Budget Cuts Lead To IRS Mistakes

17 May

Dear IRSDaniel Werfel has the unhappy, thankless task of reforming the country’s most hated government agency. Fortunately, there’s David Cay Johnston, one of those reporters with a special bailiwick who perform a public service explaining issues most of us either ignore or dread figuring out – case in point, taxes.

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.


…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.


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?

Something tells me Fox News doesn’t get the joke.

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