Today’s IRS Scandal Dates Back to 1959

By Pam Martens: May 17, 2013

To rational folks, the real scandal at the IRS is that corporate front groups – who want to bust unions, pollute the water and air with impunity, and kill Social Security in order to eliminate the corporate match of the Social Security tax – are allowed to register with the IRS as social welfare organizations, receive tax-exempt status, and then funnel tens of millions of dollars into political attack ads in order to elect candidates sympathetic to their corporate deregulatory agenda. These so-called social welfare organizations are allowed to do all this while drawing a black curtain around the names of their corporate donors.

On April 9, 2013, the watchdog group Citizens for Responsibility and Ethics in Washington (CREW) filed a petition with the IRS that mapped out the real scandal taking place at the IRS – the scandal that right wing media don’t want you to think about as they work to spin the IRS story into Watergate – without the break-ins.

As CREW outlines to the IRS in their petition to correct the rules, in the Revenue Act of 1913, Congress provided a tax exemption for organizations “operated exclusively for the promotion of social welfare.” Under the many recodifications over the years, Congress maintained that pivotal word “exclusively.” The current version of the code reads as follows:

“Civil leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare…and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.”

Before 1959, the IRS enforced its rules in line with the law and Congressional intent. But even though the law did not change in 1959, the IRS changed its interpretation of what that law actually meant. It wrote regulations that removed the “operated exclusively for the promotion of social welfare” requirement and flipped it on its head to mean “primarily engaged.”

Today, every manner of corporate front group is interpreting that loophole to mean they can spend up to 49 percent of their total expenditures in a tax year on political campaign activities. At the same time, these tax exempt groups, known as 501(c)(4) organizations, do not have to publicly disclose the names of their donors.

The next corporate coup came in 2010 when the U.S. Supreme Court enshrined unlimited spending in political campaigns by corporations with its Federal Elections Commission v Citizens United decision.

According to the Center for Responsive Politics, Karl Rove’s Crossroads GPS – structured as a 501(c)(4) “social welfare” organization spent $70,968,744 on political activities in the 2012 election cycle. Four 501(c)(4) organizations dominated outside spending in the 2012 election cycle and not one was backing a progressive candidate.

According to the CREW petition to the IRS, Rove’s Crossroads GPS, “Americans for Prosperity, founded by the Koch brothers; Americans for Tax Reform, founded by Grover Norquist; and the American Future Fund, founded by Nick Ryan, a longtime political advisor to former Republican Iowa Congressman Jim Nussle,” all formed as 501(c)(4)s, and together with the U.S. Chamber of Commerce, a 501(c)(6) trade association, spent $295 million on political activities since the beginning of 2011.

It is impossible for the average citizen to compete with corporate money in elections; to have their voice heard above the cacophony of corporate funded attack ads. To allow corporate front groups to masquerade as social welfare organizations is nothing less than Orwellian.

The IRS should act quickly on CREW’s petition and conform its rulemaking to the law.


To give you an idea of where the country is headed under Citizens United and the IRS recognizing corporate political fronts as social welfare organizations, we asked photographer Michael Cline of if we might use one of his photos taken outside the posh resort in Rancho Mirage, California during the January 2011 secret political strategizing conference held by billionaires Charles and David Koch – majority owners of one of the largest private corporations in the world, Koch Industries, and each worth $34 billion according to Forbes. Mr. Cline has graciously allowed us to publish this photo of taxpayer-funded police guarding a billionaires’ gathering to keep the public in the dark about the hundreds of millions of dollars they planned to funnel into the 2012 election — much of it through “social welfare” organizations.

Riverside County Sheriff officers guard the entrance to a Rancho Mirage, California luxury resort where the Koch brothers held their January 2011 political strategy confab. Photo courtesy of Michael Cline,

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