CREW

IRS FOIA Request HQ FOIA Stop 211 2385 Chamblee Tucker Road Chamblee, GA 30341

I
November 30, 2012

Re: Freedom of Information Act Request Dear Sir or Madam: Pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. 552, et seq., and Internal Revenue Service (IRS) regulations, 26 C.F.R. 60 1.702, Citizens for Responsibility and Ethics in Washington (CREW) requests two categories of documents related to regulation of section 501(c)(4), (c)(5), and (c)(6) organizations involved in political activity. First, CREW seeks all communications and correspondence, from January 21, 2010 to the present, between the IRS and any member, committee, or employee of Congress regarding regulation of section 501 (c)(4), (c)(5), and (c)(6) organizations. Members of Congress have repeatedly written to the IRS regarding these tax-exempt organizations, and the IRS has responded to many of the letters. See, e.g., Letter from 11 Senators to the IRS, June 18, 2012 (referring to the IRSs response to an earlier letter and requesting answers to a series of questions) (attached as Exhibit A). Second, CREW seeks all records related to two projects described in the IRS Exempt Organizations (EO) 2012 work plan. The first project is titled 501(c)(4), (5) and (6) selfdeclarers, and the work plan states EO will review organizations that have self-declared under these exemptions to ensure that they have classified themselves correctly and are complying with applicable rules. IRS Exempt Organizations, 2011 Annual Report and 2012 Work Plan, at 8 (attached as Exhibit B). The work plan further states EO will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area. Id. The second project is titled Political activity, and the work plan states EO will focus its examination resources on serious allegations of impermissible political intervention and on identifying cases to refer for examination, and will refine its risk models based on the results of examinations. Id. CREW excludes from this request any records or information regarding specific audits or investigations, and any return or return information that is confidential under 26 U.S.C. 6103. Please search for responsive records regardless of format, medium, or physical characteristics. Where possible, please produce records electronically, in PDF or TIF format on a

1400 Eye Street, N.W., Suite 450, Washington, D.C. 20005

202.408.5565 phone

202.588.5020 fax

www.citizenstorethics.org

Internal Revenue Service November 30, 2012 Page 2 CD-ROM. We seek records of any kind, including electronic records, audiotapes, videotapes, and photographs. Our request includes any letters, emails, facsimiles, telephone messages, voice mail messages, and transcripts, notes, or minutes of any meetings, telephone conversations, or discussions. Our request also includes any attachments to these records. If it is your position that any portion of the requested records is exempt from disclosure, CREW requests that you provide it with an index of those documents as required under Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973), cert. denied, 415 U.S. 977 (1972). As you are aware, a Vaughn index must describe each document claimed as exempt with sufficient specificity to permit a reasoned judgment as to whether the material is actually exempt under FOJA. Founding Church ofScientology v. Bell, 603 F.2d 945, 949 (D.C. Cir. 1979). Moreover, the Vaughn index must describe each document or portion thereof withheld, and for each withholding it must discuss the consequences of supplying the sought-after information. King v. US. Dept ofJustice, 830 F.2d 210, 223-24 (D.C. Cir. 1987) (emphasis added). Further, the withholding agency must supply a relatively detailed justification, specifically identifying the reasons why a particular exemption is relevant and correlating those claims with the particular part of a withheld document to which they apply. Id. at 224 (citing Mead Data Central v. US. Dep t ofthe Air Force, 566 F.2d 242, 251 (D.C. Cir. 1977)). In the event some portions of the requested records are properly exempt from disclosure, please disclose any reasonably segregable non-exempt portions of the requested records. See 5 U.S.C. 552(b). If it is your position that a document contains non-exempt segments, but that those non-exempt segments are so dispersed throughout the document as to make segregation impossible, please state what portion of the document is non-exempt, and how the material is dispersed throughout the document. Mead Data Central, 566 F.2d at 261. Claims of nonsegregability must be made with the same degree of detail as required for claims of exemptions in a Vaughn index. If a request is denied in whole, please state specifically that it is not reasonable to segregate portions of the record for release. Finally, CREW welcomes the opportunity to discuss with you whether and to what extent this request can be narrowed or modified to better enable the IRS to process it within the FOJAs deadlines. Adam J. Rappaport, the CREW attorney handling this matter, can be reached at (202) 408-5565 or arappaport(citizensforethics.org. Fee Waiver Request In accordance with 5 U.S.C. 552(a)(4)(A)(iii) and 26 C.F.R. 601.702(f)(2), CREW requests a waiver of fees associated with processing this request for records. The subject of this request concerns the operations of the federal government and expenditures, and the disclosures will likely contribute to a better understanding of relevant government procedures by CREW and the general public in a significant way. Moreover, the request primarily and fundamentally is for

Internal Revenue Service November 30, 2012 Page 3 non-commercial purposes. 5 U.S.C. 552(a)(4)(A)(iii). See, e.g., McClellan Ecological v. Carlucci, 835 F.2d 1282, 1285 (9th cir. 1987). These records are likely to contribute to the publics understanding of the IRSs oversight of groups organized under sections 501(c)(4), (c)(5), and (c)(6) of the Internal Revenue Code that are involved in political activities. These groups spent at least $300 million to influence federal elections in 2012, and untold millions more to influence state and local elections. See 2012 Outside Spending, By Groups, OpenSecrets.org (attached as Exhibit C). Members of Congress have expressed concern about the IRS s interpretation of the tax code with regard to tax-exempt groups involved in political activity, and with the IRSs oversight of these organizations. See, e.g., Letter from Sen. Carl Levin to the IRS, July 27, 2012 (attached as Exhibit D). In addition, CREW and others have filed numerous complaints against groups violating their tax-exempt status through impermissible political spending. The requested records are likely to shed light on the IRSs duty to oversee tax-exempt organizations. Correspondence between the IRS and Congress regarding these groups is likely to contain information regarding the IRSs oversight of these groups and its views on issues related to its regulation of them. Similarly, records related to the projects described in the 2012 work plan should provide information about the IRSs actions with regard to political activity by these groups. Accordingly, the requested records concern the IRSs operations, and disclosure would contribute significantly to the publics understanding of these operations because information contained in the records is not otherwise available to the general public. CREW is a non-profit corporation, organized under section 501(c)(3) of the Internal Revenue Code. CREW is committed to protecting the publics right to be aware of the activities of government officials and to ensuring the integrity of those officials. CREW uses a combination of research, litigation, and advocacy to advance its mission. The release of information garnered through this request is not in CREWs financial interest. CREW will analyze the information responsive to this request, and will share its analysis with the public, either through memoranda, reports, or press releases. In addition, CREW will disseminate any documents it acquires from this request to the public through its website, www.citizensforethics.org, which also includes links to thousands of pages of documents CREW acquired through its multiple FOIA requests as well as documents related to CREWs litigation and agency complaints, and through www.scribd.com. Under these circumstances, CREW satisfies fully the criteria for a fee waiver.
News Media Fee Waiver Request

CREW also asks that it not be charged search or review fees for this request because CREW qualifies as a representative of the news media pursuant to the FOIA. In Nat 1 Sec.

Internal Revenue Service November 30, 2012 Page 4 Archive v. US. Dept ofDefense, 880 F.2d 1381, 1386 (D.C. Cir. 1989), the Court of Appeals for the District of Columbia Circuit found the National Security Archive was a representative of the news media under the FOIA, relying on the FOIAs legislative history, which indicates the phrase representative of the news media is to be interpreted broadly; it is critical that the phrase representative of the news media be broadly interpreted if the act is to work as expected. In fact, any person or organization which regularly publishes or disseminates information to the public. should qualfJ for waivers as a representative of the news media. 132 Cong. Rec. S 14298 (daily ed. Sept. 30, 1986) (emphasis added), cited in id.
. . .
. .

CREW routinely and systematically disseminates information to the public in several ways. First, CREW maintains a frequently visited website, www.citizensforethics.org, that received 33,571 page views in October 2012. In addition, CREW posts all of the documents it receives under the FOIA on www.scribd.com, and that site has received 2,287,124 visits to CREWs documents since April 14, 2010. Second, since May 2007 CREW has published an online newsletter, CREWCuts, that currently has 15,564 subscribers. CREWCuts provides subscribers with regular updates regarding CREW s activities and information the organization has received from government entities. A complete archive of past CREWCuts is available at http://www.citizensforethics.org/newsletter. Third, CREW publishes a blog, Citizens bloggingfor responsibility and ethics in Washington, that reports on and analyzes newsworthy developments regarding government ethics and corruption. The blog, located at http://www.citiznesforethics.org/blog, also provides links that direct readers to other news articles and commentary on these issues. CREWs blog had 5,564 page views in October 2012. Finally, CREW has published numerous reports to educate the public about govenunent ethics and corruption. See Record Chaos, which examines agency compliance with electronic record keeping responsibilities; The Revolving Door, a comprehensive look into the post government activities of 24 former members of President Bushs cabinet; and Those Who Dared: 30 Officials Who Stood Up For Our Country. These and all other CREWs reports are available at http://www.citizensforethics.org/reports. Based on these extensive publication activities, CREW qualifies for a fee waiver as a representative of the news media under the FOIA and agency regulations.

Internal Revenue Service November 30, 2012 Page 5 Conclusion If you have any questions about this request or foresee any problems in releasing fuiiy the requested records please contact me at (202) 408-5565. Also, if CREWs request for a fee waiver is not granted in full, please contact our office immediately upon making such a determination. Please send the requested records to Adam Rappaport, Citizens for Responsibility and Ethics in Washington, 1400 Eye Street, N.W., Suite 450, Washington, D.C. 20005. Sincerely,

&
Adam Rappaport Senior Counsel Enclosures

EXHIBIT A

IJuiiid taec cnatc

WASHINGTON, DC 20510
June

18, 2012

Hon. Douglas I-I. Shulman Commissioner Internal Revenue Service 1111 Constitution Avenue, NW Washington. DC 20230 Dear Commissioner Shulman:

On March 14, 2012. we wrote to you with a number of questions regarding the procedures the Internal Revenue Service (IRS) uses when evaluating organizations that apply for tax-exempt status. We appreciate the thoroughness of your response to our inquiries. However, we remain concerned that the IRS is requesting the names of donors and contributors to organizations that apply for tax exempt status. In doing so, the IRS appears to be circumventing the statutory privacy protections that Congress has long provided donors.
Prior Congresses have passed legislation with bipartisan support, to ensure the privacy of donors who give to charitable organizations. While the annual tax returns of certain charitable organizations have long been required to be made available for public review, the 9i Congress denied the Secretary of the Treasury the authority to disclose the names and addresses of financial contributors from these returns. In addition, the lOOhhl Congress created a specific statutory exception for disclosure of names and addresses of financial contributors, when they expanded public inspection of certain annual returns, reports, and applications for exemption of certain tax exempt organizations. 2 In using nearly identical legislative language to create these exceptions from disclosure, both Congresses made strong legislative pronouncements that their goal was to protect the privacy of donor information. In addition, the same commitment to privacy is evident in the requirement that taxpayers be given the opportunity to obtain redaction of identifying information before related IRS private letter rulings, technical advice memoranda, and Chief Counsel Advice memoranda are made public. 3 Through these various expressions, Congress has made privacy the rule, and not the exception. It is important to note the value that is placed on protecting the privacy of individuals and organizations that choose to donate funds to charitable organizations. The privacy interests of donors is widely recognized and valued. Various public policy initiatives have rightly encouraged donations to social welfare organizations, and these efforts are threatened when private information about donors is not adequately protected. A list of donors who have given
See H.R. 13270, The Tax Reform Act of 1969, which became Public Law Number 91-172 See H.R. 3545, Omnibus Budget Reconciliation Act of 1987, which became Public Law Number 100-203 26 USC 6110
2

money to specific charitable organizations is something that carries great value to certain interested parties, as trading of personal information about private citizens has become common practice. Unfortunately, the public release of private donor information exposes citizens to possible harassment and intimidation by those who oppose the goals of the charitable organization. As we mentioned in our March 14 letter, it is our understanding that the IRS asked several organizations who applied for tax-exempt status to provide the names of individuals who had made donations (regardless of dollar amount) to those organizations, as well as the names of individuals who are expected to make donations in the future. The Form 1024 exemption application asks applicants for sources of financing but does not ask for names and addresses. It are not provided is our understanding that specific donor information names and addresses on Form 1024.

Yet, by requesting through correspondence, after the filing of a Form 1024, that organizations applying for tax exempt status provide names of donors, the IRS sets in motion an outcome wherein donor information that would be protected and redacted by one provision of the Internal Revenue Code (Code) which provides an exception from disclosure, would be made available for public inspection by a separate provision of the Code relating to inspection of applications for tax exemption. Such an outcome is clearly at odds with the express intent of Congress to maintain the privacy of donors. Even if not prohibited by law, the actions of IRS are an inappropriate circumvention of the policy of donor privacy embedded in the Code. When the IRS requests specific donor information through a follow up letter as part of the exemption application process, it ensures that this highly sensitive donor information will be included in the administrative record. This presents a serious privacy problem: if the IRS approves the organizations application for tax-exempt status, then section 6104 of the Code requires the associated administrative record including the identity of donors if included therein to be made available for public review at the national office of the Internal Revenue 4 This is completely at odds with the treatment of the same donor information when it is Service. viewed at the principal office of the tax-exempt organization. The Code specifically states that the names and addresses of donors are not required to be available for public inspection when viewed at this physical location. 5 Given that donor information is redacted on annual tax returns of tax-exempt organizations, redacted on denied tax-exempt applications, redacted on successful tax-exempt applications (when viewed at the organizations principal office), and not required to be provided on the Form 1024, it is disconcerting that donor information would be reviewable, or at the very least not be redacted, on successful tax-exempt applications viewed at the national office of the IRS.

26 Usc 26 Usc

6104(a)(1)(A) 6104(d)(3)(A)

In order to better understand the background on these recent requests for confidential donor information and the authority of the Internal Revenue Service to make these requests, we respectfully request that you provide answers to the following questions: 1. What is the specific statutory authority giving the IRS authority to request actual donor names during reviews of applications for recognition of exemption under Section 501 (c)(4)? 2. Is it customary for IRS revenue agents to request donor and contributor identifring information during review of applications for tax-exempt status under Section 501 (c)(4)? Please provide the number of requests by the IRS for such information for each year from 2002 to 2011. 3. Is the Exempt Organizations technical office involved in all such information requests of exemption applicants? 4. Section 7.21.5 of the Internal Revenue Manual states that Letter 1313 should be used as a first request for additional information for cases received on Form 1024, and that Letter 2382 should be used for second and subsequent requests for information. We have attached redacted copies of an IRS 1313 Letter and 2382 Letter which were reportedly sent to applicant organizations earlier this year. Each of these letters contains passages 6 which specifically request names of donors. a) Which IRS employees and officials were involved in the drafting of the questions requesting donor names? b) Which IRS officials provided authority and approval for the questions requesting donor names? c) Did any IRS personnel definitively review and determine whether there would be any privacy impact by the requests for names of donors which could ultimately be made part of a publically available administrative record? Was the IRS Office of Privacy consulted, and did it play a role in any such determination? 5. What is the total number of IRS 1313 and 2382 letters sent in 2011 and 2012 (to date) which specifically request names of donors? 6. Does the IRS intend to utilize IRS 1313 and 2382 letters in the future to specifically request names of donors?

Letter 1313 asks on page 6.

for donor names in question 3(a) on page 4. Letter 2382 asks for donor names in question 11(a)

7. Does the IRS view donor identifying information as being necessary information when reviewing applications for tax-exempt status under Section 501 (c)(4)? if so, how was this finding made and what written standards are utilized by the IRS in evaluating this information? Have any IRS personnel ever recommended that IRS Form 1024 be amended to specifically require that this information be furnished? 8. Section 7.20.2.7 of the Internal Revenue Manual (relating to evaluation of organizations applying for tax-exempt status) states that requests for additional irilbrination in processing a determination should be thorough and relevant. Would a request (to an organization applying for tax-exempt status under Section 501 (c)(4)) for a list of donor names, some who may have given as little as $1, meet thc relevancy standard? Thank you for your prompt attention to this matter. Sincerely,

Lw AXA-

4tZ
-----

LJiL/

Enclosures

EXHIBIT B

Greetings: FY 2011 was as busy and demanding a year for Exempt Organizations (EO) as it was for most of the exempt sector. EQ faced shifts in leadership, began to move much of our work from project to process, and implemented new federal requirements that affect many thousands of exempt organizations. It was important to us to accomplish those goals while continuing to deliver the services and results that our exempt stakeholders expect from us. That experience will be put to good use in FY 2012. Budget constraints continue to test federal agencies and exempt organizations alike. EQ remains committed to providing quality service and, like most exempt organizations, we are looking at new and alternative means to get the job done. We are shifting from print publications to electronic versions that can be downloaded by anyone, anywhere, any time, and can be updated and adjusted quickly and efficiently. We are relying more on the Internet and are continually improving our systems and offerings to help the exempt sector with easily accessible, timely information and educational content. We are working closely with academic institutions to produce our popular workshops for small and medium-size organizations, expending fewer resources while achieving greater geographical diversity and community involvement. We also have worked to smooth the transition for small exempt organizations who now must meet filing requirements enacted by Congress. The Pension Protection Act automatically revokes exempt status for organizations that have not filed for three consecutive years. In FY 2011, EQ took a number of steps to provide transition relief for small organizations and to continue to educate them about the new rules. FY 2011 also marked the end of the three-year phase-in of the redesigned Form 990, Return of Organization Exempt From Income Tax. Gross receipt and asset levels that define who must file the full Form 990, 990-EZ or 990-N are now set. For EQ, this means the lead-up time is over, and the redesign has begun to pay off by providing us with more information about exempt organizations. This allows us to use data analytics and build risk models that will guide our work and greatly improve our ability to support high standards of transparency and stewardship among exempt organizations. As always, we look forward to working with our partners and stakeholders in the year ahead. Sincerely, Lois G. Lerner Director, Exempt Organizations

coordinated effort. The IRS recently issued Fact Sheet 2011-11 to provide additional information for charitable organizations that may wish to participate in the Shared Savings Program.

Reporting Requirements
EQ implemented changes to Form 990 to accommodate new reporting requirements under the ACA for tax-exempt hospitals and 501(c)(29) Qualified Nonprofit Health Insurance Issuers. In addition, Schedule H (Form 990) was revised to add new Part V(b) to address the new 501(r) requirements for tax-exempt hospitals. Form 990-T was revised to allow eligible tax-exempt employers to claim the small employer health care tax credit under 45R.

II. Compliance: Using the Form 990

The IRS redesigned the Form 990 to promote transparency and compliance. The new form, which was effective in tax year 2008, has provided EQ with a wealth of information on exempt organizations. EQ has used this information to develop risk models to assess the likelihood of noncompliance by organizations, allowing more effective use of examination resources. In FY 2012, EQ will incorporate information from the revised Form 990 in the following activities.

501(c)(4), (5) and (6) self-declarers

These groups social welfare organizations; labor, agricultural and horticultural groups; and business leagues, such as a chamber of commerce can declare themselves taxexempt without seeking a determination from the IRS. EQ will review organizations to ensure that they have classified themselves correctly and that they are complying with applicable rules. In FY 2012, EQ will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area.

Political activity
As in any election year, EQ will continue its work to enforce the rules relating to political campaigns and campaign expenditures. In FY 2012, EQ will combine what it has learned from past projects on political activities with new information gleaned from the redesigned Form 990 to focus its examination resources on serious allegations of impermissible political intervention. As in the past, information from outside sources about political campaign intervention will be reviewed by a committee of career civil servants. In addition, other potential violations identified through risk modeling of Form 990 data also will be sent to the committee for evaluation. The committee will focus on identifying the cases to refer for examination. EQ will further refine its risk models based on the results of examinations. EQ will also ensure reporting and payment compliance with section 527(f).

990-T and UBIT

In FY 2012, EQ will be looking at organizations that report unrelated business activities on Form 990 but have not filed a Form 990-T. In addition, we will analyze Form 990-T data to develop risk models that will help us identify organizations that consistently report significant gross receipts from unrelated business activities but declare no tax due. EQ will use this work in connection with a coming UBIT project.

Governance
8

EXHIBIT C

+ +

4* 4.

Ho
-

-..

ugnnsecroIo.oegJoseiirrpndioy

)t26ihrLdirp)&pe..tt

n 2012 Ondside Sjnendin

OpenSecrets.org
Cttertcn Responsive PotiEic

f
News & Analysis
C

Snores

ins Doonon, Poiihe.am. Corpondree, ar no9

0
.

Pditjcians & Elections

In PoIi&iins & Electiono:
Presidenti,.I Congress Congressional Committees CongressIonal Elections Personal Finances Outside Spending Summary
o By Groups

Influence & Lobbying

Home
C

Resources
Ceoupe

Take Action

About Us

1 Donate

toi.no C EI.tions

O.it.ide Spandiog

2012 Outside Spending, by Groups

Stun share- t300oeewex I

These groups art 501c non-protits Sat are not required to disclose their donors. The gruops are spenoing money on independent eupe0500reo and eteDiuneering CommunicatIons by using tunus from their ungisctosed Onnors.
seleot CYCLE;

Spending byvlewpoint br Noo-Disciooing Groups s-y Group Viewpoint r) sy Redgient Party ) by Disdosure at Group

sieat FILTER;

Super PADs B Rams By Candidates Donors Top Donors Donor industries Donor Stats Spending by Cectu Disdosore Repoitin5 Rules

rt.tt>ieen
irdependen100purrdiurrs

Sum, twIn Pie000,ienrr,nCunrmriuttiant

tlon-Pnrty Counetteun

Cansiai,e, 5269,Lii

Gins, stb.!M

I_
520_OH

Group tormarlis Pr*hcal Palsies 2012 Overview Itistoricat Etecticels Get LocaO Donor Loosing
ni

Total

Viewr*
C

Independent
Eapendalures 570 79 122

Finn Comm ;2uy-,777

Comm 0 ConIc
Sit

Super

PRC

1 099 57 Ott 029 -L45 4EV

020.177.ECE S207 t21

:
7

o
C
C C aror cD--ocrcu 0

n-crPtDnFssW 0

$33 E42.351 SE hOd.4CE

-4

511

--iso-

532,670,371 03.101.090
$23.t20,995 $1,n95.43h

50
SO

(reimas Fnlarg FuI 0 C

I,
Join us on:

:17.

0
0

S15.572,u66 511,794 101 $11595232 s1nuTua,

C C c
I

nil 072,999 $15 794,501

311.550.232

so,
so
SO
Rn

no

4---.

zusyTh.7r

SO
C4O5A1i

:::.

EXHIBIT B

C M; AA,A AI

IF..
.

t;c r

t. CULL.S. CL44(M. tlA;

u. :(U

j.

Lliiircd ztatc cnatc

C;(MMITTEE ON
HOMELAND SECUHITY AND GOVLHNMENTAL AFrAIRS WASHINGTON, DC 2O51fl625Q

July 27. 2012 ViA U.S. MAIL & EMAIL (Catherinc.NLl3arreirs.gov) The I lonorable Douglas II. Shulman Commissioner Internal Revenue Service I 01 Street and Pennsylvania Avenue, NW Washinctton. D.C. 20004 l.)car Commissioner Shulman: I am writing to express my concern about how the IRS interprets the law regarding the extent to which So I (c)(4) social welfare organizations can engage in partisan political activity. The July 13. 201 2 response by Lois 0. Lerner, Director of Exempt Organizations. to my June 13. 2012 letter was unsatis ltctory.

In the response. Ms. Lerner stated that The IRS takes steps to continually inform organizations of their responsibilities as social welfare organization to help them avoid jeopardizing their taxexempt status, and actively educates section 501 (c)(4) organizations at multiple states in their development about their responsibilities under the tax law. jE,nphasis added.
11cr discussion does not describe an IRS initiative to continually inform or actively educate. Rather, it shows the IRS is passively making some information available once a 501(c)(4) entity is already in existence. Further, her discussion of the explanatory materials available to the public, and the materials themselves. are confusing. This leads to a predictable result: organizations are using Internal Revenue Code Section 501 (c)(4) to gain tax exempt status while engaging in partisan political campaigns. [here is an absurd tangle of vague and contradictory materials that the IRS provides. Making the problem worse is that the IRS knows there is a problem because of the public nature of the activity, but has failed to address it. First. the law. 26 U.S.C. 501 (c)(4) states that Civic leagues or organizations not organized br prc>ttt but operated exclusively for the promotion of social welfare, or local associations of employees. the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes are exempt from taxation. [Enzphcixis added. j Merria,nJVebster defines exclusively as single. sole: whole; undivided. Therefore. it would appear that the law prevents entities that organize under Section 501 (c)($) from any activity that is not operated exclusively for the promotion of social vel fare or an association of employees.
26 U.S.C. 5QI(c)(.I).

Consistent with the law is a 1997 letter from the IRS denying tax-exempt status to a group called the National Policy Forum. The letter indicates that the IRS based its denial on the fact that the organization was engaged in partisan politicaL activity, stating that partisan political activity does not promote social welfare as defined in section 501(c)(4), and that the applicant benefit[sJ select individuals or groups, instead of the community as a whole. 2 One part of Internal Revenue Service Publication 557 in its guidance states, consistent with the law, that: If your organization is not organized for profit and will be operated only to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption 3 [Emphasis added.] from federal income tax under section 501 (c)(4). Another part of Internal Revenue Service Publication 557 starts off by agreeing with the law and states, Promoting social welfare does not include direct or indirect participation or intervention in 4 The IRS is political campaigns on behalf of or in opposition to any candidate for public office. accurately and clearly stating, in some places at least, that social welfare advocacy does not include campaigning for or against a candidate or candidates. So far, so good until that same Publication 557 states: However, if you submit proof that your organization is organized exclusively to promote social welfare, it can obtain an exemption [from taxes] even if it participates legally in some political activity on behalf of or in opposition to candidates 5 for public office.
-

That language seems inconsistent with the other referenced parts of Publication 557 (as well as with law and precedent), unless it means that the exemption isnt available for the inconsistent being political activity portion funded by 501 (c)(4) receipts. Further, an IRS regulation that interprets Section 501 (c)(4) states that, An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in 6 [Emphasis some way the common good and general welfare of the people of the community. added.] So the IRS regulation says the laws requirement of exclusively really means primarily, something very different from exclusively. The IRS webpage cites an internal training article which states: [Sjocial welfare is inherently an abstruse concept that continues to defy precise definition. 7 [Emphasis added.] Careful case-by-case analyses and close judgments are still required. Fair enough.
2

Internal Revenue Service letter to the National Policy Forum, February 21, 1997. Publication 557 (Rev. October 201 1), pg. 51. Id. Id. Treasury Regulations, Subchapter A, Sec. 1.501 (c)(4)- 1. hup://www.irs.eov/charitieslnonprofitslariicle/0..id I 56372.00.html.

In its Compliance Guide for Tax-Exempt Organizations, the IRS gives direction regarding how to make a case-by-case evaluation whether a communication is political. 8 That Guide says that the following factors indicate that an advocacy communication j political campaign activity: The communication identifies a candidate for public office; The timing of the communication coincides with an electoral campaign; The communication targets voters in a particular election; The communication identifies the candidates position on the public policy issue that is the subject of the communication; The position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign, either in the communication itself or in other public communications; and The communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue.

The guide further lays out the factors that indicate when an advocacy communication is not political campaign activity: The absence of any one or more of the factors listed above; The communication identifies specific legislation, or a specific event outside the control of the organization, that the organization hopes to influence; The timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence, such as a legislative vote or other major legislative action (for example, a hearing before a legislative committee on the issue that is the subject of the communication); The communication identifies the candidate solely as a government official who is in a position to act on the public policy issue in connection with the specific event (such as a legislator who is eligible to vote on the legislation); and The communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication.

It is clear from the application of those factors that what is going on in the U.S. with certain 501(c)(4) organizations in their television advertisements are political campaign activities. Below are two transcripts of advertisements that were put on teLevision by 501 (c)(4) organizations. As you can see, the subject of Advertisement #1 is a Democratic Senator, and the subject of Advertisement #2 is a Republican Senator. This is not a partisan issue. Television Advertisement #1: Its time to play: Who is the biggest supporter of the Obama agenda in Ohio. Its Sherrod Brown. Brown backed Obamas agenda a whopping 95 percent of the time. He voted for budget busting ObamaCare that adds $700 billion to the deficit. For Obamas $453 billion tax increase. And even supported cap-and-trade which could have cost Ohio over 100,000 jobs. Tell Sherrod Brown, for real job growth, stop spending and cut the debt. Support the new majority agenda at newmajdrityagenda.org.
B

Compliance Guide for Tax-Exempt Organizations, pgs. 4-5.

Television Advertisement #2: Before Wall Street gave him $200,000 in campaign cash. Before he voted to let bank CEOs take millions in taxpayer funded bonuses. Dean Heller was a stockbroker. No wonder he voted against Wall Street reform; against holding the big banks accountable. Heller even voted to risk your Social Security here, in the stock market. Dean Heller: he votes like he still works for Wall Street, and thats bad for you.
... ...

Those ads, and so many like them, clearly fit the factors the IRS has laid out in its guide for what constitutes a political campaign activity. The advertisements make no pretense at nonpartisanship; they are blatantly and aggressively partisan communications. Entities that file under Section 501(c)(4) of the Internal Revenue Code and take advantage of its tax exemption benefits should have to make a choice: either lose their exempt status (and pay taxes) or eliminate the partisan political activity. The IRS needs to immediately review the activities of 501(c)(4) entities engaging in running partisan political ads or giving funds to Section 527 organizations that run such ads. The IRS needs to advise 501 (c)(4) entities of the law in this area and the factors it will look at in reviewing 501 (c)(4) status and tax exemption issues. Please provide me with the following information no later than August 10, 2012: 1. How can the IRS interpret the explicit language in 26 U.S.C. 501 (c)(4), which provides that 5l0(c)(4) entities must operate exclusively for the promotion of social welfare, to allow tax exempt partisan political activity by 501(c)(4) organizations? 2. Since partisan political activity does not meet the IRS definition of promoting social welfare, how can an organization that participates in any partisan political activity be organized exclusively to promote social welfare? 3. The Exempt Organizations 2011 Annual Report and 2012 Work Plan states: As in any election year, EO will continue its work to enforce the rules relating to political campaigns and campaign expenditures. In FY 2012, EO will combine what it has learned from past projects on political activities with new information gleaned from the redesigned Form 990 to focus its examination resources on serious allegations of impermissible political 9 intervention. a. Typically, how long after a complaint to the IRS does a compliance review begin? b. What approximate time does it take to review the complaint? c. How many persons are involved in the enforcement of the 501 (c)(4) rules? 4. The Exempt Organizations 2011 Annual Report and 2012 Work Plan states that 501(c)(4) organizations can declare themselves tax-exempt without seeking a determination from the

Exempt Organizations 2011 Annual Report and 2012 Work Plan, pg. 8.

IRS. EO will review organizations to ensure that thej have classified themselves correctly and that they are complying with applicable rules. a. Why does the IRS allow 501(c)(4) organizations to self-declare? b. When an organization self declares as a 501(c)(4) organization, how does the IRS get notice and how long does it take the IRS to conduct the review to ensure that that organization has classified itself correctly? 5. The IRS Compliance Guide for Tax-Exempt Organizations states: When a 501(c)(4), (5) or (6) organizations communication explicitly advocates the election or defeat of an individual to public office, the communication is considered political campaign activity. A tax-exempt organization that makes expenditures for political campaign activities shall be subject to tax in an amount equal to it its net investment income for the year or the aggreate amount expended on political campaign activities during the year, whichever is less. a. How does the IRS keep track of these explicit communications and ensure that the organization pays this tax? b. What is the reason for the requirement that the tax will be based on whichever is less between its net investment income for the year or the aggregate amount expended on political campaign activities? c. What tax would an organization have to pay if it spends all of its income on political advertising (therefore it has NO net investment income)? 6. Ms. Lerners letter quotes the IRS webpage on Social Welfare Organizations: The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f). [Emphasis added.] a. What is the statutory basis of the language that allows 501 (c)(4) organizations to engage in some political activities? b. How does the IRS keep track of these political activities and ensure that the organization pays the tax under section 527(f)? 7. In her July 13 letter, Ms. Lerner states that the IRS also addresses the issue of political activities in the Forms 990 and 990-EZ. Are Forms 990 and 990-EZ made public? If so, where can they be accessed? 8. Internal Revenue Service Publication 557 states that, if a 501(c)(4) entity can submit proof that [the] organization is organized exclusively to promote social welfare, it can obtain an
id. Compliance Guide for Tax-Exempt Organizations, pgs. 3-4.

exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. 2

Have the following 501(c)(4) organizations a) applied for; and if so. b) received the described exemption for political activity from the iRS?
a. b. c. d. e. i g. h. i. Crossroads Grassroots Policy Strategies Priorities U.S.A. Americans Elect American Action Network Americans for Prosperity American Future Fund Americans for Tax Reform 60 Plus Association Patriot Majority USA j. Club for Growth k. Citizens for a Working America Inc. I. Susan B. Anthony List

9. Have you reminded 501 (c)(4)s which publicly seem to be operating in the partisan political arena as to the factors you will consider in determining whether they are engaging in partisan political activity? if not, why not?
I have enclosed a copy of Ms. Lerncrs letter. If you have any questions, please contact me, or have your staff contact Kaye Meier of my staff at kave meierlevin.senaie.uov or 202/224-9110. Again, it is urgent that I receive your answers by August 10, 2012. Sincerely,

Carl Levin Chairman Permanent S ubconi mittec on investigations cc: Dr. Tom Coburn Ms. Lois G. Lerner

12

PubIicuion 557 (Rev. October 201 1), pg. 51.