When federal election lawyers decided the nonprofit Crossroads Grassroots Policy Strategies likely violated political spending limits, campaign finance watchdogs were certain the Internal Revenue Service would take action.
After all, lawyers for the Federal Election Commission argued that Crossroads GPS, co-founded by Republican operatives Karl Rove and Ed Gillespie, spent more on politics than anything else leading up to the 2010 election.
Then the IRS tea party scandal exploded.
Republicans in Congress began waylaying the IRS over what they said was the systematic and inexcusable targeting of tea party and conservative groups. And the Treasury Inspector General for Tax Administration declared that the agency had employed “inappropriate criteria” in heavily scrutinizing some groups' tax-exemption applications.
The IRS’ nonprofit division, grappling with a decimated staff and limited resources, effectively lost whatever nerve it had left. Notably, it came to a near standstill on deciding whether it should grant "social welfare" nonprofit status to Crossroads GPS and other conservative groups. It likewise balked at denying or revoking nonprofit status for a growing constellation of politically driven, big-spending liberal nonprofits such as Patriot Majority USA and Priorities USA.
The IRS knew that many of these groups were highly political. But “nobody wanted to say 'no, you’re not exempt,'” said an IRS exempt organizations division staffer who asked not to be identified for fear of losing his job.
“We stalled so we wouldn’t have to say no,” he added.
The paralysis allowed organizations waiting for IRS approval to continue to spend freely on elections while keeping the names of their donors secret.
The tea party scandal, combined with Congress systematically stripping the IRS of resources and clout over decades, has led to an exempt organizations division that has all but quit regulating politically active nonprofits in any consistent, demonstrable way, a six-month Center for Public Integrity investigation reveals.
The investigation, which involved a review of thousands of pages of IRS documents and interviews with more than two dozen current and former IRS employees and administrators, finds the agency’s nonprofit regulation division has:
- Bled 14 percent of its staff positions during the past two decades while the number of nonprofits it regulates has grown by more than 40 percent.
- Scaled back inquiries, as the number of nonprofit group tax returns investigated recently fell by 10 percent, from 11,699 in 2011 to 10,575 last year. Applications for “social welfare” nonprofit status jumped 27 percent from 1,777 to 2,253 during the same time.
- Reduced the number of denials for exempt status for social welfare nonprofits from nearly 4 percent during the early 1980s to less than a quarter-percent in 2013.
- Softened, tabled or reversed course on at least a dozen proposed policy positions or enforcement plans after criticism from politicians and lobbyists.