A Very Important Memo from Cleta Mitchell of Foley & Lardner

Cleta Mitchell is a partner in the Washington office of Foley and Lardner, an AmLaw50-type big law firm.   (Full disclosure... Foley's home office is in Milwaukee and I can see it out my window; it is a very good firm with very good lawyers, many of whom are friends of mine.)   She is a specialist in representing clients seeking 501(c)(3) and 501(c)(4) tax-exempt status.   She represents a number of conservative groups who were harassed and delayed in their attempts to get 501(c)(4) status during the run-up to the 2012 elections.  

Ms. Mitchell has now written a very important memo that is required reading for anyone wanting to understand the IRS scandal now buffeting the Obama Administration.   I'm going to hit the highlights in a series of posts, because they are so important.

First, she gives a terrific summary of what 501(c)(4) organizations can do, which puts the lie to the notion that they needed any extra scrutiny in the first instance.   Here she is directly responding to testimony from IRS Acting Commissioner Steven Miller (the quote in bold):

"Generally, 501(c) applications are centralized for review if there are indications in the application that the organization may engage in political campaign intervention, lobbying or advocacy. This was done to sure that the legal requirements related to these applications are applied in a fair and consistent manner."

This was never done prior to 2010. The Acting Commissioner is not being truthful. These terms "political campaign intervention, lobbying or advocacy" are legal terms of art and subject to years of regulations, standards of review, cases and interpretation.   

During and after 2010, the only'centralization' that occurred was that involving conservative organizations seeking 501(c)(3) or 501(c)(4) recognition.  

The terms have legal meaning and should not have been treated in the subjective manner in which the IRS considered these applications. Here is a short overview of the differences in the terms. They are not interchangeable as the Acting Commissioner has suggested.

1. Advocacy.

No legal definition and NO prohibition in Internal Revenue Code. All groups advocate in some way or another for their mission. Totally permissible for ALL exempt organizations.

2. Lobbying.

IRC defines it as an expenditure to influence legislation. A c4 is permitted to spend 100 % of its funds on lobbying. A c3 is permitted to spend a portion of its funds on lobbying. In other words, lobbying is a legally permissible activity for both types of entities, just allowable in differing amounts. Most of the tea party organizations were seeking to engage in lobbying activities that are completely permissible for a c4 organization. So why were they subject to this extra scrutiny?

3. Political.

IRC does not define "political" as such. The IRC definition refers to an expenditure for "partisan campaign intervention". A c4 CAN make such expenditures as long as it is NOT a majority of its expenditures in any fiscal/calendar year. In other words, it is legally permissible for a c4 to make political expenditures as long as those expenditures are a) not a majority of its program expenditures and b) the c4 reports and pays taxes on its political expenditures. Only a 501(c)(3) is prohibited from making expenditures for partisan campaign intervention. Virtually all of the organizations targeted were seeking 501(c)(4) status, which permits them to engage in some degree of political campaign activity.  

To have singled out these groups was to try to keep them from engaging in legally permissible political speech and association, in violation of the First Amendment. 

To sum up Attorney Mitchell's points... the Tea Party groups were not being singled out for additional scrutiny because they were likely to do things that would be illegal, they were singled out for additional scrutiny because they were openly planning to do things that were legal, and the Obama Administration didn't want them to have that opportunity, not when retaining their power in the 2012 election was at stake.

Key takeaway... all of the blather from Dems about how the flood of 501(c)(4) applications necessitated additional scrutiny is bullshit.   This was a conscious conspiracy to deprive American citizens of their First Amendment rights.

More from Ms. Mitchell later.   It's great stuff.