Originally published on Forbes.com May 18th, 2013
Damned if you do, damned if you don’t. While heads roll at the IRS for allegedly picking on Tea Party groups, the agency is being sued by Citizens for Responsibility and Ethics in Washington (CREW) for generally being too easy on 501(c)(4) organizations engaging in politics. The suit, Gill v. Department of Treasury focuses on the unsuccessful campaign of Dr. David Gill for the Illinois 13th Congressional District. According to CREW, Doctor Gill was favored to win the race. Then along came the American Action Network which spent $1.5 million dollars on advertising attacking him, falsely accusing him of opposing Medicare.
So why is the suit against the IRS ? That’s what the IRS is asking, claiming that CREW and Doctor Gill do not have standing to sue the IRS. If they are going to sue somebody, they should sue American Action Network. My good friend, Bob Baty would be stressed with me, if I did not point out that this is the problem that the Freedom From Religion Foundation faced in challenging the parsonage exemption, which allows tax free housing allowances to “ministers of the gospel”. If the IRS picks on you, you generally have recourse to the courts. The people who were whining about how long it was taking to get their exempt status approved because somebody in Cincinnati reasoned that if an organization refers to itself as a “party”, maybe it needs to be reviewed for political activity, could have sued once 270 days had gone by. None of them did. Go figure.
If, on the other hand, you think that the IRS is falling down on the job and not picking on somebody it should, it can be hard to get standing. It is a very lawyerly concept. Here is the brief in which CREW explains why it has standing. The problem CREW sees is with the regulations. It boils down to a two word difference. According to the regulations to qualify under 501(c)(4), your group must be “primarily engaged” in promoting social welfare, while the Code says “operated exclusively” to promote social welfare. The regulation goes on to state:
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.
Those two words make a very big difference. You could read the Code to say that a 501(c)(4) should have 0% of its expenditures be on intervention in political campaigns. Arguably the regulations allow 49%.
What Is AAN’s Percentage ?
I figured it would be interesting to study AAN’s Form 990. The most recent available is for the year ended June 30, 2011. I learned that:
The American Action Network is a 501(c)(4) “action tank” that will create, encourage and promote center-right policies based on principles of freedom, limited government, American exceptionalism and strong national policy.
The organization took in over $27,000,000. It had not more than 8 employees during the year. The CEO former Senator Norm Coleman drew $236,806 for a 20 hour week. Not bad for a part-time job. The President, Rob Collins, had to work full-time for a measly $179,400.
According to the 990 AAN:
Spent limited resources to support of oppose candidate who agreed or disagreed with our center-right principals (sic) by engaging in independent candidate advocacy advertising and contributed to a like-minded organization, American Crossroads, to engage in similar activities.
The only thing that aggravates me more than mixing up principals and principles is confounding i.e. and e.g., but I digress. The “limited resources” were just over $5,000,000. So where did the rest of the money go. The largest expense category is “lobbying”- over $17,000,000.
There is something curious though. The five highest paid independent contractors, paid over $20,000,000, were all paid for “media placement services”. From a discussion of the achievements of Rob Collins, we learn :
The Network under Rob’s leadership raised over $30 million for advocacy in 5 Senate races and 35 House Districts building multi-platform advocacy campaigns that included grassroots, TV, radio, new media, social media and voter mobilization.
That gets me thinking that there might be a thin line between “lobbying” and “supporting or opposing candidates”.
The only other tidbit of interest I found in the 990 was that the American Action Network does not have a written whistleblower policy.
This Is Not The Right Job For The IRS
In its brief, CREW notes:
The issues this case raises fall within the intersection of two statutory schemes: the Tax Code and campaign finance laws. The meaning and relevance of the Tax Code provisions at issue can only be understood within the parallel context of campaign finance laws, which impose a separate set of requirements on candidates for federal office and provide the rationale for the disclosure provisions the Tax Code incorporates.
The job of the IRS is to collect taxes. Since charitable contributions are deductible and a rather staggering array of organizations are exempt from taxation (there are 29 varieties just under 501(c)) it needs to be looking at exempt organizations, but the issues involved here really don’t have anything to do with collecting taxes. Transparency in political contributions should be the job of the Federal Election Commission. Apparently there are problems there. Maybe instead of having the commission be made up of three Republicans and three Democrats, it should consist exclusively of people from third parties. It’s not easy being Green.
We have seen how much trouble the IRS has had just with applications for exemption. To really enforce the law, they will have to audit organizations like American Action Network to determine if maybe some of that media placement actually had something to do with campaigns. The process would end up being like smoothing the air bubbles when hanging wall paper. A tainted 501(c)(4) would shut down and a new one will pop up. Apparently these things don’t require much infrastructure. According to the 990, less than 2% of AAN’s expense are for management and fundraising. That would be outstanding, if it were a charity.
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