Karl Rove 370.
(photo credit: REUTERS)
If you think Karl Rove is a social worker, you don’t understand the real IRS
scandal. It’s not just about discriminating against some right-wing groups
applying for tax-exempt status. That problem needs a serious investigation – not
a partisan witch hunt – to find out what went wrong, hold accountable those
responsible and make certain it doesn’t happen again.
But there is much
more at stake than the vetting of applications for special treatment as “social
Better known as 501(c)(4), it is one of the most
gaping loopholes in the entire tax code because it has become a tool for
concealing the identities of those spending millions of dollars to manipulate
and subvert out political system.
Under this provision groups are
exempted from paying income taxes and are free to spend the unlimited amounts of
money they raise on lobbying and influencing political campaigns and elections.
That wouldn’t be so bad if they didn’t operate under the political equivalent of
Harry Potter’s cloak of invisibility.
Making matters worse, many of these
are not engaged in social welfare in any way, shape or form. The Jewish
community is deeply involved, as are so many other segments of our
The Republican Jewish Coalition, the National Jewish Democratic
Council, the American Israel Public Affairs Committee and J Street are 501(c)(4)
organizations. Contributions are not tax deductible but the groups are exempt
from paying federal income taxes on any profits they make. But they’re not in
business to make profit and don’t. They spend their money trying to influence
legislation on Capitol Hill and elections.
Other 501(c)(4)’s include the
Sierra Club, AARP and the National Rifle Association.
Their names reveal
their purpose, but many others intentionally conceal their real identity with
benign-sounding names. To make the point, the Center for Responsive Politics
listed four groups, two liberal and two conservative, but the names won’t help
you tell which is which: Patriot Majority USA, Crossroads GPS, American Future
Fund and the Citizens for Strength and Security Fund.
(Nos. 1 and 4 are
liberal, 2 and 3 are conservative.) IRS regulations permit a 501(c)(4) to make
lobbying its primary activity and it can engage in political activities so long
as they are not its primary function. The definition of a 501(c)(4) is very
vague – and has gotten worse as Congress and the agency have revised the
guidelines over the years. To be tax exempt “an organization must operate
primarily to further the common good and general welfare of the people of the
community,” and for examples it offers “civil betterment and social
Does anyone really think that Karl Rove’s Crossroads GPS,
the NRA, AIPAC and Organizing for Action are really doing that? By the way, if
you never heard of Organizing for Action, it is a new 501(c)(4) that is an
outgrowth of the 2012 Obama campaign intended to promote support for the
Some 501(c)(4)s are spinoffs of 501(c)(3)
organizations, which are non-profit groups engaged in religious, charitable or
educational activity, all contributions to which are tax deductible. But they
are limited in the amount of lobbying they can do, so many will spin off a
501(c)(4) to do most of their political work.
Conversely, sometimes a
501(c)(4) will spin off a c3 so it can raise tax-deductible donations for
research or other seemingly non-political activities.
This is not a
partisan issue. Republicans and Democrats, liberals and conservatives use and
abuse the 501(c)(4) status equally and share responsibility for the present
It would be best if Congress and the IRS rewrote the rules to make
sure social welfare groups really do engage in social welfare, but until that
happens, there is a clear and simple solution to the problem of mystery money
and manipulation: Sunshine.
These organizations raise millions from
unknown donors, mostly very wealthy people and corporations that want to conceal
their identity, and there is virtually no control on how they spend their
One organization official I spoke to had a typical reason for
opposing disclosure. “I don’t want my donor list open to poaching by others, and
my donors don’t want it, either.”
That is understandable, but there is an
overriding public interest in full disclosure. The public has not only a right
but also a need to know who is paying, how much and how it is spent to shape
public policy. If sunshine discourages some of the more secretive players who
may be ashamed of what they’re doing or don’t want anyone to know what they’re
up to, all the better.
Tom Dine, the former executive director of AIPAC,
the American Israel Public Affairs Committee, one of the biggest, most
influential and best funded 501(c)(4)s, said, “It would not have hurt AIPAC if
it had to go public with full disclosure of contributors and their amounts. No
harm is going to be done by letting the sun shine in.”©2013