The “Why” Behind the IRS Scandal


Tax Preparation

Let’s begin with a premise. Challenging, delaying, questioning, or bullying organizations about their non-profit, educational purposes chills both free speech and a free press. The current ruckus involving Internal Revenue Service policies aimed at conservative political groups supports that notion to be sure.

What we are learning now is that non-profit political organizations connected to the network of tea party groups were not the only organizations targeted by IRS administrators. In the past few days, the Billy Graham Evangelistic Association sent an open letter to President Obama outlining its contention that it was subjected to discrimination because IRS agents investigated, audited and threatened them with the loss of their tax-exempt status. To the current administration the man who has appeared in Gallup’s Top-10 Most Admired Men in the World for 56 years needed to be investigated. So, too, did his son Franklin Graham’s non-profit charity, Samaritan’s Purse. The BGEA letter to the President states, “This is morally wrong and unethical – indeed some would call it ‘un-American.’”

Then, of course, there is the case of Z STREET, the right-leaning, pro-Israel, supporter of a one-state solution to the Middle East tensions. When this educational non-profit organization, headed by the courageous Lori Lowenthal Marcus, found out that the IRS was delaying and might deny their 501(c)(3) status because their viewpoint differed from the current administration’s policy on the Middle East, they sued. After two years, their case is now slated for its first hearing in federal district court in early July.

Many Americans are rightly appalled and confused about the scandal that continues to unfold. News media including The New York Times, MSNBC, CBS News, and even The Daily Show with John Stewart, are pressing for answers. They are not, however, pressing on the most important question. While the current voices denounce “What” has happened, while they wonder “How” it happened, while they demand to know “Who” was behind the decisions, we have yet to consider “Why” the IRS pursued what appears to some to be the aggressive pursuit of certain categories of non-profits.

The IRS itself explained in legal documents related to the Z STREET case precisely “Why” it believes it can proceed and do what it is doing. It’s time for everyone to know.

The U.S. Supreme Court issued a landmark ruling in 1983 in a tax-exemption case. In that case, the 8-1 majority held that

Entitlement to tax exemption depends on meeting certain common law standards of charity — namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy. Thus, to warrant exemption under § 501(c)(3), an institution must fall within a category specified in that section, and must demonstrably serve and be in harmony with the public interest.

The phrases “established public policy” and “public interest” are the phrases that the Court embraced in this case, Bob Jones University v. U.S. Because the appellee in this case, BJU, the private, Christian college in South Carolina, based student policies and decisions on race, it was “contrary to established public policy” and lost its tax-exempt status.

In court documents arguing for the dismissal of Z STREET’s case, the IRS cited Bob Jones University v. U.S. no fewer than seven times. Court documents filed by Z STREET argue that the IRS agent assigned to their case stated directly that, “These cases are being sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the administration’s public policies.” Some will conclude that this special unit within the IRS is likely the same special unit that tea party organizations believe is handling their cases.

The IRS agent claimed there was a special unit and that unit was in D.C. Why? It is simply because the organization engaged in “activities [that]contradict the administration’s public policies.” The IRS cited case law to support their actions. The link to Bob Jones is explicit in court documents.

The Agency’s decisions to pursue individual organizations that oppose the administration’s public policies, is legally, morally, politically and ethically unacceptable. Perhaps more simply, however, it is linguistically unacceptable. Where Bob Jones lost its tax exemption for running afoul of “established public policy,” the IRS is targeting groups that disagree with the “administration’s public policies.” “Public policy” and “administration policy” are different worlds legally and linguistically. Either Congress or the courts, perhaps both, will ultimately provide the grammar lesson that the IRS so badly needs.


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