|Internal Revenue Service Commissioner John |
Koskinen explains how his agency wants to
regulate politically active nonprofits during an
interview at the agency's headquarters in
Washington, D.C. Eleanor Bell/Center for Public
Those nonprofit groups, including many that enjoy a preferred tax status because they purport to be focused on “social welfare,” are barred from engaging in electoral politics as their primary activity.
But the Internal Revenue Service, which is charged with policing the groups, almost never audits them to see if they’re spending too much money on politics, according to new information obtained by the Center for Public Integrity.
The IRS told the Center for Public Integrity that it has only begun auditing 26 organizations specifically for political activity since 2010. That represents a tiny fraction of the more than 1 million nonprofits regulated by the agency.
More than 100 nonprofit groups have directly involved themselves in elections during recent years, some spending into the tens of millions of dollars. The rest — largely charities that are generally prohibited from campaigning for politicians — are seldom monitored to ensure they follow federal law.
The situation leaves the groups largely free to operate like political committees without fear of reprisal.
Their involvement in politics, meanwhile, has accelerated since 2010, when the Supreme Court’s Citizens United v. Federal Election Commission decision ushered in unprecedented election spending by nonprofit organizations that don’t disclose their donors.
Such groups spent more than $336 million during the 2012 cycle alone compared to about $17 million during the 2006 cycle, according to the Center for Responsive Politics.
The lack of IRS oversight and enforcement stems from a confluence of factors — fewer employees are devoted to nonprofits at a time when the number of “dark money” groups applying for tax exempt status has skyrocketed, and the agency meantime has failed to clarify the rules surrounding political activity.
Internal IRS documents also show declines in the number of IRS employees investigating nonprofit groups and the number of employees who approve organizations’ application for nonprofit status, which allows the groups to avoid paying certain taxes.
“The IRS is not doing its job,” Sen. Bill Nelson, D-Fla., told the Center for Public Integrity. “There have been not only some obvious abuses of the tax exemption by some of these so-called social welfare groups, but I think some pretty flagrant ones.”
Help is not on the way. President Barack Obama last month signed into law a bill that chops the IRS’ annual budget by $345.6 million — reducing agency funding to 2008 levels.
It’s a decision IRS Commissioner John Koskinen says will result in hiring freezes and further job losses.
“The number of taxpayers keeps going up and the resources are down,” he said in an interview. “We are leaving billions of dollars uncollected because we do not have enough” employees.
The new information about the IRS’ internal resources comes in the agency’s response to a Freedom of Information Act request filed in December 2013 by the Center for Public Integrity.
It follows an investigation the Center for Public Integrity published in July that found Congress has systematically weakened the IRS’ exempt organizations division in recent years, leading to the IRS all but quitting its regulation of politically active nonprofit groups.
The agency’s enforcement capabilities were further degraded because of political fallout from some employees’ decisions to delay approval of conservative groups’ applications for nonprofit status.
“The aftershocks from the political targeting scandal certainly don't facilitate prompt solutions,” said Mark Everson, a former IRS commissioner appointed by President George W. Bush. “I would imagine there is a real slowdown getting issues resolved because there is a tendency on the part of employees to make sure they aren't causing new problems.”
Cheryl Chasin, who worked for 32 years until 2010 in the IRS’ exempt organizations division, which oversees nonprofits, went further: “Anybody who at this point stuck their neck out [by delving into political spending] … would be slapped so hard and so fast they would bounce.”
Politically active nonprofits are simply “not afraid of the IRS or anybody else on this matter,” said Paul Streckfus, a former exempt organizations division employee who now edits a trade journal focusing on nonprofits. “Anything goes as far as spending” by these groups.
Politically active nonprofits include 501(c)(4) “social welfare” groups, 501(c)(5) labor unions and 501(c)(6) trade groups.
It’s not that investigators can’t look at the issue: Auditors are empowered to probe groups for suspected political transgressions during the course of other audits, an agency spokesman said. The number of those audits, however, isn’t tracked.
The number of employees responsible for investigating nonprofits in the IRS exempt organizations division has dropped 9 percent from fiscal year 2010 through fiscal year 2013 — from 538 to 489.
There has also been a 16 percent decline in “determinations” employees — workers who process applications for nonprofit status. Their numbers fell from 297 in fiscal year 2009 to 248 in fiscal year 2013.
Meanwhile, applications for “social welfare” nonprofit status — the status obtained by many of the nation’s most politically active groups — increased by more than 17 percent, from 1,922 in fiscal year 2009 to 2,253 in fiscal year 2013.
The agency as a whole lost 13,000 employees in the past four years and has dealt with hefty budget cuts in recent years, and the exempt organizations division hasn’t been spared — even as its leaders “review how to most effectively use its staff,” said Bruce I. Friedland, an IRS spokesman.
Friedland also noted that the IRS has attempted to reduce the backlog of tax-exemption applications by, among other things, bringing in employees from another division to help.
A roster provided by the IRS of tax exempt and government entities division employees from 2001 to 2013 indicates support services for workers has also taken a blow.
For example, the 20 “employee development” positions in 2001 fell to three in 2013, plus four human resources positions.
Several IRS employees said the change was likely part of the overall decrease in training they encountered over the years. This, in turn, contributed to the uncertainty about how to handle applications for nonprofit status by a new wave of political groups.
“Practitioners [such as nonprofit tax attorneys] are saying they’re seeing a reduction in the quality of the work coming out of the IRS. A lot can be traced to that training budget being slashed,” said Streckfus, who worked for the IRS for six years during the 1970s.