Was the targeting by the IRS unreasonable? Yes it was because both liberal and conservative groups use the 501(c)(4) organizations to hide their donor lists.

This should show us that there is a major issue with how campaign finances are handled as well as the more obvious issue of the IRS’s management and which organizations are targeted for scrutiny. The main issue that I see with 501(c)(4) organizations is that there is no defined limit for how much of their finances, time and efforts can be used for political purposes.

Reg. 1. 501(c)(4)-1(a)(2)(i) provides that: [A]n organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the community.

My interpretation of this is that at a minimum less than half of its time should be spent on political purposes. However because this is ill-defined how can the IRS test to see if any of these organizations are following the rules?

Also these organizations were originally formed to create unions and other similar institutions which would have a minimal political role at most 10%. I believe that these organizations are being incorrectly used to hide donor lists.

In order to fix this a decision needs to be reached on how to measure how much time, money, effort can be spent on political purposes and how to monitor these organizations going forward. One potential restriction that could be placed on this type of organization is a limit on how much they can donate to political campaigns at a fixed amount such as one million dollars.

Sources:

Many different news articles I will list a few

The IRS Scandal and Donors WSJ– May 24, 2013

IRS testimony to House Committee Oversight and Government Reform committee– May 22, 2013