Reform After the IRS Scandal? Don’t Bet on It.

We welcome this guest post by political scientist Michael Miller, author of the forthcoming Subsidizing Democracy: How Public Funding Changes Elections, and How it Can Work in the Future.  For more on this topic, see this previous post.


Quite a lot has been written in the last week about inappropriate IRS scrutiny of conservative groups seeking 501©(4) status as tax-exempt organizations during the 2012 election. The commentary has followed a relatively predictable pattern, as journalists have focused on who-knew-what-and-when-they-knew-it, and what the political fallout will be. Yet, there is also increasing recognition that the story is likely more complex than exuberant employees or lax management.

Simply, the IRS has made the worst of a bad situation that is not entirely of its own making.  While it is certainly on the hook for subjecting applications from conservative groups to enhanced scrutiny, the IRS has also been inundated with applications, with 501©(4) requests doubling from 2010 to 2012. The explosion of these requests can be traced to recent federal court decisions—namely, Citizens United v. FEC and v. FEC—that have dramatically altered the rules regarding who can spend money in American elections.

The 501©(4) category has traditionally been reserved for groups that promote the “social welfare.” But the courts in 2010 determined that groups may accept contributions of unlimited size and spend freely on advertising that expressly advocates the election or defeat of a candidate. A 501(c)(4) designation is attractive to such groups for two reasons: Not only does it allow them a tax-exempt status, but it also does not require them to disclose their donors. Given the regulatory environment in place since 2010, seeking 501©(4) status seems utterly rational.

That creates a regulatory problem. With electioneering now in the equation, it is much more difficult to determine where “social welfare” ends and campaign politics begin. It is unclear whether the Federal Election Commission or the Internal Revenue Service should be primarily responsible for making that call, which underscores a failure of the federal government so far to develop good regulations for the post-Citizens United world.

It also leads to concerns about transparency in government. Absent good regulation, there is a real risk that the 501©(4) code will become a haven for “Super PACs” that spend millions in elections without having to disclose their donors. Indeed, House Minority Leader Nancy Pelosi (D-CA) has cited the IRS scandal in calling for a number of reforms, including both the DISCLOSE Act and a constitutional amendment to curb the effects of Citizens United, and she is not alone.

It won’t happen. Action on anything is hard enough in Congress these days, so particularly in the case of a constitutional amendment—which would require a two-thirds vote in both houses—one would expect widespread public concern to be a prerequisite for reform. But the simple fact is that on the whole, Americans don’t know very much about the campaign finance environment post-Citizens United, and their lack of knowledge will be an obstacle to reformers.

In survey questions that Conor Dowling and I fielded in 2012 via the CCES and the CCAP as part of work on a forthcoming book, we asked respondents a series of questions designed to assess their knowledge of the legality of various activities during presidential elections. Between the two surveys, roughly 1,000 respondents answered questions about the legality of corporate behavior, and another 1,000 answered questions about the behavior of private citizens. For all questions, participants could respond that the activity was “illegal,” “legal,” or that they “don’t know.”


The mean percentages of correct responses are contained in the tables, and they demonstrate a general lack of public knowledge about campaign finance law. Specifically, for all six questions regarding corporations, a majority of respondents either did not know the correct answer or answered incorrectly. A similar pattern of knowledge—or lack thereof—is on display when respondents were asked about allowable behavior for individual citizens. A majority of respondents correctly answered that individuals may legally purchase electioneering advertising themselves, or that they may donate to presidential candidates or parties, but only a minority could correctly answer the other four questions about individuals.

When we separate respondents into “high-interest” and “low-interest” categories (shown in a working paper but not here), we find that a majority of high-interest respondents answered eleven of twelve questions correctly—but still erroneously claimed that corporations could contribute to presidential candidates—while responses of low-interest respondents essentially mimicked those of the sample at large. We take this as evidence that elite discourse surrounding Citizens United reached those who pay attention, but did not permeate mass public opinion.

Our findings are hardly suggestive of a public with high knowledge of campaign finance regulations, even after Citizens United. If knowledge is a precondition for perceived salience, it should not be surprising that public attention to the IRS scandal is lagging compared to similar previous news stories. On the whole, it seems unlikely that partisan-motivated IRS scrutiny of organizations seeking an obscure tax exemption will give much momentum to reformers seeking to address electioneering among 501©(4)s.

4 Responses to Reform After the IRS Scandal? Don’t Bet on It.

  1. Nameless May 19, 2013 at 10:16 pm #

    I’m not sure if Citizens United v. FEC did as much as you say it did. You can’t ban corporations from exercising free speech by engaging in politics (e.g. doing things like running ads for or against a politician within 30 days of the elections), but you don’t have to grant them tax-exempt status, either. Those two are unconnected. Otherwise, the explicit ban on political activity that applies to 501(c)(3)’s (e.g. churches) would have been equally void, and it isn’t. Court decisions may have made the 501(c) status more attractive for groups with political agendas, but they didn’t make it more legal.

    The difference between 501(c)(3) and 501(c)(4) is vagueness of the language. Where (c)(3)’s “do not participate in, or intervene in any political campaign”, (c)(4) are “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare”. The decision whether organizations like “tea party patriots”, etc. operate “exclusively for the promotion of social welfare” seems to be clearly within the scope of the responsibilities of the IRS. 26 USC 501 is part of the Internal Revenue Code and I don’t see what FEC has to do with it. Traditionally, IRS has been lenient in its internal regulations, effectively substituting “primarily” where the statute says “exclusively”, but it does not have to be.

    Even if there is disagreement whether tea party groups operate “exclusively for the promotion of social welfare”, addressing this via a constitutional amendment is trying to kill a fly with a cannon. All you need is to amend section 501 and spell out political activities allowed for qualified nonprofits. I’m not sure if that would fly well with the Congress either, though, since most politically-minded 501(c)(4)’s appear to be Republican.

  2. Todd May 20, 2013 at 12:30 am #

    It is *quite* extraordinary to expect the average citizen to know about campaign finance laws. In fact, I would argue that the very idea of expecting average people to be interested in what goes on in a distant government is the height of ridiculousness. We seem to have this crazy expectation BECAUSE our government is a “democracy” rather than because it makes sense. Our government is broken because we expect people to be designed for this *wacked* form of “democracy” rather than expecting for a democracy to be designed to accommodate the realities of being human.

  3. GGR May 20, 2013 at 10:08 am #

    Where are your numbers backing up your statement that 501c(4) aps doubled between 2010 and 2012? I read actual ap numbers yesterday that contradict this statement. That IS the premise of your article. Need to see back up to verify it. Until then, well. . .. .

  4. Michael G. Miller May 20, 2013 at 11:06 am #

    GGR, that is not the premise of my article. Reform-minded folks are seeing this event as an opportunity to propel measures geared toward more disclosure, etc. Their argument is based on the fact that applications have surged since 2010, which raises regulatory concerns about who should do what.

    I’m guessing that you saw numbers in articles that suggest that the surge in applications didn’t occur until after the IRS began its targeting. Those articles are about the motivations of the IRS, which I am not interested in, nor am I discussing it in my article. My piece says that applications doubled between “2010 and 2012.” There is nothing factually incorrect about that, and the surge during that period underscores how groups have behaved to date since Citizens United. That is the basis for reforms like the DISLCOSE Act, and informs how the debate is likely to shape up, which is really what my piece is about.

    As to numbers, you can check with the IRS itself here:

    Or here, in a piece that raises the point you bring up:

    Thanks for reading!