In The Wall Street Journal, Bradley Smith reports that the IRS scandal goes at least to the office of Obama appointee and IRS Chief Counsel William Wilkins. The Journal follows up telling readers that Democrats want the IRS to require conservative groups to register as political committees under the regulatory burdensome Section 527.
This attack is wrong on the law, and cynical as politics. As these IRS apologists well know, liberal groups, such as Moveon.org, have long had the same tax status as that requested by the tea party and conservative groups—and that status is not of a “charity.”
Charities fall under Section 501(c)(3) of the tax code, and they include the Red Cross, Boy Scouts, churches, private colleges and even overtly agenda-oriented organizations such as the NAACP and the Sierra Club Foundation. Contributions are tax deductible to the donor, and for that reason the organizations are prohibited from engaging in political activities.
Yet conservative groups targeted by the IRS did not seek tax status as charities. They were applying for designation as nonprofits operating under Section 501(c)(4) of the tax code, for “the promotion of social welfare.” Contributions to 501(c)(4) organizations are not tax deductible, so there is no “tax break” for their donors. Nor do the groups themselves get a “tax advantage.” Mr. Toobin argues that these groups should be reclassified under Section 527 of the tax code. More on that below, but 527 organizations also pay nothing in taxes. So there is no “tax advantage” to operating as a 501(c)(4).
So why was the IRS involved at all, and why does it matter? The answer is that the IRS scandal is part of a long-term assault on First Amendment rights. Thanks to “campaign finance reform,” citizen groups must navigate a maze of government paperwork and apply to the IRS for a tax license to speak on politics. People literally need a lawyer to figure it out, and not just any lawyer, but one from the highly compensated and mostly Washington, D.C.-based bar practicing “political law.”
The standard used by the IRS to decide who qualifies for 501(c)(4) tax status is an arbitrary “facts and circumstances” test that few people understand. If more than 50% of an organization’s activities might support or oppose candidates under the vague “facts and circumstances” test, then the group is placed in the same tax status—Section 527—as candidate committees, political parties and political-action committees.