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The IRS Targeted “Progressive” Nonprofits Too

March 20th, 2014 | Posted by Becki U in Business Law

The IRS Targeted “Progressive” Nonprofits Too

Several weeks ago we wrote about Why the IRS 501(c)(4) Scandal Happened. We now have even more information as to who was responsible for the extra scrutiny of nonprofit applicants and which applications were being targeted. The recent information confirms our suspicions that the White House was not involved. The recent report confirms that IRS agents in Cincinnati initially pulled exemption applications after some raised concerns that the applicants intended to engage in political activities. As we discussed in our previous blog article, the IRS agents in question inappropriately handled these applications, although their actions were based on a very real concern that political organizations improperly used their 501(c)(4) status to fund political campaigns. A very thorough article written by Rachel Bade of Politico on June 20th titled “5 takeaways from IRS scandal” provides a succinct account of how the whole mess started with one IRS agent and then moved up the chain to include IRS officials in Washington.

We also recently learned from a document released yesterday by the IRS that the IRS inappropriately placed many different types of organizations on an list for extra scrutiny, including applications with these words:

  • “Progressive” or “Blue” noting that “Activities appear to lean toward a new political party. Activities are partisan and appear as anti-Republican,”
  • “Tea Party,”
  • “Open Source Software” noting that the applicants are “usually in the for-profit business,”
  • “Healthcare legislation,”
  • “Medical Marijuana,” and
  • “Occupied Territory Advocacy” noting that “applications may be inflammatory, advocate a one sided point of view and promotional materials may signify propaganda.

The IRS may have used other inappropriate words, but it is hard to tell because the IRS document is heavily redacted. We are concerned because the IRS Scandal seemed to focus only on the special scrutiny given to applications with the word “Tea Party” when the keyword scrutiny was clearly targeting a much broader swath of nonprofit organizations. The reasons for the scrutiny are even more troubling given the fact that these are not reasons to deny an application to tax exempt status. The Internal Revenue code does not preclude nonprofit organizations from being run by businesses, does not preclude an organization from having particular political beliefs, and certainly does not prohibit an organization from having an “inflammatory” or “one sided” point of view. As nonprofit attorneys we regularly work with established tax exempt nonprofit organizations that fit any one of those criteria. We know from working with those organizations that they are complying with the Code, regulations and IRS rulings, are not undertaking improper political activities and are actively filling a public need.

With this new information coming to light, the new question is why did the Treasury Inspector General omit the other types of organizations scrutinized by the IRS in their initial report that uncovered the scandal?

We will continue to follow this story as it continues to unfold.

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