IRS sizes up political groups' tax-exempt status

WASHINGTON Mon Jul 23, 2012 4:45pm EDT

The National Debt Clock, which displays the current United States gross national debt and each American family's share, hangs on a wall next to an office for the Internal Revenue Service near Times Square in New York May 16, 2011. REUTERS/Chip East

The National Debt Clock, which displays the current United States gross national debt and each American family's share, hangs on a wall next to an office for the Internal Revenue Service near Times Square in New York May 16, 2011.

Credit: Reuters/Chip East

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WASHINGTON (Reuters) - The Internal Revenue Service may be weighing changes to how it polices tax-exempt political groups amid charges the tax agency has been lax on enforcement for a new breed of campaign funding organizations with vast resources.

Tax-exempt groups are raising and spending record amounts of money in attempting to sway the November 6 elections, bolstered by the Supreme Court's landmark "Citizens United" ruling in 2010, which lifted some political contribution limits in federal elections.

Consumer groups have been pushing the IRS to clarify the standards for these so-called "social welfare organizations," as Section 501(c)(4) of the U.S. tax code calls them, to ensure that they are not abusing their tax-exempt status.

"We will consider proposed changes in this area," Lois Lerner, director for tax-exempt groups at the IRS, said in a July 17 letter to public interest groups.

The significance of the letter is unclear, with one former IRS official in the tax-exempt division calling it a standard response.

"The standard practice is to send a formulaic letter," said Marc Owens, who led the IRS tax-exempt division from 1990 to 2000.

The Campaign Legal Center, one of the groups seeking IRS action, said the letter was a recognition of the problem after more than a year of silence.

"I've been referring to the IRS as a black box," said Paul Ryan, a lawyer at the Campaign Legal Center, one of the protesting groups. "We for years have been sending correspondence and have never received a single word back from the agency until now."

One of the biggest of these new groups is American Crossroads, co-founded by Republican strategist Karl Rove. Crossroads plans, with a sister organization, to raise $300 million to help defeat Democratic President Barack Obama.

Democrats, who also run 501(c)(4) groups, have been far less successful at fundraising. The Democrats' Priorities USA aims to raise just a fraction of the amount targeted by Rove's group.


The letter said the IRS would work with the Treasury Department and the IRS Office of Chief Counsel to "identify tax issues that should be addressed through regulations" and other means surrounding the issue.

The IRS tax-exempt division is "taking the heat for the state of the law," said Beth Kingsley, a tax-exempt lawyer at the firm of Harmon, Curran. "They don't really have the power to make changes and they may want to make that point."

The advocacy groups want a rule-making process to clarify the meaning of "social welfare" and how groups can meet the tax-exempt test.

The 501(c)(4) groups themselves argue that as long as the majority of their work is not overt political campaigning, they qualify for tax-exempt status.

In a potential show of new enforcement, the IRS denied tax-exempt status to two small political groups in recent months, prompting concern among the organizations that they could lose the ability to collect anonymous donations, tax attorneys say.

(Reporting By Kim Dixon and Patrick Temple-West; editing by Kevin Drawbaugh and Andre Grenon)

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Comments (2)
Hempy wrote:
Not only should these bogus “non-profits” have their tax exempt status revoked, so should all other non-profits organizations that engage in politicking. Specifically, many religious organizations have become so polluted with politics, that any spiritual message that might have had has been lost in politics.

As Roger Williams observed nearly 400 years ago, the institutions of religion have despoiled the Garden by its contamination with the world. Mix religion and politics and you get politics.

Such institutions should have their tax-exempt status revoked. Similarly, local governments should subject all properties affiliated with these religious organization to paying local property taxes.They should have to pay property taxes just like any homeowner.

This would be consistent with the views of Adam Smith, the father of capitalism, who wrote that every member of society may be made to help defray the obligations of the whole society. It’s similar to the saying, “What’s good for the goose is good for the gander.”

Jul 23, 2012 5:16pm EDT  --  Report as abuse
checkthefacts wrote:
Keep out raising the democrats. Time to pack your bags. No more socialist policies and speeches

Jul 23, 2012 5:28pm EDT  --  Report as abuse
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