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GOP Rips IRS for Donor Request

As evidence mounts that the IRS is more closely scrutinizing politically active nonprofit groups, Republicans on Capitol Hill have lashed out with assaults on the tax agency and fresh demands for an explanation.

The IRS may have stepped over the line this year by asking conservative groups applying for tax-exempt status to hand over the names of their donors, wrote Sen. Orrin Hatch (Utah) and 10 other Republican Senators in a letter this week to IRS Commissioner Douglas Shulman.

“Unfortunately, the public release of private donor information exposes citizens to possible harassment and intimidation by those who oppose the goals of the charitable organization,” wrote Hatch, ranking member of the Finance Committee. It’s the second letter from Hatch to Shulman on the topic this year.

The letter is the latest in a string of attacks by conservatives on and off Capitol Hill, including Senate Minority Leader Mitch McConnell (Ky.), on initiatives that would shed more light on political spending. In a strongly worded speech last week at the American Enterprise Institute, McConnell accused President Barack Obama of creating an “enemies list” and “attempting to change the First Amendment.”

McConnell faulted disclosure legislation pending in the Senate, as well as transparency measures under consideration at the Federal Communications Commission, Federal Election Commission and Securities and Exchange Commission. But he singled out the IRS for special criticism.

McConnell cast the IRS as the “speech police” for sending lengthy questionnaires to “dozens of tea-party-affiliated groups” seeking tax exemptions. He also accused the agency of leaking confidential tax information, citing reports last month that a leadership PAC run by presumptive GOP presidential nominee Mitt Romney had donated $10,000 to the National Organization for Marriage, which opposes same-sex marriage.

A recent IRS move to revoke the tax-exempt status of a small nonprofit group and its affiliates “undoubtedly foreshadows an effort to do the same to bigger groups on the right that the Obama administration regards as a threat to its campaign,” McConnell warned.

The GOP salvos may reflect an attempt to get ahead of what could be inevitable IRS audits of politically active groups spending millions in the 2012 elections, said Marcus Owens, a tax lawyer with Caplin & Drysdale.

“I think the Republicans in Congress are running interference for their followers and supporters out there,” said Owens, former director of the IRS’ Exempt Organizations Division. “And they are probably also building a firewall against what’s probably inevitable — when groups like Crossroads GPS get audited.”

Even as the agency faces Republican complaints, watchdogs and Democrats have called on the IRS to investigate politically active nonprofits such as Crossroads GPS, which by some estimates has spent more than $20 million on anti-Obama ads in this election cycle.

In the wake of the Supreme Court’s 2010 Citizens United v. Federal Election Commission ruling to deregulate political spending, outside groups such as unrestricted super PACs and politically active nonprofits are on track to spend hundreds of millions of dollars in the elections.

But unlike super PACs, which in theory must disclose their donors to the FEC, nonprofits face nominal disclosure requirements. This has sparked warnings from watchdogs, activists and even some Republicans, such as Sen. John McCain (Ariz.), that undisclosed political money poses a corruption threat on the scale of the Watergate scandal, the 40th anniversary of which has drawn headlines this week.

In response to McConnell’s AEI speech, Sen. Charles Schumer (D-N.Y.) complained in a statement that the Kentucky Republican “has gone from being the greatest champion of disclosure to being its foremost opponent.”

Historically, the IRS has stayed out of politically charged battles over campaign spending. But lately the agency appears to be giving nonprofits a closer look. IRS rules permit 501(c)(4) social welfare groups to engage in politics, but not if it’s their “primary purpose.”  

An Exempt Organizations Division work plan for fiscal 2011 outlines a new project examining the activities of 501(c)(4) groups. A recent IRS move to strip a nonprofit known as Emerge America and its local affiliates of their tax-exempt status has alarmed some in the nonprofit sector. The agency’s explanation to the group, which helps elect Democratic female candidates, hints that overly partisan organizations may not pass the “primary purpose” test.

“Educational activities undertaken to provide a partisan benefit are considered to serve private interests, rather than the common good,” stated the IRS letter to the group, which was first reported in EO Tax Journal.

The letters to tea party groups, sent out early this year, are a particular sore point for Republicans. The questionnaires may have been unprecedented, a Hatch aide said, in that they explicitly ask the groups to provide detailed information about donors.

In their recent letter to Shulman, Hatch and other GOP Senators warn that the donor information will end up as part of the public record because application materials are made available for public review at IRS headquarters.

“Even if not prohibited by law, the actions of IRS are an inappropriate circumvention of the policy of donor privacy embedded in the Code,” the letter states. The letter also asks Shulman to state the “statutory authority” behind the agency’s request for donor names and to name the IRS employees and officials involved in drafting questions that requested donor names.

Testifying on Capitol Hill in March, Shulman told a House panel that the IRS is a nonpartisan agency and does not target or impose burdens on tea party groups seeking tax exemption.

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