Last Friday, Lois Lerner, head of the Exempt Organizations Division of the Internal Revenue Service, admitted that at various times over the last 2 years, certain conservative organizations seeking recognition of 501(c)(4) tax-exempt status have been singled out, and their applications unnecessarily delayed.(Goldfarb, Zachary A. & Tumulty, Karen. “IRS admits targeting conservatives for tax scrutiny in 2012 election.” The Washington Post (May 10, 2013). Retrieved from http://www.washingtonpost.com.) In particular, applications that listed the organization’s name as including the words, “Tea Party,” “Patriot,” or “9/12” were chosen for additional inquiry solely because of their names, and groups with certain conservative purposes, such as those focusing on government debt and spending were flagged. (Weber, Peter. “How big is the IRS scandal?” The Week (May 13, 2013). Retrieved from http://news.yahoo.com/ big-irs-scandal-071000952.html.) According to at least one news source, these groups constituted about ¼ of the 300 groups that were flagged for additional analysis between 2010 and 2012. (Goldfarb & Tumulty. “IRS admits.”)
501(c)(4) or “social welfare” organizations, unlike (c)(3)s, are permitted to engage in some political activity, as long as it does not constitute the organization’s primary activity. And, unlike (c)(3)s, (c)(4)s are entitled to unlimited lobbying, provided it is germane to accomplishing the organization’s exempt purpose. For more information about (c)(4)s, see a clip from one of our favorite political comedians, Stephen Colbert: http://www.colbertnation.com/the-colbert-report-videos/411674/april-03-2012/colbert-super-pac-shh—-501c4-disclosure—trevor-potter
It is common practice for IRS agents reviewing applications of organizations seeking (c)(4) recognition to lump similar applications together to ensure they are treated consistently. (Eilperin, Juliet. “Why did the IRS target tea party petitioners as a group?” The Washington Post (May 13, 2013). Retrieved from http://www.washingtonpost.com/blogs/the-fix/wp/2013/05/13/why-did-the-irs-target-tea-party-petitioners-as-a-group.) However, here, the IRS was inappropriately lumping together groups with names containing certain key words, and delaying the application process for those groups. These groups received greater scrutiny than others, resulting in voluminous follow-up questions to be answered by the organization and at times keeping applications from moving through the system as quickly as they should. Indeed, it appears that some applications have now been pending with the IRS for more than three years. This, if true, is totally inappropriate, and potentially violates a number of federal laws.
Goodwin Weber LLC is a boutique law firm with offices in Maryland and the District of Columbia. Julie Goodwin Weber, a member of the firm, has extensive experience in forming and advising tax exempt organizations, including 501(c)(3)s and (c)(4)s. David P. Weber, another member of the firm, is the former Assistant Inspector General for Investigations at a major federal agency, with significant experience conducting investigations into government wrongdoing and misconduct by senior executives and federal employees alike. Goodwin Weber stands ready to assist tax-exempt organizations that believe they were wrongfully treated by the IRS, investigate the allegations, and if necessary, litigate the matter to conclusion in the appropriate judicial forum. Please contact Julie or David for more information on how we can help your organization.