Workforce

Congress probes claims the IRS is giving anti-tip-credit group One Fair Wage a pass

An oversight committee is investigating whether the tax agency is allowing the union-backed restaurant adversary to file as a non-profit despite its lobbying.
IRS
The IRS has been directed to turn over all of its correspondence with One Fair Wage. | Photo: Shutterstock

The IRS has been directed to turn over all correspondence with One Fair Wage, the union arm trying to kill the tip credit, as part of a Congressional investigation into claims the labor group is getting illegally favorable tax treatment.

The House of Representatives’ Oversight and Accountability Committee intends to review the tax agency’s treatment of One Fair Wage, or OFW, as a non-profit charitable organization. Even the OFW itself cites lobbying as one of its prime functions, a claim that undercuts the tax status claimed by the group, noted Rep. James Comer (R-Ky.), the committee’s chairman.

Under federal tax laws, non-profits are forbidden from engaging in extensive political advocacy if they wish to retain their tax status as charitable organizations. Non-profits shoulder dramatically less of a tax burden than for-profit organizations typically do.

In a letter to IRS Commissioner Daniel Werfel, Comer mentioned several instances where OFW acknowledged its lobbying mission via court documents and postings on its website.

“Entities are deemed to not be organized for a charitable purpose if they devote a substantial part of their activities to lobbying efforts,” observed Comer.

He cited the IRS’ preferential treatment of OFW as an example of the tax watchdog’s lax enforcement of tax regulations when they apply to groups claiming 501(c)(3) status, or designation as a non-for-profit organization.

“Specific problems” in the IRS’ handling of non-profits are mentioned in a report drafted by the U.S. Treasury Inspector General for Tax Administration, the office that monitors IRS activity, Comer wrote.

On behalf of the Oversight Committee, Comer demanded that members of the tax agency’s staff provide a briefing on the IRS’ handling of non-profits, along with the relevant materials that are used to train the agency’s enforcement personnel. The congressman’s letter sets a deadline for receiving the materials of Feb. 28.

Allegations that OFW was illegally posing as a non-profit have been aired from time to time since the group’s founding several years ago. The organization’s claim to being a not-for-profit group hinges on the career development training and support it provides to restaurant workers.

It grew out of Restaurant Opportunities Centers United, or ROC, an organization formed after 9/11 to support restaurant workers whose places of employment were destroyed in the terrorist attack on the World Trade Center.

The OFW and ROC are backed by the Service Employees International Union, one of the nation’s largest and most influential labor unions.

The allegations of preferential treatment from the IRS come to light as OFW is pushing measures to kill the tip credit in a number of states, counties and municipalities. Illinois lawmakers recently took up a bill to end the employer concession, and a proposal in the same vein has surfaced in New York.

The group took credit for Chicago’s enactment last year of a law that phases out the city’s tip credit. It was also the force behind a 2022 referendum in Washington, D.C., that similarly aims to kill the break for restaurant employers.

Efforts to phase out the credit were recently rebuffed in Hawaii and Maryland’s Montgomery County.

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