Don't Forget the Other IRS Scandal

Washington, DC and the right wing outrage machine are all abuzz that the IRS allegedly targeted groups based on their presumed political affiliation. Obviously, that was wrong to do, but let's not forget that there are two IRS scandals. The other is allowing big shadowy forces to meddle in elections anonymously through front groups that file false IRS statements.

Let's go through this. It's pretty clear that Americans have a strong interest in knowing who's trying to influence their vote in elections. Even the Supreme Court agreed 8-1, in the otherwise loathsome Citizens United decision, that "effective disclosure" provides "shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters."

Although the law in America requires lots of disclosure, and the Supreme Court has emphasized the importance of disclosure, a company or a billionaire trying to hide their political influence-seeking can use a front organization to hide behind. Not many organizations can hide their donors that way; one is called a 501(c)(4), a tax-exempt non-profit form of corporation regulated by the IRS.

For secretive donors, there's a problem. That kind of organization, a 501(c)(4), needs to be set up "exclusively... for the promotion of social welfare." And the IRS's own regulations explicitly state that "the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office." To enforce this, the application form for 501(c)(4) status asks: "Has the organization spent or does it plan to spend any money attempting to influence the selection, nomination, election, or appointment of any person to any federal, state, or local public office or to an office in a political organization?"

Some groups reported to the IRS that they would not spend money on elections, but then reported to other government agencies that they had. You cannot tell one federal agency that you spent millions to influence elections, and tell another federal agency that you spent no money to influence elections, and have both statements be true. Making a material false statement to a federal agency is not just bad behavior, it's a crime. It is a statutory offense under 18 U.S. Code Section 1001. The Department of Justice indicts and prosecutes violations of this statute all the time; I used to as U.S. attorney.

But no matter how flagrant the false statement, no matter how great the discrepancy between the statements filed at the IRS and the statements filed at the election agencies, no matter how baldly the organization's activities belie its answers, the IRS never makes a referral to the Department of Justice. The result: no investigations.

No one is suggesting that conservative groups should have their First Amendment rights limited (or other groups, for that matter -- liberal groups were also singled out by the IRS for further review based on certain keywords). No one has a First Amendment right to lie to a federal agency, in order to claim an improper tax status in order to avoid legal disclosure requirements on political spending, and thereby receive undue tax benefits. That's a criminal false statement and possibly a fraud.