Fake IRS Scandal Backfires as Democrat Sues the IRS over 501 (c) Regulation

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After years of failed pretend scandals, Republicans thought they had a winner when they went after the IRS.

Based on the Inspector General’s report Republicans tried to persuade America that the IRS was unfairly scrutinizing Tea Party organizations that were seeking the coveted 501 (c) (4) status. Darrel Issa spent months holding “hearings” trying to suggest the IRS was out to get the Tea Party and trying to find a link between this and the White House. Ted Cruz and Rand Paul led the vengeance crusade to shut down the IRS based on the latest “scandal” that never was.

Our Sarah Jones reported on the unredacted IRS Treasury’s report’s conclusions. The report  revealed that Issa was lying (again) and so was the Inspector General.  In fact, the whole audit was skewed to make it appear that the IRS targeted the Tea Party when the reality was that organizations across the political spectrum faced scrutiny.

Republicans really did it to themselves with this “scandal.”  Their previous attempts merely meant they looked like desperate fools focused on smearing the President because they don’t have any ideas.  This time, they may lose the one thing they treasure more than using millions of tax-free dollars to smear Democrats – the ability to shield their donors from public scrutiny.

There is reason to question the IRS’ practices when it comes to designating the coveted 501(c) (4) status, but not for the reasons Republicans wanted.  Contrary to Republican fantasies, the IRS’s assessment of 501 (c) (4) applicants was problematic because of a regulation passed under the Eisenhower Administration and before our current President was born.

Under the existing law, these organizations must engage exclusively in social welfare activities.  However, the IRS regulation, established in 1959,   says organizations need to engage primarily in social welfare activities.  While the law is very clear, the fuzzy language in the regulation leaves room for politicized interpretations of an organization’s activities by the IRS.  It also left wiggle room for organizations that clearly have a political agenda to define themselves as social welfare organizations because they wanted to keep their donor lists secret.

The severity of the problem became clear with the onslaught of 501(c) (4) applications that arose after the Citizen’s United ruling. In fact, the number of applications between 2008 and 2012 doubled.

On Tuesday, Chris Van Hollen (D- Md.) joined by campaign-finance watchdogs Democracy 21, the Campaign Legal Center and Public Citizen filed a lawsuit against the IRS with the hope of rectifying this problem. According to the Washington Post,  Citizens for Responsibility and Ethics in Washington filed a similar lawsuit  in May.

Simply put, the suits want the IRS to revise their fuzzy worded regulation to conform to the clarity provided under the law.

If any of these lawsuits succeed, it means only organizations with the sole purpose of engaging in social welfare activities will be eligible for 501 (c) (4) status.  All political organizations masquerading as social welfare organizations to keep their donor lists secret and avoid paying taxes will lose that coveted status.  Republicans will be the biggest losers. For one thing, their 501 (c) (4) groups outspend their Liberal counterparts by a ratio of 34 -1.  These groups can continue to exist, but they will have to disclose their donors and pay taxes.

It means that we won’t be subsidizing the right wing agenda by making up for the taxes that Tea Party and Republican front organizations weren’t paying.  Most of these groups will probably continue spending money on negative ads that would make old school propagandists, even fascist ones, blush.  However, everyone will see the corporate backers behind the curtain.

It would also mean the disastrous ruling in Citizens United is a bit less disastrous. Corporations can still donate limitless amounts of money to political campaigns and organizations like Americans for Prosperity and Crossroads. But, Americans will know how much they contributed and to which groups.

Karma works in mysterious ways.

Image: CBS affiliate Baltimore

Adalia Woodbury

Former contributor.