Durbin Asked IRS’ Shulman to Probe ‘Several’ Conservative 501(c)(4) Groups in 2010

Posted By Bridget Johnson

On May 17, 2013

While many Democrats have joined Republicans in public shaming of the Internal Revenue Service for singling out conservative groups, others say the scandal is just a byproduct of muddied rules about nonprofits and political activity in the wake of the Citizens United ruling — and they’re hoping that they can steer the conversation from outrage over political targeting to fuel for campaign finance reform.
But senior Dems may have much more than an opportunity to try to turn scandal to their advantage: they may have a degree of culpability as one especially vocal proponent of campaign finance reform asked the IRS nearly three years ago — around when the stalling of applications began — to probe conservative groups applying for tax-exempt status.
Long before the extensive questionnaires and document requests levied on conservative applicants fell under the scrutiny of Congress, Senate Majority Whip Dick Durbin (D-Ill.) asked IRS Commissioner Douglas Shulman, a Democrat appointed by George W. Bush who served through President Obama’s first term, “to examine the purpose and primary activities of several 501 (c)(4) organizations that appear to be in violation of the law.”
At the House Ways and Means Committee hearing on the IRS scandal today, Rep. Jim McDermott (D-Wash.) led the bandwagon of members on the panel who claimed the root cause of the problem was the Supreme Court’s Citizens United campaign finance decision in 2010.
“Applications for secret money political organizations increased by fourfold after that. This small group of people in the Cincinnati office screwed up. Nobody’s going to deny that. They simply screwed up,” McDermott said. “But the Congress, this committee messed up by not giving any clear criteria for what a real charitable organization is.”
“Even with the egregious actions that have been acknowledged by the IRS, there’s still an underlying problem here, and that’s 501(c)(4)s being engaged in politics,” said Rep. Richard Neal (D-Mass.). “After Citizens United, the IRS was flooded with applications… seeking 501(c)(4) status. And why was that? In large part because super-PACs must disclose their donors while 501(c)(4)s do not.”
Rep. Charlie Rangel (D-N.Y.) slipped when he referred to the landmark ruling as “Citizens Union.” When corrected by a colleague, Rangel quipped “whatever.”
“It’s almost an invitation as the law is written for abuse in terms of political activities for corporations that primarily are supposed to be doing social service work,” he said.
“It is something that we have to look at closely, yes, sir,” said acting IRS Commissioner Steve Miller. “…I think it’s an area ripe for a redefinition and reform.”
House Republicans were investigating heavy-handed treatment of the Tea Party and other groups by the IRS last year, and Miller told a subcommittee in July that certain applicants weren’t being targeted because of ideology.
But Rep. Paul Ryan (R-Wis.) noted the IRS-supplied list of approved tax exempt applications for advocacy organizations through May 2009. “Some of these that were approved were Chattanooga Organized for Action, the Progressive Leadership Alliance, and the Progressive USA,” Ryan said. “If you were concerned about political activity, did you have targeting lists that contained words like ‘progressive’ or ‘organizing’ in their names?”
Miller conceded that these weren’t buzzwords used for targeting, like “tea party” and “patriots,” but maintained that more applications were received from the Tea Party movement, which began in 2009.
Treasury Inspector General for Tax Administration J. Russell George testified that “the organizations experiencing these delays included tea party organizations, patriot organizations, 9/12 organizations, among other organizations.”
“The status of December 2012 for 296 cases that we reviewed was 108 cases have been approved, 28 cases were withdrawn, and 160 cases were still open. Zero cases have been denied,” said George. “Of the cases still open, some had been in progress for over three years and crossed two election cycles without resolution. Of the 108 cases approved, 31 were tea party, 9/12, or patriot organizations.”
The IG’s report found that 98 of 170 cases that received follow-up requests for information from the IRS had unnecessary questions, he said.
“The IRS later determined these questions were unneeded but not until after media accounts and questions by members of Congress arose in March of 2012,” George testified.
Durbin singled out not the Tea Party in his Oct. 11, 2010, letter to Shulman, but Karl Rove’s group.
“One organization whose activities appear to be inconsistent with its tax status is Crossroads GPS, organized as a (c)(4) entity in June. The group has spent nearly $20 million on television advertising specific to Senate campaigns this year. If this political activity is indeed the primary activity of the organization, it raises serious questions about the organization’s compliance with the Internal Revenue Code,” the senator wrote.
“In addition to its tax-exempt status, an entity organized as a 501(c)(4) is not required to disclose to the public the sources of its funding. Given the millions of dollars these groups are pouring into Senate campaigns across the country, it is imperative that the organizations spending such sums on political advertising are appropriately disclosing relevant information about contributors,” Durbin continued. “The current spending patterns without disclosing the sources of the funding create a deeply troubling lack of transparency that threaten to undermine the ability of the electorate to make informed choices on Election Day.”
“I ask that the IRS quickly examine the tax status of Crossroads GPS and other (c)(4) organizations that are directing millions of dollars into political advertising, and respond with your findings as soon as possible.”
Less than a month later, the House changed hands in the midterm Tea Party rout.
Still, Durbin told reporters ^[1] early this week “it is absolutely unacceptable to single out any political group — right, left or center — and say we’re going to target them.”
“That is unthinkable,” Durbin said. “That goes back to some of the worst days of the Richard Nixon administration. And I’m glad this administration stepped up and said we’ve made a mistake, we apologize and we’ll do things to correct it.”
Durbin’s request by far preceded a March 2012 letter to Shulman from 32 House Democrats asking the commissioner “to investigate whether any groups qualifying as social welfare organizations under section 501(c)(4) of the federal tax code are improperly engaged in political campaign activity.”
“In light of recent reports about the political activities of certain social welfare organizations, we respectfully request that the IRS review these organizations and take appropriate actions to ensure that they are in full compliance with all federal tax laws,” stated the letter led by Rep. Peter Welch (D-Vt.). “We urge you to investigate and stop any abuse of the federal tax laws by groups whose primary activity and true mission are to influence the outcome of federal elections.”
Seven Senate Democrats echoed the letter in the upper chamber, telling Shulman “if the IRS is unable to issue administrative guidance in this area then we plan to introduce legislation to accomplish these important changes.”
That letter was signed by Sens. Chuck Schumer (N.Y.), Michael Bennet (Colo.), Sheldon Whitehouse (R.I.), Jeff Merkley (Ore.), Tom Udall (N.M.), Jeanne Shaheen (N.H.) and Al Franken (Minn.). It followed a request to the IRS by the same group of Democrats urging better enforcement of rules pertaining to 501(c)4 organizations.
In July 2012, Lois Lerner, director of the IRS’ office for exempt organizations, responded to two requests by Democracy 21 and the Campaign Legal Center, both groups opposed to the Citizens United ruling, urging the IRS to launch a rulemaking process to change the 501(c)(4) rules.
“The IRS is aware of the current public interest in this issue,” Lerner wrote. “These regulations have been in place since 1959. We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.”
Shulman, who resigned three days after Obama won re-election, is expected to testify at a Wednesday House Oversight and Government Reform Committee hearing. George and Lerner are also on the invited witness list.