WASHINGTON -- The Internal Revenue Service would have an easier time figuring out which groups applying for tax-exempt status are political in nature if Congress passed legislation requiring groups engaged in political campaign activity to disclose their donors, according to Rep. Chris Van Hollen (D-Md.).
In an interview with The Huffington Post, Van Hollen explained that had Congress passed the DISCLOSE Act, legislation he sponsored requiring groups spending a substantial amount of money on elections to disclose their donors, the IRS would have a smaller role in policing political activity, as fewer groups seeking to engage in political campaigns and hide their donors at the same time would seek tax-exempt status.
"If we had disclosure laws, in other words, if we passed the DISCLOSE Act, then no groups, regardless of their political leaning, would have an incentive to torture the tax laws in order to hide their donors from voters," Van Hollen said.
After a Supreme Court ruling on campaign finance in 2007 and the Citizens United ruling in 2010, political operatives from both parties began to exploit new rules allowing corporations, including nonprofit corporations, to spend unlimited sums of money on political campaigns. Groups began to form under section 501(c)4 of the tax code and declare themselves social welfare organizations to evade federal election disclosure laws.
The proliferation of political groups seeking to hide their donors, Van Hollen and other campaign finance watchdogs argue, makes it infinitely harder for the IRS to sort out which groups applying for tax-exempt status are legitimately engaged in social welfare education and which are primarily political in nature. This may have fed into the inappropriate targeting of conservative groups by the IRS, which is currently under investigation by Congress and the Department of Justice, as it sought to streamline its review of potentially political groups seeking tax-exempt status.
Acting IRS commissioner Steve Miller announced his resignation Wednesday in the wake of an inspector general report that detailed how agency officials had targeted conservative groups seeking tax-exempt status for higher scrutiny and made burdensome requests for information.
"It's unacceptable to target groups based on their political leanings," Van Hollen said. "What should happen is the IRS should enforce the law and enforce it in a uniform manner, because there are a variety of groups from all parts of the political spectrum that seem to abuse this tax form in order to hide their donors and in order to keep voters in the dark."
Van Hollen voiced his concern in a Thursday letter to the leadership of the House Ways and Means Committee, which is holding the first hearing into the IRS' targeting of conservative groups on Friday. He asked the committee's chairman and ranking member to ensure that the IRS is working in a uniform manner to prevent groups that are primarily political from obtaining tax-exempt status to prevent the disclosure of their donors.
"As you know, the IG Report found that the IRS used inappropriate criteria to screen conservative groups seeking 501(c)(4) tax exempt treatment," Van Hollen wrote. "But, it is important to note that the IG Report also faults the IRS for having failed to catch applications from organizations that probably should have been denied 501(c)(4) tax exempt status because their main purpose was to engage in political campaign activities. I am sure that you will agree that no organization, regardless of its political leanings, should be able to misuse one tax exempt status (501(c)(4)) to circumvent the donor disclosure requirements of another (Section 527 of the Tax Code)."
Republicans on Capitol Hill disagree with Van Hollen on the role disclosure and the DISCLOSE Act could play in relation to the IRS' review of groups seeking tax-exempt status. Immediately following the revelation on May 10 that the IRS had inappropriately targeted conservative groups, Senate Minority Leader Mitch McConnell (R-Ky.) sought to tie the scandal to the DISCLOSE Act.
McConnell told the National Review that the IRS targeting was part of a concerted campaign to silence critics. "The whole effort by the administration to silence their enemies is going on across the board — at the FEC, the FCC, the SEC, and the HHS," he said.
He further labeled the DISCLOSE Act as the legislative vehicle for this intimidation, stating that it "should go nowhere."
"The question is, what is it that Sen. McConnell doesn't like about transparency and disclosure?" Van Hollen said. "It's exactly backwards. In other words, if you required greater transparency and disclosure there would be less incentive to try to abuse the tax laws in order to hide your donors, whether you are a group on the right on the left or in between."
"The congressman’s seemingly benign call for more transparency and disclosure is really a backdoor effort to discourage private citizens who don’t agree with the administration from participating in the political process or to harass those who already have," McConnell spokesman Michael Brumas said in a statement. "The string of revelations about abuses of power at the IRS — including the selective sharing of confidential information about conservative groups with left-wing journalists — is just the kind of thing the Democrats’ DISCLOSE Act was designed to enable. And if anyone had any doubts about that before last week’s IRS bombshell, the burden is now on them to explain why any American should think differently."
Eight of the nine Supreme Court justices have endorsed disclosure of political campaign spending by any group, Van Hollen pointed out. Justice Anthony Kennedy specifically stated that the new spending allowed under Citizens United would be acceptable since the internet has empowered the public to immediately find out who funds political efforts. (Kennedy was not, apparently, aware of the extent of loopholes in the nation's political disclosure laws.)
Van Hollen stated that while Congress should focus on investigating the IRS' targeting of conservative groups, it should also ensure that the IRS is applying the law by preventing groups from abusing tax-exempt status.
"I think what Congress should be focused on is that there is no targeting based on political affiliation and Congress should insist that the IRS apply the law in a uniform manner," Van Hollen said. "But yes, Congress should insist that the law be applied until the law is changed."
Read Van Hollen's full letter to the House Ways and Means Committee:
Dear Chairman Camp and Ranking Member Levin:
I strongly support your decision to investigate the Treasury Inspector General’s finding that some IRS employees gave extra scrutiny to tea party and conservative groups that sought 501(c)(4) tax exempt status. That kind of political profiling is absolutely unacceptable and anyone who engaged in such misconduct should be held accountable. The President took an important step in asking for the resignation of the Acting Commissioner of the IRS.
The IRS should be enforcing the law on a uniform basis, regardless of the political leanings of the groups seeking approval of 501(c)(4) status. IRS regulations require that 501(c)(4) tax exempt status be granted only to organizations that engage primarily in “social welfare” activities. The Treasury Inspector General's May 14th report (the “IG Report”) shows that the number of organizations seeking this tax status has almost doubled from 2010 to 2012 – since the Supreme Court opened the door to the creation of Super PACs in Citizens United vs. FEC. This has raised the concern that many organizations have tried to use the 501(c)(4) tax exempt status to engage in significant political campaign activities without having to disclose their donors to the public.
As you know, the IG Report found that the IRS used inappropriate criteria to screen conservative groups seeking 501(c)(4) tax exempt treatment. But, it is important to note that the IG Report also faults the IRS for having failed to catch applications from organizations that probably should have been denied 501(c)(4) tax exempt status because their main purpose was to engage in political campaign activities. I am sure that you will agree that no organization, regardless of its political leanings, should be able to misuse one tax exempt status (501(c)(4)) to circumvent the donor disclosure requirements of another (Section 527 of the Tax Code).
In 2010, the House passed the DISCLOSE Act which would have required 501(c)(4) tax exempt organizations to disclose their donors. That Act would have removed the incentive for any groups engaged in political campaign activities to seek 501(c)(4) tax exempt status in order to hide their donors from public scrutiny. Unfortunately, the Senate version of the bill failed, by one vote, to break a filibuster.
As you consider what has transpired in this case, I urge you to direct the IRS to strictly enforce the letter and spirit of the tax law on those seeking tax exempt treatment and to do so without consideration of the organization's political affiliation or ideological orientation.
In the longer term, I hope we can remove the incentive for any group, regardless of its political orientation, to seek 501(c)(4) tax exempt status to engage in significant political campaign activities while hiding their donors. The IRS should not be in the position of having to determine whether the primary purpose of any organization is to engage in political campaign activity versus the promotion of the social welfare. Requiring full disclosure and transparency would go a long way to getting the IRS out of the business of making these determinations.
Chris Van Hollen
Member of Congress
This article was updated with a comment from a spokesman for Mitch McConnell.