IRS unable to hold back tide of dark money

At a time when tax-exempt non-profit organizations are increasingly becoming avenues for unregulated political spending, the ability of the IRS to provide any meaningful oversight has been hampered by Congressional budget cuts and a lack of regulatory clout, a new study released this week argues.

A six-month long investigation by the Center for Public Integrity (CPI) examined the IRS division responsible for overseeing the tax-exempt status of non-profits and found that despite the rapidly expanding reach of political spending from the organizations, donations were still largely anonymous and outside any meaningful public scrutiny. 

While the CPI said the trend was ongoing over the last two decades, a more open space for unregulated outside political spending in the wake of the Supreme Court’s 2010 Citizens United decision, and last year’s IRS scandal over alleged bias in the scrutiny of non-profits, have combined to make the problem exponentially more worrying.

According to figures CPI cites from the Center for Responsive Politics, groups that fall under the 501 (c)(4) designation — so-called social welfare groups, which previously had very little direct monetary clout — gave $256 million during the 2012 election cycle.

Groups across the political spectrum, from the Karl Rove-founded Crossroads GPS, to Priorities USA, which was started by ex-Obama staffers, have started masking their political fundraising efforts by housing it within more traditional non-profit groups. The move allows groups to raise unprecedented amounts of money that can go toward all manner of campaigning, but with donors now allowed to remain anonymous.  

And now, the IRS division that makes the judgment as to whether a 501 (c)(4) is behaving properly in the political process is finding it difficult to bare its regulatory teeth.

The director of the exempt organizations division at the IRS, Tamera Ripperda, told CPI: “We’re always being second-guessed.”

Among the CPI’s findings:

• The number of denials of exempt status for social welfare groups decreased from 4 percent in the 1980s to less than a quarter of a percent in 2013;
• In the same period (2011-2013) that applications for “social welfare” nonprofit status jumped 27 percent (1,777 to 2,253), investigations of nonprofit group tax returns decreased 10 percent (11,699 to 10,575);
• The nonprofit regulatory division has lost 14 staffers in the two decades that have seen the number of nonprofits under its purview grow by 40 percent.

According to CPI, the 2014 IRS budget is $855 million less than the 2010 budget, a decrease of 7

percent. Given the enmity Congressional Republicans like to exhibit for the IRS, that trend is unlikely to change anytime soon.

Indeed, even the most basic IRS functions are now on the Congressional chopping block.

On Wednesday, the Republican-controlled House of Representatives voted to reduce the agency’s enforcement budget by 25 percent, or $1.2 billion. That budget applies to things like IRS audits, which were already at their lowest levels in several years. Critics contend such budget cuts will increase the incidence of tax fraud.

When asked by the CPI whether the IRS had enough funding for its division on enforcement, the agency’s commissioner, John Koskiner, said there wasn’t enough anywhere. “We don’t have enough employees anywhere,” he said. “I think the whole agency is at risk at the level of underfunding we have.”