Internal Revenue Service Commissioner Douglas Shulman denied that the agency is targeting Tea Party groups and giving them extra scrutiny before granting them tax-exempt status.
During a House Ways and Means Oversight Subcommittee hearing on Thursday, subcommittee chairman Charles Boustany, R-La., asked Shulman to provide assurances that the IRS is not targeting Tea Party groups based on their political leanings.
“Yes, I can give you assurances,” said Shulman. “As you know, we pride ourselves on being a nonpolitical, nonpartisian organization.” He pointed out that only he and the IRS chief counsel are Presidential appointees, and they are appointed for five-year terms in order to overlap administrations.
Boustany and other Republican lawmakers in Congress have written to the IRS asking about media reports that the IRS has been subjecting Tea Party groups to extra scrutiny when they apply for tax-exempt status under Section 501(c)4 of the Tax Code (see IRS Probe of Tax-Exempt Political Groups Questioned and Senate Republicans Ask IRS to Hasten Approval of Tax-Exempt Political Groups).
Democratic lawmakers, on the other hand, have been asking for greater scrutiny before granting tax-exempt status to organizations whose primary purpose appears to be political advocacy and to pace limits on the amount of campaign spending they do (see Senators Ask IRS to Cap Political Spending by Nonprofits). In the wake of the Supreme Court’s Citizens United decision, several of the so-called Super PACs have set up nonprofit tax-exempt affiliates that have been able to raise large amounts of money from wealthy donors without disclosing their identities.
“For 501(c)4 organizations, which are what has been in the press, organizations do not need to apply for tax exemption,” Shulman pointed out. “Organizations can actually hold themselves out as 501(c)4 organizations and then file a [Form] 990 with us. The organizations that have been in the press are all ones that are in the application process, so first of all I think it’s very important to emphasize that all of these organizations came in voluntarily. They did not need to engage the IRS in a back and forth. They could have held themselves out, filed a 990, and if we had seen an issue, we would have engaged, but otherwise, we wouldn’t. The basic rules around 501(c)4 organizations are that they need to be primarily engaged in promoting the common good and general welfare of their community. They can be involved in political and campaign activity, but it can’t be their primary purpose. When people apply for 501(c)4 status, what we do is we engage them in a number of questions making sure that we understand their primary purpose around this and other sorts of engagement. So what’s been happening has been the normal back and forth that happens with the IRS. None of the alleged taxpayers—and obviously I can’t talk about individual taxpayers and I’m not involved in these—are in an examination process. They’re in an application process, which they moved into voluntarily. And so there’s absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)4 status.”
Boustany asked if there had been any change in IRS practice in terms of what triggers audits for tax-exempt organizations as a whole.
“As a whole, we have audits based on risk criteria, coverage requirements, etc.,” Shulman responded. “But in the area of political activities, just to make extra sure that folks are very insulated, we actually have a committee of three career professionals, who aren’t based in Washington, D.C., that anytime an audit would be triggered because of potential political activity, or there’s a referral from a member of Congress and other kinds of things that could be viewed as political, that group of three actually first looks at it. So no single individual can launch an audit. There has to be agreement amongst three. Then the decision would be made for an audit based on resources, risk, allegations, etc., and it would be shipped out to an auditor to do that audit. That’s been the practice for many years for anything to do with political activity, and that’s the practice now.”