Bloomberg News

IRS Says It Will Examine Rules for Nonprofit Political Activity

July 23, 2012

The Internal Revenue Service will consider changing the regulations governing nonprofit “social welfare” groups that are buying millions of dollars in television ads to try to influence the presidential election and other races.

A three-paragraph letter dated July 17 represents the first time the IRS is acknowledging potential problems with political spending by such nonprofits, said David Vance, a spokesman for the Campaign Legal Center.

For about a year, the center and Democracy 21, both Washington-based nonpartisan nonprofit groups that back more campaign finance disclosure, have asked the IRS to revisit the regulations associated with the groups, known by their tax code section as 501(c)(4)s.

“We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other public guidance,” Lois Lerner, the IRS’s director of exempt organizations, wrote. The letter also mentions “current public interest in this issue.”

It would be difficult for the IRS to propose, make and carry out revised regulations before the Nov. 6 presidential election.

Active Groups

Some of the nonprofits most active in the political arena this year include Crossroads Grassroots Policy Strategies, which started with the help of former President George W. Bush’s chief political strategist, Karl Rove, and Americans for Prosperity, co-founded by energy billionaire David Koch. Helping Democratic causes are offshoots of groups such MoveOn.org and Priorities USA, a companion to a super-political action committee of the same name.

Such groups are able to maintain their tax-exempt status and keep their donor lists private so long as their primary purpose isn’t political. To the groups, that rule has meant keeping their political activity to less than 50 percent of overall expenses. Advocates of stricter campaign finance say the political activity should be far less.

The Campaign Legal Center and Democracy 21 have periodically reminded the IRS about the concerns they have raised, but hadn’t heard back from the agency until receiving its letter on July 20.

IRS ‘Inaction’

“The inaction of the IRS is only serving to inspire further abuses of the tax code as 501(c)(4)s are misused by special interests and individuals seeking to buy influence in Congress and the White House without revealing their identities to the public,” said J. Gerald Hebert, executive director of the Campaign Legal Center in a press release March 22, when the groups had sent another letter on the issue to the IRS.

“The IRS needs to establish a bright-line standard on eligibility for this privileged tax status or the already flagrant abuses will become even more widespread and the damage to our democracy will be made infinitely worse,” Hebert said.

It has yet to be determined how quickly -- if at all -- the IRS will act. Lists of the agency’s priorities for fiscal year 2011-2012 don’t include re-examining the 501(c)(4) issues raised by Democracy 21 and the Campaign Legal Center. The agency hasn’t released its 2012-2013 priorities.

To contact the reporter on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net


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