More details on the IRS's proposed crackdown of 501(c)(4) organizations

by - November 26, 2013

The Notice of Proposed Rulemaking is here

Media Reaction:

Politically active tax-exempt groups, which spent tens of millions in the previous election without disclosing their donors, would face tighter restrictions under new guidelines proposed Tuesday by the Treasury Department and the IRS. The initial guidance, outlined in a Tuesday release and slated to be published shortly in the Federal Register, spells out that “candidate-related political activity” may not be defined as promoting the social welfare. The guidance defines such activity to include messages that picture or name a candidate on the eve of an election, potentially restricting the widespread use of campaign-style ads that evade disclosure as so-called issue ads by 501(c)4 social welfare groups.

Treasury, IRS Propose New Nonprofit Rules | Beltway Insiders

The Obama administration on Tuesday moved to issue new rules that would curtail political activity by tax-exempt nonprofit groups, with potentially significant ramifications for one of the fastest-growing sources of campaign spending. The proposed rules, announced by the Treasury Department and the Internal Revenue Service, would expand and clarify how the I.R.S. defines political activity and then establish clearer limits for how much activity nonprofits can engage in. Such a change — long urged by government watchdog groups — would be the first wholesale shift in a generation in the regulations governing political activity.

New Campaign Rules Proposed for Tax-Exempt Nonprofits -

These groups can spend millions to back federal candidates and run issue ads because of ambiguity and uncertainty about the current IRS rules governing political spending by 501(c)(4)s. Current IRS rules require that these groups be organized for the purpose of “social welfare.” The new draft Treasury and IRS regulations would explicitly exempt certain political activity on behalf of candidates as counting toward the promotion of “social welfare.” For example, candidate-related political activity includes communications within 60 days of a general election clearly identifying a candidate or party. The IRS and Treasury are also taking comments on how much of a political nonprofit’s activities must be geared toward “social welfare” in order to receive tax-exempt status.  Right now the definition is murky. Many of these political nonprofits — major players in campaigns in the past few cycles — have argued that as long as their political spending is less than half of total spending, they are in the clear under IRS rules.

President Obama pitches new rules for political nonprofits - Byron Tau -

The Treasury press release is vague on key details that won’t be known until a draft rule is released.  The devil will be in the details.  The proposed rule is right to recognize that advocacy nonprofit groups can conduct political activities.  Participation in our nation’s elections is vitally important to efficient and effective government and advances the legitimate public policy goals of social welfare groups, labor unions and trade associations. The ultimate percentage that can be devoted to these activities – which we believe in fact do constitute “social welfare” activities – will tell us whether this is an effort to clarify the law or simply to smother political speech. Additionally, the IRS must scrap the “facts and circumstances” test.  While the press release indicates that the IRS is moving towards clearer standards, it is not clear yet whether the proposal ends this test or not. Much of the rule is in the right direction.  Political activity should be defined as supporting candidates and parties with contributions or expressly advocating for candidates. However the proposal goes seriously off track when it seeks to count candidate-related political activity to include “Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate.”  Such communications are protected issue speech and should not be limited.  Indeed, such communications could solely advance, and in fact long have solely advanced, activities that are clearly grassroots lobbying or educational activities that have always qualified as activities that advance social welfare.

Treasury Releases Vague Details on New IRS Guidance - CCP



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