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For example, in its 2010 501(c)(4) application to the IRS, AAN stated that it expected to spend less than 20 percent of its resources on political activities. Yet within days of receiving IRS approval, AAN acknowledged that it planned far greater political activity than it had represented. The group’s tax returns show that 66.8 percent of AAN’s total spending from July 2009 through June 2011 was used for political activity. By any definition, this is clearly over the percentage permitted by the tax code. CREW filed other complaints against Americans for Tax Reform, the Commission on Hope, Growth and Opportunity, and the American Future Fund, but there is no evidence the IRS acted on any of them.
When confronted about its misinterpretation of the law and its record of inaction, the IRS has said only that it is “aware” of the issue. Finally, in February, CREW filed a lawsuit against the IRS for flouting the law barring 501(c)(4) organizations from engaging in political activity. The case is pending in district court.
Sadly, the byproduct of the IRS’ bungling efforts to follow the law likely will result in diminished enforcement. Opportunists will use this imbroglio to bolster arguments that a crackdown on social-welfare groups abusing their tax status is political; a weakened IRS will simply fold. We saw this in 2011, as social-welfare organizations began raking in secret donations made with the intent of influencing the 2012 elections. Sen. Orrin G. Hatch, R-Utah, one of those leading the charge against the IRS now, railed against the agency for attempting to enforce a law requiring those who contribute to 501(c)(4)s to pay gift taxes. In short order, the IRS retreated, effectively allowing donors to ignore the law.
As Congress holds hearings and demands answers from the IRS, members on both sides of the aisle should consider a solution to this problem: banning political spending by 501(c)(4) groups. The effect of such a change would allow the IRS to get out of the business of attempting to ascertain the goals of these organizations, without impairing groups’ participation in the electoral process.
Melanie Sloan is executive director of Citizens for Responsibility and Ethics in Washington.