Scandal at the IRS

I’ve been reading a variety of reports about the allegations that the IRS singled out Tea Party tax exemption applications for extra scrutiny. So here are a few random observations, culled from those reports and accusations:

1) It’s worth noting that condemnation has been utterly bipartisan. Liberal blogs and Democratic commentators have been highly critical of politicization of the IRS. (Why do I think that, if this had happened during a Republican administration, the reaction at Fox “News” would have been considerably more defensive?) And let me be clear: if the IRS singled out any organizations for differential treatment based upon their politics, that was wrong. 

2) That said, what we are seeing is in significant measure yet another unanticipated result of the wrongheaded Citizen’s United decision. Citizens United allowed any organization of any kind to spend money out of its general treasury to run political ads. As Chris Hayes has noted, that decision brought about a pivotal moment for politics and taxes and campaign spending in this country and we’re still dealing with the fallout. Republican Karl Rove and Democrat Bill Burton used the Citizens United ruling in the run-up to the 2012 elections. Both of them used social welfare nonprofits to run overtly political ads; that allowed them to intervene in political campaigns without disclosing their donors. Others soon followed.

“Suddenly, the IRS starts getting a flood of new applications from other political groups and strategists saying, ‘Oh, oh, it turns out I too want to set up a social welfare organization that just so happens to be focused on taking the country back from Barack Hussein Obama. Now, here is the thing the IRS appears to have done unequivocally wrong, that we all agree was absolutely inexcusable. They reacted to all this by targeting one part of the ideological spectrum in looking at whether this flood of new applicants passed the smell test. Being skeptical about a new wave of wolves in sheep’s clothing invading the nonprofit game was entirely appropriate.”

3) As Hayes points out, Congress requires the IRS to review every application for tax-exempt status to weed out organizations that are partisan, political, or that generate private gain. Congress has imposed this requirement on the IRS, and its predecessor agencies, since 1913.  When it comes to 501(c)(4) organizations, the IRS is supposed to draw a distinction between groups that are “primarily engaged” in politics and groups that really are primarily engaged in “social welfare”—somehow “promoting the common good and social welfare of the community.”

4) The social welfare tax exemption is being used by existing 501(c)(4) organizations, including some very large ones, to promote partisan political interests—the very activity Congress has explicitly prohibited for a century. The New York Times ran a useful explanation  about this last Tuesday.

5) It is not an excuse, but it does bear noting that none of the organizations that the IRS subjected to improper levels of scrutiny was denied tax exempt status.

6)  Congress is demanding that the agency do more and more with less and less. As David Levinthal reported at the Center for Public Integrity, the IRS’ Exempt Organization Division–the division charged with the violations–processed significantly more applications in 2012 than it ever had. At the same time, the entire IRS was operating on a much-reduced budget, as a result of several rounds of Congressional cost-cutting.

“Over the last two years, government watchdog groups filed more than a dozen complaints with the Internal Revenue Service seeking inquiries into whether large nonprofit organizations like those founded by the Republican political operative Karl Rove and former Obama administration aides had violated their tax-exempt status by spending tens of millions of dollars on political advertising. The I.R.S. never responded… Because they purport to be engaged primarily in issue advocacy, not election advocacy, tax-exempt groups are not closely regulated by the Federal Election Commission. That task falls, instead, to the I.R.S., which can take years to investigate problems and is required to do so in strict secrecy… The tax code states that 501(c)(4)’s must operate “exclusively” to promote social welfare, a category that excludes political spending. “

The fact that the agency is understaffed does not excuse lawbreaking; what this revelation does, however, is point to systemic fiscal and managerial issues within the IRS that need to be addressed. Unfortunately, given the blood-lust of those in Congress who are intent upon using the IRS misbehavior for entirely partisan purposes, a carefully calibrated and deliberate review of agency operations is unlikely.

What the IRS should be doing is looking closely at every application. The politics of the applicant is irrelevant–but compliance with the rules governing tax-exempt status is anything but. Granted, those rules have been considerably complicated and confused thanks to Citizens United, but that makes competent, even-handed oversight more important than ever.

If Congress wasn’t so broken, this episode might lead to meaningful reform. I’m not holding my breath.

Comments

And Now a Word from the Doctor

I’m relinquishing my space today to my cousin the cardiologist. As he notes, it should be possible to legislate restrictions that will save lives without running afoul of the 2d Amendment. Unfortunately, in our current bipolar political environment, where every issue is painted in black and white –where complexity and shades of gray are “elitist notions” and the most innocuous regulations are omens of the coming apocalypse–the prospects aren’t bright.

            FIREARM VIOLENCE IN THE UNITED STATES: A MEDICAL OPINION

Most people don’t realize that over 30,000 people are purposely shot to death each year in the U.S. Moreover, rates of firearm-related violent crimes continue to climb, having increased by 26% since 2008. To gain perspective on these numbers, firearm deaths have now reached a yearly rate that equals that of automobile fatalities. What we can do to stem such violence is urgent but hampered severely by the rabid supporters of the second amendment and, of course, the gun lobby. Some clarification recently has been shed on this problem by a study appearing in the prestigious medical journal, the AMA sponsored Archives of Internal Medicine. These authors explored the question whether more restrictive firearm laws in a given state are associated with fewer shooting deaths. To answer this question, using sophisticated statistical methods, they measured the association between the rate of shooting deaths in a state-by-state rating (divided into quarters) of strength of legislation designed to limit sale and use of firearms. Their results were very illuminating: Those states with the fewest firearm regulations, as exemplified by Utah and Louisiana (0-2 laws), suffered the highest rate of firearm fatalities, which included both homicides and suicides. The states with the strictest pattern of regulation, as exemplified by Hawaii and Massachusetts (9-24 laws) experienced the lowest fatality rates. Indiana fell into the second lowest category for regulation and, as expected, fell into the second highest incidence of firearm deaths.

These authors freely admitted that finding an association between two factors—gun laws and mortality—does not prove that these two are causally related. But it sure raises important thoughts about what we as a society can do about this problem. Further research is obviously needed, but it is quite likely that more restrictive gun laws can save lives.

More aggressive attempts to identify, treat and constrain the huge numbers of those who are mentally ill is an exercise doomed to failure. Widespread arming of teachers and/or police officers is equally ridiculous, especially since it would increase chances for erroneous shootings in the absence of any expected benefits.

With such limited options available, what are we left with? Although we need not scrap the second amendment, those who hold legislative power should seriously consider stronger laws restricting guns, while, at the same time, sponsoring and performing more comprehensive research on this urgent problem. If we value life, we cannot afford to wait!

Comments

If Dick Cheney Were Capable of Shame….

Darth Cheney has emerged again from whatever hole he occupies, to proclaim the attack on the U.S. Embassy in Bengazi “the worst disaster” he can recall, and to assert that it is evidence of the incompetence of the Obama Administration.

Leaving aside the fact that the Republicans in Congress engineered significant cuts to the budget for embassy security, despite warnings that the cuts would endanger American lives, it is hard to believe the chutzpah of a Bush Administration VP (“vice” in every sense of the word). This was the administration that ignored “Bin Laden Determined to Attack in U.S.” and saw the destruction of the Twin Towers.

This was also the administration in power when we sustained fifty plus attacks on U.S. diplomatic facilities abroad, thirteen of which were lethal. (And that’s excluding those in Baghdad). Those attacks in which American diplomats lost their lives occurred during Cheney’s “rein,” and before Barack Obama ever stepped into the Oval Office: Jan. 22, 2002, Calcutta, India; June 14, 2002, Karachi, Pakistan; Oct. 12, 2002, Denpasar, Bali; Feb. 28, 2003, Islamabad, Pakistan; May 12, 2003, Riyadh, Saudi Arabia,July 30, 2004, Tashkent, Uzbekistan; Dec. 6, 2004, Jeddah, Saudi Arabia; March 2, 2006, Karachi, Pakistan; Sept. 12, 2006, Damascus, Syria; Jan. 12, 2007, Athens, Greece; March 18, 2008, Sana’a, Yemen; July 9, 2008, Istanbul, Turkey; Sept. 17, 2008, Sana’a, Yemen.

I don’t recall Democrats conducting endless investigations and calling for impeachments as a result of those attacks.

If there was ever any doubt that Dick Cheney is a small, twisted, evil man, his willingness to use baldfaced lies in the service of partisan politics, and his eagerness to use the deaths of American diplomats to score cheap points would erase it.

But really, was there any doubt?

Comments

Just a Cost of Doing Business

The Indiana Supreme Court has issued yet another unanimous ruling in a case that legal observers considered–at the very least–a close call.

A few weeks ago, the Court upheld the use of the state’s educational voucher program to pay parochial school tuition, despite language in the Indiana Constitution that prohibits the payment of state dollars “for the benefit of” any religious organization or institution.  Unlike courts in other states with similar constitutional provisions (sometimes referred to as “Blaine Amendments”), the Indiana Supremes ruled that parents, not schools, benefitted from the program.

Like vouchers or not, the notion that parochial schools do not benefit from this new source of income is–well, let’s just say it’s quaint.

Now, the Court has unanimously ruled that Indiana’s cap on punitive damages is constitutionally fine and dandy, overturning a widely-praised lower court ruling by Judge David Dreyer to the contrary. Dreyer had ruled that the arbitrary ceiling on such awards violated both separation of powers and the right to trial by jury. This week, the Indiana Supreme Court ruled that the imposition of caps on such awards was constitutionally permissible.

Let’s accept the Court’s ruling on the law. (We have no choice.) What about the policy implications? After all, even if caps are constitutional, they certainly aren’t constitutionally required.

The whole point of punitive damages (which, by the way, are rarely awarded) is to teach a lesson to a defendant that has engaged in egregiously bad behavior. These damages aren’t meant to compensate a plaintiff for injury; they are meant to punish wrongdoing and deter similar behavior by others. When a corporation or other well-capitalized institution is responsible for the bad behavior in question, the amount awarded is supposed to be high enough to hurt the perpetrator’s bottom line. That’s the whole point.

In Indiana, punitive damages are capped at three times the amount of actual damages, or 50,000, whichever is higher.

For most large and medium-sized businesses in today’s economy, $50,000 is chicken feed. In cases where a company is profiting handsomely from the misbehavior in question, that fifty thousand dollars can be considered part of the cost of doing business.

In rescuing the cap, the Court has effectively erased the utility of punitive damage awards in such cases. We will undoubtedly hear that this ruling reinforces Indiana’s “business-friendly” legal climate. Count me as one who is less than thrilled that we are hanging out the welcome sign to businesses eager to control the costs of their own reprehensible practices.

With the departure of Randy Shepard, Frank Sullivan and Ted Boehm, Hoosiers are left with Mitch Daniels’ Supreme Court. It is a much-diminished body.

Comments

Follow the Money

Many years ago, when I was practicing real estate law, I represented the developers of the Indianapolis Westin. I still remember a meeting with a mortgage broker from New Jersey; he asked me how long it took to pull a building permit, and I responded “About a day.” He looked at me as if I’d sprouted wings. In New Jersey, he informed me, it took about five years. And presumably—although he didn’t say this aloud—several bribes.

Whatever our problems in Indianapolis, we have historically been spared the sort of corruption that plagues other American cities. There have been exceptions, of course, but by and large, we’ve run an honest city government.

That may be changing.

There has been a lot of conversation, via media and especially the local blogs (see here and here), about SB 621, the “imperial Mayor” bill. The criticisms are all accurate enough—the outrage over the process, which entirely bypassed those who will be affected, the irony of Republicans giving increased power to the Mayor’s office given the probability that the increased authority will be exercised in the future by a Democratic Mayor, the gutlessness of the Governor’s signature on a bill that violates every principle he claims to support.

I don’t disagree with those criticisms, but my focus is on one part of the bill that has received far too little scrutiny: the provision giving the Mayor effective control of the Development Commission.

Another story may be instructive.  A former member of the City-County Council recently told me about a contentious zoning decision made by the Commission —a denial of a zoning change that would have increased the value of a particular parcel of land by several million dollars. The denial was appealed to the Council, and the developer who owned the land called upon the Councilor. During the visit, he explained that the Council member could expect continued financial and political support—if the Commission’s denial was reversed.

Before SB 621, the Mayor controlled four of the nine seats on the Development Commission. After January, he will control five.

It will be interesting to see who profits from decisions made by the Commission during the remainder of Ballard’s term, and how “connected” they are.

Administration defenders of the indefensible imperial Mayor bill are claiming—presumably with a straight face—that SB 621 is all about “accountability.” That’s rich, given the utter lack of accountability for a number of highly questionable spending decisions made by this mayor. (Perhaps if we had local newspaper reporters….but we don’t.) Case in point: barely a month ago, Ballard made what seemed to be an offhand remark about a cricket field during a trip to India. Last week, construction contracts were awarded. Contractors cannot bid without plans and specifications—they can’t price work in the abstract. Clearly, the cricket plans had been in the works for a long enough period to allow for the necessary documentation to be prepared. The Administration didn’t see fit to include the City-County Council or the public in the planning process—probably anticipating the criticism that is now being leveled at a fail accompli.

 Thanks to SB 621, the Mayor will no longer have any accountability to the Council or to voters. Thanks also to the provisions of SB 621 and the general lack of understanding of the power exercised by the Development Commission, the administration will have the remainder of Ballard’s term to enrich “connected” folks.

And if a Democrat wins the Mayor’s office next time, the Indiana legislature can simply change the rules again.

Comments