IRS Scandal: Less About Tax Status, More About Donor Intimidation

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Most of the focus on the IRS scandal has been centered around whether certain (conservative) organizations should or should not be granted tax-exempt status.

Try this on for size: Those behind the IRS initiative to target conservative groups weren’t interested in the tax status of those groups in the least. What they were interested in was identifying and intimidating the donors of those organizations.

Most of the criticism has been aimed at the endless questionnaires, amount of seemingly irrelevant – and often personal – information and minutia that Tea Party groups and others have been forced to submit to the IRS in their efforts to acquire tax-exempt status. But, in most cases, there was a common thread: Who do you know, with whom else are you affiliated and who are your donors?

Think about it. Tea Party groups and most political organizations – including those on the left – have little or no income to be taxed. As a result, the IRS generally isn’t concerned with tax avoidance – or evasion – by these groups. In fact, other than 501(c)(3) organizations (charities, churches, etc.), most other 501(c) organizations can self-declare tax-exempt status without prior IRS approval and simply operate as such (subject to audit, of course).

Most of the targeted groups were applying under section 501(c)(4) of the tax code, which differs from the more-familiar section 501(c)(3) in one critical aspect that is germane to this scandal:

Donations to 501(c)(3) organizations are tax deductible; donations to 501(c)(4) organizations are not. So again, the targeting of conservative political groups was not based on tax avoidance.

So what was the objective? I believe it was twofold:

  • To intimate conservative donors into abandoning their financial support of organizations working to defeat Barack Obama and the Democrats.
  • To uncover anonymous donations that would otherwise be public.

While the second objective is legitimate, the targeting of conservative groups was clearly not. Besides, the public charade being carried on by Democrats (including Rep. Jim McDermott’s ridiculous dressing down of witnesses Wednesday), as they pretend to care whether the Tea Party and others engage in “political activity” is laughable at best.

You see, as I said earlier, the controversy has centered primarily on 501(c)(4) status. It seems the Democrats aren’t all that concerned with the political activities of 501(c)(5) organizations. You know them better as labor unions.

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