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Ruth Marcus: The IRS's mirror-image scandal

BY RUTH MARCUS Published: May 15, 2013

Sputtering adjectives — outrageous, appalling, intolerable — can scarcely do justice to the fiasco involving the Internal Revenue Service's reported targeting of conservative groups.

But the current scandal obscures — and, ironically, threatens to prevent action on — another, equally corrosive failure on the part of the IRS when it comes to scrutinizing political groups.

This less-noticed scandal is the mirror image of the one dominating the front page. It's not that the IRS has been too tough on such groups — it's that the agency has been too lax. Groups on the right and left have taken advantage of the tax laws to intervene in elections while hiding their donors from public view.

To be clear: There can be no room for politics, or the appearance of politics, in tax administration. For IRS employees to target groups whose names contain certain, loaded words — tea party, 9/12, whatever — is unacceptable, although my guess is that this will turn out to have been more boneheaded than sinister.

Similarly unacceptable, and again, likely more boneheaded than sinister, is the apparent failure of then-IRS Commissioner Douglas Shulman to provide accurate information to Congress when questioned about the treatment of conservative groups.

But back to the scandal hiding in plain sight. To qualify for nonprofit, tax-exempt status under Section 501(c)(4) of the tax code, groups must be “operated exclusively for the promotion of social welfare,” defined as activities “promoting in some way the common good and general welfare of the community.”

However, the IRS has long interpreted “exclusively” to mean “primarily” and allowed 501(c)(4) groups to engage in partisan activity as long as it constitutes less than half their operations. The problem exploded after the Supreme Court's 2010 ruling in Citizens United, when the number and explicit political involvement of such groups mushroomed.

This was a bipartisan outrage, although a lopsided one: Republicans were far more active on the nonprofit front than Democrats. Still, groups backing candidates from both parties abused the system to spend millions on political campaigns without revealing the identities of their donors. Meanwhile, a passive IRS stood idly by as the groups made a mockery of campaign disclosure rules.

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