The Real IRS Flap Is About Dark Money, Not Emails
Don’t get distracted by the political theater over lost IRS emails. There is little new about headline-seeking politicians berating IRS Commissioner John Koskinen. Like most of what happens in Congress these days, these second-rate star chambers do little more than create cable TV sound bites and base-motivating outrage.
But get past the shouting and two very important issues remain on the table: The first is the IRS has been terribly managed for years and needs to be fixed. It’s easy to forget, but that’s why Koskinen is there.
The second is that the commissioner appears undeterred in his efforts to rewrite the rules for 501(c)(4) non-profits that are engaged in political activities. That seemingly obscure effort will have an enormous impact on future U.S. elections and the balance of political power in the U.S.
Let’s start with IRS operations. Poor management, low staff morale, archaic computer systems, insufficient funding, and a growing workload have stretched the agency to (and maybe past) a breaking point. The agency’s initial bungling of those tax-exempt applications and its self-destructive culture of secrecy—including its inexplicable delay in telling Congress about the lost emails– are just two examples of what’s wrong. Something has to change.
Still, the second issue dwarfs the first. Despite all the noise surrounding the alleged scandal over IRS treatment of tea party and other non-profit political organizations, Koskinen seems committed to writing regulations aimed at curbing the use of non-profits as laundries for hundreds of millions of dollars in secret campaign money.
Koskinen is under great pressure from liberal and conservative groups and from lawmakers on both sides of the aisle to abandon the effort. Don’t for a minute think that the House’s proposed $300 million cut in the IRS budget, its endless requests for IRS documents on multiple subjects, and even the email hearings themselves are not in part an effort to sink—or at least slow–these regulations.
Yet, Koskinen has refused to blink.
Last November, the agency proposed a new regulatory framework for 501(c)(4) social welfare organizations. It was inundated with 150,000 public comments, some of which raised important substantive concerns. The Service could have just dropped the whole thing. But instead, it announced in late May that it would soon revise the proposed rules.
In a recent interview with the Center for Public Integrity, Koskinen described his ambitious goal: “There are three issues: What should be the definition, to whom should it apply and how much … can you do before you jeopardize your exemption? The next resolution…will deal with all three questions.”
Koskinen has some leverage here. In 1959, IRS wrote regulations requiring that these groups be “primarily engaged” in such social welfare to get and keep their tax-exempt status. But the statute is not nearly as flexible. It says these organizations must be engaged exclusively in social welfare.
That phrase social welfare comes with its own ambiguity. But Koskinen seems to have great flexibility in how he writes new rules. Besides, he could always repeal the IRS regulations and go back to the statute.
It is hard to overestimate how important these rules will be. These groups didn’t matter much until the Supreme Court opened the door to largely unlimited political contributions in the 2010 Citizen’s United case. Contributors have many ways to give to favorite politicians. But once lawyers realized donations could be distributed anonymously through (c)(4)s , the once-obscure non-profits became a powerful tentacle in the campaign finance octopus. The Sunlight Foundation reports that these “dark money” organizations spent more than $300 million in the 2012 election cycle.
With that kind of money at stake, it is no wonder so many people would like to see Koskinen abandon his effort to control (c)(4)s.
It is fascinating to follow the arc of this issue over the past year. What started as a controversy over how the IRS managed applications for tax-exempt status by political organizations turned into a hunt for White House manipulation of the IRS and has now devolved into allegations of a coverup.
This is, in many ways, the classic narrative for a Washington political scandal—controversial action, political influence, coverup. But don’t get so caught up in the whodunit over lost emails that you forget what this story is really about.