501 C 4's - What the Scandal is About

The scandal surrounding the Internal Revenue Service is centered on the scrutiny of a group of organizations better known as “nonprofits.”  Section 501 of the Internal Revenue code provides special tax treatment for these organizations.  All of these organizations are "tax exempt" which means they pay no income tax, but they have to be formed for specific purposes and approved by the IRS.

Most folks are familiar with 501(C) 3 organizations.  These are groups like the Cancer Society or the Symphony or various foundations.  Not only do these groups pay no income tax, if you make a donation your contribution is tax deductible.  These are set up for educational or charitable purposes and can only engage in minimal political activity.

But there are other types of 501 (C) organizations.  Those in the news today are known as 501 (C) 4’s.  Traditionally, they are defined as civic leagues, local employee associations, and groups that promote the social welfare.   501 (C) 4’s also pay no taxes, but donations to them are NOT tax deductible to the donor.  They are allowed to participate in political activity and lobbying so long as it is not in direct support of a specific candidate and not the primary focus of the organization.  That is generally defined as spending less than 50% of its money on political activity.  

While this type of entity has been around for a long time, over the last 15 years they have morphed into organizations that promote a point of view.  More traditional C 4’s have been “think tanks.”  These are groups of folks formed to study how to implement various political philosophies.  There are liberal think tanks…such as Moveon.org and Media Matters…and conservative think tanks such as the Heritage Foundation and Karl Rove’s Crossroads GPS.

Over the years, all of the think tanks have concentrated less on thinking and more on politics.  Moveon.org, originally formed to support Bill Clinton during his impeachment, was probably the first to stretch the definition of 501 C organizations, both 3’s and 4’s.   It was followed by Media Matters…an organization that was ostensibly formed to study news in the media.  It quickly was transformed by massive infusions of cash from George Soros into a liberal advocacy group which attempted to shut down Fox News.

Liberals, who generally tend to know the law better than conservatives, discovered a quirk in the 501 laws.  Although C 4’s have to report the amount of money given to them, they do not have to report who gave them the money.  This was perfect for “community organizing.”  The most notorious of these community action groups was ACORN and its affiliates, which was ultimately disbanded after being caught on tape doing some not so nice stuff.  But during the 2008 election, it served as a political action group ostensibly to register folks to vote…but was mostly campaigning for Barack Obama.

Conservatives quickly learned the tricks of the trade, and moved to form their own C 4 organizations to counteract groups like ACORN.   Welcome to the Tea Party.  These grass roots groups formed to oppose Obamacare, and rapidly morphed into generally government action groups promoting the Constitution and small government.  

Then came the mother lode.  Congress passed a law called McCain Feingold which attempted to limit the amount of money donated to federal candidates.  It was an overkill bill that attempted not only to stop large personal, corporate and union donations to political campaigns, but to actually stop opposition political activity aimed at an incumbent federal officeholder 30 days before the election.  For those who bothered to read it, it was clear on its face it was unconstitutional.

In 2010, the US Supreme Court, in a series of cases now known as Citizens United after the lead case, threw McCain Feingold out.  And it went even further, specifically allowing corporations and unions to form C 4 organizations and engage in supportive political activity.   (It also allowed for the formation of Super Pacs, also a good political vehicle.  But unlike the C-4's, donors are reported to the Federal Elections Commission.) 

The floodgates were open.  The liberals, already ahead of the game with their community organizing groups, hit the ground running.  The conservatives, quick learners, weren't far behind.  The IRS was deluged with C 4 applications as various groups raised money from various unions and corporations to engage in “social welfare” activities.

For reasons yet to be determined, the Internal Revenue Service which typically takes 8-12 weeks to process these applications took a political turn itself.  It deliberately decided to target conservative groups for scrutiny.  Not only that, it targeted the individuals who filed the applications for personal IRS audits.  In some cases, investigators from other government agencies showed up at people’s houses to investigate them, including the FBI and ATF.  Meanwhile, all liberal C 4’s were routinely approved.  To accomplish this peculiar form of “justice”, the IRS set up a series of code words to determine approval or scrutiny.  If you had the words Tea Party or Constitution in your name, you are probably still waiting for approval and have been audited.

It asked questions like what is the content of your prayers.  Provide copies of all emails and texts.  Provide complete membership lists.  Provide telephone numbers of your members. How much money do you carry in your wallet?  Provide copies of all your promotional literature.

On the other hand, if you had the words “green” or “community” in your name or were directly related to Barack Obama, you were approved with prompt efficiency with NO scrutiny.  Many of these organizations received approval in as few as three weeks. 

In the middle of this mess, Barack Obama’s election 2008 campaign committee miraculously morphed into a C 4 organization called Organizing for America.  His 2012 election committee became Organizing for Action in January of 2013, also a C 4…run by his re-election staff to support his legislative agenda.  Of course...that's a good thing!!!!  Not political at all!!!!!

The politicization of the IRS is dangerous stuff and illegal.  One has to be blind and deaf not to know what happened here.  The left can argue all they want that election laws are bad.  But the law is the law...and at the end of the day it was the enforcement of the law that was bad and corrupt and bias and scary.  Chilling free speech and political activity by an incumbent administration's use of the Internal Revenue Service is the WORST kind of politics. It is Nixonian. The law itself is fine.  The Supreme Court said so. 

This is an issue that will not go away.  The questions are the same old same old:  Who knew what and when did they know it?   The outcome will be interesting. In the meantime, would anyone like a cup of tea?