suit stands for the proposition that EVERY (c)(4) application should get a close look from the IRS and that applications coming from groups focused on something other than social welfare — however slightly — should be rejected. Groups that want to spend money influencing elections may still qualify as tax exempt under other parts of the Internal Revenue Code, but they must disclose their donors.

In deciding Citizens United, the Supreme Court declared that disclosure laws should serve as the public’s defense against efforts by big political donors to gain special favors in return for their contributions. Social welfare tax status has emerged as the largest loophole in those disclosure laws; the Van Hollen suit might just close it.



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