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IRS report shows why tea party scandal was almost inevitable (+video)

When all the shouting about the IRS targeting of tea party groups dies down, Congress or the IRS will realize that the relevant tax law is devilishly hard to enforce fairly.

By Staff writer / May 14, 2013

The John Weld Peck Federal Building houses the main offices for the Internal Revenue Service in Cincinnati. The IRS apologized Friday for what it acknowledged was 'inappropriate' targeting of conservative political groups during the 2012 election to see whether they were violating their tax-exempt status.

Al Behrman/AP

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Washington

Lawmakers are sputtering with rage at revelations the IRS gave extra scrutiny to conservative organizations seeking nonprofit status during the last political campaign.

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But when Congress and President Obama stop howling and start trying to fix the problem, there appear to be two ways forward: Either rely on the IRS to listen to the recommendations of the Treasury Department inspector general’s report released Tuesday and make do with a muddled piece of campaign-finance law or move to sharpen and shape the law so IRS can enforce it with more consistency.

“What has been missed in the outrage is the recognition that this problem arose from much deeper sources than the poor judgment or possible partisan bias of a handful of IRS employees,” says Lloyd Mayer, a law professor at the University of Notre Dame, in an e-mail. “Congress has given the IRS the difficult task of applying an incredibly vague definition of political activity and an uncertain standard for how much political activity tax-exempt social welfare organizations may engage in.”

The Treasury Department’s inspector general report touches on the IRS’s targeting of conservative groups from local tea party organizations to massive national conservative outfits run by leading party strategists in 2011 and 2012. It outlines ways the agency could better police itself from the inside moving forward.

The report says IRS reviewers tasked with deciphering applications had little clue how to apply the relevant piece of tax law.

In short, IRS agents are required to determine whether so-called social welfare organizations (otherwise known as 501(c)4 groups, after the relevant piece of tax code) are, in fact, engaged in promoting social welfare and don’t spend a majority of their time engaged in partisan political activity.

Why do groups seek such a designation? While the operations of such groups are tax-free, an equally-important benefit for many is the ability to shield their donors from public disclosure, campaign-finance experts say.

Several thousand groups sought designations similar to the 501(c)4 each year from 2009 to 2012, according to the IG report. When the inspector general inspected the IRS in May 2012, some 300 of these groups were being investigated for political reasons.

Murkiness in the rule

The problem in 2011 and 2012, the inspector general’s report found, was “there appeared to be some confusion” by IRS agents evaluating the applications because of “the lack of specific guidance on how to determine the ‘primary activity’ ” of 501(c)4 groups. While the groups should have “social welfare” – not politics – as their primary activity, the regulations don’t have any hard and fast rules about how to make that determination, the report continues.

The litmus test used by rank-and-file regulators under investigation was to look for “tea party,” among other keywords, and to scour organizational descriptions for those that complained about the government or were concerned about debt and deficits, according to the report.

To remedy this flaw, the IG’s report asks the IRS to provide ongoing training and guidelines on how to make such determinations. The guidelines should be posted online, so that organizations can understand how they will be judged, the report recommends.

But the fact that IRS agents charged with carrying out the law had little idea how to apply it is evidence that the statute needs more than just education – it needs to be clarified by Congress or the IRS, some campaign finance experts say.

On one level, the specific issue raised by the IRS’s admitted bad behavior is simple to solve. Sen. Jeff Flake (R) of Arizona has offered a bill to prevent the IRS from using a group’s name or ideology as a basis for screening its application for nonprofit status.

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