The Sins of Cincinnati: The Real 501(c)(4) Problem

In last Sunday’s Leesburg Daily Commercial, Republican propagandist Russ Sloan could not resist the temptation to score some more partisan points at the expense of the IRS. Taking umbrage at a recent Scripps Howard editorial that sought to dismiss the IRS “scandal” as “much ado about not much,” Sloan contended that all Americans should be incensed at the Administration’s abuse of power and the consequent “chilling effect on our freedom of speech.” Finding the Scripps Howard stance “utterly without merit,” Sloan concluded that their attitude might be “a tad different” had they been subjected to the level of unfair harassment allegedly leveled at conservative groups applying for 501(c)(4) status. Sloan has, of course, distorted the Scripps Howard editorial; more importantly, he is deliberately diverting our attention away from the real scandal – the tragic American decision to allocate free-speech rights in accordance with the depth of the speaker’s pocketbook.

The Sins of Cincinnati

The Scripps Howard editorial at issue was penned by Dale McFeatters. With its typical editorial sloppiness, the Daily Commercial omitted the author’s name from the column, and Russ Sloan hasn’t bothered to do a quick Google search (or call the folks who sign his checks) in order to make the necessary distinction between a particular author and an entire news service. (With authors ranging from Jay Ambrose to Reg Henry, Scripps Howard encompasses a fairly wide range of viewpoints, albeit firmly within certain unquestionable American parameters.) McFeatters plays on the blue team, which from our point of view simply means that he prefers the American people to be screwed over – and non-American people to be murdered – by politicians who go the extra mile in hiding the true consequences of their actions. In the course of defending the Obama Administration, McFeatters throws a couple of clumps of donkey poop at the elephants, some of which sticks, but, interestingly, he skirts the real issue just as effectively as Russ Sloan.

Sloan attempts to mock Scripps Howard by reminding them that this is 2013, not 1995, the year in which Congress found no evidence of IRS malfeasance in a similar witch hunt, er, investigation. But the point McFeatters was making is that we’ve been down this road before. After the Republican Party took control of the House in the 1994 mid-terms, it promised a top-to-bottom investigation of the IRS; two-and-a-half years later, only minor missteps were found. The picture that seems to be emerging now is not inconsistent with McFeatters’ expectations. Far from being a deliberate campaign by Obama operatives to affect the outcome of the presidential election (as in Sloan’s other favorite story, the Benghazi “cover-up”), the delay in approving certain groups’ applications looks much more like an organizational snafu strictly within the IRS itself.

IRS CincinnatiAs anyone who has ever dealt with the IRS can attest, many times the right hand doesn’t know what the left hand is doing. In this case, the revenue agents in the Cincinnati processing center who were handling the 501(c)(4) applications were overwhelmed and sought legal guidance from D.C.; the lawyers in D.C. constantly needed to revise the shortcuts that Cincinnati came up with to help them cut through the mountains of paperwork. And, consistent with McFeatters’ point that the IRS is more a creature of Congress than of the White House, it is important to note that the mountains of paperwork were unusually large because Congress had changed the rules for all tax-exempt organizations, driving hundreds of thousands of groups to either reapply or submit requests for clarifications. The Tea Party groups were by no means the only ones caught up in this bureaucratic logjam: a liberal group called Progress Texas, for example, received a follow-up questionnaire similar to the one sent to Tea Party groups, and its application process consumed 479 days. For some reason, Russ Sloan – who claims that “[a]s a conservative, [he] would be equally incensed if the IRS had been targeting liberal groups” – fails to cite examples like Progress Texas, or acknowledge that the Commissioner of the IRS during much of the time in question was a Bush appointee – Doug Shulman.

Which Constitution is “Ours”? The Myth of Political Neutrality

Sloan’s next beef with the unacknowledged McFeatters takes us closer to the heart of the matter. McFeatters cited a report in Politico that recounted the explicitly political activities of some of the Tea Party groups in question. (The full article may be found here and is well worth reading; it strengthens McFeatters’ case considerably.) Sloan’s response, which takes him far out onto thin ice, is that these groups are allowed to engage “in partisan politics but those efforts cannot be the majority of their mission.” Determining how much political involvement is too much is precisely what caused the examiners in Cincinnati to overload their mental and procedural circuits: it is not an easy question at all. The example given by Sloan of an apolitical, social-welfare activity provides a wonderful case in point:

One group which [sic.] was targeted and testified before the House existed to “teach our Constitution.” God forbid – teaching about our Constitution?

Now, it could be that Russ Sloan really does believe that these groups were teaching the Constitution in a neutral manner. But to credit him with such a touchingly naive faith in the motives and abilities of organizations that have gone to a lot of trouble to fulfill their mission, one must ascribe to him a level of ignorance – or a level of cynicism towards his readers – that is most unbecoming. And it is worth spending quite a bit of time thinking about this example, for as Bill Lorson put it in a letter to the editor, the proposition that tea party groups are neutral beggars belief:

Now let me get this straight. The IRS “scandal” rocking Washington was caused by IRS agents requesting additional justification from tea party groups to qualify them for tax-free status as “social welfare” organizations?

You’re pulling my leg, right? Can’t imagine there is enough justification for that anywhere. I’ve never heard of a single tea party “social welfare” activity, but lots of political activities. I’ve received frequent invitations to tea party political activities and I’m a Democrat!

So how are tea party groups “teaching” the Constitution? It’s a fairly safe assumption that they are not criticizing the Constitution as an innately anti-democratic document that killed the spirit of ’76 in order to protect the property rights of a moneyed elite. On the contrary, the tea party credo stresses originalism, that cherished buzzword of conservatives and the antithesis of evolving constitutionalism. Although there are divisions within the originalist camp itself (Justice Scalia, for example, follows a doctrine of original meaning, which focuses more on linguistics than on attempts to read the minds of dead framers), originalists tend to oppose such “liberal” causes as abortion rights, gun control, race and gender equality, and expansive readings of the powers of the federal government.

More specifically, tea party groups have expressed open hostility toward several parts of the Constitution that most of us would consider to be inviolable parts of “our” document. The 14th Amendment’s Citizenship Clause is despised by racists who want to slam the door on today’s undesired immigrant groups (there have been many over the years), forgetting that many of the men who wrote the Constitution (Hamilton and Wilson, for example) were themselves immigrants. Form 1040The 16th Amendment, authorizing the collection of an income tax, is hated by groups advancing the hideously misnamed Fair Tax (which would replace the income tax with a national sales tax and transfer a huge amount of additional wealth to the plutocracy). And the 17th Amendment, providing for the direct, popular election of U.S. Senators, has been targeted by those who wish to turn the clock back to the corrupt Gilded Age, in which state legislatures did the bidding of their owners. (Yes, that’s much like our current system, but worse.) The tea party justifies these positions on the grounds that the Constitution provided for its own amendment. But if we’re teaching “our” Constitution, we’d better not be giving these desired changes more than a passing mention.

Constitutional law is normally taught by reading Supreme Court decisions, following the evolution of the law over time. (Yes, the law really does evolve!) The potential to place a political slant on this process is enormous. In McCulloch v. Maryland (1819), did the Court err in reading the Necessary and Proper Clause more expansively than the state contended? In the long line of Commerce Clause cases from Gibbons v. Ogden (1824) through to the Constitutional Revolution of the New Deal, did the Court allow the federal government too much power to regulate business? And what, dare we ask, are we to make of the entire body of work produced by the Warren Court? The probability of a tea party group discussing any of this in a neutral manner is fairly close to zero.

I’ll See Your 501(c) and Raise You a Million Dollars

To understand the real problem with 501(c)(4)’s, we need to ask why these groups are even applying for this status in the first place. This isn’t really about taxes at all; it’s about disclosure. As Alan Morrison of George Washington University Law School has explained, most of these groups have very little tax liability however they are organized, since their income consists largely of non-taxable gifts and they would have plenty of deductible expenses to offset any income that is considered taxable. So if they’re not trying to reduce their tax burden, why are they applying for 501(c)(4) status? Because the alternative status, known as a 527 and applying to political parties and political action committees (PACs), requires organizations to disclose the identity of all donors who give more than $200. 501(c)(4)’s are not subject to that disclosure requirement:

Section 501(c)(4) requires that the organization be “operated exclusively for the promotion of social welfare,” which does not include endorsing or opposing candidates for elected office. The IRS has a regulation that interprets “operate exclusively” to mean “operate primarily” for those purposes. As a result, a group could spend almost half of its money on political activities and still qualify for (c)(4) status — and not disclose the names of its major donors, even if all the money that they gave was earmarked for electoral purposes.

Morrison sees two possible solutions to the 501(c)(4) problem. The IRS could apply the strict rule of no involvement in electoral politics that applies to 501(c)(3)’s – tax-exempt organizations whose donors enjoy the benefit of deducting their contributions. Morrison believes that would still embroil the IRS in tricky line-drawing exercises, and notes that social-welfare organizations that wanted to do a little politics would be barred from doing so. (We find it quite telling that tea party groups claiming to be social-welfare organizations did not choose the (c)(3) option to begin with. Clearly, they wanted to engage in political activity that would break (c)(3) rules.) Alternatively, Congress could require disclosure of all donors contributing over $200 to a fund earmarked by the group for electoral activities. Such a reform has, in fact, been debated in Congress but has been stifled by Republican opposition.

Nonprofit Quarterly states the matter in less-technical terms:

We tend to agree with New York State attorney general Eric Schneiderman, who believes that the solution requires dealing with the Supreme Court’s Citizens United decision on election campaign financing. “It seems to be that the only reason in the post-Citizens United world to use a 501(c)(4) instead of a super PAC—which enables you to spend all the money you want in support of or opposition to a candidates—is to conceal your identity.” It may come down to how much transparency the nonprofit sector is willing to accept around its own 501(c)(4) donor lists. Rep. Richard Neal, a Democrat from Massachusetts, said that the lack of transparency in (c)(4)s’ financing statements is the real issue, and much bigger than the IRS scandal.

White House For SaleCitizens United v. FEC (2010), which equated political campaign spending with free speech (and, when undertaken by groups, with free association), gave corporations a new, limitless right to pour money into politics. As Economy in Crisis reported, much of that money flowed into 501(c)(4)’s, giving corporate executives the ability to “privately endorse a political advocate that has their interests in mind – without ever having to answer to shareholders or the public for their affiliation.” The Sunlight Foundation reports that in 2012, “dark money” expenditures amounted to $300 million, of which the 15 largest sources were 501(c)(4)’s. Not all of these groups were conservative, but Sunlight’s exhaustive research makes it clear that conservative groups, including the notorious Crossroads GPS, were the biggest hitters.

In a sense, then, Russ Sloan was correct to state that the IRS “scandal” involves grave threats to Americans’ rights of free speech. But Sloan has not understood – or does not want his readers to understand – that the real nature of that threat is not that certain groups are being silenced; it is that certain groups, and the wealthy individuals who finance them, have been given an unfair opportunity to speak louder than everyone else while remaining in the dark. The sins of Cincinnati pale in comparison to the sins of the Supreme Court and the Congress that allow this travesty of republican principles to live on.

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