Political abuse of charity status rife in US

Richard Nixon made no bones about it. He told the Internal Revenue Service (IRS) to look into thousands of political opponents and even had it establish a special unit for the purpose, the Special Services Staff, to investigate liberal and left-wing groups and individuals as diverse as the mildly Democratic Ford Foundation, the National Association for the Advancement of Coloured People, his rival George McGovern, and even journalists who wrote critical stories.

It was the most egregious of presidential abuses of the tax system, but by no means unique. Dwight Eisenhower's FBI had the IRS target communists; John F Kennedy had it probe conservative charities; in the Ronald Reagan years, left-wing publications warranted special attention; and under Bill Clinton alleged political targeting led one IRS official reportedly to tell one subject "what do you expect when you sue the president?"

This week, to President Barack Obama’s embarrassment, it appeared the IRS was at its old tricks in what appears to have been a solo run against conservative “charities”, specifically groups with “Tea Party” and “patriot” in their title. To date there is no evidence that the White House was involved; rather it is being blamed on rogue officials in the Cincinnati IRS office.

This partisanship is correctly being described as scandalous, but the righteous indignation pouring down on the hamfisted IRS should really also be focused on an underlying scandal that is, if anything, worse – the cavalier breach by “charities” of political funding rules with complete impunity.

Following the 2010 supreme court decision in Citizens United , which tore up controls on political campaign financing, new forms of notionally independent political committees have sprung up in their thousands to funnel corporate and personal cash to support/oppose candidates. The largest are the so-called super-Pacs whose purpose is explicitly political and whose subscribers are all listed.

Notional charities
But another class of groups, notionally charities concerned "exclusively" with promoting social welfare, and tax-exempt under section 501 (c) (4) of the tax code, have been running a coach and horses through the rules by engaging in widespread political campaigning – they admitted collectively to the Federal Elections Commission (FEC) to having spent some $250 million (compared with the super-Pacs' $600 million) on political campaigning in the 2012 election cycle.

They do so with state-subsidised tax breaks, protection of donor anonymity and apparently minimal supervision by the IRS. Between 2001 and 2011, the IRS recognised more than 14,000 501(c)(4)s, only turning down 56 applications.

In 2006, groups that didn’t report their donors made up less than 2 per cent of outside electoral spending, research by the Centre for Responsive Politics shows. By 2010, that grew to more than 40 per cent. The thin legal fig leaf behind which they shelter is an acceptance that their function is “primarily” promotion of social welfare. But the reality is that – as many admit to the FEC while denying it to the IRS – their purpose is supporting candidates.

In a detailed study of practices in the sector last year, the investigative site ProPublica found countless cases of 501 (c) (4)s reporting “no” political activity to the IRS while registering huge campaign spends with the FEC. The Centre for Individual Freedom told election officials that it spent $2.5 million on ads attacking Democrats in 2010. But it reported to the IRS that it spent nothing to directly or indirectly to influence elections, calling those same ads “education” or “legislative activities”.

Economy Forward spent $173,470 on ads in March 2010 praising Senate majority leader Harry Reid, the Nevada Democrat, according to a transcript of the ad. That’s almost 99 per cent of the total the group told the IRS it spent .

ProPublica compared applications from 72 501(c)(4)s with tax returns they filed later. It found 32 groups that initially said “no” to politics then filed tax returns showing the opposite.

Such blatant flouting of the rules has largely been led by conservative groups, many of them, it has to be said, with Tea Party and/or Patriot in their titles – one estimate puts the liberal Democratic spend on television ads on the 2012 presidentials by 501(c)(4)s at $1.6 million, while the two leading conservative 501(c)(4)s, Crossroads GPS and Americans for Prosperity , had spent about $60 million.

When the IRS attempted last year to force some of the larger “social welfare” donors to pay gift tax on their donations to groups heavily involved in politics it was met by a barrage of criticism. The IRS backed off. Its renewed clumsy attempt to police a systematic and widespread abuse of charitable status has again bitten the dust because it opened itself up to charges of partisanship. But this is the US. They play by big money rules.

psmyth@irishtimes.com