Politics & Policy

The IRS Persists

It says most of what social-welfare organizations do is “candidate-related political speech.”

The desire of the Obama administration to censor the political speech of conservative nonprofits has found a sympathetic audience in Texas, of all places, where the editors of the San Antonio Express-News last week made the case that state lawmakers should revive their failed efforts to require 501(c)(4) nonprofits in Texas to disclose their high-dollar donors. To those who fear repercussions, the editors say: “Too bad. In a democracy, politics is supposed to be open and transparent.” The newspaper thus joins the ranks of those on the left — and many in the Texas legislature — who hide behind the rhetoric of transparency in order to suppress political speech.

When news broke last year that the Internal Revenue Service had targeted conservative groups seeking tax-exempt nonprofit status ahead of the 2012 elections, President Obama called the agency’s conduct “intolerable and inexcusable” and promised to ensure that “such conduct never happens again.” Instead, he ordered the IRS to make such conduct official by clamping down on the ability of 501(c)(4) nonprofits to engage in political speech in the first place, regulating many of them out of existence.

Something similar was attempted last year by the Texas legislature. Using the canard of “transparency,” state lawmakers passed a bill that would have required nonprofits that spend more than $25,000 on campaign activity to disclose contributors who donate $1,000 or more. The bill was vetoed by Governor Rick Perry, but power players in Texas and their supporters in the media nevertheless marched in lockstep with the Obama administration’s drive to silence conservative groups by stripping their donors of anonymity.

Intimidating opponents is unfortunately something of a habit for the Obama administration. The naming of major Romney donors by the Obama campaign in 2012, including the slur that these private citizens had “less than reputable records,” is merely the election-campaign version of the regulatory tactics the administration is now attempting to deploy through the IRS.

Under the guise of providing “clarification,” the IRS is now proposing to redefine most of what 501(c)(4) nonprofits do as “candidate-related political activity.” Groups would have to track and somehow quantify the monetary value of activities that previously were not considered political — voter-registration drives, candidate debates and forums, and the publication of voter guides, all of which would be subject to taxation. In order to preserve their tax-exempt status, these nonprofits would also have to show that they don’t spend most of their time and money on such activities, which must not be the “primary purpose” of the organizations.

Let’s take a step back. Nonprofits organized under section 501(c)(4) of the tax code are considered social-welfare organizations; their purpose is to educate the public on issues important to the members of the group, and part of that mission often involves grassroots political advocacy. For example, a group of parents concerned about their local school district’s curriculum might form a 501(c)(4) to educate the community about curriculum-reform proposals ahead of school-board elections. Maybe they publish a voter guide or host a candidate forum to debate reform ideas. Under the IRS’s new definition of what should count as political activity, this nonprofit would have to calculate the expense of its efforts and then pay taxes on them. (If a local teachers’ union did the same exact things, however, it would not count as political activity, because unions are organized under a different section of the tax code.)

Of course, the impetus for the new IRS rules is not small nonprofits advocating curriculum reform in local schools but the supposedly pernicious influence of “dark money” on national politics. The rise of the tea-party movement has seen the proliferation of conservative nonprofits dedicated to pushing back against the progressive policy agenda of an ever-expanding federal government. Some of these groups have raised prodigious amounts of money toward this end, which in turn has prompted the White House to find ways to stop them.

Back in 2010, it opted to use the IRS to delay and hinder the applications of conservative groups for nonprofit status and to audit and harass established nonprofits. Earlier this month, House Ways and Means chairman Dave Camp (R., Mich.) said his committee’s investigation found that the IRS conducted surveillance on dozens of established nonprofits, “including monitoring of the groups’ activities, websites and any other publicly available information. Of these groups, 83% were right-leaning. And of the groups the IRS selected for audit, 100% were right-leaning.”

(Full disclosure: My own organization, the Texas Public Policy Foundation, was one of the groups targeted when our private donor list was illegally leaked by the IRS in 2012. Although TPPF is a 501(c)(3) and so would not fall under the new IRS rules, once 501(c)(4)s are effectively censored, it’s only a matter of time before other nonprofits are similarly gagged.)

Camp’s investigation follows a May 2013 report from the Treasury Department’s inspector general that found the IRS used “inappropriate criteria” beginning in early 2010 to identify and target conservative groups. Applications were delayed (some for more than three years) and many groups were asked to provide “lists of past and future donors.”

This was obviously illegal, so the administration has lit upon a new tactic. But the proposed IRS rules, which Camp is trying to delay for one year, would have the effect of stifling nonprofits on both the right and the left. As Eliana Johnson has reported, such liberal groups as the ACLU and such major labor unions as the Service Employees International Union are now speaking out against the scheme, fearing that the rules are too broadly drawn and would have a chilling effect on free speech. For the Left, it’s one thing to scrutinize on an ad hoc basis groups funded by the Koch brothers but quite another to impede a group like Organizing for Action, the 501(c)(4) that advocates specifically for the president’s policy agenda and would be effectively shut down by the new IRS rules.

Unsurprisingly, large swaths of the compliant media endorse the government’s attempt to silence nonprofits. Many insist that social-welfare organizations that want to engage in political speech be listed as political organizations under section 527 of the IRS code, which requires groups to disclose their donors. Last week, the New York Times editorial board came out in support of the proposed rules and even argued that they “should be far more explicit that no amount of political activity is acceptable for any group that refuses to disclose contributors.” The Center for Responsive Politics (itself a tax-exempt nonprofit) shares this sentiment and has launched The Shadow Money Trail, an “exclusive series about the funding behind politically active nonprofit organizations that do not publicly disclose their donors.”

We’ve been down this road before. In 1958, the U.S. Supreme Court ruled in NAACP v. Alabama that the government cannot force a private group to disclose its membership. The state’s suit against the NAACP was prompted by the group’s involvement in the Montgomery bus boycott of 1955 and its efforts to assist black students seeking admission to the state university. After filing suit, the segregationists running the State of Alabama then issued a subpoena for the NAACP’s records, including the names and addresses of its “agents” in the state. The idea was to intimidate the group, threaten its members, and shut them up. The Court saw this for what it was and ruled that forcing the NAACP to disclose its membership risked exposing them “to economic reprisal, loss of employment, threat of physical coercion, and other manifestations of public hostility.”

Do donors to 501(c)(4) groups today face the same dangers that the NAACP’s members did in the 1950s? No — but that’s not really the point. Donors across the ideological spectrum still face threats and harassment for political advocacy — last year’s IRS scandal itself is a shining example — which is why anonymity must be protected. In its ruling, the Court held that “immunity from state scrutiny of petitioner’s membership lists is here so related to the right of petitioner’s members to pursue their lawful private interests privately and to associate freely with others in doing so as to come within the protection of the Fourteenth Amendment.” The Court further held that freedom to associate with groups dedicated to the “advancement of beliefs and ideas” is an inseparable part of the due-process clause of the Fourteenth Amendment. Since 1959, the rules that protect anonymity of donors to 501(c)(4)s has gone unquestioned — until now.

The point, apparently lost on the likes of the New York Times editorial board and many in the Texas legislature, is that denying anonymity to citizens who support groups engaged in political speech is merely another way to silence them. Likewise, redefining everything a tax-exempt nonprofit does as taxable, or beyond the scope of its primary purpose, robs it of its ability to function.

That, of course, is the real purpose of the IRS rules — to finish what the agency’s “intolerable and inexcusable” conduct started four years ago.

— John Daniel Davidson is a senior health-care-policy analyst at the Texas Public Policy Foundation and a 2013 Lincoln Fellow of the Claremont Institute.


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