Commissioner Danny Werfel on “Wild West” of Political Activity by (c)(3) and (4)s, Charitable Contributions and NILs
If you didn’t get a chance to watch the nearly three hour Senate Finance Committee Hearing featuring IRS Commissioner Danny Werfel last week, here are a couple of interesting mini-colloquies regarding exempt organizations. I think they take up about 15 minutes of the entire hearing. The discussions involved political activities of charitable and social welfare organizations, the charitable contribution deduction, and NIL collectives.
The first starts at about 1:13.30, where Commissioner Werfel is responding to Senator Sheldon Whitehouse’s concerns regarding the lack of IRS enforcement of the political activity prohibitions applicable to charities and social welfare organizations. Whitehouse notes that Citizens United precipitated a tidal wave of dark money into (c)(3)s and (4)s for political purposes. He very succinctly acknowleded the Tea Party scandal’s effect of making IRS understandably gun shy on the issue, and then concluded that as a result, the whole subject is a “wild west” of unregulated taxpayer supported political activity. Interestingly, both Whitehouse and Werfel note the increasing complexity by which interrelated exempt organizations are disguising campaign interventions. That’s something Lloyd Mayer has recently written about in a forthcoming law review article.
And then at 1:36:42, Senator Lankford asks the Commissioner to direct agency attention to the significant drop in charitable contributions since most taxpayers are no longer able to take those deductions without forfeiting the larger standard deduction. Lankford stated that the Code needed to be amended to reinstate tax incentives for charitable giving. He asked Commissioner Werfel for data and consultation on that issue. I wrote something about that in The Undemocratic Charitable Contribution Deduction earlier this year.
Finally at 2:15:45, Senator Ben Cardin took up the issue of NIL collectives with the Commish. He asked for an update on the enforcement of 501(c)(3) vis-à-vis NIL collectives since a Chief Counsel Memorandum raising serious questions about their tax exempt status. Commissioner Werfel indicated that the Service is in the “very early stages” of identifying and revoking exempt status for collectives that don’t qualify for tax exempt status. By which he must have meant “all the organizations to which we too quickly issued exemption letters before the Chief Counsel Memorandum.
Other than that, it was a pretty painful hearing, as indicated by the “oh God, get me out of here and I will never miss church again!” look on the face of the staffer sitting behind Werfel.
darryll k. jones