Senate Floor Statement on the Internal Revenue Service and 501(c)(4) Organizations
Wednesday, September 19, 2012
Mr. President, our representative form of government is based on the premise that citizens who vote in our elections are informed about who is seeking to influence elections. Sadly, we continue to see that information obscured by organizations that are misusing our tax code for political gain.
As we have discussed on this floor many times, the Supreme Court opened our campaign finance system to a torrent of unlimited and secret special-interest money in Citizens United. But even the Supreme Court acknowledged in Citizens United that disclosure is important:
“[P]rompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are in the pocket of so-called moneyed interests.” Citizens United v. FEC, 130 S. Ct. 876, 916 (2010).
Yet, according to the Center for Responsive Politics, as of Sept. 13, spending on political advertising by groups that either do not disclose, or only partially disclose their donors, has increased four-fold, from $32 million in the 2008 election to more than $135 million at the same point in the current election.
These groups are exploiting our tax code by organizing as tax-exempt “social welfare” groups and then spending tens of millions of undisclosed dollars on political campaigns.
The Internal Revenue Service (IRS) – the organization that grants these groups their tax-exempt status in the first place – should be protecting the voting public from these groups that pretend to be acting in the social welfare but are instead engaging in partisan politics.
The law in this area is clear. 26 U.S.C. §501(c)(4) states that “Civic leagues or organizations not organized for profit but operatedexclusively for the promotion of social welfare,or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes” are exempt from taxation. The word “exclusively” is in the tax code for a reason. Congress didn’t say “partially,” or “primarily.” We said that these groups had to be operated “exclusively” for the promotion of social welfare. The IRS, in writing the implementing regulations to the statute, said that, “An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare.” [emphasis added] By substituting the word “primarily” in the regulation with the word “exclusively” in the statute, the IRS essentially redefined what Congress required a social welfare organization to be.
Mr. President, I asked the IRS for an explanation as to why they have not responded to the increasing growth of groups that parade as social welfare groups but are obviously organized for politically partisan purposes. In my letters, I asked the IRS how they interpret the explicit language in the tax code which says that entities must operate “exclusively” for the promotion of social welfare, to allow any tax exempt partisan political activity by 501(c)(4) organizations. Their response? That the regulation has been in place for over 50 years. That’s not an excuse if new abuses require a review of an IRS regulation.
I also asked the IRS if they are fulfilling their enforcement function by notifying these groups that are obviously engaged primarily in political activity that they are violation of the law. Again, the IRS response was inadequate. During the past six months, according to the IRS letter, no notices of proposed or final revocation have been issued to section 501(c)(4) organizations. None. So even under the “primarily” test the IRS is not enforcing the law in the face of the avalanche of evidence that our laws are being flouted.
The law is clear. Even the watered down IRS regulation is clear. It is time that the IRS enforces the law, or at least its own regulation.
I request that the correspondence with the IRS be printed in the record.
- Levin letter to IRS re 501(c)(4) "social welfare" organizations [PDF] - July 27, 2012
- IRS response letter re 501(c)(4) "social welfare" organizations [PDF] - August 24, 2012
- Levin response letter to IRS re 501(c)(4) "social welfare" organizations [PDF] - August 31, 2012
- IRS response letter re 501(c)(4) "social welfare" organizations [PDF] - September 14, 2012