Bloomberg News

IRS Will Revise Proposal on Political Nonprofit Groups

May 22, 2014

The U.S. Internal Revenue Service said today that it will revise proposed rules governing nonprofit groups’ involvement in politics.

The rules, released last year, were an attempt to provide guidance for how much political activity groups organized under section 501(c)(4) of the U.S. tax code could engage in without risking loss of their tax exemption or being forced to reveal their donors.

The IRS disclosed in May 2013 that it gave some Tea Party groups seeking tax-exempt status extra scrutiny because of their names, not their activities. President Barack Obama forced out acting IRS commissioner Steven Miller, and several other senior executives left their jobs, including Lois Lerner, who was the agency’s director of exempt organizations.

The rules, designed to provide clearer guidelines for IRS employees, were part of the government’s response to the issue.

Some actions would be considered political involvement, including advertising, voter guides, voter-registration drives, get-out-the-vote campaigns, Internet references to candidates and some appearances by candidates at groups’ events.

Under the proposed rules, a group would risk losing its tax-exempt status by engaging in too many of those activities, though the rules didn’t define what would be considered too much.

150,000 Comments

After the IRS released the new rules, groups across the political spectrum objected with more than 150,000 comments, calling them too broad and an attack on free speech. Opponents included the American Civil Liberties Union and the American Family Association.

Republicans called on the IRS and the Treasury Department to start over. Until today, the IRS had said it was planning a public hearing in the next few months.

“It is likely that we will make some changes to the proposed regulation in light of the comments we have received,” the IRS said in a statement today. “Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation.”

Not Specified

The statement doesn’t specify how extensive the changes will be, when a new rule would be released or when it would take effect.

Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, called the IRS announcement a “long overdue step in the right direction.”

“The IRS is right to abandon its previously proposed rules governing 501(c)(4) organizations that threatened free speech and the rights of all American citizens to participate in the democratic process,” he said in a statement. “I am glad the IRS heard the concerns of hundreds of thousands of Americans, and I will continue to advocate for an IRS that is independent and nonpartisan.”

The Senate’s third-ranking Democrat, Chuck Schumer of New York, said in a statement that the delay in the rules is “deeply disappointing and a real setback for democracy and faith in government.” Schumer said he hoped the IRS would “enact a very tough rule that will equally curtail liberal and conservative groups.”

IRS Commissioner John Koskinen has previously said it was very unlikely that the process would be completed this year.

The 501(c)(4) groups, including Crossroads Grassroots Policy Strategies, have become increasingly prominent in U.S. elections. According to the Center for Responsive Politics, they spent $256 million on the 2012 election, more than three times what they spent in 2008.

Such groups are different from super-political action committees, which disclose their donors.

The tax law says 501(c)(4) groups must be organized “exclusively” to promote social welfare. The IRS has said politics can’t be such a group’s primary purpose, leading to conflicts over how to measure politics and primary purpose.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Laurie Asseo


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