Has the Internal Revenue Service been tacitly cracking down on the Tea Party? Quite possibly, according to CNN, in what's being called "The IRS Tea-Party Scandal."
In fact, it may be easier to become a Muslim nonprofit these days than it would be to become a Tea Party affiliated nonprofit.
According to an investigative report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS was placing Tea Party groups under greater scrutiny when applying for tax exemptions, writes CNN.
Lois Lerner, the IRS director of tax exempt organizations, admitted that applications with the words "patriot" or "tea party" in their names went into a special pile-- a pile that was given stricter review.
What does the IRS Tea Party scandal mean? In short, it means that the IRS hasn't been letting Tea Party groups get their 501(c) status as easily as it's been letting other groups through.
Let's go back a bit and talk about what 501(c) even means. Many charities, philanthropic and social welfare organizations want to be tax exempt. This typically means that they don't want to pay tax on the income they derive (unlike for-profit corporations, partnerships and LLCs which must pay tax on their income).
Another advantage of having 501(c) status is the fact that donors can give freely to the organization, either through donations or grants, and know that their donation will qualify in part for a tax writeoff.
In order to get the 501(c) status, the organization has to submit an elaborate form the the IRS. The form can sometimes go into fifty or more pages, with all the attachments.
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On this form, however, the groups must disclose their activity. Groups seeing exemption are not allowed to engage in much political activity or lobbying, depending on what specific type of exemption they're seeking.
Having spent most of my legal career working with tax exempt entities, the IRS scrutiny on the Tea Party isn't news to me. In my days at large law firms, I handled a portfolio of nonprofit Tea Party organizations and saw firsthand how the IRS treated them when it came to granting exemptions.
In many cases, the organizations fight tooth-and-nail to get through IRS scrutiny, often facing pages of questions from the IRS on their activities.
In some instances, the IRS went about it in a more roundabout way, calling into question the organization's use of funds, its outside grants and operational issues.
Several of the applications were even sent up to the IRS' National Office for elevated scrutiny.
The experiences mirror the allegations of the American Center for Law and Justice, who represented 27 organizations.
On the flip side, I've worked with numerous Muslim organizations as well. And every single application of a Muslim nonprofit has gone through the IRS, with less scrutiny. Of course, they still did get scrutiny-- after all, Islamophobia is still pretty rampant everywhere and it's inaccurate to say that they got a free pass. But truth be told, they never got a 10-page questionnaire on each and every one of their grantees.
What does this say about the way that the IRS is handling applications from Muslim nonprofits? For one, in the application phase, Muslim nonprofits seem to have an upper hand over Tea Party groups. Of course, the Muslim groups face their struggles post-determination, when they're suddenly placed under investigation. And the IRS isn't the agency that tends to target Muslim nonprofits, even though the Treasury has a list of "scary Muslims" (ever heard of the OFAC list?). It's usually the FBI and the Department of Homeland Security who run Muslim nonprofits to the ground and put their founders in jail. But going back to the IRS Tea Party scandal, the IRS certainly makes it hard for Tea Party groups to make it through the door.
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Is this a tacit power-play by the Obama administration? Some would say so.
Others, however, say that this tactic is being used to flush out issues stemming from a recent ruling allowing 501(c)(4) groups to keep their donor lists private. While 501(c)(4) groups don't have to disclose where they get their money from, the name "Tea Party" or "patriot" in their application could give away a lot more information on the group than otherwise intended.
On Sunday, Republican lawmakers have called for an inquiry into the Internal Revenue Service's treatment of these groups, reports NPR.
The IRS has apologized and called it a bureaucratic mistake, carried out by low-level administrators, writes NPR.
But as the details of these allegations and the IRS Tea Party scandal unfold, we could be seeing some serious changes in the law of tax exempt organizations and the way nonprofit applications are examined by the IRS.
For now, nonprofits should learn from this debacle and be very careful when chosing a name. Their name could lead to their application falling into a "special" pile.
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