Asymmetrical Information - Megan McArdle

Why Are So Many New Labor Groups Forming?

501(c)(5) applications have spiked even higher than the groups the IRS was targeting.

06.12.13 6:10 PM ET

We've heard that the targeting of conservative groups by the IRS was necessary because there was a big spike in applications from conservative groups.  I've explained why I think this is a lousy excuse.  Among other reasons, if you  you look at the Inspector General's report, you'll see that applications for new 501(c)(4) groups didn't really start to rise until 2011, long after the targeting started. But looking over the IG's report, I just saw something else interesting:  the number of 501(c)(5) organizations, which is the IRS code designation for labor groups, really exploded in 2012.  The number of new applications nearly doubled from its 2009 level.  

I can think of no good explanation for this.  Yes, 501(c)(5) groups, like 501(c)(4)s, got a lot more freedom to engage in political activity after the Supreme Court's free speech decision in Citizens United.  But why found a labor group rather than a 501(c)(4)?  The requirements are more onerous, and post Citizens, the advantages are not great.  I mean, yes, you can take payroll deductions, but only if you actually manage to organize a company.  And organizing drives are not exactly going gangbusters these days.

This could signify a lot of things: a renewed drive by labor, or some wrinkle in the tax code that I'm not aware of.  Any way you look at it, though, an interesting tidbit to chew on. And of course, one would like to know if any BOLOs were issued for new labor groups.