Today’s IRS Scandal Dates Back to 1959

Courtesy of Pam Martens.

To rational folks, the real scandal at the IRS is that corporate front groups – who want to bust unions, pollute the water and air with impunity, and kill Social Security in order to eliminate the corporate match of the Social Security tax – are allowed to register with the IRS as social welfare organizations, receive tax-exempt status, and then funnel tens of millions of dollars into political attack ads in order to elect candidates sympathetic to their corporate deregulatory agenda. These so-called social welfare organizations are allowed to do all this while drawing a black curtain around the names of their corporate donors.

On April 9, 2013, the watchdog group Citizens for Responsibility and Ethics in Washington (CREW) filed a petition with the IRS that mapped out the real scandal taking place at the IRS – the scandal that right wing media don’t want you to think about as they work to spin the IRS story into Watergate – without the break-ins.

As CREW outlines to the IRS in their petition to correct the rules, in the Revenue Act of 1913, Congress provided a tax exemption for organizations “operated exclusively for the promotion of social welfare.” Under the many recodifications over the years, Congress maintained that pivotal word “exclusively.” The current version of the code reads as follows:

“Civil leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare…and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.”

Before 1959, the IRS enforced its rules in line with the law and Congressional intent. But even though the law did not change in 1959, the IRS changed its interpretation of what that law actually meant. It wrote regulations that removed the “operated exclusively for the promotion of social welfare” requirement and flipped it on its head to mean “primarily engaged.”

Today, every manner of corporate front group is interpreting that loophole to mean they can spend up to 49 percent of their total expenditures in a tax year on political campaign activities. At the same time, these tax exempt groups, known as 501(c)(4) organizations, do not have to publicly disclose the names of their donors.

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