Tea Party leaders and lawmakers in the House Republicans' Tea Party Caucus rallied Thursday on Capitol Hill, expressing alarm over the IRS's targeting of conservative groups that applied for tax-exempt status as 501(c)(4) social welfare organizations. Rep. Michele Bachmann, R-Minn., invoked the axiom, "The power to tax is the power to destroy."
But elsewhere on Capitol Hill, some lawmakers want to extend the IRS debate to look at the heavily financed activities of existing nonprofit groups in the 2012 elections.
The agency has been under attack since Friday, when a top official admitted — after years of IRS denials — that groups using "Tea Party," "patriot" and other likely conservative names had received special scrutiny between 2010 and 2012, with long delays or no action at all. President Obama ousted the acting IRS chief and the Justice Department opened a criminal investigation.
'Take On These Groups Or Else'
Republican consultant Karl Rove and others say the IRS scrutiny was instigated by congressional Democrats. During an appearance on Fox News this week, Rove cited letters from congressional Democrats to IRS administrators.
"Maybe they were influenced by Democrats in the Congress writing them letters saying: 'Take on these groups or else you're going to face the consequences in front of us,' " Rove said.
But an inspector general's report says the extra scrutiny started with lower-level IRS employees. And, in fact, those letters from Democratic lawmakers did not deal with 501(c)(4) applicants.
What they did advocate was a crackdown on big-budget 501(c)(4)s that were already active in the 2012 campaign — groups on both sides, including one co-founded by Rove himself, Crossroads GPS.
Sen. Carl Levin, D-Mich., wrote several letters citing a dozen 501(c)(4) groups, liberal and conservative. He said anonymous donors were funneling in millions of dollars.
"They do so covered by a fig leaf that the nonprofit groups to which they donate are dedicated to quote 'social welfare' rather than partisan politics," he said on the Senate floor in July 2012. "That fiction dissolves the moment one looks at these social welfare attack ads that the IRS is so far blind to."
Meanwhile, Republican lawmakers were warning the IRS to back off, and some outside groups were calling for stronger enforcement.
Lawyers from the groups Democracy 21 and Campaign Legal Center wrote to IRS officials more than a dozen times about conservative and liberal 501(c)(4)s. Fred Wertheimer of Democracy 21 says nothing ever happened at the IRS.
"They were dead wrong in going after the conservative groups. And they have been dead wrong in not taking on groups that are abusing and misusing the tax laws," Wertheimer says.
One basic argument here is that there's often no difference between TV ads from the transparent political committees called superPACs and ads produced by the secretive social welfare organizations.
For example, take these two ads attacking President Obama.
The first ad comes from Crossroads GPS, with its anonymous funders:
"He's added $4 billion in debt every day. The economy's slowing, but our debt keeps growing," it says.
The second, with almost identical voice-over and music, comes from Crossroads GPS's sidekick superPAC, American Crossroads, which discloses its donors and is not as well financed:
"He wants more spending, just like his failed stimulus. After trillions in more debt, with nothing to show for it, we can't repeat those mistakes," the narrator says.
An NPR analysis found that the big 501(c)(4)s spent more than a quarter-billion dollars trying to shape the 2012 elections.
Paul Streckfus, who edits EO Tax Journal, a newsletter covering the IRS section on exempt organizations, says the IRS's response was basically: "Can we sort of ignore this? The law isn't very clear, and we don't want to make anybody unhappy on the Hill over this."
Streckfus says the IRS probably should have made an active decision on regulating the social welfare organizations. Then Congress could react, and any unhappy 501(c)(4) groups could sue.
But now it's too late for that.