Originally published on Forbes.com Nov 2nd, 2013
When it comes to exempt organizations, it seems like the IRS cannot please anybody. Professor Alex Reed‘s recently published article Subsidizing Hate: A Proposal to Reform the Internal Revenue Service’s Methodology Test illustrates the problem. He cites organizations that have been defined as “hate groups” by the Southern Poverty Law Center that continue to enjoy exempt status.
He speculates that although the Service might simply be under-resourced, it is also possible that they are afraid of a constitutional challenge to their procedures for determining whether certain organizations actually do qualify as 501(c)(3) organizations on the grounds that they are involved in “the instruction of the public on subjects useful to the individual and beneficial to the community”.
Professor Reed discusses the IRS procedure for determining whether an advocacy organization can be considered educational. The issue is addressed in Revenue Procedure 86-43 which more or less tells you what not to do if you want to be considered educational:
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1 The presentation of viewpoints or positions unsupported by facts is a significant portion of the organization’s communications.
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2 The facts that purport to support the viewpoints or positions are distorted.
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3 The organization’s presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of strong emotional feelings than of objective evaluations.
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4 The approach used in the organization’s presentations is not aimed at developing an understanding on the part of the intended audience or readership because it does not consider their background or training in the subject matter.
Essentially if you have a really strong belief system, you will probably conclude that just about all the groups that oppose your belief system should be disqualified on those grounds. Ironically, “they” probably think that your group should be disqualified, which just further goes to show how misguided they are.
What About Those Hate Groups ?
Professor Reed did a little bit of a bait and switch in his discussion of the “hate group” question. He acknowledged that there is no universally accepted definition. He mentions the FBI definition:
organization whose primary purpose is to promote animosity, hostility, and malice against persons belonging to a race, religion, disability, sexual orientation, or ethnicity/national origin which differs from that of the members of the organization
Southern Poverty Law Center defines a hate group as:
….an association of two or more persons having “beliefs or practices that attack or malign an entire class of people, typically for their immutable characteristics.”
Professor Reed goes on to state that:
As of 2010, there were 1002 active hate groups in the United States. Service grants a small, yet significant number of these groups charitable status as educational organizations. Included among these groups are white nationalists, anti-gay and anti-immigrant organizations and those who would deny the Holocaust.
To be fair to Professor Reed, if you are paying attention to the footnotes you will get that it is SPLC that is calling the groups “hate groups”.
Applying Revenue Procedure 83-46
What follows is Professor Reed’s application of the Rev. Proc 83-46 test to two of the 1002 –
New Century Foundation. According to its 2012 Form 990, NCF’s mission is “To educate the public on mattes or race, race relations, and immigration.” (I shouldn’t mock as I am prone to typos myself. Still, it is just a little amusing.)
Family Research Council. According to its 2012 Form 990 FRC’s mission is “Our vision is a culture in which human life is valued, families flourish, and religious liberty thrives.” (I’ve been in way too many retreats where we would talk about vision and mission and I still can’t keep them straight.)
Not surprisingly Professor Reed is able to find in the literature of both groups material that arguably includes viewpoints unsupported by facts, supported by distorted facts and disparaging and inflammatory language. Personally, I think it would be useful to see how many advocacy groups that SPLC did not define as hate groups have committed similar sins.
My bet would be that if they are advocating around an extremely contentious issue, it would be a pretty high percentage. It’s a little like the Constitution. There is a very small group of people who really care about Constitutional purity. Then there are a host of activists and advocates who use the Constitution like a drunk uses a lamppost, more for support than illumination.
Professor Reed’s Recommendation
Professor Reed’s take-away from all this is a need for beefed-up enforcement:
The methodology test must be reformed to ensure that hate groups masquerading as educational organizations do not receive federal subsidies. First, Service’s application of the test must be more rigorous at all stages of a tax-exempt educational organization’s life cycle. Second, an organization’s use of discredited factual data in its presentations should be held to implicate the test’s second factor. Together, these reforms would make it far more difficult for groups such as New Century and FRC to receive and retain charitable status.
I disagree with the Professor for two reasons. One is the problem I have with the concept of “hate speech” and the other is what the mission of the IRS is and who it is that they have executing it.
I Disagree With You – You Hate Me
The problem with the concept of “hate speech” is that if somebody expresses a view that you find threatening to your world view and being, you are likely to conclude that they hate you. If the conflict gets heated enough after a while, they probably will hate you, just as you will hate them. Even if you don’t hate “them”, some of your allies will. Most of your information about “them” will likely come from your allies, who will be sure to find the most hateful things, that “they” are saying.
Of course, the same thing will be happening on the other side, so you will be able to gather ample evidence that your views are being mischaracterized, thereby proving that there is really no basis for their views other than hate. If both movements are substantial enough, they will both attract political opportunists and sociopaths. No doubt the proportions vary. I’m sure your group does a better job of screening out the political opportunists and sociopaths, but you probably still have a couple.
The way the hate group logic can go is well illustrated by SPLC’s relatively recent treatment of MRAs (Men’s Rights Activists). In a clarifying statement, SPLC wrote:
It should be mentioned that the SPLC did not label MRAs as members of a hate movement; nor did our article claim that the grievances they air on their websites – false rape accusations, ruinous divorce settlements and the like – are all without merit. But we did call out specific examples of misogyny and the threat, overt or implicit, of violence.
Paul Elam wanted to know why SPLC was not looking into radical feminism:
“You do know that there is a forum out there called ‘RadFem Hub’ that actively advocates infanticide, gender-selective abortion and killing/mutilating men and boys, right?” one letter asked us. “Read the SCUM Manifesto,” another said, “and research the reception it has received over the years, and the regard with which many feminists still hold Valerie Solanas.”
Arthur Goldwag discussed these charges with prominent (or notorious, depending on who you ask) radical feminist Cathy Brennan and reported her comments as:
“I don’t hate men,” she told me. “I have a father, I have a brother, I have a son. The war that Paul Elam is waging is in his head. I worry about women and children and the increasing violence in our society.” When I asked her what she thought of Solanas’ “Scum Manifesto,” she laughed. “I view it as A Modest Proposal-type work of literature, a satire. It’s brilliant, but it’s not my personal bible.”
It does not end there, though. Cathy Brennan had co-authored a letter to the United Nations which expressed concerns about the effect that gender-identity legislation could have on the “preservation of female sex-segregated spaces “. This letter enraged trans-gender activists, some of whom like Cristan Williams want to know what SPLC is doing talking with somebody they see as hateful:
The very person your site uses to hold up as the voice of reason is clearly seen as being a hate group leader by most. She’s tried to organize TWO conferences to support her hate and BOTH time (2 years in a row, now) her conferences have been expelled from the venue once they learned that she represents a TERF hate group.
Don’t expect an accountant to sort this all out. Only, it seems like that is what Professor Reed may be asking for.
Who Works For The IRS?
The IRS has a very big job collecting revenue. It has very complicated tax laws to enforce and a lot of returns to process. According to the 2012 Databook, it did the job in 2012 with 90,280 employees (down from 94,709 in 2011). When it comes to enforcement the Service leans heavily on its revenue agents. There are just over 13,000 of them. There are also just over 8,000 revenue officers and special agents. As I understand the latter mostly start out as revenue agents. The basic education of revenue agents is a degree in accounting – just like CPAs. It is reasonable to have an organization whose job it is to collect nearly $2.5 trillion heavily dominated by accountants.
When it comes to not-for-profits there are two very broad issues. One is inurnment. Are the people running the show actually lining their own pockets? That’s a great job for accountants. We’re a bunch of cynical bastards.
The other very broad issue is whether the organization is meeting the definition that makes it exempt. Is it really educational? Is it engaging in politics? Is it really a church? You could probably come up with a worse way than having an accountant heavy organization making those determinations, but it might take you a while.
It’s not just because an accounting degree is a terrible education for that purpose. It’s also a cultural problem. If you task a group of accountants with collecting $2.5 trillion dollars, do you really expect them to take soft stuff that has only a remote potential for bringing in more money very seriously? Go ahead and expect it, but you should also expect to be disappointed.
Is There A Better Way?
There may be a better way. We have a tax credit for rehabilitating historic structures. Does the IRS have revenue agents question how historic buildings are? No. That is up to the Secretary of Interior. The allocation of the Low Income Housing Tax Credit is in the hands of state housing agencies. Other tax-sensitive determinations like whether an area is a combat zone or a disaster area are made by the President. We should do the same thing with whether exempt organizations are meeting their definitions. I ran the idea by Professor Reed. Here is what he had to say:
I am in complete agreement with you ….. and your analogy to the historic credit is intriguing. Although I normally would be skeptical as to Congress’s willingness to tackle such an issue, the ostensible targeting of Tea Party organizations in the related 501(c)(4) context might actually be helpful in spurring Congress to action vis-à-vis 501(c)(3)s. I could envision the creation of a Federal Charities Commission or a Public Charities Council as an independent agency or commission tasked with overseeing the initial designation and continuing eligibility of (c)(3)s. If Congress were to go that route, I think it would be helpful to follow the lead of the EEOC or the Federal Election Commission and stipulate that no more than 3 of the 5 (or 4 of the 6, etc.) commissioners can be of the same political party to try and ensure that it does not become an overly politicized body.
How To Identify Hate Groups?
I think I am going to have to continue to agree to disagree with the Professor on designating hate groups. Here is what he has to say on that:
In regard to your second point, I definitely think there is a risk of “hate groups” being interpreted too broadly, but I believe the Southern Poverty Law Center is reasonably responsible in how they go about designating hate groups (notwithstanding assertions that they are a left-leaning organization). For example, insofar as anti-gay organizations are concerned, the SPLC makes a point of stressing that its reason for designating these organizations as hate groups has nothing to do with their religious beliefs that homosexuality is immoral, sinful, etc. but is instead predicated on their continued use of inaccurate and false information to lobby against equal rights for homosexuals as well as their use of offensive epithets and slurs when discussing homosexuals. Nonetheless, and consistent with your first point, perhaps the government should work with the FBI (which maintains its own internal list of hate groups) to identify organizations that are ineligible for (c)(3) status. This would diffuse criticism that a left-leaning or right-leaning third party group is entrusted with designating hate groups and instead place that responsibility in the hands of federal law enforcement officials.
The IRS teaming up with the FBI to identify hate groups does not sound like a confidence-inspiring plan to me.
You can follow me on twitter @peterreillycpa.