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Controversy swirls over the IRS's hassling of Tea Party and conservative groups who sought tax exemptions in recent years. But a similar episode some years back is worth contemplating, because it sheds light on the present brouhaha.

Legal scholar Walter Olson reminds us, in his July Foundation Watch essay, of the big fight during the Nixon Administration over the question of whether "public interest law firms" should receive tax exemptions as "public charities"--or, as the lawyers say, be granted 501(c)(3) status.

In the late 1960s, Olson explains, the Ford Foundation’s leaders were “the Johnny Appleseeds of litigation liberalism, staking start-up money and sometimes longer-term funding” to create numerous public interest law firms, including the Lawyers Committee for Civil Rights Under Law, the Mexican American Legal Defense and Education Fund (MALDEF), the National Women’s Law Center, the Environmental Defense Fund, and numerous others that would go on to force countless changes in Americans’ lives and laws.

For a while, things were touch and go, because it was far from clear the new kind of law would be granted the highly preferential tax status its proponents sought. They wanted their efforts to be accepted under the rubric of “public charity,” just like the United Way. But looking for opportunities to sue people did not in itself sound like a particularly charitable endeavor, and if you accepted the idea that the ultimate goal was to change laws, you made it sound like lobbying, which isn’t entitled to charitable tax treatment either. Some in the Nixon administration strongly opposed the bid for charitable status, but following a big Establishment blitz, including a statement by former presidents of the American Bar Association, the Treasury Department caved and ruled in the movement’s favor in 1970.

Now I’m a fan of the great work of some such groups, above all my friends at the Becket Fund for Religious Liberty, whose invaluable work I’ve praised in this space. But Olson has an excellent point about whether legal work aimed at “social change” should enjoy 501(c)(3) status. Arguably, these organizations should be in the (c)(4) category that covers groups that contribute to the common good but aren’t precisely charities and thus eligible for foundation dollars.

Steven Teles, one of Olson’s sources and no conservative, reported on the 1970 IRS controversy in his Rise of the Conservative Legal Movement. He makes clear that Ford and Ford alone brought the world the avalanche of legal groups:

It is highly unlikely that public interest law would have gotten off the ground were it not for the support of the Ford Foundation.

        * * *

[Ford president McGeorge Bundy sought] partners in other large foundations, such as Rockefeller, Mellon, and Carnegie, but the controversial nature of the project led them to reject his entreaties.

(Some of those less aggressive philanthropies did join the party, once Ford had safely won the IRS fight.)

Teles also makes clear that inside Ford grave uncertainty reigned, first as to whether they could claim this work was charitable, and second whether their “Establishment” board would ever accept it. So the staff drummed up center-left support among lawyers, the American Bar Association, and white-shoe law firms, as well as from wobbly Republicans like then-Rep. Gerald Ford and William Ruckleshaus (Nixon’s choice to head the new Environmental Protection Agency). Donald Rumsfeld, serving Nixon at the Office of Economic Opportunity, also weighed in.

Teles admits Ford’s staff were not exactly transparent in the way they portrayed their revolutionary legal endeavors to their own board:

The foundation’s program officers did all they could to give this potentially explosive program a smooth, establishment veneer.

To accomplish this Wizard of Oz trick, the Ford staff relied on the philanthropy world’s greatest weapon: Pretend we’re all just saintly, disinterested, far-above-politics sages, out to save the wretched non-experts who have made such a mess of the world with their dirty politics. Teles admits the Ford staffers’ strategy was a perfection illustration of

one of the peculiar qualities of much of the LLN [Liberal Legal Network] and the prevailing liberal consensus in elite circles and institutions. While in substance it often operated to support ideological and partisan causes, it was understood by many of its patrons and key participants in objective, neutral, nonpartisan, and nonideological terms.

Ah, yes, neutral experts. And this neutrality came in so very handy, Teles concludes, because it “facilitated support [read: money and prestige] from elite institutions and protected [the Network’s] tax status.”

Too bad the Tea Party folks didn’t have the white-shoe lawyers and the big foundation dineros on their side when they went up against the IRS. But then, they didn’t even ask for the more favored 501(c)(3) status that makes foundation funding possible. They only wanted to be 501(c)(4)s.

And they wonder why their betters at Ford, MALDEF, and all the rest laugh at them.

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