IRS proposes new rules for tax-exempt organizations
November 26th, 2013
03:20 PM ET
9 years ago

IRS proposes new rules for tax-exempt organizations

(CNN) - The Treasury Department and the Internal Revenue Service proposed new rules Tuesday that more specifically define the political activity allowed for tax-exempt organizations.

The proposed rules may affect the way groups that played big roles in the last two election cycles operate in the future. Those groups include the Karl Rove-backed Crossroads GPS, the Koch Brothers-backed Americans for Prosperity and the Democratic group Priorities USA Action.

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As of now, certain tax-exempt organizations–known by the IRS designation 501(c)(4)–can conduct political activity and as long their "primary" activity promotes "social welfare." Groups can get around this by focusing on issues that are closely aligned to candidates, rather than encouraging voters to vote for or against the actual candidates.

For example, a group may put out an ad blasting a Senate candidate’s position on a piece of legislation. But as long as the ad doesn’t urge voters to vote against the candidate, then the group can still be considered a tax-exempt, social welfare group.

Also under current tax rules, donors to 501(c)(4)s can remain anonymous.

The IRS wants to introduce a new term: “candidate-related political activity," which seeks to clarify what social welfare groups can and cannot do when it comes to politics.

The new term comes as a response to the lack of clarity over the less-specific term "political activity," which led to the controversial targeting of some conservative and liberal groups seeking tax-exempt status by the IRS in recent years.

Supporters of campaign finance reform say the current rules are too confusing, leading to lax government enforcement, and to abuse by private groups seeking to unduly influence federal elections.

The IRS said it was not targeting groups out of political bias, but because it was trying to determine whether the groups' primary activities were social welfare, rather than political activity.

As spelled out by the IRS, "candidate-related political activity” includes:

1. Communications
· Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
· Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
· Communications expenditures that must be reported to the Federal Election Commission.

2. Grants and Contributions
· Any contribution that is recognized under campaign finance law as a reportable contribution.
· Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).

3. Activities Closely Related to Elections or Candidates
· Voter registration drives and “get-out-the-vote” drives.
· Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
· Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
· Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

According to a release about the rules, the proposal reduces "the need to conduct fact-intensive inquiries, including inquiries into whether activities or communications are neutral and unbiased."

“This is part of ongoing efforts within the IRS that are improving our work in the tax-exempt area,” IRS Acting Commissioner Danny Werfel said in the release. “Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations.”

Before the agency issues final guidance, it will first seek public comments on the new proposals, and go through other parts of the regulatory process. That could take many months and may not affect next November’s mid-term congressional elections.

Groups challenging the new rules would likely wait until they are fully in place and enforced, before any lawsuits would be filed. Under its precedent, the Supreme Court has generally given deference to a government agency's interpretation of a law it administers.

The American Center for Law and Justice, which represents 41 organizations in a lawsuit against the IRS, released a statement decrying the proposed rules.

“These proposed new regulations put the First Amendment rights of Americans at even greater risk,” said Jay Sekulow, Chief Counsel of the ACLJ. “This is a feeble attempt by the Obama Administration to justify its own wrong-doing with the IRS targeting of conservative and Tea Party groups.”

House Oversight Committee Chairman Darrell Issa, R-California, also blasted the proposed new rules as a "effort by the Obama Administration to limit traditional advocacy efforts by social welfare organizations" that will affect grassroots organizations instead the intended targets.

"The fact that the Administration's new effort only applies to social welfare organizations - and not powerful unions or business groups - underscores that this is a crass political effort by the Administration to get what political advantage they can, when they can," Issa said in a statement.

Senate Finance Committee Chairman Max Baucus, D-Montana, called the proposal "an important step."

"Unfortunately, groups on both ends of the political spectrum have tried to take advantage of the ambiguity in the law when it comes to the tax treatment of 501(c)4s," Baucus said in a statement.

"We need to ensure clear standards and equal footing for the treatment of tax exempt social welfare organizations."

- CNN’s Bill Mears and Kevin Bohn contributed to this report.

Filed under: IRS
soundoff (27 Responses)
  1. Burt Ward

    Will they ever do anything about mostly the Missionary Baptist Churches preaching and commanding politics from the pulpit? I mean they tell you whom to vote for, what issues to vote in and out, hold rallies at the church for a particular candidate, and provide transportation to the polls so people can proxy vote for those who cant leave the rest home. Those old ladies vote for themselves, then circle back and sign in for Haddie , Rest Acres, and vote for her. The church prints up a voting guide that looks like a real ballot. They take it with them to the polls so they can mark the right candidate. This used to be illegal for a non-profit to get this involved in the process but now its just a matter of routine practice for these churches. One pastor responded to criticism by saying, "I can say what I want from the pulpit any dmn time I want to say it and the IRS can just go to he**"

    November 26, 2013 05:08 pm at 5:08 pm |
  2. rs

    The IRS wants to limit political activity to the socialist Democratic an obvious affront to all other political parties.........and in conflict with freedom in America.
    between Donna and the above commentary, the Right is fairly unhinged today.

    November 26, 2013 05:14 pm at 5:14 pm |
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