The number of IRS investigations into the compliance of tax-exempt political organizations remains low as those groups grow in prominence.
Since the landmark Supreme Court case Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010), political nonprofits, known as 527s after the code section that provides their tax exemption, have been allowed to spend unlimited amounts of money on election campaigns, so long as they don’t directly coordinate with a candidate.
The decision ushered in a new era for political fundraising that has seen section 527 groups become an integral part of the campaign strategies of both main parties, surpassing $1 billion in expenditures for the 2022 elections, according to a ProPublica database.
Despite their growing influence over elections, there appears to be little scrutiny of these organizations by the IRS.
A Tax Notes analysis of the ProPublica data found eight 527s that have come into trouble with the IRS in the past two years, all concerning late-filing penalties.
Further, an IRS spokesperson said the agency doesn’t maintain statistics on the number of 527s it has under audit or subjected to penalties.
“We don’t track things that way. . . . That’s just something we don’t have a real business reason for tracking,” the spokesperson said.
Julie Patel Liss of California State University, Los Angeles, thinks there is a direct link between the growing reliance on 527s for political candidates and the lack of IRS investigations.
“It’s no surprise regulation has declined as more elected officials rely on 527s,” according to Patel Liss, who conducted an extensive investigation of 527s during her time with the Center for Public Integrity.
Funding Factor
While Patel Liss acknowledged the lack of funding for the IRS’s exemption organizations division, she said it couldn’t explain away the low audit figures.
As section 527 groups have gained influence since Citizens United, “you would expect more regulation and more scrutiny, but in fact it’s been the opposite,” Patel Liss said, also speculating whether the fallout of the IRS’s Tea Party scandal, when the agency was accused of targeting conservative-leaning organizations for audits, is still weighing on it.
Treasury Secretary Janet Yellen, in her pitch for $80 billion in extra funding for the IRS that was eventually secured in the Inflation Reduction Act, argued that more resources should be dedicated to increasing audits on high-income tax dodgers and large corporations but made no mention of 527s.
A former director of the IRS EO division admitted last year that the additional funds would do little to improve the operations within the division.
Patel Liss thinks that, given a possible conflict of interest between elected officials and the legal obligation to evaluate the practices of 527s, the IRS shouldn’t be relied on to investigate possible violations.
“An independent body would be the best long-term solution. . . . We need to figure out where is the undue influence happening,” Patel Liss said. “If we say we want to be a democracy, a healthy democracy, then people should be able to have a say through their vote and not be so heavily influenced by these organizations.”