‘Dark Money’ Plot Behind IRS ‘Scandal’

The flap over a few IRS bureaucrats clumsily trying to identify the many right-wing groups abusing a tax-exempt status remains the “big story.” But the news media continues to miss the bigger scandal, the tricks used to create vast pools of “dark money” for buying the political process, writes Beverly Bandler.

By Beverly Bandler

In the 2012 federal elections, “social welfare” nonprofits, known as 501(c)(4)s for their section of the tax code, emerged as the primary conduit for anonymous big-money contributions, pouring in more than $256 million and spending more money on TV ads in the presidential race than any other type of independent group.

In recent years, both Democrats and Republicans have seized on seemingly innocuous wording in IRS regulations “to create the darkest corner of American political fundraising,” according to ProPublica. Yet, of the more than $256 million spent by social welfare nonprofits on ads in the 2012 elections, at least 80 percent came from conservative groups, according to the Center for Responsive Politics.

The symbol of the Internal Revenue Service.

This scandal of secret political money is the real scandal that has been obscured by the flap over an Internal Revenue Service office in Cincinnati using search words to get a handle on the flood of applications from Tea Party and other right-wing groups seeking to take advantage of or abuse the “social welfare” designation.

The IRS bureaucrats in Cincinnati may have been politically tone deaf in using search words, like “tea party,” but they were doing so because many of the political groups masquerading as “social welfare” organizations were right-wing operations.

And the IRS has a statutory responsibility to ensure that groups claiming these benefits are in fact entitled to 501(c)(4) tax-status. Section 501(c)(4) organizations receive valuable tax and other benefits from the government. Plus, the anonymity for donors enables political operations to evade other federal laws that require public disclosure of political contributors.

How this “dark money” scheme works in practice was illustrated in May 2012 when the Republican Jewish Coalition met for a luncheon on the 24th floor of a New York law firm. The coalition’s mission, as described by Matt Brooks, RJC executive director, is to educate the Jewish community about critical domestic and foreign policy issues.

But ProPublica’s Kim Barker reported that the 100 or so well-dressed attendees were shown two coalition-funded ads that took aim at President Barack Obama. Then Brooks made a pitch for a $6.5 million plan to help Republican presidential candidate Mitt Romney in battleground states, reminding guests that their donations would not be publicly disclosed by the tax-exempt group.

“Contributions to the RJC are not reported,” Brooks told the people sitting around a horseshoe-shaped table. “We don’t make our donors’ names available. We can take corporate money, personal money, cash, shekels, whatever you got.” The Republican Jewish Coalition and similar organizations enjoy tax-exempt status in exchange for promoting “social welfare.”

A Different Scandal

Thus, the current IRS issue is not the “scandal” that some would have Americans believe. It was a bureaucratic misstep that today’s version of the Republican Party, which has become less like a political party and more like an authoritarian apocalyptic cult, is trying to sell as a “scandal.” The IRS issue is an explainable mistake in which a beleaguered agency with insufficient resources applied some unwise shortcuts in an effort to protect the public interest.

The larger “dark money” scandal can be traced back to the current eligibility rules that were adopted in 1959 by the IRS under the Eisenhower administration. Congress had created the legal framework for 501(c)(4) nonprofits in 1913. To receive the tax exemption, groups were supposed to be “operated exclusively for the promotion of social welfare.” Campaign activities do not qualify as permissible activities under the law. No political party was eligible for public tax subsidy and secrecy for its donors.

However, in 1959, the IRS opened the door to some forms of political activity by interpreting the statute to mean groups had to be “primarily” engaged in enhancing social welfare. But neither the tax code nor regulators set out how “primarily” would be measured. “Social welfare” and “primarily” can be difficult words to define and for which applicable measurements can be provided. The difference between “exclusively” and “primarily” is clear, however.

Campaign reform activist (and attorney) Fred Wertheimer has said the existing regulations, in place since 1959, are antiquated and flawed and do not provide clear guidance regarding when a group is entitled to 501(c)(4) tax-exempt status and these half-century-old regs do not take into account the new groups that formed after the 2010 Citizens United decision allowed unlimited political donations by corporations and similar entities. After Citizens United, claiming 501(c)(4) status became a favorite tactic for hiding identity of donors.

According to Wertheimer, former acting IRS Commissioner Steven Miller recently said that the eligibility requirements for 501(c)(4) tax status is “not always a clear area, and there are no bright-line tests for what constitutes political intervention. Yet, the IRS is tasked with monitoring and enforcing this difficult area.”

This gray area also is where the potential for fraud arises, as Wertheimer, ProPublica, Mother Jones, the New Republic’s Noam Scheiber and others have pointed out: The “social welfare” nonprofits tell the IRS that they are not going to spend money on elections. They then receive IRS recognition and turn around and spend large amounts of money on elections.

A second part of the real scandal is that IRS has failed to pursue blatant abuses of the tax laws by groups that claim 501(c)(4) tax status to evade financial disclosure requirements for political campaigns. A third scandal is how the IRS story is being reported by the major U.S. news media which has largely ignored these underlying scandals and focused on how a few bureaucrats employed some clumsy criteria in an effort to identify organizations that likely were violating the law.

Hiding Donors

Democracy 21, joined by the Campaign Legal Center, filed a rulemaking petition almost two years ago and urged the IRS to adopt new regulations that would sharply reduce political spending by groups holding 501(c)(4) tax status.

In their petition, they proposed that: “consistent with court decisions, the IRS establish a bright-line test by limiting the amount a section 501(c)(4) group could spend on campaign activity to no more than a small or ‘insubstantial’ percentage of its total annual expenditures, such as five or ten percent of the group’s expenditures. Or, consistent with the statutory language, the IRS could prohibit section 501(c)(4) groups from engaging in any campaign activity at all.”

Hiding the donors who are financing these campaign expenditures from the American people also is inconsistent with democratic principles, among them that the public not be subject to “hidden persuaders” and manipulation. Voters should know who is trying to buy their government.

The powers-that-be in Washington need to solve this issue. Campaign financing sources, which are hidden to keep voters in the dark, compromise the integrity of the electoral system. To try and reclaim the integrity of the election process, it seems appropriate to restore section 501(c)(4) groups to their original statutory role of engaging only in social welfare activities and to define those limits with clarity.

More broadly, the current assault on the IRS fits with the Right’s strategy of demonizing government. For years now, it has been the plan of the Republicans and so-called conservatives, who have evolved into an extremist Right, to sap confidence in government, if not destroy it altogether.

This hostility toward government has gained momentum since Ronald Reagan’s declaration in his First Augural Address in 1981 that “government is the problem.” Reagan’s statement has been followed by consistent anti-government messages from right-wing think tanks and media outlets. As anti-tax advocate Grover Norquist said in 2001: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

New Republic editor Noam Scheiber noted, “Conservatives have laid the groundwork for a cynical two-step: First, squeeze funding for government programs, making it harder for civil servants to do their jobs. Then, when the inevitable screw-up comes, use it as further justification for cuts. Against this backdrop, the IRS scandal looks like only the latest step in the conservative long-game.”

Or as Rick Perlstein looked at this reality from a different direction: “The mortal fear of the Republicans is that if government delivers the goods, the Republicans have no future.” Thus, instead of effecting policies to benefit the American public, the GOP will continue to tear down the effectiveness of government at all levels. Meanwhile, liberals and the Left have been ineffective in their response.

The Right’s anti-government strategy has been aided by a mainstream press corps that usually gets driven in whatever direction the Republicans prefer. Lay judge and commentator William Boardman has cited the “remarkable mental stampede in the wrong direction” as evidenced by the “false framing of the IRS story across the media spectrum.”

“Almost everything you hear and read in the media about the current IRS ‘scandal,’” Boardman wrote, “is based on deliberate falsification of basic facts. Some might call it lying … so much of the media goes on reporting as fact the partisan spin placed on a ‘scandal’ that was not really a ‘scandal’ at all.”

To understand the IRS controversy clearly, the distracting side issues of IRS bureaucratic mistakes should be distinguished from central issues like deliberate violations of federal law, such as promising under penalties of perjury to spend money on “social welfare” and then collecting money from anonymous donors to be spent on political campaigns.

Yet, the even bigger scandal may be the concerted effort by the Right to destroy the very idea of elected governments doing the people’s business and replacing the concept of a democratic Republic with a structure of institutions firmly under the control of corporate power.

Beverly Bandler’s public affairs career spans some 40 years. Her credentials include serving as president of the state-level League of Women Voters of the Virgin Islands and extensive public education efforts in the Washington, D.C. area for 16 years. She writes from Mexico. Her e-mail is [email protected].

Campaign Legal Center
Free Speech for People http://freespeechforpeople.org/
Center for Responsive Politics http://www.opensecrets.org/
Citizens for Responsibility and Ethics in Washing (CREW) http://www.citizensforethics.org/
Citizens for Tax Justice http://www.ctj.org/
Common Cause http://www.commoncause.org/
Democracy 21 http://www.democracy21.org/
Internal Revenue Service http://www.irs.gov
Internal Revenue Service Taxpayer Advocate Service
League of Women Voters of the U.S. http://www.lwv.org/issues/reforming-money-politics
Mother Jones http://www.motherjones.com/
People for the American Way http:www.pfaw.org
Public.Resource https://public.resource.org/
ProPublica http:www.propublica.org
Rootstrikers http://www.rootstrikers.org/
Sunlight Foundation http://sunlightfoundation.com/
Tax Analysts http://www.taxanalysts.com/
Tax Foundation http://www.taxfoundation.org

Sources and Suggested Reading:

Barker, Kim. “How Nonprofits Spend Millions on Elections and Call it Public Welfare.” ProPublica, 2012-08-18. http://www.propublica.org/article/how-nonprofits-spend-millions-on-elections-and-call-it-public-welfare
_______ “Two Dark Money Groups Outspending All Super PACs Combined.” ProPublica, 2012-08-13. http://www.propublica.org/article/two-dark-money-groups-outspending-all-super-pacs-combined
Boardman, William.
“The Other Side of The IRS Scandal.” ConsortiumNews, 2013-06-02. https://consortiumnews.com/2013/06/02/the-other-side-of-the-irs-scandal/
Center for Responsive Politics. “Outside Spending.” Total by Type of Spender, 2012. http://www.opensecrets.org/outsidespending/
Cornell University Law School. “26 USC § 501 – Exemption from tax on corporations, certain trusts, etc.” http://www.law.cornell.edu/uscode/text/26/501
CREW. “CREW’s Most Corrupt.” http://www.crewsmostcorrupt.org/mostcorrupt/entry/darrell-issa
Delaney, Arthur. “Darrell Issa: IRS’ So-Called ‘Rogue’ Agents ‘Directly Being Ordered From Washington.’” The Huffington Post, 2013-06-02. http://www.huffingtonpost.com/2013/06/02/darrell-issa-irs-_n_3374592.html
Drum, Kevin. “A Brief History of IRS Witch Hunts.” MotherJones, 2013-05-23. http://www.motherjones.com/kevin-drum/2013/05/who-will-stick-irs
Elliott, Justin, Kim Barker. “6 Key Facts That Have Been Lost in the IRS Scandal.” Dark money groups continue to warp politics and get tax exemptions without having to name their donors. ProPublica, 2013-05-25. http://www.alternet.org/news-amp-politics/6-key-facts-have-been-lost-irs-scandal
Hightower, Jim http://www.jimhightower.com/
Internal Revenue Service “Social Welfare: What does it mean? How much private benefit is permissible? What is a community?” 1981 EO CPE. http://www.irs.gov/pub/irs-tege/eotopicg81.pdf
Kroll, Andy. “Rep. Darrell Issa: Tea Party-Targeting IRS Staffers Took Their Orders From Washington.” Mother Jones, 2013-06-03. http://www.motherjones.com/mojo/2013/06/darrell-issa-irs-tea-party-obama-white-house
Mencimer, Stephanie. “Is This Big Tea Party Group Really an Innocent Victim of the IRS?” The tax agency may have had good reason to scrutinize Tea Party Patriots,including a formal complaint I filed in 2011. MotherJones, 2013-05-22. http://www.motherjones.com/politics/2013/05/tea-party-patriots-irs-complaint
_______ “Actually, Tea Party Groups Gave the IRS Lots of Good Reasons to Be Interested.” IRS profiling was a fiasco. Yet, some tea party groups have left a trail of fiscal problems and possible tax-code abuse. MotherJones, 2013-05-17 http://www.motherjones.com/politics/2013/05/irs-tea-party-tax-problems
Moyers, Bill and Michael Winship. “The Scandal of Lax Government.” ConsortiumNews, 2013-05-21. https://consortiumnews.com/2013/05/21/the-scandal-of-lax-government/
Muller, Sarah. ‘Exclusively’ vs. ‘primarily’: IRS law a ‘disaster waiting to happen. MSNBC. Lawrence O’Donnell, The Last Word, 2013-05-23. http://tv.msnbc.com/2013/05/23/exclusively-vs-primarily-irs-law-a-disaster-waiting-to-happen/
Scheiber, Noam. “Hunger Games. The conservative plan to starve government has paid off with the IRS scandal.” The New Republic, The New Republic, 2013-05-23. http://www.newrepublic.com/article/113280/irs-scandal-conservatives-plan-starve-government-pays#
_______“Notes on a Trumped Up Scandal.” The IRS fiasco shows that conservatives can be PC too.” The only real sin the IRS committed in its ostensible targeting of conservatives is the sin of political incorrectness,that is, of not pretending it needed to vet all the new groups that wanted tax-exempt status, even though it mostly just needed to vet right-wing groups. http://www.newrepublic.com/article/113217/irs-tea-party-scandal-conservative-political-correctness-action
Toobin, Jeffrey. “The Real I.R.S. Scandal.” The New Yorker, 2013-05-14. http://www.newyorker.com/online/blogs/comment/2013/05/irs-scandal-tea-party-oversight.html
Ward, Jon and Sam Stein. “IRS Tea Party Scandal: White House Did Not Drive Investigation, Inspector General Says.” Huffington Post, 2013-05-14. http://www.huffingtonpost.com/2013/05/14/irs-tea-party-white-house_n_3275899.html
Wertheimer, Fred. “Inadequate IRS rules helped create scandal.” Democracy 21, 2013-05-16. http://www.democracy21.org/money-in-politics/press-releases-money-in-politics/fred-wertheimer-politico-op-ed-inadequate-irs-rules-helped-create-scandal/
Wyatt, Samantha. “Media Parrot Issa’s Fabricated Link Between Washington And Cincinnati In IRS Case.” MediaMatters, 2013-05-03. http://mediamatters.org/research/2013/06/03/media-parrot-issas-fabricated-link-between-wash/194312

6 comments for “‘Dark Money’ Plot Behind IRS ‘Scandal’

  1. hammersmith
    June 7, 2013 at 12:57

    “The flap over a few IRS bureaucrats clumsily trying to identify the many right-wing groups abusing a tax-exempt status….” good god, must u always have to be democrat party apologists? u eventually lose all credibility.

  2. Mike
    June 7, 2013 at 03:39

    Liberals sure are a cynical, hateful bunch.
    I don’t know why that is, but there you have it.
    Terry presents a pretty good example.
    Rock on, homie!

  3. Terry Sand
    June 6, 2013 at 20:40

    The IRS didn’t target anyone. If your cult calls itself the tea party or teabaggers and files for tax exemption as a social welfare group when anyone, except conservatives, knows you are no more than a right wing mouthpiece what do you expect to happen. None of them were denied so republicans need to shut up. The IRS is just doing their job. Does anyone know how much taxpayer money has been spent trying to make something out of nothing? I know you republicans don’t believe in evolution but you all will soon because this country is evolving right past you. The sooner the better. Your party will never have the white house again. Please continue doing what you do best. Deny,lie, discriminate and obstruct.

  4. Mike
    June 6, 2013 at 12:03

    I have a feeling if the IRS were targeting Women’s Lib groups, instead of targeting conservative groups, you would be singing a significantly different tune….

    • toosmarttovoteGOP
      June 9, 2013 at 06:43

      Funny you should mention that.

      First off, the IRS “targeted” no one. Less that a quarter of the groups examined in this process were Tea-Bagger organizations. The only group whose application was rejected was a liberal group from Texas. These were merely application reviews, not audits.

      Second, Former IRS chief Steven Miller was appointed by the shrub.

      Third, under the shrub’s regime numerous liberal groups WERE targeted (read: audited) by the IRS including the NAACP, Greenpeace, assorted liberal churches, etc.

      For example:
      >The Secret Service was used to physically block suspected antiwar activists from attending public presidential events. They targeted some peaceful antiwar activists for arrest for the alleged crime of “holding up small handwritten protest signs outside the designated zone” of free speech (yes, the Bush White House cemented the precedent that the right to dissent is no longer a FUNDAMENTAL RIGHT, but is instead only allowed in certain “free speech zones”). Ultimately, in a case dealing with a man who was arrested for simply telling Vice President Dick Cheney that his “policies on Iraq are disgusting,” the Republican-dominated Supreme Court upheld the Bush administration’s use of “retaliatory arrests” against the administration’s ideological critics.

      Screw the Constitution.

      >In 2010, we learned that Bush’s targeting operation was also operating inside the Federal Bureau of Investigation. According to findings from the DOJ’s Inspector General, “the FBI improperly investigated some left-leaning U.S. advocacy groups after the Sept. 11, 2001, attacks…citing cases in which agents put activists on terrorist watch lists even though they weren’t planning nonviolent civil disobedience.”

      >The next year we learned that along with the IRS, Secret Service and FBI, the Bush administration may have also been using the CIA against its political enemies.

      How Noxonian.

      As the New York Times reported, “A former Central Intelligence Agency officer who was a top counterterrorism official during the administration of President George W. Bush, said the White House at least twice asked intelligence officials to gather sensitive information” on prominent Iraq War critic Juan Cole. That story had an eerie similarity to the Bush administration’s effort to out CIA operative Valerie Plame as retribution for her husband’s criticism of that same war.

      Revelations of systemic IRS, Secret Service, FBI and CIA misconduct were met with a collective shrug of the shoulders in Washington. Yeah, a few newspapers wrote about them, and a few Democratic lawmakers tried to raise questions about the Bush administration’s actions, but compared to today’s sound and fury over the IRS allegations you could hear the crickets chirp.

      In fact, so little outrage was voiced about this kind of thing during the shrub’s years that a recent GOPTV/FOX headline summarizing a Karl Rove interview blared: “What if IRS Under President Bush targeted liberal groups?” – as if that never actually happened.

      It did you bunch glass-jawed crybabies.

      Now, granted, none of these groups were the “Women’s Lib groups” you specified, but I think you get the idea.

  5. Nancy
    June 6, 2013 at 11:32

    Thank you for this eye opener! Truth prevails.

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