In the fiscal year 2012, the United States Internal Revenue Service collected $2. 5 trillion. That’s more money than any of us could even begin to fathom. With this comes a great responsibility to the agency to conduct itself in an equal manner among all of its patrons. Lately, the IRS has been under intense heat that has sparked from its quesitonable treatment of several groups seeking to operate within a tax-exempt status.
In order to better understand what’s going on what it means to us we will explore the history of the IRS, then discover what the applicable tax code means, and finally, and finally dive into the imposing scandal surrounding the agency. Who is the IRS? Let’s first take a look at what the IRS actually is. According to IRS. gov, in 1862 President Lincoln joined with Congress to create a new position, the Commissioner of Internal Revenue. This position was created with the intention to enforce the recently enacted income in order to fund the Civil War.
A few years later,the tax was ruled unconstitutional by the Supreme Court only to be revived by the 16th Amendment in 1913 under the new title of Bureau of Internal Revenue. Today, the federal organization has been modernized by the “IRS Restructuring and Reform Act of 1998. ” This act gives the IRS a directive to aide in the responsibilities of the Secretary of the Treasury, who has full authority to administer and enforce the internal revenue laws. The current US tax code is more than 73,000 pages– if the pages were laid end to end, they would stretch just over 12. 5 miles long.
This code is extremely complex and more than mysterious to the common man. Even professionsals whos’ entire lives have been dedicated to learning the ins-and-outs and loopholes within this monster only master specific sections. It is the job of the IRS to dot every I and cross every T of the code. In order to do this, they maintain four primary divisions over many subdivisions and primary officies. We will be looking into the “Tax Exempt and Government Entities Division” their mission statement reads: “To provide TE/GE customers top quality service by helping them understand and comply with applicable tax lasw and to protect he public interest by applying the tax law with integrity and fairness to all” The name given to this division really explains it all; they oversee organizations that qualify as tax exempt and government entities.
The Tax Code Now, lets take a look at a few key terms dealing with the tax code. According to the Associated Press, the IRS has recently seen a major increase in both conservative and liberal groups claiming the tax exempt status under section 501(c)(4) of the federal tax code. What exactly does 501(c) mean? The IRS offers 6 different versions of the tax exempt 501(c) status.
Where an organization is categorized is determined by the IRS. The version an entity may file under depends on their nature of business, for example: charitable groups, schools, churches, etc. file under 501(c)(3); business leagues, and chambers of commerce would seek 501(c)(6); the infamous 501(c)(4) status is reserved for civic leagues, social welfare organizations, and local associations of employees. Unlike other non-profit groups, those that fall under the (c)(4) title can participate in political activities to a certain extent that it is not their primary objective.
Advantages of claiming a 501(c)(4) has a few advantages: they do not have to pay taxes on income and unlike traditional political organizations, they do not have to share their list of donors. All of this information can be found on the IRS website. The 2013 IRS Tax Scandal Now that we know some basic background on the IRS, we will explore the recent scandal surrounding this organization. According to an article in the Wall Street Journal, the number of groups filing for the 501(c)(4) tax exempt status more than doubled from 2010 to 2012.
To handle this major influx, the IRS sent all of these applications to a field office in Cincinnati. Lois Lerner, head of the Exempt Organizations under TEGE, said the idea behind this move produce consistent reviews among staffers with expertise on the subject. Part of the reviews require agents to investigate for signs that groups may be participating in political activity– the IRS will then dive even deeper to determine political gain is not the groups primary motive. The reviews conducted by revenue agents include a developed list of “red flags” among the applications.
In an Inspector General’s report leaked to CBS news, it was revealed that on January 25, 2012, the criteria for flagging suspect groups was changed to “political action type organizations involved in limiting/expanding government, educating on the Constitution and Bill of Rights, social economic reform/movement. ” Words that notify political involvement such as “tea party” and “patriot” comprise the list. When this happened, the then-acting IRS Commissioner Doug Shulman received several letters from commitees in Congress that expressed their concern for the numerous harassment complaints by tea party groups.
The congressmen accused agency of “frustrating their attempts to become tax exempt” by requiring intrusive information about political involvement by the groups’ members. Remember Lois Lerner, the head of the division overseeing all of this? Initially, she said management at the IRS was in no way involved– that the behavior was conducted by mere “revenue agents”. But according to the Inspector General’s report, senior agency officials knew that tea party groups were being targed by these revenue agents as early as 2011.
After the report was leaked, the agency apologized for what it recognized as “inappropriate behavior”. Then, they released a statement saying “IRS senior leadership was not aware of this level of specific details… while exempt organizations officials knew of the situation earlier, the timeline in the IG’s report reflects that IRS senior leadership did not have this level of detail. ” Before that, the IRS commissioner responsible for this, Doug Shulman, has resigned from his position. Conclusion
All things considered, it remains true that the IRS (and every other part of the government) should not distinguish between conservative and liberal groups. But looking at it from their view, why did these groups petition the IRS in the first place? They were seeking tax exempt status under “social welfare,” not politics. Republicans and Democrats alike have branches that operate under 501(c)(4) status because this category allows them to hide who finances their political activities. Jeffrey Toobin of The New Yorker made a great point in a recent article– the bigger scandal here is not what is illegal, it is what’s legal.