Steven Chamberlain: In defense of the IRS


Published: Tuesday, May 21, 2013 at 6:01 a.m.
Last Modified: Monday, May 20, 2013 at 5:00 p.m.

The Internal Revenue Service put special scrutiny on applications for tax exemptions filed by entities with the words “tea party” in their names. Naturally, it is assumed that such actions by the IRS were politically motivated. But maybe not.

The general rule regarding the taxation of political organizations is that the contributions they receive are taxable income and their political expenditures are not deductible. IRC 527 allows the organization to be exempt from the general rule, but the organization has to apply for the exemption. The downside of attaining exempt status is that contributions are limited and the names of donors are disclosed.

Another way to gain exempt status and still engage in political activities is to be a social welfare organization under IRC 501(c)(4). There are no limitations on contributions to a social welfare organization and there is no mandatory disclosure of donors. The problem is that to be exempt, a social welfare organization has to be engaged primarily in activities which promote the common good and general welfare of the community as a whole.

After the Supreme Court ruled in the Citizens United case that the government cannot limit the free speech of corporations and other associations, the IRS noticed a large increase in applications for exemption under IRC 501(c)(4) –- and many of those applications were from tea party groups that coincidentally sprang up all over the country in 2009 and 2010.

I don’t have the impression that tea party groups have big donors to protect. So I wonder why those tea party groups did not apply under IRC 527.

In any event, the IRS officials responsible for evaluating those applications were of the view that the tea party groups were really political organizations disguised as social welfare organizations. So naturally the IRS sought additional evidence from the applicants with “tea party” in their names.

The problem is primarily a matter of optics, rather than IRS political bias. The IRS was just doing its job in a systematic way. Once Congress sinks its teeth into this matter, we may very well see little change in the way the IRS does its business, but significant change in how social welfare organizations are regulated.

Steven M. Chamberlain lives in Ocala.

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