Written by Ray Peach
A substantial number of Tea Party organizations have come under attack by the IRS, which seeks to hinder the issuance of a tax-exempt status by making such an application, for all intents and purposes, impossible. Many Tea Party groups seek to take advantage of tax-exempt status under Internal Revenue Code (I.R.C.) § 501(c)(3), and § 501(c)(4); and while these impose specific responsibilities, the IRS is clearly abusing its discretionary power, by asking for information that is impossible to provide, or is unconstitutional to ask for. Letters from the IRS to these organizations can be found at the end of this report.
When people think of a charitable organization, what they are usually thinking about is called a 501(c)(3) public charity. It has federal income tax exemption, contributions to it are tax deductible to the donor, and it is usually exempt from state sales & property tax as well. The government provides incentives like these when an organization’s purpose is: religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international sports competition, or prevention of cruelty to children or animals.
The other tax exemption, used by most TEA Party organizations, is the 501(c)(4). According to the Internal Revenue Service, to be tax-exempt as a 501(c)(4), the organization must not be organized for profit and must be operated exclusively for the promotion of social welfare. This means that the organization must operate primarily to further, in some way, the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements).
A 501(c)(4) social welfare organization may further its purposes through lobbying as its primary activity, without jeopardizing its exempt status; however, it is not able to receive tax-deductible donations.
In general, 501(c)(4) organizations tend toward advocacy work, political actions, lobbying, environmental purposes, homeowners’ associations, and various other community associations. Interestingly, it is not uncommon to find some organizations occupying the ranks of 501(c)(4) that would normally be considered 501(c)(3) if it were not for particular activities such as substantial lobbying or political candidate endorsements…things prohibited under § 501(c)(3), but allowed under 501(c)(4).
While the IRS has been generally hostile to the TEA Party movement, its attack seemed to shift into a high gear when a letter signed by Democratic Senators Michael Bennet, Al Franken, Jeff Merkley, and Charles Schumer was sent to the IRS Commissioner Donald Shulman . This letter said: “We write to inquire if the Internal Revenue Service (’IRS’) is investigating or intends to investigate wether groups designed as ‘social welfare’ organizations, and thus receiving tax and other advantages under 504 (c)(4) of the Internal Revenue Code (IRC), 26 U.S.C. § 501(c)(4) are improperly engaged in a substantial or even a predominate amount of campaign activity.”
One of the assertions made in the letter is: “Courts have interpreted section 501 (c)(4) to prohibit a group from engaging in more than an insubstantial amount of campaign activity… See Contracting Plumbers Coop. Restor. Corp v. U.S., 488 F.2d 684.” The problem with this statement is that it is demonstrably false. For one thing, the court case mentioned in the letter was about plumbers who worked for a Home Owners Association, having absolutely nothing to do with “engaging in more than an insubstantial amount of campaign activity.” What the judge in that case actually said was: “We find that the taxpayer has failed to prove that its primary purpose is the ‘improvement of business conditions’ … as distinguished from the performance of particular services for individual persons.” The court concluded, “It must be remembered that the taxpayer has never followed the ‘social welfare’ into repairing … troublesome potholes.”
The other problem is that the prohibition “from engaging in more than an insubstantial amount of campaign activity,” comes from Treas. Reg. § 1.501(c)(3)-1(c), appearing nowhere in Treas. Reg. § 1.501(c)(4), as the letter represents. In fact, much of the information the IRS is demanding from the TEA Party comes from § 1.501(c)(3), not § 1.501(c)(4), while the majority of the remaining information being requested is not required at all.
The central feature of both 501(c)(3) and 501(c)(4) is the phrase “promotion of social welfare.” The interesting thing is, the IRS's definition of this phrase is the “lessening of the burdens of Government; and promotion of social welfare.” In an explicit example, environmental groups are automatically held to meet this definition, because they are promoting the social welfare in an area where the EPA and Congress has made environmentalism a national priority – thus they are lessening the government’s burden. The TEA Party does not lessen the burdens of government, and so does not meet the IRS's stated position on Tax-exempt organizations; but the IRS’s requirement that the purpose must lessen the burdens of Government does not appear in the actual statute.
On March 4th, 2012, the Democratic Congressman from Vermont, Peter F. Welch, sent an open letter to Barack Obama asking that even more pressure be brought to bear on conservative 501(c)(4) organizations, including Super PACs. He is also asking for the Federal Election Board be “Packed” with Democrats; but none of this is new, as other Presidents have abused their power, and the IRS was created as a political tool, not as a means of collecting taxes.
On November 5th 1813, Thomas Jefferson wrote about his opposition to the creation of a central bank. Not only did he vehemently disagree with the concept of a central bank, but also opposed a credit based, consumer-oriented economy, which replaced gold and silver reserves with paper notes. He also disagreed with what we would today call a flat income tax, because any tax on labor was a tax on the individual, making them a slave to the state.
In 1847, Friedrich Engels became the head of the Communist Party, and issued the Draft of a Communist Confession of Faith; and in 1848, Karl Marx and Engels published their Communist Manifesto. Central to Communism was the concept that the State would control all wealth in the country, public and private. This meant a heavily graduated income tax, what Obama calls “paying your fair share”, the abolition of inheritance, a central bank with an exclusive monopoly, and the abolition of private property. While presented as new and original, these ideas had their genesis in ancient Egypt, Greece, and Rome.
President Lincoln enacted an income tax to finance the Civil War; but the Supreme Court ruled it unconstitutional in 1895. The ideas of Marx and the ancients would come back to life with Woodrow Wilson, who in 1910 said:
“We are dealing, in our present discussion, with business, and we are dealing with life as an organic whole, and modern politics is an accommodation of these two. Suppose we define business as economic service of society for private profit, and suppose we define politics as the accommodation of all social forces, the forces of business, of course, included, to the common interest… Business must be looked upon, not as the exploitation of society, not as its use for private ends, but as its sober service; and private profit must be regarded as legitimate only when it is, in fact, a reward for what is veritably serviceable – serviceable to interests which are not single but common, as far as they go; and politics must be the discovery of this common interest, in order that the service may be tested and exacted.”
Wilson would call this a new form of Capitalism, saying, the “establishment of a political control over credit will mean a political and financial revolution. For it will establish the power of the government over our whole economic system and will lead rapidly to a common political and economic organization of all classes of capitalists for the control of the government, to a compromise between the group of capitalists that now rules the business world and that far larger group which is bound to rule the government.”
Today we see this Marxist position exemplified by Obama as Crony Capitalism, AKA Economic Fascism or Corporatism – a system that is controlled through the IRS and a central banking system.
Supposedly using the War in Europe as an excuse, the 16th amendment enabled the imposition of an income tax in 1913, a year before the war supposedly started in Europe, and two years before the United States entered the War. The same year, Wilson passed the Federal Reserve Act, giving a group of private bankers dictatorial control over the nation’s credit and money supply.
Originally the income tax was supposed to be voluntary, and was advertised as being only 1% of earnings; but the Revenue Act of 1918 raised the rate for top wage earners to 77%. Franklin Roosevelt would raise the top rate to 90% and institute mandatory withholdings.
It is common to point out that presidents from Wilson to Obama have used the IRS as a political tool for punishing their enemies, with Nixon receiving most of the criticism. As an aside, Nixon was a “pussy cat” next to Franklen Roosevelt, Truman, Kennedy, Johnson, Bush, Clinton, Bush, and now Obama (It should be pointed out that President Reagan fought against the IRS and the Fed: See Note). The real problem is the IRS was designed for just this purpose; that is to say, “establish the power of the government over our whole economic system.” This is why the laws pertaining to Tax-exempt organizations say they “must be operated exclusively for the promotion of social welfare,” where the definition of social welfare is defined solely by the State. In my humble opinion, the best way for the TEA Party to escape its current predicament is for the House of Representatives to pass a resolution, declaring that the TEA Party is recognized as promoting the general welfare. Since the House is constitutionally responsible for all revenues, the IRS would have no choice but to heed the will of the House, or have it’s funding curtailed.
This article does not represent legal advice, which should be sought from a licensed, practicing tax attorney, preferably one specializing in tax-exempt organizations.
List of Letters:
There are more letters available upon request: email "editor (at) rightsidenews.com"