Yesterday, IRS acting director Steven T. Miller resigned at President Obama's request after the agency admitted to targeting the applications of tea party groups applying for tax-exempt status for extra scrutiny. Major investigations in Congress and the Department of Justice are underway as to why this targeting happened. As we pointed out yesterday, such scrutiny may have been deserved for some tea party groups -- especially by some of the loudest complainers.
Peter S. Goodman, executive business editor for The Huffington Post, wrote yesterday that the "IRS was dead right to scrutinize" tea party groups, because of the express political campaign work many of them have engaged in, which is a violation of IRS regulations for some tax-exempt ("non-profit") classifications.
IRS officials were making sure that groups applying for these statuses weren't campaigning and electioneering on the low. So they applied extra review on applications from organizations that had the keywords "tea party" and "patriot" in their names -- both keywords associated with conservative groups, many of which fight against legislation that increases taxes and also sometimes run candidates for public office.
But it's interesting to note how non-profits became forbidden from political campaign activity to begin with. For that, look back to Lyndon B. Johnson, the U.S. President who helped usher in the Voting Rights Act and stronger civil rights legislation. As a congressional Senator representing Texas, he helped change the IRS code so that it prohibited 501c(3) groups from intervening in elections.
A 2001 Boston College Law Review article from Patrick L. O'Daniel, currently a law professor at University of Texas at Austin, tells why LBJ made this change. At the time, 1954, Johnson was up for re-election for U.S. Senate, and wealthy, ultra-conservative forces were tooling up for his defeat. Johnson believed that two non-profit organizations backed by rich conservatives were working to undermine his re-election campaign.
One of those, the Facts Forum, was a "Red Scare" group that thought America was about to become communist. The other, the Committee for Constitutional Government, was regarded then as "the wealthiest and most powerful of the extreme rightwing groups in the United States." It was founded by Frank Gannett, who ran one of the largest newspaper chains in the nation at the time (His Gannett Company Inc. still owns USA Today and dozens of other newspapers and news websites). These organizations had not only McCarthy-ites, but also anti-Semites and strict racial segregationists among their ranks.
Both non-profits claimed to be non-partisan and non-political, but raised millions of dollars and disseminated massive information in support of candidates challenging Johnson in the Senate race.
The CCG brazenly collected huge sums of money from corporations for political campaign work during a pre-Citizens United era when non-profits steered clear of that, mainly because it violated the Corrupt Practices Act. Donating to a non-profit gave contributors the liberty of anonymity while seeking to influence elections. In 1954, CCG was raising millions to support Johnson's opponent Dudley Dougherty in the Senate primary.
Seeing the disadvantage posed by these campaign finance networks disguised as non-profits, Johnson's allies complained to the IRS Commissioner, who did find CCG's finance work sketchy. That summer of 1954 the House had set up a "special committee to investigate tax exempt foundations," which was concerned about corporations using non-profits to finance and steer elections. But they also found that the IRS was poorly equipped to do anything about it.
Johnson fixed that by proposing the legislative amendment that officially shut down campaign activity by non-profits. As O'Daniel wrote in his article, "Johnson saw a cabal of national conservative forces, led by tax-exempt educational entities fueled by corporate donations, arrayed against him and wanted to put a stop to the meddling of these foreign interlopers."
Non-profits have been barred from express politickin' ever since. Except, many of them, 501(c)4s in particular, have flouted these tax-exemption laws in recent years -- Karl Rove's Crossroads GPS stands out as one clear example. But the IRS still seems helpless. Ari Berman over at The Nation says the IRS has done "virtually nothing" to close the political loopholes exploited by wealthy conservatives.
Looking at LBJ's maneuvers, one could argue that the installment of political prohibitions on non-profits was itself a political move, since Johnson used it to quell a rising tide of wealthy conservatives looking to take him out of office. Without that political maneuver, though, Johnson perhaps doesn't get re-elected to the Senate, and then maybe doesn't later get elected President of the U.S. In that case, he never pushes for and signs into law the Voting Rights Act and a stronger Civil Rights Act.
Tea party groups today claim non-partisanship, despite clear evidence otherwise, but it looks like the history of tax exempt status for non-profits wasn't politically neutral to begin with.