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Decades Of History Behind IRS Flap


I'm Michel Martin, and this is TELL ME MORE, from NPR News. Coming up, when you think about poverty in this country, you might think about certain people living in certain places. It turns out that some of those old assumptions are wrong. For example, more poor people now live in the suburbs. We'll talk about why that is in just a few minutes.

But first, we want to turn to that big story about the Internal Revenue Service. The agency has become a big headache for the Obama administration after the IRS acknowledged that some of its personnel looked for words like Tea Party or Patriots when nonprofit groups were seeking tax-exempt status. Those groups then got extra attention in the screening process.

We wanted to take a step back and talk about some of the history and the politics behind the issue. Why, for example, do non-profits - some non-profits have tax-exempt status, and why are they banned from political activity to begin with? We found two journalists who have been covering the issue. David Cay Johnston is a columnist for the non-profit newsgroup Tax Analysts. He's also a Pulitzer Prize-winning reporter and law professor at Syracuse University. He joins us from NPR member station WXXI in Rochester, New York.

David Cay Johnston, thanks so much for joining us.


MARTIN: Also with us, Brentin Mock. He's a reporter for Colorlines.com. He's with us from member station WWNO in New Orleans. Brentin, thank you so much for joining us.

BRENTIN MOCK: Thanks so much for having me.

MARTIN: So, David Cay Johnston, I'm going to start with you. I think that most people would agree - most reasonable people would agree that the IRS rules are confusing. And even the treasury inspector general's report said that some IRS employees didn't understand the rules that they had to base decisions on. So can you just briefly tell us why certain non-profits get tax-exempt status, and some don't? Is there some standard or some rule of thumb that you can point us to?

JOHNSTON: Well, there are 25 non-profit sections, and they govern everything from the traditional charities that we think about, like United Way, to little mutual insurance companies, to the National Football League. The particular one at issue, 501(c)(4), dates to 1913, and the law says, the statue says it is exclusively - exclusively - to promote social welfare.

The IRS, in 1959, adopted a regulation that said primarily, you have to do social welfare. And this was done, apparently, so that if you were an advocate group for, say, more bicycle riding, you could go to the city council and say please adopt rules and design streets so they're friendly to bicycles. Nobody thought it would be partisan political activity. And that's what caused the problem for the IRS.

They got applications for groups that indicated they were partisan, or were involved in electoral politics. And, by the way, you do not need IRS permission to be a 501(c)(4). You may self-declare.

MARTIN: Well, that's - David Cay, just one more question to you for now. A lot of people are asking why are groups like Crossroads GPS - which is a group founded by, you know, former George. W. Bush administration - a top political advisor to the George W. Bush administration, Karl Rove - or the liberal group Priorities USA are tax-exempt when people would say, well, of course they're engaged in partisan political activity. So why is that?

JOHNSTON: I don't believe that they should be, under the rules. This dates back earlier than they are. Karl Rove's organization's tax return shows that it spent, in one recent year, 99.9 percent of its money on politics, and 1/10th of 1 percent on social welfare. That clearly is neither exclusively, nor primarily - Congress needs to fix this. And I have a column today in the Tax Notes magazine saying we can fix this with eight little words.

MARTIN: You want to tell us what those eight little words are?

JOHNSTON: And that are barred from partisan political activity.

MARTIN: Hmm. OK. We'll talk a little bit more about that. But let me bring Brentin Mock into the conversation. Your article in Colorlines is titled "Why Are Non-Profits Banned from Politicking to Begin With?" What did you find when you looked into that question?

MOCK: Well, in doing my research about this, I noticed that one particular Tea Party group called True the Vote that I did a lot of reporting on last year was one of the loudest complainers about, basically, the IRS holding up their 501(c)(3) application to be a non-profit. And when I looked into the research of - or the history of how it came to be that 501(c)(3)s were prohibited from political, you know, campaigning or electioneering, I came across an article from the Boston College Law Review.

And it basically pointed to 1954, when Lyndon B. Johnson was a senator for Texas. And what he was trying to do there was fight back a threat from right-wing extremists who were using non-profits to funnel millions of dollars to prop up candidates, right-wing extremist candidates against Lyndon B. Johnson in his reelection campaign for Senate.

And so, basically, he went to Congress, and he put in what's, you know, today called the Johnson Amendment in 1954. And that was the amendment that put an explicit prohibition on political campaigning on 501(c)(3) non-profits.

MARTIN: So what's the logic there? And your point is, what, this is sort of born in politics?

MOCK: Yeah. I think...

MARTIN: So if you live by politics, you die by politics? Go ahead.

MOCK: Yeah. I mean, I think, you know, the prohibitions that were passed then, you know, it's for the same threats that are posed today, which is, you know, wealthy, right-wing extremists funneling money through these non-profits. I mean, what Karl Rove is doing with Crossroad GPS is the same thing that was happening in Lyndon B. Johnson's day, and, you know, it puts the balance of power out of whack.

And, you know, had Lyndon B. Johnson not stepped in to do something like that, we would've had some really serious anti-Semites, McCarthy-ites, segregationists who would have been propped up by millionaires and corporations, and using the non-profits to do that.

MARTIN: Brentin, obviously, Colorlines has a particular point of view, but do you think that this is primarily an issue of the right, people on the right using these levers to promote their own agendas? I mean, couldn't you make an argument that these levers would be used by anybody who figured it out?

MOCK: Yeah. I mean, in 1954, it was directly from conservative groups - and, again, extreme right wing conservative groups who were utilizing this. Now, obviously, today, there are a number of groups who have set up 501(c)(3)s and 501(c)(4)s, both on the left and the right. And, you know, it all deserves scrutiny. I'm not making any kind of argument that, you know, that the IRS was justified in sorting out only conservative groups. Obviously, that scrutiny should apply to both liberals and conservatives.

MARTIN: To that end, David Cay Johnston - and if you're just joining us, we're talking about the IRS scandal, and we're talking about what is the history of these exemption rules for non-profits. Our guests are journalists David Cay Johnston and Brentin Mock, who've both written about this. David Cay Johnston, you also wrote a piece in the Columbia Journalism Review titled "The Other IRS Scandal." You say that the agency's drowning. Could you tell us a little bit more about that?

JOHNSTON: Well, in the last 10 years, as the population's grown and inflation has eroded the value of money, the IRS has been shrunk, in real terms, 17 percent. And its workload has been increased very significantly through all of these social welfare programs and non-tax programs that have been assigned to the IRS. It simply does not have the resources to do the job.

Now, if you're a wage-earner, you're not affected by this. That's an automated system. The money comes out of your pay before you get it. But people who own businesses, people who are investors, who are landlords, people who are sole proprietors, freelancers, they are basically under a separate tax system that is not being policed, and there's rampant cheating going on in that area, and nothing is being done about it.

And by the way, just one thing Brentin said. There were 300 groups set aside for additional scrutiny of their applications for 501(c)(4) status. Seventy-five of those were 9/12 - that's Glenn Beck's outfit; Tea Party, Patriot, Constitutional Education.

Three-quarters of them, the other 200-plus, were a whole variety of groups, some of them liberal, all sorts of different things. So this was not just selecting groups because they were in the Tea Party. It was selecting groups because their applications suggested they weren't really social welfare organizations.

Using a name like Tea Party is the same thing as the police stopping young men in the street based on the color of their skin. It's wrong. Even if that young man should be stopped, it is wrong to select him on the basis of the color of his skin. It's wrong to pick someone on the basis of the name of their organization.

MARTIN: David Cay Johnston, talk a little bit more about the fix to this, if you think there is - and I'm also curious about why it is that other groups haven't complained.

JOHNSTON: Well, some of them have. The tax exemption of a Democrat training organization was - Democratic Party training organization - was, two years ago, taken away by the IRS and the - but there's very little scrutiny going on here. If you applied for this status and you said, our group is here to promote resettlement of refugees or planting wildflowers, they just stamped your application. It was when you filled it out in a way that said, you know, we're going to be involved in political activity. That mandates, that mandates under Congress' rules that the IRS investigate.

And so it's troublesome that people found that scrutiny, on its face, difficult. The problem is, of course, they asked all sorts of inappropriate questions they shouldn't have asked. And I think it's important to remember, the inspector general who reported on this, George Russell, is a former Republican staff aide. He was appointed by President Bush. All of this took place on the watch of Commissioner Douglas Shulman, an appointee of President George W. Bush.

So those people out there saying - and I've seen several news accounts to this effect - that this was an Obama administration and Obama camp political campaign effort to do opposition research. That is just ridiculous nonsense.

MARTIN: And, finally, David Cay Johnston, you had your eight words that you say would fix this. Tell us why that - how that would fix this.

JOHNSTON: Because we would eliminate partisan political activity for this and go back to the idea, which is, if you're advocating for a social welfare cause, you ought to be able to go to your city council or state legislature or Congress and say, here's what we're trying to do. But you shouldn't be able to use your tax-favored status to promote political candidates.

And I'm virtually an absolutist on the First Amendment. I've stood up for people during my career whose views I found utterly detestable, but this isn't the issue here. The issue here is tax favors and they should not be involved, I think, when you're doing political office and partisan politics. It should be issues that you're dealing with.

MARTIN: Brentin, do you have a final thought?

MOCK: I do. I have a little bit pushback on that. I mean, you know, profiling is wrong, but I would argue that a lot of Tea Party groups profile themselves. You know, I mean, by the fact that their name is Tea Party, they invited a certain level of scrutiny and, most certainly, they flouted tax laws. They most certainly worked on behalf of Republican Parties and Republican candidates and, you know, in that case, the IRS wasn't guilty of doing anything tyrannical. I mean, I think their biggest flaw was that they just weren't transparent about what they were doing. I mean, this wasn't a...

JOHNSTON: And, Brentin, I agree. I agree.

MARTIN: All right. We have to leave it there for now.


MARTIN: Brentin Mock is a reporter for Colorlines.com. David Cay Johnston is a columnist for Tax Analysts, a Pulitzer Prize-winning reporter and president of the nonprofit group, Investigative Reporters and Editors. His latest book is titled "The Fine Print."

Thank you both so much for speaking with us.

MOCK: Thank you.

JOHNSTON: Thank you.


MARTIN: Coming up, when you think of poverty, certain places or people might come to mind, but are those places the suburbs and are those people Asian-American? We'll hear why poverty is a big issue in some places and among some populations where you might not expect it. That's in just a few minutes on TELL ME MORE from NPR News. I'm Michel Martin.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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