Skip to main content

The real risk of the IRS scandal

By Paul Waldman, Special to CNN
May 15, 2013 -- Updated 1313 GMT (2113 HKT)
STORY HIGHLIGHTS
  • Paul Waldman: Republicans looking for a juicy Obama administration scandal
  • Beyond obvious wrongdoing, IRS scandal sheds light on flawed system, he says
  • Laws allow obviously political groups to pose as social welfare organizations, he says
  • Waldman: Expanding this loophole would allow more "dark money" into politics

Editor's note: Paul Waldman is a contributing editor at The American Prospect and the author of "Being Right Is Not Enough: What Progressives Must Learn From Conservative Success." Follow him on his blog and on Twitter.

(CNN) -- It's hard to overstate how frustrated Republicans have been over the last few years by their failure to gin up a juicy Obama administration scandal.

They tried with Solyndra and "Fast and Furious," but those turned out to be gigantic nothing burgers. Well now at last, they may have something, in either Benghazi or the IRS targeting conservative groups. Unlike Benghazi, where even the Republicans claiming it was "worse than Watergate" can't quite say what the misconduct was (unless you consider squabbling over talking points to be a nefarious and earth-shattering crime), the IRS affair is pretty straightforward.

From what we know, employees in the Cincinnati IRS office singled out conservative groups applying for tax-exempt status for extra scrutiny. If that turns out to be true, then it was absolutely wrong and the people responsible should be held to account, as everyone in both parties up to and including President Obama has agreed. But this controversy shines a light on a larger problem in the way our tax system interacts with our political system.

Obama says some IRS employees 'failed,' order accountability

Paul Waldman
Paul Waldman

Many Americans are probably hearing the term "501(c)(4)" for the first time, but a full context requires understanding two related types of groups. The first is 501(c)(3) groups, which are charities that are supposed to have no involvement in partisan politics; the second are the 501(c)(4) groups, which are permitted to be a little more involved in the political process, with more latitude for lobbying and electioneering.

If you make a contribution to a 501(c)(3) organization, it's tax deductible, but a contribution to a 501(c)(4) isn't. (Both kinds of groups are charitable entities that don't have to pay taxes on the money they take in.)

In its 2010 Citizens United decision, the Supreme Court declared that 501(c)(4) organizations would now be permitted to engage in "express advocacy" during election campaigns, meaning they could explicitly urge the election or defeat of candidates for office.

Nevertheless, 501(c)(4) groups are still supposed to be primarily nonpolitical and devoted to "social welfare." They can engage in some politics, but it's supposed to be a minority of their activities. Even before Citizens United, however, the law in this area was flouted so routinely that it made a mockery of the IRS mandate to keep charitable organizations from being partisan.

IRS accused of targeting conservatives
Gergen: IRS scandal not a partisan issue
Davis: White House needs transparency

Though they exist all over the country, Washington in particular is full of organizations whose partisan political purpose is apparent to everyone, but which nonetheless are considered "social welfare" groups. Some exist to advance conservative ideology, and some exist to advance liberal ideology.

Opinion: Obama's second-term curse? Not so fast

Everyone in the organization, with the possible exception of the receptionist or the deputy assistant IT director, comes from the same party. When election season rolls around, their efforts turn to the campaign. If the group focuses on economic policy, it will issue reports on why the tax plans offered by the other side's candidate are bogus. If it's a foreign policy group, its representatives will assail the foreign policy record of the other side.

If the organization is big enough, it might even be set up as two organizations, a 501(c)(3) that can accept tax-deductible contributions and a 501(c)(4) that can't. They'll both be in the same office, run by the same people.

There are multiple organizations that use this structure. For example, on the right you have the Heritage Foundation and its (c)(4) twin, Heritage Action, just like on the left you have the Center for American Progress and its (c)(4) twin, the Center for American Progress Action Fund. Whatever the spirit of the law, dancing close to, but not over, the line of what's permissible in the law's letter is a daily concern for groups like these. As long as you're careful about how you phrase your communication ("candidate Smith's tax plan is a disaster" is fine; "No one should vote for candidate Smith" is a no-no), the IRS will probably leave you alone.

But after Citizens United, things changed. Groups like Heritage and the Center for American Progress are large organizations that do many different kinds of work on all kinds of issues. But now there are organizations with virtually no purpose other than influencing elections that apply for tax-exempt status, claiming that they'll be engaging only in "education" or "research."

You may have heard, for instance, of Crossroads GPS, the group Karl Rove and other Republican strategists created to help defeat Barack Obama in the 2012 election. It had a counterpart on the Democratic side, a group started by former Obama staffers called Priorities USA. Both raised tens of millions of dollars, which they spent on dueling ads in the presidential campaign.

Yet both Crossroads GPS and Priorities USA applied to the IRS as 501(c)(4) "social welfare" organizations, claiming that politics wasn't their primary purpose. If you believe that, I have a bridge in Brooklyn I'd love to sell you. But if their attorneys craft the language in their applications carefully enough, the IRS will approve their application. IRS approval of 501(c)(4) status means not only that the organizations don't have to pay taxes, but also, unlike super PACs, they don't have to disclose their donors -- and keeping your donors secret is one of the chief attractions of the 501(c)(4).

The danger now is that because of this affair, instead of scrutinizing all 501(c)(4) applications regardless of the applicants' ideological perspective, a chastened IRS will let more and more applications slide by with minimal inspection.

"Dark money," so called because 501(c)(4)s don't have to reveal their donors, could come to dominate our elections even more than it has since 2010. We could see the blooming of a thousand weeds, as everyone who wants to pour money into campaigns while hiding their identity starts a 501(c)(4) under the fiction of "social welfare," and the IRS won't stop them.

The IRS obviously needs better internal controls to ensure that it treats all groups by the same standards. But one reason this misconduct occurred was that after Citizens United, the IRS was deluged with thousands of applications for 501(c)(4) tax-exempt status, and many of the organizations were obviously political groups claiming to be "social welfare" organizations.

If we're going to have a special set of rules for groups focused on elections and lobbying -- which we should -- then we need rules that mark clearer lines between political and nonpolitical activity, and an agency with the will and the resources to enforce them. This scandal could be an opportunity to make the system work better. Or it could cause it to deteriorate even further.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Paul Waldman.

ADVERTISEMENT
Part of complete coverage on
August 29, 2014 -- Updated 1611 GMT (0011 HKT)
Leon Aron says the U.S. and Europe can help get Russia out of Ukraine by helping Ukraine win its just war, sharing defense technologies and intelligence
August 29, 2014 -- Updated 1724 GMT (0124 HKT)
Timothy Stanley the report on widespread child abuse in a British town reveals an institutional betrayal by police, social services and politicians. Negligent officials must face justice
August 30, 2014 -- Updated 0106 GMT (0906 HKT)
Peter Bergen and David Sterman say a new video of an American suicide bomber shows how Turkey's militant networks are key to jihadists' movement into Syria and Iraq. Turkey must stem the flow
August 28, 2014 -- Updated 1516 GMT (2316 HKT)
Whitney Barkley says many for-profit colleges deceive students, charge exorbitant tuitions and make false promises
August 29, 2014 -- Updated 1434 GMT (2234 HKT)
Mark O'Mara says the time has come to decide whether we really want police empowered to shoot those they believe are 'fleeing felons'
August 28, 2014 -- Updated 1432 GMT (2232 HKT)
Bill Frelick says a tool of rights workers is 'naming and shaming,' ensuring accountability for human rights crimes in conflicts. But what if wrongdoers know no shame?
August 29, 2014 -- Updated 0243 GMT (1043 HKT)
Jay Parini says, no, a little girl shouldn't fire an Uzi, but none of should have easy access to guns: The Second Amendment was not written to give us such a 'right,' no matter what the NRA says
August 28, 2014 -- Updated 1340 GMT (2140 HKT)
Terra Ziporyn Snider says many adolescents suffer chronic sleep deprivation, which can indeed lead to safety problems. Would starting school an hour later be so wrong?
August 29, 2014 -- Updated 1330 GMT (2130 HKT)
Peggy Drexler says after all the celebrity divorces, it's tempting to ask the question. But there are still considerable benefits to getting hitched
August 29, 2014 -- Updated 1849 GMT (0249 HKT)
The death of Douglas McAuthur McCain, the first American killed fighting for ISIS, highlights the pull of Syria's war for Western jihadists, writes Peter Bergen.
August 26, 2014 -- Updated 2242 GMT (0642 HKT)
Former ambassador to Syria Robert Ford says the West should be helping moderates in the Syrian armed opposition end the al-Assad regime and form a government to focus on driving ISIS out
August 27, 2014 -- Updated 1321 GMT (2121 HKT)
Ruben Navarrette says a great country does not deport thousands of vulnerable, unaccompanied minors who fled in fear for their lives
August 27, 2014 -- Updated 1319 GMT (2119 HKT)
Robert McIntyre says Congress is the culprit for letting Burger King pay lower taxes after merging with Tim Hortons.
August 26, 2014 -- Updated 2335 GMT (0735 HKT)
Wesley Clark says the U.S. can offer support to its Islamic friends in the region most threatened by ISIS, but it can't fight their war
August 27, 2014 -- Updated 1126 GMT (1926 HKT)
Jeff Yang says the tech sector's diversity numbers are embarrassing and the big players need to do more.
August 26, 2014 -- Updated 2053 GMT (0453 HKT)
America's painful struggle with racism has often brought great satisfaction to the country's rivals, critics, and foes. The killing of Michael Brown and its tumultuous aftermath has been a bonanza.
August 26, 2014 -- Updated 2019 GMT (0419 HKT)
Ed Bark says in this Emmy year, broadcasters CBS, ABC and PBS can all say they matched or exceeded HBO. These days that's no small feat
August 26, 2014 -- Updated 1919 GMT (0319 HKT)
Rick Martin says the death of Robin Williams brought back memories of his own battle facing down depression as a young man
August 26, 2014 -- Updated 1558 GMT (2358 HKT)
David Perry asks: What's the best way for police officers to handle people with psychiatric disabilities?
August 25, 2014 -- Updated 1950 GMT (0350 HKT)
Julian Zelizer says it's not crazy to think Mitt Romney would be able to end up at the top of the GOP ticket in 2016
August 25, 2014 -- Updated 2052 GMT (0452 HKT)
Roxanne Jones and her girlfriends would cheer from the sidelines for the boys playing Little League. But they really wanted to play. Now Mo'ne Davis shows the world that girls really can throw.
August 25, 2014 -- Updated 1629 GMT (0029 HKT)
Peter Bergen and Emily Schneider say a YouTube video apparently posted by ISIS seems to show that the group has a surveillance drone, highlighting a new reality: Terrorist groups have technology once only used by states
August 25, 2014 -- Updated 2104 GMT (0504 HKT)
Kimberly Norwood is a black mom who lives in an affluent neighborhood not far from Ferguson, but she has the same fears for her children as people in that troubled town do
August 22, 2014 -- Updated 2145 GMT (0545 HKT)
It apparently has worked for France, say Peter Bergen and Emily Schneider, but carries uncomfortable risks. When it comes to kidnappings, nations face grim options.
August 26, 2014 -- Updated 1727 GMT (0127 HKT)
John Bare says the Ice Bucket Challenge signals a new kind of activism and peer-to-peer fund-raising.
August 22, 2014 -- Updated 1231 GMT (2031 HKT)
James Dawes says calling ISIS evil over and over again could very well make it harder to stop them.
August 24, 2014 -- Updated 0105 GMT (0905 HKT)
As the inquiry into the shooting of Michael Brown continues, critics question the prosecutor's impartiality.
August 22, 2014 -- Updated 2247 GMT (0647 HKT)
Newt Gingrich says it's troubling that a vicious group like ISIS can recruit so many young men from Britain.
August 21, 2014 -- Updated 1450 GMT (2250 HKT)
David Weinberger says Twitter and other social networks have been vested with a responsibility, and a trust, they did not ask for.
August 22, 2014 -- Updated 1103 GMT (1903 HKT)
John Inazu says the slogan "We are Ferguson" is meant to express empathy and solidarity. It's not true: Not all of us live in those circumstances. But we all made them.
August 22, 2014 -- Updated 1223 GMT (2023 HKT)
Retired Lt. Gen. Mark Hertling says he learned that the territory ISIS wants to control is amazingly complex.
August 20, 2014 -- Updated 1951 GMT (0351 HKT)
Cerue Garlo says Liberia is desperate for help amid a Ebola outbreak that has touched every aspect of life.
August 21, 2014 -- Updated 1742 GMT (0142 HKT)
Eric Liu says Republicans who want to restrict voting may win now, but the party will suffer in the long term.
August 21, 2014 -- Updated 1538 GMT (2338 HKT)
Jay Parini: Jesus, Pope and now researchers agree: Wealth decreases our ability to sympathize with the poor.
August 21, 2014 -- Updated 1200 GMT (2000 HKT)
Judy Melinek offers a medical examiner's perspective on what happens when police kill people like Michael Brown.
August 19, 2014 -- Updated 2203 GMT (0603 HKT)
It used to be billy clubs, fire hoses and snarling German shepherds. Now it's armored personnel carriers and flash-bang grenades, writes Kara Dansky.
August 20, 2014 -- Updated 1727 GMT (0127 HKT)
Maria Haberfeld: People who are unfamiliar with police work can reasonably ask, why was an unarmed man shot so many times, and why was deadly force used at all?
ADVERTISEMENT