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IRS 101: Seven questions about the tea party scandal

The Internal Revenue Service is under the microscope now, as revelations have emerged that the agency wrongly targeted conservative groups seeking nonprofit status. Here’s an accounting of what has happened, along with the ramifications.

4. Why the sudden scrutiny of 501(c)(4)s?

  • By Husna Haq Correspondent

This goes back to action at the US Supreme Court. The justices’ landmark Citizens United decision in 2010 allowed corporations and labor unions to raise and spend unlimited sums of money on elections. One channel through which to do so was section 501(c)(4) of the tax code. This carried with it two added benefits: Groups that qualify don’t have to pay taxes or identify their donors.

It’s not surprising, then, that following the high court’s ruling, applications for this designation more than doubled. This coincided with two other things: a rise in political activism on the right (2010 was a peak year for the tea party movement) and heat from campaign-finance watchdogs to crack down on abuse of the 501(c)(4) tax exemption, “which is routinely granted to overt political advocacy groups with little or no social welfare work,” according to a report in The New York Times.

Flooded with applications and pressured to weed out tax-code abusers, it appears IRS officials began using shortcuts – namely key words and phrases – to target certain applications.

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Mark Sappenfield
Editor

Dear Reader,

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