Crowdfunding, a practice
which allows startup firms to raise money from small investors over the
Internet, picked up steam in 2012 with some $2.7 billion invested, a
study showed Monday.
For all the talk of scandal regarding the IRS targeting
groups named “Tea Party” or “Patriot,” it’s not hard to draw an
additional lesson from the facts of the case — a pattern that follows
the well-worn model of the modern political age: Benefits flow to the
rich and the well-connected, with pain for the rest.
Steven
Miller (who was not the commissioner when the scandal occurred – this
would be like the State Department reacting to the tragedy at the Libyan
consulate by firing a low-level bureaucrat coincidentally named Ben
Ghazi), is definitely scandalous in its own right. As the
details,
it’s completely inappropriate for the IRS to burden any subset with
invasive information requests based merely on keywords or policy
positions.
But let’s consider how this played out. The New York Times’ Nick Confessore
that
the groups applying for tax-exempt 501(c)(4) status and singled out for
inspection were primarily small, local conservative (and a
)
organizations, who barely spent any money on elections. Meanwhile,
groups like Karl Rove’s Crossroads GPS and the liberal Obama-supporting
Priorities USA, who did the lion’s share of campaign spending among
these types of organizations, not only faced no such examination, but
survived multiple efforts by campaign finance reform advocates to
Why
would this be the case? First of all, a 501(c)(4) group need not apply
with the IRS to prove its tax-exempt status; it can simply self-declare,
avoiding an initial review process. The IRS encourages groups to file
applications, but those with the resources to hire a smart tax lawyer
know they aren’t required to go through the trouble. Needless to say,
most local Tea Party groups didn’t have that kind of professional
expertise. So generally speaking, the small fish revealed themselves to
the IRS initially, and since Congress
requires reviews of every application for tax-exempt status, these groups become the low-hanging fruit, prone to investigation.
Furthermore,
Tea Party groups did themselves no favors by filling out the
applications in an amateurish manner, according to Pulitzer
Prize-winning former reporter for the New York Times and columnist at
TaxAnalysts.com David
Cay Johnston. “It’s like applying for a mortgage,” Johnston told Salon.
“If you write it out wrong, you’re going to get flagged. And there are
examples of these groups saying they’re not political and then saying
their goal is to influence legislation.”
Crossroads GPS apparently
did file an application for tax-exempt status, but it had very smart
tax form preparers who knew how to exploit the ambiguites in the
501(c)(4) statute. The tax code says these groups must “exclusively”
engage in the vague-sounding “social welfare activity,” which suggests a
ban on political spending. But the IRS subsequently interpreted this to
mean that groups fall within the rule as long as they don’t “primarily
engage” in political activities.
Since the Citizens United ruling, which
heralded the growth of the 501(c)(4) sector because corporations could
donate to these tax-exempt groups without disclosing their donations,
savvier groups have simply worked to stay a hair under 50 percent with
their campaign spending, putting them in the clear. David Cay Johnston
cited this as a major problem with how the IRS defines social welfare
organizations. He said, “Is there any married person in America who
doesn’t understand exclusivity? 49.9 percent is not exclusive.”
It’s pretty simple, then, to figure out what took place. The IRS, faced with the enormous task of dealing with
a surge of 501(c)(4) groups taking
advantage of an often contradictory law, performed triage by taking the
path of least resistance – going after the most obvious targets, who
didn’t have the resources to artfully stay within the tax laws, or to
fight back against invasive reviews. They shied away from the heavily
lawyered-up big-money groups, and instead focused on battles they
thought they could win.
This has precedent within other parts of the IRS. According to data from the
Transactional Records Access Clearinghouse at Syracuse University, IRS audits of the largest and richest corporations have
steadily declined since 2005, down 22 percent in the ensuing four years and
even more from 2011-2013.
In the same period, the agency accelerated its scrutiny of small and
midsize corporations. Since 2000, the IRS has been more likely to
audit the working poor, individuals and families making under $25,000 a year, than those making over $100,000 annually. The middle class received
disproportionately more auditsthroughout
the past decade as well. An IRS unit formed in 2009 called the Global
High Wealth Industry Group, designed to give special attention to tax
compliance of high-wealth individuals, performed
exactly two audits in 2010 and 11 in 2011.
Salon
asked David Cay Johnston, author of many of the above-linked reports,
whether it was fair to assess the IRS fixing its attention on more
vulnerable populations as a pattern. “We know broadly that when
government takes enforcement actions, it tends to go after the little
guy,” he replied. Johnston gave the example of so-called financial fraud
prosecutions that target penny-ante operators instead of the largest
Wall Street institutions. And just as the Justice Department tends to
avoid suspects with more clever lawyers, the IRS could shy away from
more fearsome individuals and groups as well.
There is one alternative explanation. Johnston explained that the IRS budget has
shrunk 17 percent since 2002.
And yet Congress has loaded on the agency more responsibilities,
between the Affordable Care Act, orders to deal with offshore accounts,
and other matters. This has only grown worse with the indiscriminate 5
percent sequestration cuts. “There’s no way they can do all these things
they’ve been asked to do,” Johnston said. “Imagine if the head of
Nordstrom announced in November that they would eliminate half the store
clerks right before Christmas shopping season. Everyone would say
that’s bad. But that’s what Congress did to the IRS.” And this is true
of the
nonprofit division in particular.
Visit
any office location in America where fewer employees have to produce
more work, and what do you see happen? They take shortcuts, as the only
way to keep up with the workflow. That’s precisely what we saw with the
so-called
rogue agents using “Tea Party” or “patriot” as keywords to trigger additional scrutiny. The IRS routinely
lumps organizations by category, for the purposes of equal treatment but also to save time. In other divisions of the agency,
claiming a particular deduction will
often trigger an audit. These heuristics reveal an agency that has to
get by on the cheap, using crude automation to get their jobs done. And
not only did it backfire in this case, it predictably swept up the less
savvy, more resource-starved organizations.
There’s a certain
poetry to all this. Congress knows full well that defunding the IRS will
lead to these outcomes, and that gives a definable benefit to the rich
and powerful, who know how to slip through the cracks of the tax code.
“For a big corporation wanting to play fast and loose, this is manna
from heaven,” David Cay Johnston said. “They’re the ones this is
helping: the political donor class. It’s a subtle way of taking care of
your friends.”
In remarks
yesterday,
President Obama stated that “we have to make sure the laws are clear,
so we can have confidence that they are enforced in a fair and impartial
way.” Yet like so much in America, this fairness and impartiality
rarely crosses class lines. An underfunded IRS means a direct cash
subsidy for the top 1 percent. It’s a peculiar Occupy Wall Street-style
byproduct of a scandal that’s supposed to be about the Tea Party.
David Dayen is a writer for FDL News Desk, at Firedoglake.com.
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