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Tue Jun 11, 2013, 04:34 PM

How to get politics out of the IRS: Tax-exempt groups should disclose donors. - USA Today

Mixing politics and the IRS is bound to lead to trouble, so the bipartisan uproar over the agency's targeting of Tea Party groups is entirely appropriate. But so far, the underlying cause of the problem is largely getting overlooked.

The driver of the scandal is that political organizations of all kinds want to keep the sources of their money secret. By operating in the dark, donors can avoid accountability when they funnel money to candidates in exchange for favors.

In 2010, political strategists came up with a new device for doing this. They formed "social welfare" organizations to qualify for tax-exempt status. That status came with a bonus. Unlike political action committees and other structures of the time, these so-called 501(c)(4) organizations could hide donors' names.

This put the IRS in an awkward spot. How could it differentiate social welfare from political activity? Its rules required that a majority of a group's work had to be social welfare, which tax lawyers took to mean 51%.

So as groups rushed to claim the new status more than 3,000 in 2012 alone IRS bureaucrats were overwhelmed, left to judge which organizations qualified and to parse the details of how they would spend their money. The Wetumpka Tea Party of Alabama, for example, waited two years, then got a questionnaire seeking the names of all its volunteers, the names of any legislators its members had contacted, and the contents of all speeches its members had made.

There is, at least theoretically, an easy solution to the problem. All you have to do is remove the incentive that created it in the first place: Require that all such organizations publicly report donations of $5,000 or more, the amount the IRS already requires them to report confidentially.


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