Six Facts Lost in the IRS Scandal

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This article was originally published by ProPublica.

IRS Headquarters in Washington, DC

In the furious fallout from the revelation that the IRS flagged applications from conservative nonprofits for extra review because of their political activity, some points about the big picture — and big donors — have fallen through the cracks.  

Consider this our Top 6 list of need-to-know facts on social welfare nonprofits, also known as dark money groups because they don’t have to disclose their donors. The groups poured more than $256 million into the 2012 federal elections.

1. Social welfare nonprofits are supposed to have social welfare, and not politics, as their “primary” purpose.

A century ago, Congress created a tax exemption for social welfare nonprofits. The statute defining the groups says they are supposed to be “operated exclusively for the promotion of social welfare.” But in 1959, the regulators interpreted the “exclusively” part of the statute to mean groups had to be “primarily” engaged in enhancing social welfare. This later opened the door to political spending.

So what does “primarily” mean?  It’s not clear. The IRS has said it uses a “facts and circumstances” test to say whether a group mostly works to benefit the community or not. In short: If a group walks and talks like a social welfare nonprofit, then it’s a social welfare nonprofit.

This deliberate vagueness has led some groups to say that “primarily” simply means they must spend 51 percent of their money on a social welfare idea — say, on something as vague as “education,” which could also include issue ads criticizing certain politicians. And then, the reasoning goes, a group can spend as much as 49 percent of its expenditures on ads directly advocating the election or defeat of a candidate for office.

Nowhere in tax regulations or rulings does it mention 49 percent, though. Some nonprofit lawyers have argued that the IRS should set hard limits for social welfare nonprofits — setting out, for instance, that they cannot spend more than 20 percent of their money on election ads or even limiting spending to a fixed amount, like no more than $250,000.

So far, the IRS has avoided clarifying any limits.

2. Donors to social welfare nonprofits are anonymous for a reason.

Unlike donors who give directly to politicians or even to super PACs, donors who give to social welfare nonprofits can stay secret. In large part, this is because of an attempt by Alabama to force the NAACP, then a social welfare nonprofit, to disclose its donors in the 1950s. In 1958, the Supreme Court sided with the NAACP, saying that public identification of its members made them at risk of reprisal and threats.

The ACLU, which is itself a social welfare nonprofit, has long made similar arguments. So has Karl Rove, the GOP strategist and brains behind Crossroads GPS, which has spent more money on elections than any other social welfare nonprofit. In early April 2012, Rove invoked the NAACP in defending his organization against attempts to reveal donors.

The Federal Election Commission could in theory push for some disclosure from social welfare nonprofits — for their election ads, at least. But the FEC has been paralyzed by a 3-3 partisan split, and its interpretations of older court decisions have given nonprofits wiggle room to avoid saying who donated money, as long as a donation wasn’t specifically made for a political ad.

New rulings indicate that higher courts, including the Supreme Court, favor disclosure for political ads, and states are also stepping into the fray. During the 2012 elections, courts in two states — Montana and Idaho — ruled that two nonprofits engaged in state campaigns needed to disclose donors.  

But sometimes, when nonprofits funnel donations, the answers raise more questions. It’s the Russian nesting doll phenomenon. Last election, for instance, California’s election agency pushed for an Arizona social welfare nonprofit to disclose donors for $11 million spent on two California ballot initiatives. The answer? Another social welfare nonprofit, which in turn got the money from a trade association, which also doesn’t have to reveal its donors.

3. The Supreme Court’s Citizens United decision meant that corporations could pay for political ads, anonymously, using social welfare nonprofits.

In January 2010, the Supreme Court ruled that corporations and unions could spend money directly on election ads. A later court decision made possible super PACs, the political committees that can raise and spend unlimited amounts of money from donors, as long as they don’t coordinate with candidates and as long as they report their donors and spending.

Initially, campaign finance watchdogs believed corporations would give directly to super PACs. And in some cases, that happened. But not as much as anyone thought, and maybe for a reason: Disclosure isn’t necessarily good for business. Target famously faced a consumer and shareholder backlash after it gave money in 2010 to a group backing a Minnesota candidate who opposed gay rights.

Many watchdogs now believe that large public corporations are giving money to support candidates through social welfare nonprofits and trade associations, partly to avoid disclosure. Although the tax-exempt groups were allowed to spend money on election ads before Citizens United, their spending skyrocketed in 2010 and again in 2012.

A New York Times article based on rare cases in which donors have been disclosed, sometimes accidentally, explored the issue of corporations giving to these groups last year. Insurance giant Aetna, for example, accidentally revealed it gave $3 million in 2011 to the American Action Network, a social welfare group founded by former Sen. Norm Coleman, a Republican, that runs election ads.

Groups that favor more disclosure have so far failed to force action by the FEC, the IRS, or Congress, although some corporations have voluntarily reported their political spending. Advocates have now turned to the Securities and Exchange Commission, which is studying a proposal to require public companies to disclose political contributions.

The idea is already facing strong opposition from House Republicans.

4. Social welfare nonprofits do not actually have to apply to the IRS for recognition as tax-exempt organizations.

With all the furor over applications being flagged from conservative groups — particularly groups with “Tea Party,” “Patriot” or “9/12″ in their names — it’s worth remembering that a social welfare nonprofit doesn’t even have to apply to the IRS in the first place.

Unlike charities, which are supposed to apply for recognition, social welfare nonprofits can simply incorporate and start raising and spending money, without ever applying to the IRS.

The agency’s nonprofit wing is mainly concerned about ferreting out bad charities, which are the biggest chunk of nonprofits and the biggest source of potential revenue. After all, the IRS’s main job is to collect revenue. Charities allow donors to deduct donations, while social welfare nonprofits don’t.

Most major social welfare nonprofits do apply, because being recognized is seen as insurance against later determination by the IRS that the group should have registered as a political committee and may face back taxes and disclosure of donors. A recognition letter is also essential to raise money from certain donors — like, say, corporations.

But some of the new groups haven’t applied.

The first time the IRS hears about these social welfare nonprofits is often when they file their first annual tax return, not due until sometimes more than a year after they’ve formed.

In many cases, the first time the IRS hears about these groups is a full year after an election.   

5. Most of the money spent on elections by social welfare nonprofits supports Republicans.

Of the more than $256 million spent by social welfare nonprofits on ads in the 2012 elections, at least 80 percent came from conservative groups, according to FEC figures tallied by the Center for Responsive Politics.

None came from the Tea Party groups with applications flagged by the IRS. Instead, a few big conservative groups were largely responsible.

Crossroads GPS, which this week said it believes it is among the conservative groups “targeted” by the IRS, spent more than $70 million in federal races in 2012. Americans for Prosperity, the social welfare nonprofit launched by the conservative billionaire brothers Charles and David Koch, spent more than $36 million. American Future Fund spent more than $25 million. Americans for Tax Reform spent almost $16 million. American Action Network spent almost $12 million.

Besides Crossroads GPS, each of those groups has applied to the IRS and been recognized as tax-exempt. (You can look at their applications here.)

All of those groups spent more than the largest liberal social welfare nonprofit, the League of Conservation Voters, which spent about $11 million on 2012 federal races. The next biggest group, Patriot Majority USA, spent more than $7 million. Planned Parenthood spent $6.5 million. spent more than $3 million.

None of those figures include the tens of millions of dollars spent by groups on certain ads that run months before an election that are not reported to the FEC.

6. Some social welfare groups promised in their applications, under penalty of perjury, that they wouldn’t get involved in elections. Then they did just that.

Much of the attention when it comes to Tea Party nonprofits has focused on their applications and how the IRS determines whether a group qualifies for social welfare status.

As part of our reporting on dark money in 2012, ProPublica looked at more than 100 applications for IRS recognition. One thing we noted again and again: Groups sometimes tell the IRS that they are not going to spend money on elections, receive IRS recognition, and then turn around and spend money on elections

The application to be recognized as a social welfare nonprofit, known as a 1024 Form, explicitly asks a group whether it has spent or plans to spend “any money attempting to influence the selection, nomination, election, or appointment of any person to any Federal, state, or local public office or to an office in a political organization.”

The American Future Fund, a conservative nonprofit that would go on to spend millions of dollars on campaign ads, checked “No”in answer to that question in 2008. The very same day the group submitted its application, it uploaded this ad to its YouTube account:

Even before mailing its application to the IRS saying it would not spend money on elections in 2010, the Alliance for America’s Future was running TV ads supporting Republican candidates for governor in Nevada and Florida. It also had given $133,000 to two political committees directed by Mary Cheney, the daughter of the former vice president. 

Another example of this is the Government Integrity Fund, a conservative nonprofit that ran ads in last year’s U.S. Senate race in Ohio. Its application was approved after it told the IRS that it would not spend money on politics. The group went on to do just that.

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  • Fred Buster Tripp

    I ran a youth program for 15 years and if we had tried to get poltical. I had the press all over me. Non Profits are to be for the good of man. Not politic,s. That is the problem big money is taking over and we the little people can not do any thing about it. Boy America needs some common sense.

  • Bradley Leech

    Great observations. I would add that NEW organizations should expect to be scrutinized. Building inspectors flag new buildings too! And if the building will be for assembly or residential occupation, they flag that for obvious safety reasons.

  • Anonymous

    Number 1 is one of the most important points and something that needs to be dealt with. There is no rational context under which the word “exclusively” could be interpreted to mean “primarily.” The law needs to be enforced as written. That would end all of this nonsense, including the anonymous funding of political machines. Social welfare organizations need to be given clear and unambiguous rules stating what they can and cannot do to qualify for tax exemption, and political activity should be clearly proscribed.

    If this had happened in the first place, none of these tea party groups, or any of Karl Rove’s groups, would have qualified to be tax exempt and their donors wouldn’t be shielded by 501(c)(4) rulings regarding disclosure.

  • Anonymous

    “To be operated exclusively to promote social welfare, an organization
    must operate primarily to further the common good and general welfare of
    the people of the community” IRS website:

    This includes organizations whose primary purpose is to generally promote a reduction in the size of govt. and hold it accountable, reduce fraud and waste in the govt. or to educate the public on the Constitution, the rights of the people, and the responsibilities of the government. You know, basic civics stuff we used to teach in elementary school.

  • Anonymous

    Personally, I like the idea of the IRS scrutinizing these applications. And if they thought about it, so would the Tea Party and the GOP. But they won’t think about it, because that’s not how they roll.

  • gmamas

    “Basic civics stuff”? That’s stretching things to the breaking point, which you probably already knowl.

  • Wm. Sweeney

    What you say sounds good and relatively benign. However when those purposes tie to providing direct support to individual candidates for office, specific political parties, or issues which are being contested between/among competing political groups, the organization is involved in political activity.

    Let’s face it, political organizations and candidates all believe they operate “to further the common good and general welfare of the community”. Your definition of those objectives may differ greatly from others.

    In this instance, the issue of IRS classification determines whether names of those supporting those political issues should be disclosed.

    “Basic civics stuff” to me means there is as much transparency in our political system as possible.

  • Anonymous

    Don’t remember ANYTHING in civics class about strangling government in a bathtub, or political/revisionist interpretations of the Constitution, or supporting torture and illegal imprisonment, or selling off the government to the highest bidder, or encouraging offshoring of jobs or income. I’m sure there was nothing in there about coopting regulatory bodies or throwing the common good out the window to get rid of a president with the wrong skin color.

    But then I went to a public school, where “society” and “common good” weren’t banned words and the Conservative Bible wasn’t required reading.

  • Matthew Moses

    Reduce the size of government? Responsibilities of the Government? HA! They are only responsible for collecting SICK money when you get it all boiled down. 179k/yr, benefits unavailable to almost ANYONE in the private sector, virtual immunity from any sort of prosecution. These groups were targeted to scare away people that might expose the corruption within the Government-Public Sector Union Triangle trade(Union Dues-Political Contribution to the DNC-More Union Whores sucking paychecks and kickbacks from the working Americans.

  • PhilipJamesJarosz

    The easiest way to get rid of a Federal Agency is to have Coporate Lobbyists give hush money to Congressmen to vote to underfund that Agency out of existence.

  • Casandra

    The tea party’s mantra has been “obstruct Obama, obstruct legislation.” They have gone to any lengths to do just that (voter suppression efforts). I respect the IRS’ intention (a lot!), but the execution was poor. It would have been easy to pick up some progressive non-profits to audit.

  • Anonymous

    Let’s just stop all tax exemptions for all non-profits. Churches end up with all their staff members as ministers so they don’t pay any income tax on their housing allowances too, a huge rip-off and clearly unconstitutional.

  • Dean Smith

    this has put all nonprofits in a bad suspicious light by destroying the spirit of intent of nonprofits.

  • Anonymous

    let us not forget that the IRS shared confidential taxpayer information with Pro Publica. Can’t wait to see Pro Publica do an investigatory piece on left of center social welfare non-profits. but I won’t hold my breath

  • Anonymous

    While they’re at it, the IRS should set hard limits for Universities, too. Do they and their departments serve the public, or the private 1%? Like economics departments? Anybody seen “Inside Job”? This scandal should spread…

  • John Cepelak

    The problem is all the groups that are political and are hiding behind social group status to keep their donors anonymous don’t care about the difference between right and wrong, and tactics. For them, it’s the end result that matters, not how they operate. That’s politics, not social welfare, and to my mind reveals the wolf inside the sheep’s skin.

  • Julián Falgóns

    The system is broken.

  • Leslie Austin Johnson

    Random question. Not everyone who works for the IRS is a Democrat, right?

  • peterjo

    Too many powerful people have a vested interest ($$$) in keeping the system just the way it is.

  • Whistlteeth

    Indeed, in fact too many people have too much money being invested it into putting our government even more their control.

  • ccaffrey

    Can someone tell me when the Tea Party itself refers to itself as a viable party, when every news service in the country considers them a subsidary party (a Tea Party candidate) of the GOP, why WOULDN’T someone check to see if there are political activities for a group applying for a non-profit tax exemption under the name Tea Party? And, uh, tell me again how many of those groups screaming they were targeted were actually DENIED their designation?

  • Jan Heaton


  • Jan Heaton

    Noah Webster-The WORDSMITH of our Constitution -wrote a Dictionary to eliminate verbal confusion-I call It- “NOAHS ARK” I reference all words for true meanings-Bible–Constitution-Crosswords-and letter writting-now I’m writting a book with N.Websters help so I can write only historical truth-If we don’t know History we’re bound to repeat it!
    a grey eagle from chief joseph the younger

  • Jan Heaton

    But Heritage Foundation Washington-D.C.-[Dr. Fuelner] owns the “U.S.Chamber of Commerce >a non-profit-< [poor folks]–that funded "Crossroads"- this non-profit seems to be a hangout for Limbaugh-Chaney and of course Rove- Didn't anyone read "BOY-GENIUS" ?? real story of Rove!

  • Kirk Anderson

    Let’s go back to 1959. I’d love to hear how ‘exclusively’ can be interpreted to mean ‘primarily’.

  • Seán O’Riordan

    Private money out of public office. It is the only way to fix this.

  • Mari

    YES !!!!!!!!!!!!!!!!

  • Armida Partida Brashears

    Could you please do a show on the Trans Pacific Partnership negotiations and how they will strip us of the few citizen protections that still exist? I really appreciate your programs and the guests you speak with each week. Thank you !!!

  • Anonymous

    What I don’t understand is why stockholders won’t demand transparency on political spending. My guess is that there is not even a line item in their annual statement showing dollar amount given to groups primarily involved in political activity, let alone the names and amounts given to such organizations. And there is no hope for relief on this or any of the other reporting shortcomings. Why would there be when one side gets 80% of the money while holding veto power over any changes, big and small. They are delighted with the status quo.

  • Anonymous


  • Anonymous

    Yeah, crazy stuff like teaching about the 10th Amendment. That’s really stretching things.

  • Anonymous

    I agree completely. That’s why we need the TEA Party groups. And that is why the IRS has become a political tool to silence.

  • NotARedneck

    What is apparent is that since the right wing criminal trash groups are making 80% of these political donations, they are naturally attracting the IRS attention.

    In addition, since the groups from the moderate part of the political spectrum (there is almost no “left” in the US, no matter what imbecile RepubliCONs say) are all well established organizations with a proven track record of helping Americans in need, it would be political correctness gone a muck to treat them the same as these criminal right wing political groups masquerading as charities.

  • Anonymous

    It is not confidential taxpayer information. Anyone can request the paper work from the IRS regarding non profits. OMG! The enemy of this country is IGNORANCE. Ignorance is Strength.

  • PeterTx52

    well then go complain to the Washington Post and Pro Publica
    “ProPublica on Monday reported that the same IRS division that targeted
    conservative groups for special scrutiny during the 2012 election cycle
    provided the investigative-reporting organization with confidential applications for tax-exempt status.”
    “The same IRS office that deliberately targeted conservative
    groups applying for tax-exempt status in the run-up to the 2012
    election released nine pending confidential applications of conservative
    groups to ProPublica late last year.”
    love seeing WaPo called ignorant

  • Mikeinthedirt

    I’m very disappointed that the IRS and the Executive cut and ran when this hit. There’s a party that thinks it’s omnipotent, entitled, and inevitable, and a party that thinks they’re probably right. No pun intended, just lucky.
    Who says Obama won in 2012? I don’t see it.

  • david moffett

    I have been following the hearings via cspan live re IRS 501c investigations and the convention expenditures. IRS is seemingly getting a really “black eye” apologies all around and 5th amendment invocations… This seems like a really convenient time for the IRS to be discredited since this is the agency that will be the major player in Obamacare implementation and what could stall obamacare implementation better than to have the IRS credibility in shambles? I do not think this is coincidence…I am more inclined to fish and rats in my olfactory nerves.