Is the IRS "Scandal" Even a Scandal?

Jamelle Bouie/The American Prospect

The details of the current scandal at the Internal Revenue Service are straightforward, which might be surprising, given the reputation of the agency.

In early 2010—as right-wing opposition to President Obama reached a fever pitch—an IRS office in Cincinnati, Ohio saw a sudden sudden influx in applications for 501(c)4 status. That’s the IRS’s designation for “social welfare” organizations, which exist—ostensibly—to provide a service that benefits the broad public. As Josh Barro notes for Bloomberg, this can include lobbying and political activity, as long as that’s not the primary purpose. These groups aren’t required to pay taxes on their income, nor are they required to reveal their donors, which makes them an excellent vehicle for ideologically-motivated action—hence groups like American Crossroads, which is listed as a 501(c)4.

The large majority of these applications were for Tea Party organizations—the Supreme Court’s decision in Citizens United had sparked an explosion of political groups seeking tax-exempt status—and the IRS office was overwhelmed. In an attempt to get a handle on the situation—and suspicious of whether these groups existed to promote “social welfare”—the IRS applied greater scrutiny to the applications, requesting a long list of invasive information, from names of donors to postings on social networking sites.

Indeed, given the volume of applications, the IRS decided to put a freeze on giving tax-exempt status to these particular groups. Politically, this was tone-deaf; while the IRS also had its eye on several liberal groups, it didn’t stop giving tax-exempt status to other progressive 501(c)4s.

Once IRS higher-ups discovered this “filter” for Tea Party groups, they put a stop to it, and launched an investigation into what happen. It’s the results of that investigation that sparked the scandal, which has led congressional Republicans and Democrats to call for a further look into what happened. And in a Monday news conference, President Obama stepped with the crowd. “If in fact IRS personnel engaged in the kind of practices that have been reported on and were intentionally targeting conservative groups,” he said to reporters, “then that’s outrageous. And there’s no place for it.”

Now, Washington is treating this as a major affair. But there’s a question worth asking: Is this a scandal?

Writing at The New Republic, Noam Scheiber says no, and I’m inclined to agree with him. First, some relevant information. As he explains, you don’t actually have to apply for 501(c)4 status. “If anyone wants to start a social welfare group,” he writes “they can just do it, then submit the corresponding tax return (form 990) at the end of the year.”

This helps explain why the IRS decided to apply scrutiny at all. Applications are unusual, and when you receive a large number of them from a particular set of right-leaning groups, its bound to raise suspicion. As Scheiber notes, “The IRS was unexpectedly flooded by dodgy 501(c)4 applications and was at a loss over how to manage them.”

When you add to this the fact that 501(c)4 groups have been operating as adjuncts to the two political parties—the Koch brothers' Americans for Prosperity stands as one prominent example—it’s not hard to see why this IRS office would try to take a stand when faced with a gaggle of new groups pushing for tax-exempt status.

It doesn’t take a long look at the evidence to conclude that this isn’t an Obama administration scandal—the White House had nothing to do with the process, and couldn’t have known the conduct of a single office in the middle of the country—and is only a minor scandal (if that) for the IRS. There was no attempt to suppress or harass conservative groups—they were just the ones sending the bulk of the applications.

Indeed, if there’s a scandal here at all, it’s the near-absence of regulation around 501(c)4s and other political groups. As Jeffrey Toobin writes for The New Yorker, “Campaign finance operates by shaky, or even nonexistent, rules, and powerful players game the system with impunity. A handful of IRS employees saw this and tried, in a small way, to impose some small sense of order.”

Unfortunately, I don’t expect the truth of the matter to have much of an effect on the “conversation.” The IRS affair has already been subsumed into the new narrative, along with Benghazi (a fake scandal), and the controversy at the Justice Department (a real scandal). For Washington’s purveyors of conventional wisdom, all that matters is that it’s Scandal Time! in the Beltway. The actual facts are, for the most part, besides the point.