IRS also may be targeting free-market education groups

STOP THE IRS: Protester Ty Drake marches outside the IRS offices in San Francisco. What at first seemed like an agency target at 501(c)(4) nonprofits may include other nonprofit organizations.
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STOP THE IRS: Protester Ty Drake marches outside the IRS offices in San Francisco. What at first seemed like an agency target at 501(c)(4) nonprofits may include other nonprofit organizations.

By Kevin Mooney |

Eighteen months now and counting – that’s how long Doug Loen has been waiting on the Internal Revenue Service to approve his application seeking nonprofit tax status.


The South Dakota resident suspects that may be because he has become part of a larger national story, but one with an added dimension that has not yet been reported. Loen, who is also a board member of the Franklin Center forGovernment and Public Integrity, the parent organization of, is anxious to set up his own free-market think tank. But the delay has cost him time, effort and money.

In May, IRS officials publicly acknowledged that the agency had targeted tea party groups and other conservative organizations, for a heightened level of scrutiny. For this reason, Loen said he  believes there is more at work in his dealings with the IRS than mere bureaucratic inertia. He is calling for a wider investigation.

Up until now, the media has focused its attention on right-of-center applicants for 501(c)(4) nonprofit tax exempt status. Loen has applied to establish the First Freedoms Association of South Dakota as a 501(c)(3) group under the auspices of the State Policy Network. There is an important distinction between the two tax designations. While 501(c)(4)s are permitted to engage in partisan policies and influence elections, 501(c)(3)s are set up as educational institutions.  A 501(c)(3) promotes ideas and publishes commentaries, but it does not engage in partisan policies.

A coordinated IRS effort that targets 501(c)(3) groups favorably disposed toward conservative and libertarians ideas is every bit as dangerous and offensive to the First Amendment as what has already publicized concerning 501(c)(4) non-profits, Loen said.

“Apparently, free market is just as bad as tea party,” he said. “If you want to talk about the Constitution, that’s bad news from the IRS perspective. We have an interesting problem in that we have no idea how many 501(c)(3)s are affected. Right now everyone is focused on the 501(c)(4)s but I think the problem is much bigger.”

Loen submitted his application in December 2011, and received a letter back in January 2012 that acknowledged the application.

Then, for months on end, he received no correspondence.

“It’s frustrating because we have all this creative energy, but you can only keep it together for so long,” Loen said. “We could have had reports and studies out in circulation. This whole process has stymied the ability of my organization to move forward in any but the most basic functions; I guess that’s part of the strategy.”

The publicity attached to the IRS scandal appears to have finally jolted the agency into action.

“Guess what I get in the mail 10 days after the scandal goes public?” he asked. “That’s right, a letter from the IRS comes to me in late May asking me to add a paragraph to my articles of incorporation that says if the organization is ever shut down that I will give all the assets to the another 501(c)(3). That’s easy enough.   The second question goes back to what they have on the application form. They ask us to check off the activities we are going to engage in and there are eight of them. But since our application has not been approved, and the group does not have any money to speak of yet, we don’t know exactly which activities we will be able to perform.”

Loen already has a few projects in mind. South Dakota is well-positioned to make important contributions to pressing public policy questions, he said.

For starters, Loen would like to perform a study on the Keystone XL Pipeline that would expand on a policy paper that initially was produced in neighboringNebraska.

In addition, he would also like to weigh in on the merits of voter identification laws. Since South Dakota has one of the oldest voter identification laws in the country — passed in 2003 — there is ample room to perform a detailed study, he notes. The law has been in effect for three complete election cycles. The state has a substantial native American population it has been designated as a Section Five state under theVoting Rights Act.

A survey that would show how the minority native population was affected by a voter ID requirement could be a valuable national service, he said.

But for now, Loen must continue to play the waiting game. He has filed the requested paperwork with the IRS and continues to hope that the long awaited 501(c)(3) will be approved in the near future invited the IRS to comment on the status of 501(c)(3)applications but did not receive a response.

IRS employees working out of the agency’s Cincinnati office told congressional investigators last week the additional focus and attention they applied to tea party groups was done at the direction of IRS officials in Washington, D.C. The interview transcripts substantiate Loen’s belief that the IRS scandal much deeper and far reaching than what was initially reported.

 Contact Kevin Mooney at



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