Issac Bailey Blog | IRS scandal: ‘Social welfare’ groups have emerged as the primary source for political money, report found

Posted on July 1, 2014 

You want to know why the IRS felt the need to come up with a way to better scrutinize groups claiming to be primarily or exclusively social welfare outfits, the thing that began this entire ‘targeting scandal’ after a now-debunked inspector general report made it seem as though only conservative groups received extra scrutiny?

ProPublica, a non-profit news gathering site founded by investigative journalists, did a lot of digging into the issue many months ago. Its reporting detailed why the IRS needed to do what it eventually tried to do, after many years of allowing plenty of political groups to openly masquerade as social welfare organizations.

In other words, before this supposed scandal, taxpayer watchdog and advocacy groups had been complaining that the IRS wasn’t doing enough to stop political groups from claiming a tax exempt status that provided them with taxpayer-funded subsidies they legally should not have been receiving. But when the IRS finally began to crack down, political groups complained and GOP House members responded with the current so-called scandal – which is shielding these political groups from accountability.

In case you missed their findings, I wanted to link to it today as a refresher.

From the ProPublica piece:

Social welfare nonprofits have emerged as a prime vehicle for political money for several reasons.

Like super PACs, they can rake in unlimited contributions, support and oppose candidates, and buy ads right up until Election Day. But unlike super PACs, they don't have to disclose their donors.

Although individuals cannot deduct contributions to social welfare nonprofits on their taxes, companies may be able to write off donations as business expenses as long as they aren't earmarked for lobbying or political ads.

Many social welfare nonprofits became more active in politics after a series of recent court rulings, including the Supreme Court's Citizens United decision in January 2010, reshaped the rules of campaign finance.

Previously, laws had barred nonprofits from accepting donations from corporations or unions for political purposes and had mostly restricted 501(c)(4)s to generic "issue" ads that stopped short of calling on people to vote for or against candidates.

Citizens United dismantled this system. In a 5-4 decision, the high court said corporations and unions enjoyed the free speech rights of any individual. They could spend directly on political ads or give unlimited amounts of money to nonprofits for political activities. Over the next two years, contributions to existing social welfare nonprofits skyrocketed and new ones geared specifically toward elections were formed.

"It really sounded the starting gun for the creation of nonprofits that were strictly political in nature," said Sheila Krumholz, executive director of the Center for Responsive Politics, a nonpartisan research group that tracks money in politics. …

… When groups apply to the IRS for recognition as tax-exempt, they must spell out their plans. They also must swear under penalty of perjury that they believe what they say is true.

Politics is one litmus test the agency uses to determine whether a group has a legitimate social welfare purpose and warrants a tax exemption, experts say. Question 15 on the application asks, "Has the organization spent or does it plan to spend any money attempting to influence the selection, nomination, election, or appointment of any person to any Federal, state, or local public office or to an office in a political organization?"

ProPublica compared applications from 72 501(c)(4)s with tax returns they filed later. We found 32 groups that initially said "no" to politics then filed tax returns showing they had done the opposite.

Even before mailing its application to the IRS saying it would not spend money on elections, the Alliance for America's Future was running TV ads supporting Republican candidates for governor in Nevada and Florida. It also had given $133,000 to two political committees directed by Mary Cheney, the daughter of the former vice president. No one from the Alliance for America's Future returned calls for comment.

Read the entire piece here: http://www.propublica.org/article/how-nonprofits-spend-millions-on-elections-and-call-it-public-welfare#precords-update

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