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Nonprofits Get Hurt by IRS Inaction on Political Groups

Just as billions of dollars are flowing into the 2016 election campaigns -- often through tax-exempt groups -- the IRS has decided to stop doing its job ensuring that the nation's nonprofits are serving the public, not the politicians.
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Just as billions of dollars are flowing into the 2016 election campaigns -- often through tax-exempt groups -- the IRS has decided to stop doing its job ensuring that the nation's nonprofits are serving the public, not the politicians.

The head of the IRS, John Koskinen, has announced that social-welfare groups -- which unlike charities are permitted to get involved in some political work -- will no longer face much regulation. He said such groups can devote up to 49 percent of their activities to political work without expecting any action from the IRS.

That is an incredible turnaround.

When Congress created the section of the tax code -- 501(c)(4) -- that says how social-welfare groups operate, it said they had to work "exclusively" to promote the common good. Over the years, the IRS has watered down that standard, saying such groups needed to work primarily for social welfare, opening the door to lots of politicking.

For charities, the loosening of the political rules is a big deal: It means they can be used by politicians inappropriately -- and that it's getting hard to tell legitimate nonprofit advocacy groups from those that are just thinly disguised campaign units set up to collect cash from anonymous donors. Just like charities, social-welfare groups face no disclosure requirements, so nobody knows who is giving.

Because the IRS has been reeling from criticism that it targeted some tea-party groups and a few liberal organizations for an examination of their political activities, it has become even more gun-shy than it has been historically. Two years ago, when the allegations of wrongdoing first surfaced, the tax agency was in the process of drafting rules to regulate nonprofits involved in politics. But as the IRS faced more criticism, the rules were withdrawn.

To say that the IRS has failed its mission to hold nonprofits accountable would be an understatement. Not only has it failed to enforce the law on political donations, it does little to clamp down on wrongdoing by charities -- even though that is one of its important jobs.

As Paul Streckfus, a former nonprofit specialist at the IRS who now edits EO Tax Journal, a newsletter about tax-exempt groups, told The New York Times: "It's anything goes for the next couple of years. The whole system has really collapsed."

Who's to blame for this disastrous state of affairs?

The first culprit is Congress, whose members have never had the interest or courage to give the agency the support it needed to do its job.

They have repeatedly refused to provide sufficient funds and political muscle for the IRS to perform at a high level.

Recently, the incessant attacks on the agency by Republican legislators, as well as the accusatory hearings by Rep. Darrell Issa of California, which turned up no evidence of criminal wrongdoing, further weakened an already wounded organization. Democratic legislators' lackluster defense of the agency didn't help.

The Obama administration must also share a substantial portion of the blame. It never mounted a strong defense of the IRS, and especially of Lois Lerner, who headed the unit overseeing tax-exempt groups. The administration left her and the IRS hanging in the wind. Nor did it ever move to strengthen the agency by recommending additional resources and staff.

And to cap off its pitiful handling of the agency, it appointed a poor leader to head the IRS. John Koskinen lacks the gumption and political courage to defend the organization and take strong measures to improve its performance. He needs to be replaced.

Also at fault: America's major nonprofit organizations. They have stood by, refusing to pressure the federal government for a more robust and active agency, preferring to minimize the IRS's role, citing the dangers of federal intervention and the value of self-reform instead of tough regulations and enforcement.

The result is a neutered regulator, incapable of stopping scandals at nonprofits, both financial and political. As the public's growing demand for the elimination of big money in political campaigns reaches a crescendo, the agency appears paralyzed and running in circles.

It's time for the IRS, backed by the White House, to clearly define in its regulations how much political activity a welfare organization can undertake and what kinds of political activity are permissible. That way, commissioners like Mr. Koskinen couldn't just say in speeches or news releases anything as ridiculous as he did with his 49 percent pronouncement.

No more than 10 to 15 percent of a welfare organization's budget should be spent on politics, say many experts. And, perhaps most important of all, the identity of donors to such groups should be a matter of public record.

The IRS is not a rogue organization. Rather, it is the child of parents who do not want to have anything to do with their offspring. Neither Congress nor the administration seems willing to transform the agency into a working, effective regulator. In the meantime, many nonprofits are in real danger of losing their way and becoming less accountable.

The public, as well as nonprofits, should be screaming out for changes in the regulatory system. But would anybody in our legislative and executive branches listen and react? We truly have a dysfunctional government, one that puts our civil society and democratic impulses to shame.

Pablo Eisenberg, a regular Chronicle of Philanthropy contributor, is a senior fellow at the Center for Public and Nonprofit Leadership at the McCourt School of Public Policy at Georgetown University. His email address is

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