The Real I.R.S. Scandal
May 14, 2013
Posted by Jeffrey Toobin
Washington’s scandal machinery, rusty from recent disuse, is cranking back up to speed due to the alleged targeting of conservative groups by the Internal Revenue Service. Darrell Issa, the chairman of the House Committee on Oversight and Government Reform, said, “It’s the kind of thing that scares the American people to their core. When Americans are being targeted for audits based on their political beliefs, that needs to change.” Senator Susan Collins, of Maine, called on the President to apologize. George Will said President Obama could be impeached. Obama himself is taking the path of contrition. At a news conference Monday, the President said, “If in fact I.R.S. personnel engaged in the kind of practices that have been reported on and were intentionally targeting conservative groups, then that’s outrageous. And there’s no place for it.” More hearings, with more outrage, are planned.
In light of this, it might be useful to ask: Did the I.R.S. actually do anything wrong?
The stories began to come to light on Friday, when the Associated Press reported that a draft report by a Treasury Department inspector general had found that the I.R.S. subjected certain Tea Party-affiliated groups to undue scrutiny. Lois Lerner, head of the I.R.S. tax-exempt-organizations division, said the agency was “apologetic” for what she termed “absolutely inappropriate” actions by lower-level workers.
It’s important to review why the Tea Party groups were petitioning the I.R.S. anyway. They were seeking approval to operate under section 501(c)(4) of the Internal Revenue Code. This would require them to be “social welfare,” not political, operations. There are significant advantages to being a 501(c)(4). These groups don’t pay taxes; they don’t have to disclose their donors—unlike traditional political organizations, such as political-action committees. In return for the tax advantage and the secrecy, the 501(c)(4) organizations must refrain from traditional partisan political activity, like endorsing candidates.
If that definition sounds murky—that is, if it’s unclear what 501(c)(4) organizations are allowed to do—that’s because it is murky. Particularly leading up to the 2012 elections, many conservative organizations, nominally 501(c)(4)s, were all but explicitly political in their work. For example, Americans for Prosperity, which was funded in part by the Koch Brothers, was an instrumental force in helping the Republicans hold the House of Representatives. In every meaningful sense, groups like Americans for Prosperity were operating as units of the Republican Party. Democrats organized similar operations, but on a much smaller scale. (They undoubtedly would have done more, but they lacked the Republican base for funding such efforts.)
So the scandal—the real scandal—is that 501(c)(4) groups have been engaged in political activity in such a sustained and open way. As Fred Wertheimer, the President of Democracy 21, a government-ethics watchdog group, put it, “it is clear that a number of groups have improperly claimed tax-exempt status as section 501(c)(4) ‘social welfare’ organizations in order to hide the donors who financed their campaign activities in the 2010 and 2012 federal elections.”
Some people in the I.R.S. field office in Cincinnati took the names of certain groups—names that included the terms “Tea Party” and “patriot,” among others, which tend to signal conservatism—as signals that they might not be engaged in “social welfare” operations. Rather, the I.R.S. employees thought that these groups might be doing explicit politics—which would disqualify them for 501(c)(4) status, and set them aside for closer examination. This appears to have been a pretty reasonable assumption on the part of the I.R.S. employees: having “Tea Party” in your name is at least a slight clue about partisanship. When the inspector-general report becomes public, we’ll surely learn the identity of these organizations. How many will look like “social welfare” organizations—and how many will look like political activists looking for anonymity and tax breaks? My guess is a lot more of the latter than the former.
It is certainly true that the I.R.S., and every other part of the government, should be evenhanded in how it applies the law, regarding liberal and conservative groups alike. If left-leaning organizations were disguising their true purposes to obtain 501(c)(4) status, the I.R.S. should have turned them down, too. And there will also be questions about how the Service, which is an independent agency, answered questions from Congress.
But let’s be clear on the real scandal here. The columnist Michael Kinsley has often observed that the scandal isn’t what’s illegal—it’s what’s legal. It’s what society chooses not to punish that tells us most about the prevailing ethical standards of the time. Campaign finance operates by shaky, or even nonexistent, rules, and powerful players game the system with impunity. A handful of I.R.S. employees saw this and tried, in a small way, to impose some small sense of order. For that, they’ll likely be ushered into bureaucratic oblivion.