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The Last Word
updated 5/23/2013 11:46:10 PM ET 2013-05-24T03:46:10

"Republicans and political media remained blissfully oblivious to the language of the law," said Lawrence O'Donnell. (Looking at you, John Boehner). But some lawmakers are catching on.

A focused House Speaker John Boehner vowed Thursday to “to seek answers ’till we get to the truth” on the IRS’ targeting of Tea Party groups.

“Today is a new day, which means that we are sure to get a new story from the White House on the IRS scandal,” Boehner said. “The White House was made aware of it last month, yet no one thought that they should tell the president. Fairly inconceivable to me.”

But growing number of lawmakers are picking up on the real IRS scandal, the one that actually started in 1959.

The IRS has been under fire for targeting conservative groups applying for 501(c)4 status, also known as  tax-exempt status. MSNBC’s Lawrence O’Donnell first pointed out that the problem goes back to the IRS’ interpretation of the words “exclusively” and “primarily” in the statue.

“This was a disaster waiting to happen,” said Rep. Eleanor Holmes Norton said Wednesday on The Last Word. “An administrative agency does have the power to interpret the law and to take words that are vague and to give them meaning.  An administrative agency does not have the power to change the plain meaning of the law and make a disaster happen and that’s what’s happened here.”

On May 13, 2013, O’Donnell explained how the “IRS has gotten away with the crime” for 54 years:

Section 501(c)(4) of the Internal Revenue Code which defines social welfare organizations for tax-exempt purposes defines them this way:  “Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.”

Then, the IRS code does a magic trick and changes the meaning of the word exclusively: “To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community.”

Members of the Senate Finance Committee questioned misuse of Section 501(c)(4) of the Internal Revenue Code at a hearing Tuesday.

“What does the term primarily for social welfare mean? The IRS has not made it clear when the statute says exclusively, and that’s really at the root of so many of these problems,” said Democratic Ohio Sen.  Sherrod Brown.

Senate Finance Committee Chairman Max Baucus of Montana summed it up this way: “Clearly, a Mack truck is being driven through the 501(c)4 loophole.”

Sen. Bill Nelson of Florida and Sen. Bob Menendez of New Jersey also questioned this decades-long wording switcheroo contributing to some of today’s predicament.

The House Committee on Oversight and Government Reform have also noted the discrepancies at a hearing on Wednesday.

“Requiring organizations to be primarily engaged in social welfare activities is significantly different than requiring them to be exclusively engaged in social welfare activities,” pointed out Rep. Michelle Lujan Grisham of New Mexico.

“The original statute passed by Congress requires 501(c)(4) organizations engaged exclusively in social welfare activities,” said Rep. Elijah Cummings of Maryland. “But in 1959, Treasury Department issued a regulation that requires these entities only to be primarily engaged in social welfare activities.  As a result, many groups now believe they can spend up to 49% of their funds on campaign-related activities.”

At the House Ways and Means Committee hearing Friday, Rep. Lloyd Doggett of Texas name-checked O’Donnell and Citizens for Responsibility and Ethics in Washington (CREW) for their attention to this matter.

While senators continue to press the point, “Republicans and political media remained blissfully oblivious to the language of the law,” said O’Donnell.

“The IRS in 1959 without authority from Congress changed Congress’ intent in 501(c)(4) organizations, and they suddenly had to be primarily for social welfare, which meant from that day forward, IRS agents somewhere, Washington or Cincinnati or somewhere were going to have to evaluate how much politics a 501(c)(4) applicant was going to engage in,” said O’Donnell. “And so, the real scandal here is not that the applications were delayed, but that they were ever approved.”

Video: IRS law a ‘disaster waiting to happen’

  1. Closed captioning of: IRS law a ‘disaster waiting to happen’

    >>> so what if congress held a hearing about a political scandal -- that happened in washington today. once again.

    >> you're the head of the agency and not asking questions, shame on you.

    >> congress gearing up for another week of hearings on the irs scandal.

    >> hearings on the irs controversy.

    >> now in its fifth hour.

    >> so far we're not seeing this go high up the chain.

    >> the people i represent believe the federal government is out to get them.

    >> not a single application was denied.

    >> my question is who is going to jail over this scandal.

    >> i don't want to go to jail.

    >> there's not a lot here other than incompetence.

    >> plenty of drama.

    >> i am proud of the work in government.

    >> lois lerner, head of the tax exempt organization.

    >> members of the committee accused me of providing false information.

    >> chose to plead the fifth.

    >> you don't get to tell your side of the story, and not be subjected to cross examination .

    >> i have not broken any laws.

    >> that's not the way it works.

    >> i have not violated any irs rules or regulations.

    >> she waived her right to fifth amendment privilege.

    >> i have not done anything wrong.

    >> she waived her right to fifth amendment privilege by issuing an opening statement.

    >> south carolina republican trey gowdy.

    >> that's not the way it works.

    >> doesn't understand the fifth amendment of the u.s. constitution .

    >> requiring organizations to be primarily engaged.

    >> this is an area that requires additional clarity.

    >> significantly different than requiring them to be exclusively engaged.

    >> this has happened before and it has not always been conservative groups.

    >> rare call for bipartisanship.

    >> let's all be republicans and democrats.

    >> there you go.

    >> you heard it here, the difference between the words exclusively and primarily. people that don't understand the difference between the words, congressional republicans and virtually all of the political media believe the irs has a huge scandal on its hands. here's the first time america heard about the difference between the words exclusively and primarily in this context and how changing those words was indeed an irs scandal. a scandal that happened in 1959 . section 501(c)4 of the internal revenue code that defines social welfare organizations for tax exempt purposes defines them this way. civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare . then the irs code does a magic trick and changes the meaning of the word "exclusively." to be operated exclusively to promote social welfare , an organization must operate "primarily" to further the common good and general welfare of the people of the community. it was in 1959 that the irs on its own added the notion that exclusively really just means primarily. so for 54 years the irs has gotten away with the crime of changing the word exclusively to primarily. that was last monday. but as expected, it did nothing to dim the political media 's lust for scandal. i continued to harp on the point all week, and then friday at the house ways and means committee hearing where the members of that committee are supposed to be sort of experts in taxation came the first glimmer that someone in congress was actually listening.

    >> as mr. lawrence o'donnell, as the crew group, the citizens for responsibility and ethics in washington have pointed out in a petition, you are to be denied this status if you are not exclusively engaged in social welfare or party to the statute.

    >> then came the senate finance committee hearing yesterday where the senate's real experts on taxation, the staff of the senate finance committee , made sure that the chairman asked the key question.

    >> how does the irs justify regulations that weaken the standard from exclusively to primarily?

    >> like many questions at the hearings, no one really answered it, but senators kept pressing the point while republicans and political media remained bliss fully oblivious to the language of the law.

    >> i didn't see a vote for primarily, i saw a vote for exclusively because we wanted to limit the scope of who could avail themselves of the benefit of a 501(c)4 under the tax code .

    >> what does the term primarily for social welfare mean? the irs has not made it clear when the statute says exclusively, that's at the root of so many of these problems.

    >> some of the thoughtful members of the house committee on oversite and government reform showed in today's hearing that they were paying attention to the congressman and to the senate finance committee yesterday.

    >> the original statute passed by congress requires 501(c)4 organizations engaged exclusively in social welfare activities, but in 1959 , treasury department issued a regulation that requires these entities only to be primarily engaged in social welfare activities. as a result, many groups now believe they can spend up to 49% of their funds on campaign related activities.

    >> the seed was planted for something bad to happen when somehow the interpretation of a law was changed from exclusively to primarily.

    >> requiring organizations to be primarily engaged in social welfare activities is significantly different than requiring them to be exclusively engaged in social welfare activities. wouldn't you agree?

    >> it is, congresswoman.

    >> all right, mr. schulman. would you agree?

    >> yes.

    >> there is the commissioner of the irs during this so-called scandal saying there is a big difference between organizations being exclusively engaged in social welfare and primarily engaged in social welfare , that there's a difference between the law and the irs ' official interpretation of the law in their regulation. how big a difference?

    >> clearly a mack truck is being driven through the 501(c)4 loophole.

    >> but don't expect the political media to notice the mack truck . don't expect them to pay any attention to points like this when someone walks into a congressional hearing and takes the fifth amendment because nothing, nothing arouses the political media 's scandal lust like someone taking the fifth amendment. and so of course they didn't even notice when congresswoman jackie speer got the oh, so careful and bureaucrat cli precise inspector general to admit at the heart of his report is a crime, a crime he chose not to identify in his report.

    >> if regulation can't trump statute, then everything that's been going on here relative to authorizing 501(c)4s, if not exclusively used for social service purposes is violative of the law, correct?

    >> i would say yes.

    >> violative of the law, which is to say against the law. the irs in 1959 without authority from congress changed congress ' intent in 501(c)4 organizations, and they suddenly had to be primarily for social welfare , which meant from that day forward irs agents somewhere, washington or cincinnati or somewhere were going to have to evaluate how much politics a 501(c)4 applicant was going to engage in. but by either standard, standard of the law written by congress or standard of the regulation as misinterpreted by the irs , any organization with the name of a political party in its title of any size for the democratic party to the tea party to local tea parties to socialist workers party to the green party , every single such application should have been rejected for 501(c)4 status as a matter of law.

    >> not a single application for this status, this tax exempt status , was denied.

    >> and so the real scandal here is not that the applications were delayed but that they were ever approved. once the political media latched onto the paradigm of a scandal, once they've collectively fixed its frame around what they think are the relevant elements of the scandal, it is inescapable from that point forward, that frame. and the media is incapable of processing any new information that can show the political media just how wrong they have been. joining me now, house oversite committee member, democratic congressman eleanor holmes norton , representing district of columbia , and msnbc's joy reed. congressman norton, i can't tell you how much joy you brought to me when i heard you making this distinction about the law says exclusively and the irs misinterpreted it to primarily, and if the irs had never done that misinterpretation, i submit to you, we wouldn't be discussing this tonight, no one ever would have been getting political organizations 501(c)4s.

    >> lawrence, if the irs had simply taken the plain meaning , what we call it in the law, the plain meaning , none of this would have happened by changing the law. that's what happened here, changing the plain meaning of exclusively to primarily, this was a disaster waiting to happen. it began in 1959 , almost 50 years ago in the eisenhower administration , a republican commissioner apparently under his -- on his watch, that got changed. i must tell you, i am so curious how that happened, i don't think it is legal, i don't know who has standing to sue, that's another question, but an administrative agency does have the power to interpret the law and to take words that are vague and give them meaning. an administrative agency does not have the power to change the plain meaning of the law and make a disaster happen and that's what's happened here.

    >> congresswoman, i can't tell you how shocked i was last week when i first started investigating this. it is no surprise to you since i worked on congressional staff in the senate that staffers and new members, when one of these things comes up, the very first thing you do is say let me see the law, let me see the statute. you go and read the statute, which apparently is against the rules for the political media . when you read that statute, it is a shocking thing to read. i remember reading it, i had never read it before this thing started. i looked at it, saw exclusively. i thought how did it come to this?

    >> indeed, before i got my staff to get that, i thought it said primarily.

    >> me, too.

    >> i was shocked to see the wording changed and i don't see how it has lasted almost 50 years.

    >> you know, we found a memo from jfk's counsel at the irs affirming this change of primarily. he did it in a response letter to someone. but joy reed, the reason i am harping on the political media here is that they love scandal because scandal makes their jobs easier and the funny thing about scandal is they don't bother with facts any more. the game becomes oh, well, what about jay carney 's tone and wait, they didn't tell us that yesterday, and now they're telling us that today, so it all becomes -- they all become and lists of scandal management and they're grading people on how well they're managing their scandal, grading the president and grading carney and everybody, and it becomes this theater review, performance review . they don't care what's at the basis of it all.

    >> absolutely, this is not church, when you started talking about this, i felt like jumping up and saying hallelujah. it was like please, let's talk about -- it used to be a bipartisan complaint that 501(c)4 was being abused. used to have senators like tom colburn saying why is the nfl a 501(c)4? you used to have a specific target at the 501(c)3 that the irs takes, they look at the naacp or recently republican congress person complained about the humane society , complained to lois lerner that took the fifth today, why aren't you looking closer at the humane society abuse of c 3 . it is so comical that 501(c)3s understand the irs is stricter about c 3 . so what do most c 3s do when they want to get involved in political activity? form a 501(c)4, so you have all of these convoluted organizations, super pac with a c 4 or c 3 with a c 4 . they do it knowing the irs is going to misinterpret the law, allow them to do political activity through the c 4 . that's why karl rove who has never done a day of social welfare i could ever interpret or find has a c 4 . doesn't even have to pretend. i totally agree with you. the scandal is that the irs overinterprets c 3 , goes after charitable organizations if they have a hint of disagreement with the president, naacp, but they let anybody slide through c 4 . you've got members of congress declaring an inalienable right to be a tax exempt organization. seriously?

    >> congresswoman, i want to go to the politics of the irs . i think it is very clear that politicians, especially members of the house and senate, whenever the irs comes up and there's an opportunity to attack them for some negative thing they've actually done or imagined to have done, politicians cannot refuse to attack them. their constituents expect the attack, democrat and republicans. there's no easier shot to take in politics than attacking the irs .

    >> of course not because nobody wants to pay taxes, but i have to tell you that the irs has been the whipping boy for the 112th, 113th congress , last two congresses anyway. these are people that would just as soon abolish the irs , hate the irs .

    >> some said today, they want to abolish the irs , that's part of the approach to the investigation.

    >> and they have cut the irs hugely at a time when we're looking for money, trying to cut the deficit. you cut it from the people that collect the money. does that make any sense?

    >> yeah. they're the profit center over the federal government .

    >> precisely.

    >> joy, the other big piece that's lost, you don't even have to apply for 501(c)4 status, you can apply or you can just claim it. you can't just claim your passport, you have to apply for one. there's this big scandal that the republicans are saying happened here for something you don't even have to apply for. you can actually operate as a 501(c)4 if you're never approved by the irs .

    >> there are organizations now, tea party patriots, big tea party groups, if you scroll to the bottom of their web page , says their tax status is pending. they're functionally operating at c 4s without having that stamp of approval. you can go and ask the irs to do it but you don't necessarily have to. what's funnier, you worked in politics, any political consultant with two brain cells can come up with this idea to make a c 4 , i can raise gargantuan sums from corporations, all behind god's back, don't have to disclose, i can pay myself a salary, nothing illegal about any of it. the scandal to me is that the irs has been so lax enforcing the law, as you pointed out, as congresswoman norton points out, enforce the rules written in the statute, wouldn't have these organizations which shouldn't be tax exempt . we are subsidizing them through the tax code .

    >> crazy. congresswoman, go ahead.

    >> i want to say one thing. imagine the hapless irs people trying to figure out what to do, and now watch what's going to happen, they're going to be afraid to --

    >> i think using the words they used were perfectly reasonable indicators that these applications need to be studied and oh, by the way, probably don't deserve 501(c)4 status. there are plenty of other words, i would suggest using anything with democratic party or progressive party , use them all, every one of them.

    >> absolutely.

    >> congresswoman, thank you for joining us after that marathon hearing today. joy reed, thanks as always.

    >> always a pleasure.

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