The Scandal of the IRS Scandal: How to Promote a Boondoggle

I’ve spoken about this issue many times, and I have written a few pieces about the topic on this forum as well.  I’ve written about profiling, and while I don’t have any statistics to cite, to me at least, it seems that the practice is garnering more attention.  I’m using this basic definition for profiling:  Recording a person’s behavior and analyzing psychological characteristics in order to predict or assess their ability in a certain sphere or to identify a particular group of people.  Like many things in life, we are guided by both implicit and explicit impressions and bias.  Those conscious or subconscious thoughts can be negative but they may be positive and beneficial.  It depends upon the sarcastically simple questions of:  How? and Why?  It matters if profiling is the only method or tool utilized.  If perceptions are able to replace realities as the truth and the way, then we no longer control our own personal being.

This comparison my friends and I have experienced more times than we care to remember.

Rational thought or reality is that void in a structure to which we insert a small tube to transport expansion foam in hopes of closing that precise void.  Quickly, the empty space is filled, and we stop our application.  In short time, we discover that the material has expanded beyond the void.  If the material surrounding the former crevice is sound, then the foam takes the path of the insertion point and coats everything outside the hole in that direction.  If the area around the initial void was corrupted or merely weaker than the power exacted by the expanding foam, we may see a portion of the structure crumble.  The foam is irrational thought and perception which when afforded its opportunity imparts a harsher different reality.

A friend sent me this recent article from the Blaze about the continuing IRS scandals, investigations, probes, or whatever happens to be the vogue term for today.

The issue remains the 501(c)(4) tax exempt classifications and the profiling or targeting of specific groups, most with conservative leanings, and many with descriptors such as “Tea Party, “Constitution,” “Liberty,” and so on within their names.

As I asserted in other pieces, I believe that profiling based on political ideology in these types of instances is wrong.  Regardless of who or what happened, however, I’ll contend that Congress had knowledge well before any of the allegations became public.

The Internal Revenue Code requires the National Taxpayer Advocate to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance.    ( Internal Revenue Code (IRC) § 7803(c)(2)(B) )

The National Taxpayer Advocate is required to submit these reports directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, or the Office of Management and Budget. ( IRC § 7803(c)(2)(B)(iii) )

The first report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. ( IRC § 7803(c)(2)(B)(i) )

You can find those reports to Congress for 2012 and previous years here.

A Special Report to Congress:  Political Activity and the Rights of Applicants for Tax-Exempt Status dated 30 June 2013 can be read here.

An overview explaining the concept 501 (c)(4) organizations can be found in this Washington Post article by Sean Sullivan.  If you want the official definitions from the IRS, you can begin reading here.

Basically, a 501(c)(4) is allowed to participate in politics as long as politics are not the primary activity of the organization.  There is ambiguity on whether “primary activity” means less than half or if it may be another percentage.

The reason that many seek a 501(c)(4) status, however, is that donors can remain anonymous unlike if you donate to a 527 political organization or to a Super PAC.  Most of these 501(c)(4) organizations have affiliated non-profit arms and Super PACs.  Therefore since the 501(c)(4) can donate to a Super PAC, any entity or individual can funnel enormous sums of money into the political arena and election process without having its, or his or her identity disclosed.

The classic argument defending these organizations is that donations to a 501(c)(4) are not tax deductible.

It is correct that an individual cannot receive credit for a charitable contribution for donations to a 501(c)(4).  Contributions, however, to a 501(c)(4) may be deductible as business or trade expenses.  The problem is that no clear set procedures are in place.  Is the conduct of the organization necessary or ordinary to the taxpayer’s business?  How is “primary activity” and “general welfare” defined for a 501(c)(4)?  Is the threshold for “political activity” 49 percent?  Seriously, neither the IRS nor Congress has a clue as the standards keep changing.

For those wanting to take advantage of this chaos, the IRS has a compliance guide, Publication 4221-NC, but to see how a business can make a 501(c)(4) contribution tax deductible as a business or trade expense, you may have to go into the actual tax code itself, 26 USC § 501.  While somewhat dated from 1995, this article gives some background.

Since the original article I cited listed American Future Fund, I’ll use it as an example of the amounts of money involved.  In 2012 this tax exempt non-profit spent $25,415,969 on Federal elections according to data compiled by OpenSecrets.org.  To me that is a significant sum of money, and imagine that number more than doubles when playing by the approximately 50 percent threshold as a primary activity.  That type of cash is not chump change, and remember that this is money spent by a non-profit organization.  It is not revenue or expenses of a group trying to earn a profit.

While the American Future Fund is not required to identify donors, some have been identified through their own IRS filings.

The candidates for whom the American Future Fund spent the $25 million either in support or opposition can be found here. As you can see, in excess of $20 million went to the Presidential election with the intent of assisting Mitt Romney either by promoting him or by spending approximately $7.5 million in negative advertisements concerning Barack Obama.

It’s not simply about a single ideology.

While the above refers to only the American Future Fund which is a 501(c)(4) that describes its viewpoint as conservative, I encourage you to research other organizations whether they are described as being conservative, liberal, and so on, or if their tax exempt status has been part of the recent IRS profiling stories.  Regardless of political ideology or recognition from the IRS for increased scrutiny, the organizations are essentially the same.  They portend to be educating on issues, but that “education” does even pretend or by application of law need to portray itself as anything other than a partisan indoctrination arm.

The questions which I have are:

A)  Why are members of the general public not outraged, let alone concerned about the secret identities of the individuals spending such vast sums of money to influence our elections?

I would want to know if someone has the ability to pull the strings of a candidate I support.  If the day has not arrived already, we are approaching the time when a “candidate” can be promoted and presented as someone who holds all of your or my values, become elected, and then reveal that perception is not reality.  The “candidate” was merely a face, and “We the People” actually put a sinister, diabolical power into elected office as our representative.

B)  Why are some businesses able to receive tax deductions by claiming business expenses for clear political contributions?

That question is one of principle as I think it undermines the works of legitimate organizations working for the public good regardless of one’s political ideology.  It also undermines the business people who are working to make a living through their own labor, blood, sweat, and tear.  My ideological friend just asked how?  One business person can buy political favors which can reduce other business expenses.  That individual can even write off the cost of the political favors.  On the other hand, the individual not seeking political favors may see his expenses increase or profits decrease for reason directly attributable to those political favor bought by another.

When I think about the investigations being conducted by Congress, I wonder why so many people want to maintain secrecy about who is financing whom.  I wonder why so many dollars and so much time are being spent to protect this secrecy.  I wonder how those investigating can claim ignorance when the taxpayer advocate service previously spelled out the possibilities and the probabilities of these scandals.  I wonder why an agency that many deemed incompetent and wasteful received more and more responsibilities from the very same people who criticized it.  I wonder why some of the basic reforms suggested have not been addressed.

I wonder why the IRS situation is advertised as a conservative versus liberal or Republican versus Democrat battle when it is actually a question of do you want to know the identities of those financing the individual candidates.

I wonder why if the economy is in such bad shape and the “job creators” are unable to invest which many argue would create jobs and keep this great country afloat, how are many of these same “job creators” able to make such large donations to political groups.  I don’t know about you, but common sense tells me that the return on investment must be higher on controlling a politician than on rebuilding infrastructure.

The tax code needs to be reformed, and it is not as simple as a flat tax or a fair tax as we sometimes hear.  There are many individual areas which must be addressed and that will take time.  I do know that the assignment will not be popular, and thus Congress will not take it on until the general public stops sniping at one another over perceived differences in the partisan atmosphere and just demands Congress to work at your job just as we do.

To quote from a friend and former colleague:  “When people wonder why tax reform is so difficult, consider this.  Prudent tax reform would be political suicide for legislators to support because Americans are more interested in their selfish pursuits rather than the collective pursuit of a broader, prosperous nation.”

I wonder why many are in uproar over tax exempt statuses, but say nothing about the numbers of people caught in the red tape quagmire of trying to receive money they actually earned and is needed to pay for food and housing but are left in this predicament because media and those profiting off of partisanship and this investigation boondoggle buy the public’s attention.  I guess it must be a scandal of a scandal to have the public’s blessing on a never ending boondoggle.

The more I research and learn about this IRS targeting scandal, I’m less concerned about the groups that received the extra scrutiny.  I’m not saying that they should have been singled out.  I’m not suggesting that what occurred to them was right.  I’m asserting that all of these groups, regardless of political ideology or leanings should be required to disclose donors and not have tax exempt status making it appear to be a community or civic minded organization.  To me there is a huge difference between an organization assisting kids or helping adults learn new work skills and one who is clearly promoting a candidate or ideology either by touting it or attacking the other side.

That’s politicking and campaigning and regardless of if you claim to be “conservative” or “liberal” by any definition, belong to any political party, support or oppose any particular candidate it’s the same.

Agree or disagree with my political positions, but ask yourself if you really support the secrecy in who is funding any issue or candidate.  Does the possibility of a Trojan Horse exist?  Will you help put the person who opposes all you believe into office because the money covered the reality?  Why are people with different and even similar questions and concerns and ideologies arguing amongst us ourselves while this boondoggle runs amuck?  That’s where the scandal resides in my mind.

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