This is Not Just a Coincidence

The IRS Scandal 2013 has put the Obama administration in the limelight once again.  In the past year, Obama has generated heated bipartisan criticism for the State Department’s handling of the Benghazi Terrorist Attack, the Defense Department’s targeting and language of the Drone Program, and Justice Department’s investigation into the AP Employee Phone Records.

You can imagine how badly each party wanted to win this past election – especially if you lived in a swing state in 2012.”

Looking like the boy who cried wolf, Obama claims he wasn’t aware of the actions IRS employees and department heads were taking when they targeted conservative groups applying for tax-exempt, non-profit status.  There are 15 major United States departments (ie: Department of Justice, Department of Defense, Department of Treasury, etc), each comprised of a number of agencies, bureaus, councils, offices, and services.  It’s simply impossible for one person to know every detail of each program, especially when that person spends over 10% of their time campaigning for presidency and 7% of their time on vacation.  But that doesn’t “exempt” Obama from blame over this latest debacle.

The Storm Was Brewing

Since the Supreme Court decision in the case of Citizen’s United v. Federal Election Commission on January 21, 2010, political organizations and activists have been clamoring to take advantage of new campaign finance laws.  The court ruled that First Amendment freedom of speech rights must extend to corporations, associations, or labor unions – meaning that these groups could spend their large coffers of cash on political advertisements with little restriction and most importantly – provide anonymity for donors.  If you make a contribution to a corporation, and then that corporation spends money on a political ad, there is no record that indicates you contributed directly to that political ad.

The ruling gave corporations unlimited, anonymous political spending power, but corporations lacked a key component – easy access to donors’ cash.  Enter the Internal Revenue Service.  The IRS offers a variety of tax shelters to non-profit organizations, one of which is tax-exempt contributions, providing .  Tax-exempt contributions is a policy designed to incentivize Americans to donate their money to non-profit organizations that have non-profit objectives, like the United Way, Salvation Army, Feed the Children, the American Cancer Society, etc.  Previously, non-profit organizations couldn’t participate in political activities like lobbying or political ads.  But with the ruling, that all changed.

Combine the Supreme Court ruling and the IRS tax shelters for political spending, and what do you get?  A flurry of political groups filing for non-profit, tax-exempt status.  Because of the enormous benefit that tax-exempt status provides – namely that contributors can make 100% tax-exempt contributions, political organizations accelerated by applying en masse for this status.  Under a provision in the Internal Revenue Code, organizations with the 501(c)(4) status can exist “for the purpose of bringing about civic betterments and social improvements,” and therefore the IRS has traditionally allowed these organizations to engage in lobbying and political campaigns – providing that those activities are not the organization’s primary activity. 

According to a final report released on May 15 that detailed a large scale, 3 year investigation by the Treasury Inspector General for Tax Administration (“TIGTA”), there is a dedicated team of 200 employees in the IRS that deals with roughly 70,000 applications per year from groups seeking 501(c) non-profit status.  Over the past 3 years, the IRS has received more than twice as many applications for the 501(c)(4) status, and that the IRS has seen an increase in the number of organizations potentially involved in political activity.  This is a direct correlation to the court ruling.

The IRS has had a particularly difficult time defining whether or not an organization’s primary activity is political activism, or social welfare.  Political groups on both sides of the aisle have tried to take advantage of this gray area in the law and tax code, but the IRS has unfairly made it difficult for conservative groups.

What the IRS Actually Did

By now most followers have heard that the IRS targeted conservative groups applying for the tax-exempt status and treated them unfairly.  According to the official TIGTA report, the IRS inappropriately targeted conservative groups by identifying words in their name like “Tea Party” and “Patriot.”  Furthermore the IRS did NOT target groups with words more commonly associated with liberal groups like “Progress” and “Green.”  Once targeted, the IRS did two things with conservative group applications:

  1. Deliberately delayed processing of applications by as much as three years
  2. Asked for unnecessary information that was difficult or impossible to provide by the group

In the official report, roughly 50% of the applications submitted by groups seeking the status were delayed, approximately 33% of the applications were approved, and nearly 10% of the applications were withdrawn by the applicants.  None of the applications were denied (of the applications that TIGTA reviewed in its investigation of the IRS).  At this time, the applications are being reviewed and processed with all expediency.

The scandal is still unfolding, and therefore the full ramifications of the IRS handling of the groups applying for status is still unknown.  What we do know is that Obama won re-election, despite several billions of dollars spent promoting Romney.  For a full breakdown on the outside groups spending and other 2012 election spending check out this great NYT section on the 2012 Election.

Motive – Obama is the Leader of the Democratic Party

It’s imperative to note that the Citizen’s United group who brought the case to the Supreme Court was a conservative lobbying group, and that the Obama administration despised the ruling.  Democrats labeled the ruling as a major defeat for average Americans, citing that campaign finance laws were overturned dramatically in favor of special interest groups.  Republicans like Senator Mitch McConnell R-Kentucky praised the ruling on the grounds that it promoted First Amendment rights of freedom; in his words the court positively “struck a blow for the First Amendment.

The timing of the ruling was 2010 – less than two years from the Obama re-election campaign.  The combination of the ruling and the tax-exempt political organizations threatened to unleash hundreds of millions of dollars to pay for anti-Obama political ads, which would all be spent legally and likely sway the election in Romney’s favor.  It is a reasonable conclusion that Obama and his administration would want to prevent this from happening.  You can imagine how badly each party wanted to win this past election – especially if you lived in a swing state in 2012.

Who Was Really At Fault?

The IRS is admittedly at fault for inappropriately applying the law based on political motivation.  Steven Miller, the Acting Commissioner of Internal Revenue and Deputy Commissioner for Services and Enforcement, resigned on May 15th 2013, the same day the TIGTA final report was published.  Joseph H. Grant, commissioner of the Tax Exempt and Government Entities Division, has also announced his resignation and retirement for early June 2013.

However, it’s going to be difficult to form a “smoking gun” type connection between Obama and the inappropriate actions of the IRS.  Obama is the leader of the party, hated the Supreme Court ruling that started everything, had the motive to suppress conservative spending near a vital election year, and has been highly criticized recently.  But unless the investigation can prove beyond a reasonable doubt that Obama specifically instructed a small, 200 person branch of the IRS to break the law, then other department heads will take the fall.

Remember that none of the applications were outright denied, so when the head of the division in charge of reviewing applications for tax-exempt status Lois Lerner recently testified that she had “not done anything wrong” nor had she “broken any laws,” she was stating that the IRS acted within its legal authority.  It is in fact, within the IRS’ legal authority to implement targeting criteria, delay processing, and seek additional information when processing non-profit status applications.  The fault here lies with the department heads that implemented the policies, the employees that condoned it, and the regulators that failed to utilize proper oversight to extinguish the inappropriate practices before they were impacted.

You’re Going to Hear About This for Awhile

All of this has led to a plummeting approval rating and calls for impeachment.  Republicans feel like an election was stolen from them by keeping dollars on the sidelines that they fought hard to procure in the Citizen’s United case.  Conservatives see this as an overreach of government bureaucracy and impediment on freedom from a department (IRS) that is unanimously despised by voters on both sides of the political spectrum.  They also feel miffed every time Obama claims “exempt” status; every time the President claims that he wasn’t aware of the actions being taken is perceived as an outright lie – and they may have a case considered the length of time that applications were held for and Obama’s savvy for understanding how closely correlated funding is to winning elections.  The IRS Scandals looks and feels a lot like retaliation for the Supreme Court ruling, which plays right into the right’s hand as a victim of leftwing conspiracy.

Prediction: Obama won’t get impeached but his legacy will be drowned in this scandal, Republicans will use this as a rallying cry to remobilize the party.

 


Michael Fox June 2, 2013 7:55 pm edit

Political infighting at its best. I don’t know how anybody could vote for either of these parties. Small government is the way to go…

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