The exterior of the Internal Revenue Service building in Washington, Friday, March 22, 2013. (AP Photo/Susan Walsh)
The additional questions provided by the IRS to Tea Party and some Democratic-leaning groups seeking social welfare 501(c)(4) status appears to have been an inappropriate level of scrutiny. But is the current controversy swirling around Washington obscuring much, much bigger issues around the 501(c)(4) tax status?
The real scandal has been the blatant abuse of 501(c)(4) status by dozens of lobbyists and operatives who have set up such tax-exempt organizations as political slush funds to conceal money in political campaigns. Since the Citizens United decision, 501(c)(4) groups, have operated as Super PACs—raising and spending tens of millions in corporate funds—without disclosing a dime of their contributors. IRS rules state that the primary activity of such groups cannot relate to political advocacy, yet examples abound of 501(c)(4) groups spending well over 50 percent of their funds on attack ads, political action committees and other clearly political expenses. These potential violations of the law have gone on for several years now, with very little interest from the Beltway media or Capitol Hill Republicans, many of whom owe their election to spending by bogus 501(c)(4) organizations.
Here are just five examples of bogus 501(c)(4) groups that deserve more scrutiny under the law:
The American Action Network is a 501(c)(4) nonprofit run by corporate lobbyists like Vin Weber (of Sallie Mae) and Tom Reynolds (of Goldman Sachs). Citizens for Responsibility and Ethics in Washington found that on its tax returns, “AAN reported spending a total of $27,139,009 on all activities from July 2009 through June 2011—$1,446,675 on its 2009 tax return and $25,692,334 on its 2010 tax return—making political activity 66.8 percent of its total spending.” Since IRS rules for primary activity have been interpreted to mean that 501(c)(4) groups cannot spend more than 49 percent of their funds on political endeavors, American Action Network appears to be skirting the law. The group spent more than $745,000 to help elect Senator Ron Johnson (R-WI), one of the lawmakers now calling for hearings into the IRS narrowly on grounds that the agency inappropriately targeted Tea Party groups.