Last week, the U.S. Department of the Treasury Inspector General for Tax Administration (TIGTA) published a report that once again criticized the Internal Revenue Service for failing to adequately enforce the rules on nonprofit political activity. The report comes as no surprise; Public Citizen’s Bright Lines Project has been calling out the problems with the IRS’s subjective standards in this area for years.
As the TIGTA report says, “There should be limits on the use of discretion in this area given the potential that bias could enter into decisions of whether or not to refer these types of cases for examination.” We could not agree more!
These sorts of objective standards would allow the agency to judge what is and isn’t political activity would make compliance and enforcement easier and help the IRS avoid repeatedly being called out by its own Inspector General watchdog. Without objective standards, nonprofits willing to flout the rules essentially get a free pass to engage in electioneering, while the vast majority of nonprofits that want to follow the law are left in the dark as to what is and isn’t permissible under their tax status.
The scandal here, unfortunately is not the inaction by the IRS, it’s the degree to which Congress has taken an active role to attempt to block the type of objective standards we need from ever being put into place—rules that are essential to objectively determine when a nonprofit is engaging in political activity. In the nonprofit space, this recent TIGTA report provides evidence of the degree to which Congress and the administration have been handicapping the IRS’s ability to enforce political activity tax laws. The report states that of more than 6,500 reports of impermissible electioneering activity between 2015 and 2016, not a single nonprofit received a negative consequence (some cases are still pending).
To make it worse, this report comes in the face of blatant signals from the Trump administration that it plans to make even further reductions in enforcement of the limits on partisan activity for nonprofits. In June, Vice President Mike Pence promised to repeal the Johnson Amendment – the law that keeps 501(c)(3)s from partisan election spending. And in July, the Treasury Department stopped requiring 501(c)(4)s to disclose major donors to the IRS, removing one of the only ways the IRS can see whether groups are illegally spending foreign money in our elections.
Several years ago, the IRS tried to put objective standards in place to solve these problems, but Congress stopped these efforts. A poison pill rider inserted into the 2015 government funding package – that has been carried through to today on subsequent appropriations bills – blocked IRS and Treasury Department rulemakings that might have put in place objective standards. As Congress negotiates the Treasury Department’s funding (ahead of the Dec. 7 deadline), lawmakers need to remove this old rider and reject any new riders that would limit enforcement of the Johnson Amendment.
Even in the broader sense, Congress’s refusal to fully fund the IRS has hamstrung its enforcement divisions, costing taxpayers billions by letting the wealthiest and sneakiest among us get away with stealing money from the government. According to a ProPublica article published earlier this month, prosecution of tax fraud as a primary crime has declined dramatically since 2010– a decline that tracks nearly exactly with Congress’s decisions to defund the agency. Due to this lack of enforcement, business owners have been able to swindle $125 billion per year from taxpayers, during a period when Americans were struggling to regain their financial footing after the 2008 stock market crash.
One of the most important things to remember about the tax code, whether talking about nonprofits or individuals: the vast majority of us want to pay our taxes correctly and follow the law. The US has an extremely high tax compliance rate compared to the rest of the world, and that’s something we should be very proud of as individuals and as a nation.
However this recent report from the IRS’s Inspector General should make Congress ashamed. A lack of enforcement by government agencies enables a rigged system. Reports that rich people or nonprofits willing to flout the rules and are treated differently than the rest of us threaten a critical part of our democracy and weaken the fabric of our American values.
This issue doesn’t have nearly enough traction on the Hill. You can help by raising the issue with your Senators and Member of Congress. Tell them to remove the poison pill rider blocking the IRS from doing its job, and to put bright line rules in place to make the tax rules for nonprofits fair.