-By Dan Froomkin
March 8, 2012- WASHINGTON — For years, the IRS has done little or nothing to check the rise of overtly political groups that claim a special tax-exempt status in order to funnel secret money into election-related advertising.
But in a sign that the agency may be waking from its slumber, the IRS has sent detailed questionnaires to several Tea Party organizations — and possibly other political groups — to determine if they truly qualify for the 501(c)(4) designation intended for groups whose exclusive purpose is to promote social welfare.
Should any group currently calling itself a 501(c)(4) have its designation denied or revoked, tax experts said the consequences could be severe, including fines of 35 percent or more of the money they raised in secret.
And the groups might have to make donors' names public.
Even loose talk about donor secrecy no longer being guaranteed could put a screaming halt to the extraordinary flow of money into these groups from deep-pocketed people and corporations that want to buy political ads without leaving fingerprints.
"If I thought it was important to remain anonymous for my business reasons or for my personal reasons, I wouldn't take any comfort in any assurances the organization has given me until now," said Karl Sandstrom, a former Federal Election Commission member who now works at the Washington office of law firm of Perkins Coie.
It’s not clear whether any of the major groups that identify themselves as C4s — and are well on their way toward collecting and spending tens of millions of dollars in this election cycle — have been the subject of IRS inquiries. The IRS won't say, and it’s apparently a sensitive topic with the groups. Representatives from Karl Rove-associated Crossroads GPS, Obama-backing Priorities USA, and several others didn't respond to requests for comment.
But, said Sandstrom: "It's hard to imagine that the IRS would take the time to make inquiries of small organizations if there are very large organizations — spending vast sums of money compared to these much smaller organizations — that are not receiving similar attention."
The tax code requires 501(c)(4) groups to be operated "exclusively" for social welfare purposes — which does not include intervention in political campaigns. The IRS has allowed the groups to engage in political activity as long as it was not their primary purpose. But for many of these groups, it's hard to see what other purpose they could possibly have.
It's also hard to see why a political group would file under section 501(c)(4) instead of under Section 527 — the part of the tax code explicitly designed for political groups including PACs and super PACs — other than to hide its donors. Like the C4s, the 527 groups are allowed to raise unlimited funds and pay no taxes. They just have to disclose who donates money.
Reform groups have been pressuring the IRS to enforce its rules for months. In February, a group of Democratic senators sent a letter to the IRS, which stated: "It is contrary to the letter and spirit of the statute for political organizations formed primarily to advocate for a political candidate or to run attack ads against other candidates to take advantage of section 501(c)(4)."
Sen. Tom Udall (D-N.M.), one the letter’s signers, praised the IRS inquiry. "The term 'social welfare organization' is clearly being used loosely these days,” Udall said in a statement. “Voters deserve to know who's behind the attack ads they see on TV and we need a multi-pronged approach to get there — a tightening of regulations, disclosure legislation from Congress, and ultimately, a constitutional amendment to reduce the influence of money in our elections."