4 scandalous elements of the IRS debacle

Everybody, it seems, is furious with the IRS for its handling of tax-exempt groups. Just not for the same reasons

Former IRS commissioner Douglas Shulman
(Image credit: Chip Somodevilla/Getty Images)

It's hard to find a politician or political commentator who doesn't think, as President Obama said Monday, that it was "outrageous" for the Internal Revenue Service to target dozens of conservative groups seeking tax-exempt status for special scrutiny. But not everybody is in agreement about what the real scandal is here.

Washington is to some extent waiting for answers from a Treasury inspector general's report to be released this week, but details keep dripping out. On Monday, the IRS said that both the former IRS commissioner Douglas Shulman and his deputy, Steven T. Miller — the acting commissioner since Shulman's departure in November — were informed that IRS employees had singled out some Tea Party groups for scrutiny on May 12, 2012, but then failed to mention that targeting in several letters to members of Congress or congressional testimony.

Also Monday, White House press secretary Jay Carney said that the White House counsel first learned that the inspector general was preparing a report on the IRS's Cincinnati office during the week of April 22, but didn't get an advance copy or even learn the focus of the report until Friday. Obama said Monday he only learned of the conservative targeting from the news media on Friday.

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The Washington Post reports that, according to letters from Tea Party groups, the Cincinnati office — which is in charge of tax-exempt determination — wasn't the only IRS office asking questions of conservative groups seeking 501(c)4 tax-exempt status. And Pro Publica said Monday that the Cincinnati office had improperly given it nine pending 510(c)4 exemption applications from conservative groups late last year — the IRS is only allowed to release such forms after a group's application is accepted.

It's a safe bet that more news is coming this week. In the meantime, here are four contemptible facts about the unfolding IRS scandal:

1. The IRS targeted conservative, smaller-government groups

This is the main scandal. From March 2010 to May 2012, IRS employees used a shifting array of ideological or political keywords — including "Tea Party" and "patriot" plus groups that aim to "criticize how the country is being run," among other generally conservative catch phrases — to flag groups seeking 501(c)4 applicants for review.

The IRS apparently sat on about 75 of the Tea Party–branded and other conservative-sounding 501(c)4 applications for months or years, then sent out long questionnaires with up to 55 onerous questions about who works for the group, which candidates they've had contact with, and anything else that could tip the IRS off to overt political activity. (The IRS said it also submitted up to 200 other groups to similar scrutiny, without disclosing any political ideology.) The IRS leadership's less-than-forthrightness about the targeting merely adds fuel to the fire.

"Knowing what we know now," says Sen. Orrin Hatch (R-Utah), who wrote the tax agency three times in 2012, "the IRS was at best being far from forthcoming, or at worst, being deliberately dishonest with Congress."

2. 'Social welfare' groups are given electoral carte blanche

While Republicans and conservative groups were complaining about IRS harassment tied to their 501(c)4 applications, government watchdog groups filed more than a dozen complaints with the IRS asking it to look into already-approved 501(c)4s to see if they had violated their tax-exempt status.

Organizations that don't have to pay taxes under section 501(c)4 of the tax code are supposed to be dedicated exclusively to "social welfare," not politics — Rotary clubs and other civic leagues, for example, and some homeowners' associations and volunteer fire brigades. But after a confusing array of court decisions and IRS rulings, such groups are generally allowed as long as they're not "primarily engaged" in electoral politics.

"Nowhere do the rules specify what 'primarily engaged' means," says Nicholas Confessore in The New York Times. That ambiguity has let avowedly political groups like Karl Rove's Crossroads GPS, Americans for Prosperity, and the Obama-linked Organizing for America — plus most of the delayed Tea Party groups — to earn the coveted 501(c)4 status, meaning they can raise unlimited funds without paying taxes and, perhaps more importantly, keep their donors secret. In short, Confessore says, the IRS has created what critics say is a giant loophole, "and hundreds of millions of dollars worth of thinly disguised election spending have passed through."

"In every meaningful sense, groups like Americans for Prosperity were operating as units of the Republican Party," says Jeffrey Toobin at The New Yorker. Democrats had similar, though much poorer, operations, but they undoubtedly would have mounted robust efforts it they'd had the money. "So the scandal — the real scandal — is that 501(c)4 groups have been engaged in political activity in such a sustained and open way."

3. The IRS went after the small fish, not the big guns

Large, well-funded groups like Crossroads GPS, with good legal teams, had a relatively easy time getting 501(c)4 status; most of the targeted groups "were local Tea Party organizations with shoestring budgets," says Confessore in The New York Times.

"We've complained about a few big fish and we've heard nothing from the IRS," Paul S. Ryan at the Campaign Legal Center tells the Times. "We would far rather see scrutiny of these big fish — the groups that spent hundreds of millions of dollars to influence elections — than to see the resources spent on hundreds of small groups that appeared to spend very little on elections."

The plausible reason that the IRS targeted right-leaning groups is that, thanks to the enviable Tea Party fervor in 2010, "most of the campaign-minded applications they were getting were conservative," says Alec MacGillis at The New Republic. The biggest problem at the Cincinnati office is that the IRS harassed the "small-fry conservative groups" while "the great white sharks of the right floated on by, untouched," MacGillis says. And now, thanks to this scandal, the IRS won't touch the big guys, either, "making the mockery of our laws a permanent condition. That is the real scandal."

4. The IRS malfeasance makes all government look bad

For the full argument, watch Jon Stewart's dissection of the scandal on The Daily Show. But Joe Klein at TIME makes a similar case about how scandals like this are a blow to anyone who believes the government has an important role in solving America's problems. This IRS flub is another "example of Democrats simply not managing the government properly and with discipline," a notable problem in the Clinton administration. For Obama:

This is just poisonous at a time of skepticism about the efficacy of government. And the president should know this: The absence of scandal is not the presence of competence. His unwillingness to concentrate — and I mean concentrate obsessively — on making sure that government is managed efficiently will be part of his legacy. [TIME]

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Peter Weber

Peter Weber is a senior editor at TheWeek.com, and has handled the editorial night shift since the website launched in 2008. A graduate of Northwestern University, Peter has worked at Facts on File and The New York Times Magazine. He speaks Spanish and Italian and plays bass and rhythm cello in an Austin rock band. Follow him on Twitter.