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Open IRS/501(c)4 Discussion: Crime and Damages

Today on the Rush Limbaugh Show guest host Doug Urbanski asked the following open-ended question about the “IRS Scandal”:

“Why has no one been fired or arrested for this clearly criminal activity?”

That comment led me to some linked questions that I’m currently working my way through. I thought that OTB readers (in particularly lawyers – paging Doug, PD and Rafer) might be interested in sharing their opinions.

Here are the three questions I’d love your (grounded) opinions on:

  1. Without a doubt we know that, according the TIGTA audit, IRS reviewers used inappropriate criteria to flag certain Tea Party 501(c)4 applications. But is that in and of itself a “clearly criminal act?” Is it even illegal? If you think so, please state what law it violated.
  2. And given that the 501(c)4 organizations under review were able to continue operating as 501(c)4’s during the review process, what are the potential damages that these groups can claim (beyond any additional legal fees and time lost responding to questions)?
  3. Finally, critics suggest that this was part of a larger effort to chill oppositional speech. As the organizations were able to continue to function as 501(c)4’s during the review period, how did this specifically chill speech?

BTW, extra points to anyone who can recommend a good analysis of the history of the 501(c)4 organizational form.

Related Posts:

About Matt Bernius
Matthew is a PhD student in Cultural Anthropology at Cornell University, researching the intersection of technology and culture. Prior to Cornell, he earned a Masters in the Social Sciences from the University of Chicago and was a visiting professor at the Rochester Institute of Technology. Matt started his career at Eastman Kodak, spending eight years in a variety of web development, community and content strategy roles. In his spare time (off OTB) Matt slogs (slow-blogs) on the future of reading/media, studies martial arts and self defense, and volunteers, along with his wife, at the Rochester Animal Shelter. Follow him on twitter @mattbernius.

Comments

  1. Sam Malone says:

    All excellent questions…for Doug Urbanski.
    Of course if he’s a guest on Fat Rushbo’s show…how much credibility outside the wingnuts does he have anyway?

    Like or Dislike: Thumb up 1 Thumb down 3

  2. Matt Bernius says:

    @Sam Malone:
    The question here wasn’t posed to Doug Urbanski — it was posed to OTB commenters.

    I’m hoping that rather than taking cheap shots at large, easy targets, folks weigh in with pro/con opinions.

    I’m pretty sure I know the answer to #1 (unless I’ve missed something big).

    But #2 and #3 are tougher and much more subjective. And I don’t think the answer is anywhere near as cut and dry.

    Like or Dislike: Thumb up 4 Thumb down 0

  3. Caj says:

    Doug Urbanski on Rush Limbaugh show wants to know why no one has been arrested over the IRS issue! I want to know why Rush Limbaugh hasn’t been arrested! This rabble rousing windbag who talks through his rear end has caused so much division in the country with his hate filled crap! I have a nice striped suit waiting for him and his number will be 666. He is the devil incarnate.

    Like or Dislike: Thumb up 0 Thumb down 6

  4. Matt Bernius says:

    *Sigh*

    Man, this experiment is off to such a good start.

    Like or Dislike: Thumb up 11 Thumb down 0

  5. alkali says:

    I would assume that if an IRS official took some (A) legally and/or factually unfounded (B) adverse action toward a person or entity in (C) intentional retaliation (D) for that person or entity’s political speech, that would constitute a federal crime (18 USC 242, deprivation of rights under color of law).

    That said, the known facts do not seem to hit all those bumpers. Maybe (B) and (D) are met here — some groups who were identified based on their political speech were subjected to some additional inquiries.

    Like or Dislike: Thumb up 2 Thumb down 0

  6. Anderson says:

    Alkali, reading the statute, it has an important qualification:

    “on account of such person being an alien, or by reason of his color, or race” …

    Any case law applying it more broadly?

    Like or Dislike: Thumb up 0 Thumb down 0

  7. Anderson says:

    … I stand corrected; it seems the statute is applied across the board, tho I am curious how that reading arose.

    Like or Dislike: Thumb up 0 Thumb down 0

  8. Jenos Idanian says:

    I heard an interesting theory that I think I like, but am not quite ready to sign off on:

    This was about voter suppression. About identifying activist groups highly inclined to oppose Obama and the Democrats, and making their lives so difficult that they’d either spend way too many resources in getting official recognition, or they’d simply give up. And all the demand letters all spelled out that they must be answered under penalty of perjury, which is also a bit intimidating.

    This is entirely consistent with Obama’s early political victories, where he often won by either getting his opponents kicked off the ballot, or pushed to withdraw. (Examples include his first race, where he got all 4 of his Democratic challengers disqualified; the withdrawal of Blair Hull in the 2004 Democratic Senate primary after his divorce records were unsealed; the withdrawal of Jack Ryan in the 2004 Senate seat after his child-custody records were unsealed; and Austan Goolsbee’s release of the Koch Brothers’ confidential tax records in 2010.)

    That was at the crux of the Jim Crow laws: they were, on paper, perfectly legal; however, the selective enforcement was in and of itself a violation of civil rights. Likewise, the absolute enforcement of the tax code on certain groups based on their political stances, while other groups of other persuasions were held to a much lower standard.

    I’m not quite ready to buy into that theory, but it does seem to explain the known facts. Whether or not there was a deliberate conspiracy or just like-minded people doing what they thought would be OK remains to be determined. But when you add in how many times now-former IRS commissioner Shulman visited the White House, especially when compared to Cabinet secretaries and how many times similar meeting happened between Bush and Shulman’s predecessor, and the conspiracy theory seems not quite so out there.

    But conspiracy or not, the intent of voter suppression by selective enforcement based on discriminatory standards is pretty damned hard to refute.

    Like or Dislike: Thumb up 4 Thumb down 10

  9. I am not nearly well versed enough in the laws that would arguably apply here to state anything definitive, but here are my thoughts.

    1. With the proviso above in mind, it has been suggested that the actions at that IRS may have violated a handful of provisions of U.S. Code, including provisions of the Hatch Act, a law that forbids Federal employees from engaging in certain kinds of political behavior.

    2. The lack of damages issues may not be relevant in the context of criminal law, but it would certainly be relevant in the context of the civil lawsuits that are already being filed. Already I am aware of two separate civil lawsuits filed on behalf of conservative organizations and against the IRS and certain IRS employees, including Lois Lerner. Generally, in a civil lawsuit, if you cannot prove damages it doesn’t matter if you can prove liability. The exception to this rule would be if there is a provision of law that provides a right to damages once liability is established. One such provision is 18 USC 1983, which allows individual citizens to sue for violation of their civil rights.

    3. The argument I’ve heard is that these organizations, many of them small groups run by a handful of people, were so overwhelmed in paperwork that they were unable to perform any of their intended functions. One problem with this argument is that they were not required by the law to apply for 501(c)(4) status, they merely could have set themselves up and run their operation as if they were a 501(c)(4) organization. Doing this would have avoided all of the IRS “harassment” that is being complained of

    Like or Dislike: Thumb up 5 Thumb down 0

  10. beth says:

    @mattbernius:

    To that point, we do know that three of the groups ceased operations during the waiting period.

    Are there any legally defined expectations for how long this process should take? I know from personal experience with a relative that being approved for disability can take upwards of two years and I keep reading horror stories of the VA taking months, if not years, to process veterans’ claims. When dealing with any government agency, is it correct to expect immediate action to the point where you could sue if you don’t receive it?

    Like or Dislike: Thumb up 4 Thumb down 0

  11. matt bernius says:

    @Jenos Idanian:

    the intent of voter suppression by selective enforcement based on discriminatory standards is pretty damned hard to refute.

    Can you explain the “selective enforcement” part of this sentence in relationship to the EO case? Flagging was, without a doubt, based on inappropriate — though I’m not honestly sure about discriminatory — criteria. But as I keep pointing out, a close read of the audit indicates that once selected, all cases flagged for “potential political intervention” — including those of liberal organizations — went through the same process and received the same general treatment.

    Beyond that, the entire “voter supression” thing is half baked at best. There could have been the “chilling of speech.” But, in order for voter suppression to stick, you then end up justifying the EO’s decision in the first place.

    The only way that this can be seen as suppressing opposition voters is to acknowledge that these organization were ultimately about gaining opposition voters. And that would make them *primarily political* and hence worthy of the initial extended specialist review.

    Beyond all that, when last I checked, 91 “Tea Party” flagged organizations were targeted. We don’t know the size of all of these organizations. Let’s be generous and say — on average — each contained 500 active members who could vote in a federal election. That would give us a total of 45,500 voters nation wide. No offense, but that’s a pretty low number to warrant this level of Machiavellian planning.

    Again, voter suppression is nothing to take lightly. But applying logic to this particular case, its really hard to see how it works in this particular case.

    Speech suppression/chilling, on the other hand, seems far more likely.

    Like or Dislike: Thumb up 8 Thumb down 0

  12. Matt Bernius says:

    @beth:
    You have just hit a VERY important nail on the head — and one I’ve yet to really write about…

    Are there any legally defined expectations for how long this process should take?

    Absolutely NONE.
    The audit makes it clear that there was a time frame that the IRS sought to achieve:

    The IRS’s goal for processing all types of applications for tax-exempt status was 121 days in Fiscal Year 2012; however, some cases may take substantially longer. (TIGTA Audit 1/ PDF p 7)

    Beth also wrote:

    I know from personal experience with a relative that being approved for disability can take upwards of two years and I keep reading horror stories of the VA taking months, if not years, to process veterans’ claims. When dealing with any government agency, is it correct to expect immediate action to the point where you could sue if you don’t receive it?

    This is actually something I’ve been planning a short posting on. I just need to compile a few more waiting times.

    All that said, the wait period for “Potential Political” review was especially egregious. The audit states that of the 296 Potential Political Cases, “160 cases were open from 206 to 1,138 calendar days (some crossing two election cycles).” (Audit p14/ PDF p20)

    Like or Dislike: Thumb up 0 Thumb down 0

  13. Matt Bernius says:

    @Doug Mataconis, thanks for the thoughtful reply!

    Couple follow up questions and thoughts…

    [I]t has been suggested that the actions at that IRS may have violated a handful of provisions of U.S. Code, including provisions of the Hatch Act, a law that forbids Federal employees from engaging in certain kinds of political behavior.

    If violations did occur, do you know if they would be *felony* violations or *misdemeanors* — or do those terms not apply here?

    Beyond that, for those to stick, it seems like the Government would have to prove that the targeting of Tea Party groups was primarily (to use a phrase from the 501(c)4 code) a political decision. That seems like a near impossible task.

    On #2:

    The exception to this rule would be if there is a provision of law that provides a right to damages once liability is established. One such provision is 18 USC 1983, which allows individual citizens to sue for violation of their civil rights.

    This is probably a very simply question, but to what degree are individual civil rights afforded to groups? And in a situation like this, where was the violation — clear or unclear — of civil rights?

    The argument I’ve heard is that these organizations, many of them small groups run by a handful of people, were so overwhelmed in paperwork that they were unable to perform any of their intended functions. One problem with this argument is that they were not required by the law to apply for 501(c)(4) status, they merely could have set themselves up and run their operation as if they were a 501(c)(4) organization.

    To that point, we do know that three of the groups ceased operations during the waiting period. It seems like they’d have the best case for this. Other groups, like the Wetumpka Tea Party, showed little evidence of being unable to perform any of their intended functions — if anything the delays seemed to increase their standing within the community.

    Again, I could see Wetumpka filing for compensation for time lost or attorney’s fees, but not too much beyond that.

    And, as an aside, the entire “you don’t have to apply to be a 501(c)4″ is another dumb aspect of the statute IMHO. Any group that prides itself on following the rules, and wants to cover all its bases, will go ahead and apply.

    Like or Dislike: Thumb up 1 Thumb down 0

  14. Matt Bernius says:

    @alkali:

    I would assume that if an IRS official took some (A) legally and/or factually unfounded (B) adverse action toward a person or entity in (C) intentional retaliation (D) for that person or entity’s political speech, that would constitute a federal crime (18 USC 242, deprivation of rights under color of law).

    Like you, I can see how “B” and “D” could stick, but I have a hard time seeing “A” and “C” working. In particular because the use of the BOLO list to flag “Tea Party”, “Patriot”, and “9/12″ organizations makes some sense. These are groups that, generally speaking, have an expressed political component as part of their operations.

    There is no doubt that the BOLO list selection was found to be flawed and ineffectual, but was the initial decision to use that criteria “unfounded?”
    Update: I got these numbers backwards. The fact is that the BOLO List turned out to be *right* 83% of the time. See this post for more information.

    Again, without a smoking gun point to the fact that this was “ordered” by someone from above, I have a hard time seeing that actually being able to be proven in a court of law.

    Like or Dislike: Thumb up 3 Thumb down 0

  15. @Matt Bernius:

    Proving a criminal case based on the facts that we know right now would indeed to seem to be difficult. Of course, it may turn out that further evidence is uncovered in the course of the ongoing FBI investigation, but the only way I can see that happening is if one or more of the people involved starts talking and reveals something incriminating about others who may have been involved in all of this.

    Like or Dislike: Thumb up 1 Thumb down 0

  16. Lizbuddie says:

    Just a non-tax lawyer thinking out loud about the issue of why get IRS designation and a quick thought about damages….

    I wonder if there are any states that require 501(c)(4) status (as in approved by IRS, not self-declared) in order to engage in certain activities. (I’m too lazy to look. ) Also, I bet it’s harder to get Big $ donations if you haven’t been recognized by the IRS as a 501(c)(4), especially for certain issues. (I might be starting such a group and about to find out.) Some donors may be hesitant to donate until they are confident their doing so would not be disclosed in the future. An organization might want the official IRS 501(c)(4) designation if they wanted to obtain certain other benefits that other individuals or organizations only offer to such groups (such as a discount or freebie only offered to IRS tax-exempt orgs). I have also heard of people or groups “challenging” the 501(c)(4) status of a group, but, like others, this isn’t my area of law, so I don’t know how that works. Perhaps ‘Tea Party’ groups get a lot of those challenges and there’s value in preempting them by getting the IRS designation.

    I think some are underestimating the intimidating effect getting these requests from the IRS might have on regular people. I’m sure some groups were scared off altogether or at least from certain activities. Most of these groups had limited resources (don’t we/they all?), so it’s easy to imagine it kept them from having the time and money to engage in other activities. Some may have waited for approval before engaging in certain activities. We don’t know what these groups were planning or contemplating. Without being a member of one of those groups, I don’t see how anyone here, or elsewhere, can say being ‘targeted’ by the IRS didn’t affect their activities. We just don’t know (nor do they, really) what might of happened had they not been.

    Right now, I don’t plan to wait long to file (c)(4) status regarding the group I’m founding. I’m hoping doing so will show our seriousness and reassure donors of their confidentiality, which could be important, even critical, in this case. I bet there are many other potential advantages to doing so that we’re missing. (And I better learn what they are, stat, eh? Feel free to share any great resources on this issue. I have a lot to learn.)

    Like or Dislike: Thumb up 0 Thumb down 0

  17. Lizbuddie says:

    Oh, also – is there no treble damages statute, or similar damages-magnifying provision, hiding out there that might apply? Hmm.

    (Non-lawyers: Sometimes the law provides for statutes that magnify actual economic damages, usually by 3 or 4 times, for situations similar to this, when the plaintiff has proven his or her case but there aren’t really many economic damages incurred, but the law aims to discourage the same bad behavior in the future. Whatever damages the plaintiff proves are multiplied to arrive at the judgment. These statutes typically reside in state law, not federal. But, who knows. Maybe there’s one of which I’m ignorant.)

    Like or Dislike: Thumb up 0 Thumb down 0

  18. Matt Bernius says:

    Thanks for the thoughts, @Lizbuddie!

    I wonder if there are any states that require 501(c)(4) status (as in approved by IRS, not self-declared) in order to engage in certain activities.

    I’m not sure if it’s required, but my understanding is that having official recognition sometimes gives the organization automatic tax-exempt status within certain states.

    I bet it’s harder to get Big $ donations if you haven’t been recognized by the IRS as a 501(c)(4), especially for certain issues.

    I’m somewhat less convinced about this argument. In part it ties into the question of what constitutes Big $’s. But at least in the case of Karl Rove’s Crossroads, it’s pretty clear he was able to secure lots of donations without official IRS recognition. From what I understand, fundraising is far more about the person doing the fundraising than the organization being fund-raised for.

    And remember that donations to 501(c)4’s are *not* tax-deductable. They are simply kept anonymous.

    Perhaps ‘Tea Party’ groups get a lot of those challenges and there’s value in preempting them by getting the IRS designation.

    This makes some sense, though the fact is that even after 501(c)4 status has been granted, it can always be removed. A recent NYT’s article detailed how a number of progressive groups, on review lost their 501(c)4 status.

    I think some are underestimating the intimidating effect getting these requests from the IRS might have on regular people.

    Oh there’s not question about this. And as I wrote above, I think you can argue that this probably had some chilling effect on speech. However, I’m not sure how easily that can translate into damages in terms of a civil case.

    Like or Dislike: Thumb up 1 Thumb down 0

  19. rudderpedals says:

    Confidentiality is a requirement for money launderers and purveyors of invidious discrimination. Is it essential to your group for something else?

    Like or Dislike: Thumb up 0 Thumb down 0

  20. Matt Bernius says:

    @rudderpedals:

    Confidentiality is a requirement for money launderers and purveyors of invidious discrimination.

    While I don’t like the combination of anonymous donors and anything political, it should be noted that 501(c)3 — Educational & Religious Orgs — also are allowed anonymous donors and there’s never been a lot of outrage over that.

    Like or Dislike: Thumb up 1 Thumb down 0

  21. rudderpedals says:

    @Matt Bernius:

    While I don’t like the combination of anonymous donors and anything political, it should be noted that 501(c)3 — Educational & Religious Orgs — also are allowed anonymous donors and there’s never been a lot of outrage over that.

    I’d assumed there were good practical reasons for allowing anonymity for charity/edu/religious contri butions. For instance, the difficulty of accurately tracking who put what into the collection plate, or of capturing drivers licenses from the folks dropping money into the Salvation Army kettle. I don’t see these practical difficulties for lizbuddie’s org but perhaps liz will follow up?

    If you’re ever wanting to write more in this section of the code I’d love more on the control fraud abuses inherent in (c)(3) (and 4 for that matter).

    Like or Dislike: Thumb up 1 Thumb down 0

  22. rudderpedals says:

    Ari Fleischer’s now defunct Freedom’s Watch (Freedom Swatch) was back in the news on Friday with a claim that its donors were audited for gift tax liability. But, the instructions for Form 709 (gift and generation skipping transfer tax) state not to report payments to charities, 527 political orgs or payments made for someone else’s education or medical treatment.

    How are large donors to social welfare 501(c)(4)s avoiding the return filing requirement?

    Like or Dislike: Thumb up 1 Thumb down 0

  23. Matt Bernius says:

    @rudderpedals:
    Freedom’s Watch was a 501(c)4. Gifts to a 501(c)(4) ARE NOT tax deductable according to the IRS:

    Contribu­tions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer’s business.
    http://www.irs.gov/Charities-&-Non-Profits/Other-Non-Profits/Donations-to-Section-501%28c%29%284%29-Organizations

    So if those donors were taking write-offs on those donations, they deserved to be audited. Further, since 501(c)(4)’s don’t have to disclose donors, the IRS should not have known they were organizational donors.

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