Nick Nichols

President Obama waded deeper into the pool of incredulity that surrounds his administration when he told Fox News host Bill O’Reilly that there was not a “smidgen” of corruption associated with the IRS targeting of conservative groups seeking 501(c)4 tax-exempt status. He must have missed former IRS official Lois Lerner’s assertion of her Fifth Amendment right against self-incrimination. I’d call that a smidgen!

My purpose here isn’t to recite the mounting evidence contributing to the stench of political corruption at the highest levels of the IRS. Instead, my purpose is to offer an approach that may prevent this kind of abuse from ever happening again. In the crisis management business it’s called “cauterization.”

First, consider these facts:

1. There are no less than thirty-seven different categories of tax-exempt organizations within the IRS code, including the 501(c)4 designation that is at the center of the current scandal.

2. Each tax-exempt category is subject to different rules, requirements, and bureaucratic interpretations, and each category receives different tax-exemption goodies. For example, 501(c)3 groups, referred to as “public charities,” are not only exempt from taxation, but also contributions to these groups are tax deductible. According to the National Center for Charitable Statistics (NCCS), by 1969 the IRS had granted 501(c)3 status to 169,285 groups. By 2013, that number had increased to 945,415 organizations.

3. In 2011, the 501(c)3s filing returns with the IRS reported $1.5 trillion in revenues and $325.6 billion in private contributions and government grants. Remember, the 501(c)3s are tax-exempt and contributions to these groups are deductible. Among these so-called “public charities” are 27,485 environmental quality, protection and beautification groups. Yes, Greenpeace is a 501(c)3.

4. The 501(c)4s, often referred to as “social welfare organizations,” are exempt from most taxation but contributions to these groups are generally not deductible. Prior to 1970, the IRS had granted 501(c)4 status to 39,487 groups. By 2013 that number had increased to 82,197.

5. The most recent NCCS data for 501(c)4s indicates that these groups reported total revenue to the IRS of $77.9 billion. The supposedly non-partisan IRS bureaucrats who harassed and targeted conservative groups saw fit to award John Podesta’s Center for American Progress both 501(c)4 and 501(c)3 statuses. President Obama’s campaign organization, Organizing for Action, morphed into a “social welfare organization” and now benefits from 501(c)4 status. Not a smidgen of corruption here?


Nick Nichols

Nick is a retired crisis communications executive. He also developed and taught graduate-level crisis management courses at the Johns Hopkins University. Nick is the author of Rules for Corporate Warriors: How to Fight and Survive Attack Group Shakedowns. He is a Vietnam veteran.