The IRS scandal no one's talking about

The rules covering who gets tax-exempt status are so squishy and vague that just about anyone can work the system.

By Kim Peterson 

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A scandal continues to unfold in Washington surrounding Internal Revenue Service employees who inappropriately targeted conservative groups seeking tax-exempt status.

But there's another issue here, one that's getting significantly less attention though it's also important: Why are tax-exempt groups spending tens of millions of dollars on political advertising? And why has the IRS turned a blind eye to this practice for years? 

That's the subject of a few pointed articles lately after news emerged that the IRS was overly aggressive in handling the requests of conservative groups that desired the tax-exempt status classified as 501(c)4.

Groups with this status are supposed to be "social welfare" organizations that serve their communities,writes Michael Hiltzik of The Los Angeles Times. You can see on the IRS' own application what groups are intended to receive this status -- educational and health care organizations, homeowners associations, volunteer fire departments and the like. They cannot be primarily engaged in election work.

The IRS clumsily tried to screen applications to find the groups that weren't entirely focused on "social welfare." And as part of the screen, they looked for groups with "tea party" or "patriot" in their names. A dumb move on many levels. In January 2012 the IRS decided instead to look for "political action type organizations involved in limiting/expanding government, educating on the constitution and bill of rights, (and) social economic reform/movement," Hiltzik writes.

But for years, the IRS has let groups on both sides of the aisle skirt the rules. And Congress is to blame here, too, Hiltzik writes. "Thanks to ambiguity about what it means to be 'primarily' concerned with 'social welfare,' political activists have reaped a bonanza for years while the IRS ignored their chicanery," he adds. "And once again, now that the agency has tried to regulate, the regulated parties have blown its efforts up into a 'scandal.'"

The IRS seemed only to investigate the little guys, too, ignoring the larger C4s tied to Karl Rove and former campaign staffers for President Barack Obama. "The big groups are generally well-advised, lawyered up. Their tax forms are artfully drawn," Chris Ashby, a lawyer advising conservative groups, told The New York Times. 

Lawmakers upset at the IRS should step back and take a look at what caused these problems in the first place. The rules are unclear, vague and sometimes missing completely. And as a result, there are huge loopholes that some groups can and do exploit.

Until Congress and the IRS figure out how to make clear rules that actually stick, swamped workers at an agency already beset by budget cuts will continue making ill-advised moves like searching for words like "tea party." Or, after this latest drama, they'll just stop trying to enforce the squishy standards completely.