Among a number of scandals rocking Washington, D.C., this week, the tax code as political plaything. IRS officials admit to having given extra scrutiny to conservative groups seeking tax exempt status under section 501(c)(4) of the Internal Revenue Code.
Attorney General Eric Holder (who's got problems of his own to deal with, but that's a whole different scandal) announced today that the FBI will begin a criminal probe into the IRS actions.
Social welfare groups that qualify under the 501(c)(4) exemption don't pay taxes, and don't have to disclose donor names. They are allowed to pursue some political activity.
Loyola Law School professor Ellen Aprill says the goal in reviewing the applications is to figure out how political a group really is. Are they doing some issue ads but mostly education? Or are they focused solely individual candidates and races?
Attempting to answer those questions left regulators in deeply fraught political territory. President Barack Obama criticized, prominent conservatives condemned and the IRS itself apologized for the specific targeting of Tea Party groups.
"Congress has put the whole category of political organization into the tax code," Aprill says. "In a way, trying to have the tax code carry the burden of campaign finance reform," Aprill said.
Regulators have the option of rejecting applications that are too political. While the Treasury Department has not yet issued its report on all of what took place at the IRS, some conservative groups were not rejected, but given were lengthy, personal questionnaires to be completed "upon penality of perjury."
Of 2,500 applications last year, eight were rejected. But Aprill says those figures may not include groups that drop out after a long process.
"Organizations will get enough feedback from the IRS, to say, 'Oh, we're not going to get exemption,' and they withdraw their application," she said. "Knowing the number of denials doesn't give us the whole picture."
Meanwhile, the political furor could have additional consequences for 501(c)(4) applicants, and the public as a whole.
When asked whether the IRS might shy away from tough calls now, making the special designation more useful for overtly political groups, Aprill acknowledged, "That's a real possibility."