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"The Other IRS Scandal": David Cay Johnston on Dark Money Political Groups Seeking Tax Exemption

Friday, 17 May 2013 10:39 By Amy Goodman and Juan Gonzalez, Democracy Now! | Video Report

Media

The acting commissioner of the Internal Revenue Service, Steven Miller, has been forced to resign days after the IRS apologized to Tea Party and other right-wing groups for putting extra scrutiny on their bids to become tax-exempt organizations. While the IRS targeting of Tea Party groups has made headlines for days, far less attention has been paid to the roots of the crisis. After the 2010 landmark Supreme Court decision Citizens United, there was a spike in new political organizations seeking tax-exempt status under tax code Section 501(c)(4). The court ruled these groups could raise unlimited corporate money without disclosing donor information. Several groups have claimed to be social welfare organizations while spending tens of millions of dollars on political operations. We speak to David Cay Johnston, a Pulitzer Prize-winning journalist who writes about taxes issues. "One of the questions that needs to be examined in the real scandal here is: How did MoveOn, how did Karl Rove’s Crossroads GPS, how did Bill Burton’s progressive Democratic group get approved as exclusively social welfare organizations?" Johnston says. "There are a bunch of folks out there arguing that, well, 'primarily,' that phrase that pops up in IRS regulations, can mean 49.9 percent of your activity. I’m sorry, is there an adult in America who’s been in a romantic relationship who thinks that 'exclusively' is 49 percent of the time?"

TRANSCRIPT:

JUAN GONZÁLEZ: The acting commissioner of the Internal Revenue Service, Steven Miller, has been forced to resign days after the IRS apologized to tea party and other right-wing groups for putting extra scrutiny on their bids to become tax-exempt organizations. An official disclosed Friday that groups with the terms "tea party" or "patriots" in their names were singled out by the IRS division responsible for investigating those seeking to qualify as charities under U.S. tax law.

President Obama spoke last night about the IRS.

PRESIDENT BARACK OBAMA: I’ve reviewed the Treasury Department watchdog’s report, and the misconduct that it uncovered is inexcusable. It’s inexcusable, and Americans are right to be angry about it, and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has in all of our lives. And as I said earlier, it should not matter what political stripe you’re from. The fact of the matter is, is that the IRS has to operate with absolute integrity. The government generally has to conduct itself in a way that is true to the public trust. That’s especially true for the IRS.

AMY GOODMAN: While the IRS targeting of tea-party groups has made headlines for days, far less attention has been paid to the roots of the crisis. After the 2010 landmark Supreme Court decision Citizens United, there was a spike in new political organizations seeking tax-exempt status under tax code Section 501(c)(4). Groups such as Karl Rove’s Crossroads GPS have claimed to be social welfare organizations while spending tens of millions of dollars on political operations. The number of 501(c)(4) applications rose to 3,400 in 2012, more than double the level in 2010.

To talk more about the IRS, we’re joined by David Cay Johnston, Pulitzer Prize-winning journalist who writes about taxes issues, former New York Times reporter, author of several books, including the most recent, The Fine Print: How Big Companies Use "Plain English" to Rob You Blind . His latest article is entitled "The Other IRS Scandal." It appears on the Columbia Journalism Review website.

Welcome to Democracy Now! from Rochester, David Cay Johnston. First talk about the resignation of the head of the IRS and the scandal, and then we’ll go on to the second part of the scandal, as you see it.

DAVID CAY JOHNSTON: Well, Miller didn’t resign; he was fired. The president said that Jack Lew, the treasury secretary, asked for his resignation. What’s a little strange about this is that Miller had nothing to do with this, as best we know. He’s the acting commissioner. The misconduct—and it’s absolutely misconduct; it’s no different than stopping young men on the street based on the color of their skin, as we know is going on a lot in New York City—took place under the watch of Douglas Shulman, who was an appointee of President George W. Bush, which shows how complicated this story is.

The person still working at the IRS who has not been fired and has not resigned is Lois Lerner. She was the person in charge of exempt organizations—that is, organizations that don’t pay taxes. And she misled reporters, to be polite, last Friday. It’s not the first time reporters have found her to make false statements to them. And Congress, members of Congress say that she lied to them. I do not understand why she is still on the taxpayers’ payroll.

JUAN GONZÁLEZ: And, David Cay Johnston, this whole issue of the IRS, every several years there’s a new upsurge of complaints about the IRS and its role in American society. Can you talk about some of the real scandal that you see is going on with the IRS?

DAVID CAY JOHNSTON: Sure. The Internal Revenue Service has been given all of these duties that are beyond collecting taxes, and they have enormously added to their burdens. So, in the last 10 years, the budget of the IRS, adjusted for the size of the population and inflation, has come down 17 percent, while the duties it’s been given have gone like this. Now, if you’re a wage earner and—or pensioner, you have your taxes taken out of your money before you collect it. You’re not being affected by these budget cuts. But people trying to get a tax-exempt status, there aren’t enough people to process the complaint—to process the permit requests. People are not being audited at the level they should, who are very wealthy and who self-report. There is no independent verification of their income. And we know that self-reported income, roughly a third of it, tends not to be reported overall—some people are scrupulous; some people are the exact opposite—and that verified income, like wages, 99.9 percent of that gets reported to the government. So, the IRS is being asked to do things it doesn’t have the budget to do. Its workers have not had pay raises in three years. IRS employees are held to a higher standard than anybody else in the government in terms of their conduct. And they simply cannot do all the things that Congress is asking of them.

AMY GOODMAN: Attorney General Eric Holder appeared before the House Judiciary Committee on Wednesday. Republican Congressmember Lamar Smith of Texas asked what laws may have been broken if the IRS targeted groups for their conservative views. This was Holder’s response.

ATTORNEY GENERAL ERIC HOLDER: I think it was Congressman Scott, I think, really put his finger on it. There are civil—potential civil rights—

REP. LAMAR SMITH: Right. But do you know of any criminal laws that might have been violated? This is a—

ATTORNEY GENERAL ERIC HOLDER: Well, I’m talking about criminal cases.

REP. LAMAR SMITH: OK.

ATTORNEY GENERAL ERIC HOLDER: Criminal—criminal violations in the civil rights statutes, IRS, that I think we find there. There’s also the possibility of thousand—of false statements, violations that might have been made, given—

REP. LAMAR SMITH: Right.

ATTORNEY GENERAL ERIC HOLDER: Well, I don’t—given at least what I know at this point.

REP. LAMAR SMITH: OK. I think some of the criminal laws that might have been violated: 18 United States Code 242 makes it a crime to deprive any person of rights, privileges or immunities guaranteed by the Constitution; 18 United States Code 1346 makes it a crime for government employees to deprive taxpayers of their honest services. So that’s a couple of examples.

AMY GOODMAN: David Cay Johnston, your response?

DAVID CAY JOHNSTON: Well, it’s very hard to imagine that there’s a criminal case here. The IRS agents in Cincinnati, the examiners in what’s called the determination unit, were presented with an irresolvable conflict. The law for what are called 501(c)(4) organizations, which dates to 1913, says that they are exclusively to be engaged in social welfare. But an IRS regulation that’s been around since 1959 invokes the word "primarily." And groups like MoveOn, which is a 501(c)(4), although it does not appear to be, in the classic meaning, a social betterment group—they’re not out promoting more wildflowers in the parks and Little League and Girl Scouts and things like that—they are a 501(c)(4). Karl Rove’s organization spent, based on its tax filings, less than one-tenth of 1 percent of its 2011 revenue on social welfare.

So it’s hard to—the IRS agents have this problem of: What do I do with these organizations? They picked 300 of them for close scrutiny. Seventy-five of them said "tea party" or "patriot" or Glenn Beck’s 9/11, things like that, and they selected them. They shouldn’t have done it on that basis. But the applications those groups made, because some of them have made public their responses so we know what their applications said, those applications were drafted in a way that basically said, "I’m really not a social welfare organization." So of course they came under scrutiny. They just shouldn’t have been picked the way they were. Can’t see a criminal case in that.

JUAN GONZÁLEZ: And there was no group that was actually denied its 501(c)(4) status, right, of those groups that were—that were reviewed?

DAVID CAY JOHNSTON: That’s right. And furthermore, Juan, you don’t have to get a permit from the IRS. You do not need a determination. The law allows—it’s right on the IRS website—that you can simply self-declare that you are a 501(c)(4) organization. So no organization was prevented from participating in political activity because of the actions of this unit. All that happened is, they didn’t have a letter certifying that there was no question that they were a 501(c)(4) organization. And that’s a very important distinction that’s being lost here and I have not seen in any of the news reports.

JUAN GONZÁLEZ: Well, there was also this issue that this is not the first time that government’s use of the IRS for political purposes has surfaced, right? Now, you can go back to FDR trying to use the IRS to go after some of his political enemies. This has been a recurring problem, hasn’t it been, throughout—throughout the history of our country, especially the modern history?

DAVID CAY JOHNSTON: Well, Juan, you’ve described what is the popular understanding, but having looked into these things, I don’t think that’s quite right. For instance, Don Alexander, who was Richard Nixon’s IRS commissioner, said emphatically to many people on many occasions that nothing went on, that he was aware of, at the IRS. Now, maybe there were things that went on beneath him he didn’t know about. In fact, he only briefly met Nixon once, shook hands with him, and Nixon went, "Oh, yeah. You’re the tax guy." FDR ordered up reports. He wanted to know information. But there’s no indication that anybody was audited.

And, you know, the issue here is the IRS is an independent agency. The president technically didn’t fire Steve Miller. The secretary of the treasury did. And if you listen to the president’s statement, that’s what he says. There is no indication that this was anything but an internal IRS operation. The TIGTA report, the Treasury inspector general’s report, is quite clear that everybody they talked to said this was entirely within the IRS. And barring any new evidence, I don’t see any reason to question that. TIGTA has certainly a sterling reputation for the work that it does. I read all of their audits.

AMY GOODMAN: David Cay Johnston, talk about what has happened since Citizens United and what you feel is "the other IRS scandal."

DAVID CAY JOHNSTON: Well, Citizens United is this case that essentially says that artificial persons—corporations, labor unions, nonprofit organizations—have political rights. The Founding Fathers would be astonished at that. And remember, we have a Supreme Court with these, quote-unquote, "originalists" on it. You know how many corporations there were in the United States at the time of the Revolution in 1776? Six. Six. And we would describe every one of those today as either a public utility or a charity. They were not profit-making corporations. Justice Rehnquist, Chief Justice Rehnquist, an authentic serious conservative, said in more than one opinion that you shouldn’t be granting political rights to corporations; they are not natural persons. So, this is a—this decision, Citizens United, is our Plessy case. That’s the case that approved "separate but equal." And we’re going to have to live with it, but it has created terrible problems now.

And one of the questions that needs to be examined in the real scandal here is: How did MoveOn, how did Karl Rove’s GPS, how did the Bill Burton’s progressive Democratic group get approved as exclusively social welfare organizations? There are a bunch of folks out there arguing that, well, "primarily"—that phrase that pops up in the IRS regulations—can mean 49.9 percent of your activity. I’m sorry, is there an adult in America who’s been in a romantic relationship who thinks that "exclusively" is 49 percent of the time?

AMY GOODMAN: David Cay Johnston, we’re going to—

DAVID CAY JOHNSTON: Trying to inject a little levity.

AMY GOODMAN: We’re going to break and then come back to our discussion but switch over to what’s happening with AP. You’re not only a Pulitzer Prize-winning journalist who writes about tax issues, but you’re head of Investigative Reporters and Editors. We’re going to talk about the government spying on AP reporters. Stay with us.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.

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"The Other IRS Scandal": David Cay Johnston on Dark Money Political Groups Seeking Tax Exemption

Friday, 17 May 2013 10:39 By Amy Goodman and Juan Gonzalez, Democracy Now! | Video Report

Media

The acting commissioner of the Internal Revenue Service, Steven Miller, has been forced to resign days after the IRS apologized to Tea Party and other right-wing groups for putting extra scrutiny on their bids to become tax-exempt organizations. While the IRS targeting of Tea Party groups has made headlines for days, far less attention has been paid to the roots of the crisis. After the 2010 landmark Supreme Court decision Citizens United, there was a spike in new political organizations seeking tax-exempt status under tax code Section 501(c)(4). The court ruled these groups could raise unlimited corporate money without disclosing donor information. Several groups have claimed to be social welfare organizations while spending tens of millions of dollars on political operations. We speak to David Cay Johnston, a Pulitzer Prize-winning journalist who writes about taxes issues. "One of the questions that needs to be examined in the real scandal here is: How did MoveOn, how did Karl Rove’s Crossroads GPS, how did Bill Burton’s progressive Democratic group get approved as exclusively social welfare organizations?" Johnston says. "There are a bunch of folks out there arguing that, well, 'primarily,' that phrase that pops up in IRS regulations, can mean 49.9 percent of your activity. I’m sorry, is there an adult in America who’s been in a romantic relationship who thinks that 'exclusively' is 49 percent of the time?"

TRANSCRIPT:

JUAN GONZÁLEZ: The acting commissioner of the Internal Revenue Service, Steven Miller, has been forced to resign days after the IRS apologized to tea party and other right-wing groups for putting extra scrutiny on their bids to become tax-exempt organizations. An official disclosed Friday that groups with the terms "tea party" or "patriots" in their names were singled out by the IRS division responsible for investigating those seeking to qualify as charities under U.S. tax law.

President Obama spoke last night about the IRS.

PRESIDENT BARACK OBAMA: I’ve reviewed the Treasury Department watchdog’s report, and the misconduct that it uncovered is inexcusable. It’s inexcusable, and Americans are right to be angry about it, and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has in all of our lives. And as I said earlier, it should not matter what political stripe you’re from. The fact of the matter is, is that the IRS has to operate with absolute integrity. The government generally has to conduct itself in a way that is true to the public trust. That’s especially true for the IRS.

AMY GOODMAN: While the IRS targeting of tea-party groups has made headlines for days, far less attention has been paid to the roots of the crisis. After the 2010 landmark Supreme Court decision Citizens United, there was a spike in new political organizations seeking tax-exempt status under tax code Section 501(c)(4). Groups such as Karl Rove’s Crossroads GPS have claimed to be social welfare organizations while spending tens of millions of dollars on political operations. The number of 501(c)(4) applications rose to 3,400 in 2012, more than double the level in 2010.

To talk more about the IRS, we’re joined by David Cay Johnston, Pulitzer Prize-winning journalist who writes about taxes issues, former New York Times reporter, author of several books, including the most recent, The Fine Print: How Big Companies Use "Plain English" to Rob You Blind . His latest article is entitled "The Other IRS Scandal." It appears on the Columbia Journalism Review website.

Welcome to Democracy Now! from Rochester, David Cay Johnston. First talk about the resignation of the head of the IRS and the scandal, and then we’ll go on to the second part of the scandal, as you see it.

DAVID CAY JOHNSTON: Well, Miller didn’t resign; he was fired. The president said that Jack Lew, the treasury secretary, asked for his resignation. What’s a little strange about this is that Miller had nothing to do with this, as best we know. He’s the acting commissioner. The misconduct—and it’s absolutely misconduct; it’s no different than stopping young men on the street based on the color of their skin, as we know is going on a lot in New York City—took place under the watch of Douglas Shulman, who was an appointee of President George W. Bush, which shows how complicated this story is.

The person still working at the IRS who has not been fired and has not resigned is Lois Lerner. She was the person in charge of exempt organizations—that is, organizations that don’t pay taxes. And she misled reporters, to be polite, last Friday. It’s not the first time reporters have found her to make false statements to them. And Congress, members of Congress say that she lied to them. I do not understand why she is still on the taxpayers’ payroll.

JUAN GONZÁLEZ: And, David Cay Johnston, this whole issue of the IRS, every several years there’s a new upsurge of complaints about the IRS and its role in American society. Can you talk about some of the real scandal that you see is going on with the IRS?

DAVID CAY JOHNSTON: Sure. The Internal Revenue Service has been given all of these duties that are beyond collecting taxes, and they have enormously added to their burdens. So, in the last 10 years, the budget of the IRS, adjusted for the size of the population and inflation, has come down 17 percent, while the duties it’s been given have gone like this. Now, if you’re a wage earner and—or pensioner, you have your taxes taken out of your money before you collect it. You’re not being affected by these budget cuts. But people trying to get a tax-exempt status, there aren’t enough people to process the complaint—to process the permit requests. People are not being audited at the level they should, who are very wealthy and who self-report. There is no independent verification of their income. And we know that self-reported income, roughly a third of it, tends not to be reported overall—some people are scrupulous; some people are the exact opposite—and that verified income, like wages, 99.9 percent of that gets reported to the government. So, the IRS is being asked to do things it doesn’t have the budget to do. Its workers have not had pay raises in three years. IRS employees are held to a higher standard than anybody else in the government in terms of their conduct. And they simply cannot do all the things that Congress is asking of them.

AMY GOODMAN: Attorney General Eric Holder appeared before the House Judiciary Committee on Wednesday. Republican Congressmember Lamar Smith of Texas asked what laws may have been broken if the IRS targeted groups for their conservative views. This was Holder’s response.

ATTORNEY GENERAL ERIC HOLDER: I think it was Congressman Scott, I think, really put his finger on it. There are civil—potential civil rights—

REP. LAMAR SMITH: Right. But do you know of any criminal laws that might have been violated? This is a—

ATTORNEY GENERAL ERIC HOLDER: Well, I’m talking about criminal cases.

REP. LAMAR SMITH: OK.

ATTORNEY GENERAL ERIC HOLDER: Criminal—criminal violations in the civil rights statutes, IRS, that I think we find there. There’s also the possibility of thousand—of false statements, violations that might have been made, given—

REP. LAMAR SMITH: Right.

ATTORNEY GENERAL ERIC HOLDER: Well, I don’t—given at least what I know at this point.

REP. LAMAR SMITH: OK. I think some of the criminal laws that might have been violated: 18 United States Code 242 makes it a crime to deprive any person of rights, privileges or immunities guaranteed by the Constitution; 18 United States Code 1346 makes it a crime for government employees to deprive taxpayers of their honest services. So that’s a couple of examples.

AMY GOODMAN: David Cay Johnston, your response?

DAVID CAY JOHNSTON: Well, it’s very hard to imagine that there’s a criminal case here. The IRS agents in Cincinnati, the examiners in what’s called the determination unit, were presented with an irresolvable conflict. The law for what are called 501(c)(4) organizations, which dates to 1913, says that they are exclusively to be engaged in social welfare. But an IRS regulation that’s been around since 1959 invokes the word "primarily." And groups like MoveOn, which is a 501(c)(4), although it does not appear to be, in the classic meaning, a social betterment group—they’re not out promoting more wildflowers in the parks and Little League and Girl Scouts and things like that—they are a 501(c)(4). Karl Rove’s organization spent, based on its tax filings, less than one-tenth of 1 percent of its 2011 revenue on social welfare.

So it’s hard to—the IRS agents have this problem of: What do I do with these organizations? They picked 300 of them for close scrutiny. Seventy-five of them said "tea party" or "patriot" or Glenn Beck’s 9/11, things like that, and they selected them. They shouldn’t have done it on that basis. But the applications those groups made, because some of them have made public their responses so we know what their applications said, those applications were drafted in a way that basically said, "I’m really not a social welfare organization." So of course they came under scrutiny. They just shouldn’t have been picked the way they were. Can’t see a criminal case in that.

JUAN GONZÁLEZ: And there was no group that was actually denied its 501(c)(4) status, right, of those groups that were—that were reviewed?

DAVID CAY JOHNSTON: That’s right. And furthermore, Juan, you don’t have to get a permit from the IRS. You do not need a determination. The law allows—it’s right on the IRS website—that you can simply self-declare that you are a 501(c)(4) organization. So no organization was prevented from participating in political activity because of the actions of this unit. All that happened is, they didn’t have a letter certifying that there was no question that they were a 501(c)(4) organization. And that’s a very important distinction that’s being lost here and I have not seen in any of the news reports.

JUAN GONZÁLEZ: Well, there was also this issue that this is not the first time that government’s use of the IRS for political purposes has surfaced, right? Now, you can go back to FDR trying to use the IRS to go after some of his political enemies. This has been a recurring problem, hasn’t it been, throughout—throughout the history of our country, especially the modern history?

DAVID CAY JOHNSTON: Well, Juan, you’ve described what is the popular understanding, but having looked into these things, I don’t think that’s quite right. For instance, Don Alexander, who was Richard Nixon’s IRS commissioner, said emphatically to many people on many occasions that nothing went on, that he was aware of, at the IRS. Now, maybe there were things that went on beneath him he didn’t know about. In fact, he only briefly met Nixon once, shook hands with him, and Nixon went, "Oh, yeah. You’re the tax guy." FDR ordered up reports. He wanted to know information. But there’s no indication that anybody was audited.

And, you know, the issue here is the IRS is an independent agency. The president technically didn’t fire Steve Miller. The secretary of the treasury did. And if you listen to the president’s statement, that’s what he says. There is no indication that this was anything but an internal IRS operation. The TIGTA report, the Treasury inspector general’s report, is quite clear that everybody they talked to said this was entirely within the IRS. And barring any new evidence, I don’t see any reason to question that. TIGTA has certainly a sterling reputation for the work that it does. I read all of their audits.

AMY GOODMAN: David Cay Johnston, talk about what has happened since Citizens United and what you feel is "the other IRS scandal."

DAVID CAY JOHNSTON: Well, Citizens United is this case that essentially says that artificial persons—corporations, labor unions, nonprofit organizations—have political rights. The Founding Fathers would be astonished at that. And remember, we have a Supreme Court with these, quote-unquote, "originalists" on it. You know how many corporations there were in the United States at the time of the Revolution in 1776? Six. Six. And we would describe every one of those today as either a public utility or a charity. They were not profit-making corporations. Justice Rehnquist, Chief Justice Rehnquist, an authentic serious conservative, said in more than one opinion that you shouldn’t be granting political rights to corporations; they are not natural persons. So, this is a—this decision, Citizens United, is our Plessy case. That’s the case that approved "separate but equal." And we’re going to have to live with it, but it has created terrible problems now.

And one of the questions that needs to be examined in the real scandal here is: How did MoveOn, how did Karl Rove’s GPS, how did the Bill Burton’s progressive Democratic group get approved as exclusively social welfare organizations? There are a bunch of folks out there arguing that, well, "primarily"—that phrase that pops up in the IRS regulations—can mean 49.9 percent of your activity. I’m sorry, is there an adult in America who’s been in a romantic relationship who thinks that "exclusively" is 49 percent of the time?

AMY GOODMAN: David Cay Johnston, we’re going to—

DAVID CAY JOHNSTON: Trying to inject a little levity.

AMY GOODMAN: We’re going to break and then come back to our discussion but switch over to what’s happening with AP. You’re not only a Pulitzer Prize-winning journalist who writes about tax issues, but you’re head of Investigative Reporters and Editors. We’re going to talk about the government spying on AP reporters. Stay with us.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.

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