Media Matters tax-exempt status may face new scrutiny from Congress

Critics also point to Media Matters’ still mysterious calls and meetings with White House officials, which could prove problematic if the organization is privately sharing information with President Barack Obama’s staff.

“If a section 501(c)(3) organization is privately providing to the Democratic Party information for their use in their political activities, that’s a contribution to the party. Maybe not for FEC [Federal Election Commission] purposes, but certainly for IRS purposes, and would violate their 501(c)(3) status,” one tax law expert told The Daily Caller.

“If, on the other hand, they are compiling information and publishing it for anyone to use, including the Democratic Party, that’s a different thing.”

“But if they are privately providing something of value to the Democratic Party, that’s a revocation issue.”

If a tax-exempt organization were to publish the information but also provide it advance to a candidate, the expert continued, the issue becomes more complex but still arguably “grounds for revocation.”

Last July, Gray filed a formal petition with the IRS asking it to revoke Media Matters’ tax-exempt status. He argued that the organization’s campaign against the “commercial interests” of News Corporation, the parent company of the Fox News Channel, is not in keeping with its classification as an “educational” organization, and that its attacks against Republicans demolish the pretense that it is not explicitly partisan.

However, Marcus Owens, the former head of the Exempt Organizations Division of the IRS, told TheDC that Media Matters appears to still be acting within its rights as a 501 (c)(3) and pushed back against Gray’s argument that the tax exemption amounts to a subsidy in its “war on Fox.”

“The difficulty with that argument is that, if you look at the subsidies that exist in the internal revenue code, we’re all subsidized to one extent or another,” Owens said. “That’s where that argument, I think, ultimately falls apart.”

“And putting aside tax exemption, if you’re a corporation and you get a tax credit … you’re subsidized by the government as well.”

To lose its 501(c)(3) status, Owens said, Media Matters would likely have to have broken the relatively strict IRS financial rules about excessive compensation and transactions with related parties.

“The state of the political campaign proscription is in flux,” he said, because of the Supreme Court’s “Citizens United” decision regarding campaign financing. And while Owens said it would be conceivable for “speech that said ‘vote for’ or ‘vote against’ a candidate for an elected office would be sufficient” to strip the group of its preferred tax status, the IRS now tends to stop short of actually revoking 501(c)(3) status for such actions.

Because Brock has referred to Fox News as a political organization and the “de facto” leader of the GOP, Gray and other critics have argued that Media Matters is engaged in the kind of direct political activity forbidden by IRS regulations.

Experts contacted by The Daily Caller, however, point out that the regulations are generally not interpreted strictly enough to forbid such language, and that similar organizations are typically given a rather wide berth when it comes to interpreting the law.

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