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Posted by on Sep 5, 2013 in Featured | 4 comments

The I.R.S. and “Social Welfare” Groups

The uproar over the supposed targeting of conservative “social welfare” groups by the I.R.S. that came to light earlier this year appears to have died down a bit. Congressional Republicans have found other areas on which to focus their wrath such as the budget and extending the debt ceiling. However, questions remain about how the I.R.S. handles the tax obligations of the “social welfare” groups. Basically, they’re allowing organizations engaged in political activity to call themselves “social welfare” groups to avoid paying taxes.

The problem really had its origins with the Citizens United decision by the Supreme Court in 2010 that allowed unlimited contributions to political campaigns by corporations and other groups which could often be cloaked in anonymity. So-called 501(c)(4) groups, which are considered social
welfare organizations by the I.R.S. for tax purposes, suddenly began to proliferate, many of these with Tea Party and conservative backing. These groups had political action arms that spent money to influence elections and on political lobbying.

Though some of these 501(c)(4) organizations were liberal in their orientation, the vast majority were conservative. Huge amounts of money were spent by these organizations supporting Republican House and Senate candidates, as well as governors and state legislators along with Mitt Romney in 2010 and 2012.

The I.R.S. code states specifically that 501(c)(4) groups must not be organized for profit and must be operated exclusively to promote social welfare. Does anyone really believe that these “non-profit” groups that spent hundreds of millions of dollars during the last two election cycles had been formed exclusively to promote social welfare? If so, I have a bridge I’d like to sell you.

Crossroads GPS, founded by that well-known Republican philanthropist Karl Rove, spent over $70 million on the 2012 election. Americans for Prosperity, a creation of the Koch brothers, funneled $36 million into the 2012 election. And there were numerous other groups doing their dirty work anonymously, the lists of their donors hidden from public scrutiny because they were supposedly “social welfare” organizations.

The social welfare role claimed by the organizations with a conservative bent include educating the public to the dangers of big government, the problems with the Affordable Care Act, the need for pension reform, the promotion of individual freedom, and constitutional protection. Liberal groups have focused on improving public education and generating middle-class jobs. The reason more conservative groups have been investigated by the I.R.S. is simply that there are more of them that claim 501(c)(4) status. And by using terms like Tea Party or conservative in its searches, the I.R.S. is more likely to find these groups when they investigate.

The Federal Election Commission has been deadlocked with three members from each party and has been unable to address the debacle of 501(c)(4) organizations which masquerade as social welfare groups while spending money to influence elections. And notwithstanding the supposed
targeting of Tea Party and conservative “social welfare” groups by the I.R.S., they have not pursued these groups aggressively enough for the taxes they should be paying. Undoubtedly, the brouhaha and Congressional scrutiny of the I.R.S. earlier this year has kept this government agency from doing its job in going after both conservative and liberal “social welfare” groups that are really political organizations.

However, recently, a coalition or reform organizations,along with Democratic Congressman Chris Van Hollen of Maryland, has sued the I.R.S. to pressure the agency to follow the tax code in the way it defines 501(c)(4) organizations. The I.R.S. has allowed groups that claim they operate “primarily” to promote social welfare instead of “exclusively” to have 501(c)(4) status with the anonymity and tax advantages that confers. Perhaps the suit and the courts will galvanize the I.R.S. to follow the tax code and act appropriately.

While the Citizens United ruling by the Supreme Court was an obscene decision that opened the floodgates for corporate entities and wealthy individuals to spend lavishly to support candidates with world views similar to theirs, there is no reason contributions to these groups should be hidden from the public eye. There is also no reason why these groups should be allowed to
call themselves social welfare organizations and reap the tax benefits accorded to 501(c)(4) organizations.

Resurrecting Democracy