IRS plan to curb politically active nonprofits draws thousands of comments

February 27
The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., on Wednesday, May 15, 2013. Photographer: Andrew Harrer/Bloomberg
(Andrew Harrer/Bloomberg)

A controversial proposed IRS regulation that seeks to define political activity for nonprofit social welfare organizations drew more than 122,000 comments before Thursday night’s deadline, a gargantuan sum that underscores difficult task now facing the Treasury Department.

The proposed rule, which attempts to lay down clear lines to show when a 501(c)(4) group veers away from its core social welfare functions, has been roundly criticized by groups across the political spectrum as overbroad, unworkable and a threat to free speech.

The U.S. Chamber of Commerce urged the Obama administration to withdraw the plan, calling it “an unprecedented attempt to broadly suppress constitutionally protected speech.” The American Association of University Women quipped that while the group “would not presume to speak for ‘men of common intelligence,’ we are in a position to tell the IRS that women of uncommon intelligence find its current rules to be incomprehensible.”

The breadth of the opposition was exemplified by a bipartisan comment submitted Thursday by an unusual coalition that included immigration reform advocates, the American Civil Liberties Union, Public Citizen, Citizens United and FreedomWorks. Among other things, the groups objected to the department’s proposal to categorize nonpartisan voter registration and candidate forums as political activities.

Advocates for tighter campaign finance restrictions have applauded the IRS for undertaking the rule-making, saying clearer regulations must be put in place to rein in nonprofit groups that seek to shape elections without having to disclose their donors, as political committees must.

But tax experts believe that the deluge of criticism will delay implementation of new rules – or scuttle them altogether.

“I think they are likely to be withdrawn in their current form,” said Ellen P. Aprill, a tax law professor at Loyola Law School. The IRS and Treasury Department could then submit a new proposal, appoint an advisory committee to help draft the regulation – or pull back and “simply lick their wounds for a while,” she added.

Treasury officials declined to comment on the reaction to the proposal. But in a letter this week to Rep. Dave Camp, the Republican chair of the House Ways and Means Committee, a top department official defended the rule-making process as a response to calls by members of Congress and independent advocates to provide nonprofits with better guidance.

Alastair Fitzpayne, Treasury’s assistant secretary for legislative affairs, noted that the IRS’ inspector general – among others — recommended that the department develop clearer rules for what constitutes social welfare activity, to avoid the kind of selective scrutiny of groups that caused a furor last year.

“Our ultimate goal — to which we are firmly committed — is to simplify the IRS determinations process and to provide greater clarity for organizations seeking tax-exempt status,” he wrote in a letter obtained by The Post.

Fitzpayne rejected arguments that the regulation would stifle free speech or prevent groups from participating in politics, noting that such organizations can organize as tax-exempt groups under section 527 of the tax code, which requires them to reveal their donors.

“In requiring disclosure, Congress presumably made the judgment that political organizations should be open and transparent in their fundraising,” he wrote.

The department now plans to review all the comments submitted in response to the proposal and hold at least one public hearing on the proposed regulation.

Meanwhile, officials have not even begun grappling with another policy question the department plans to address: just how much political activity a social welfare group can conduct.

Current IRS regulations, which date to 1959, allow a group to claim social welfare status as long as it is “primarily” engaged in activities that benefit the community — giving nonprofits wide latitude to get involved in politics without revealing their funders.

On Thursday, a dozen Democratic senators, led in part by Rhode Island’s Sen. Sheldon Whitehouse, proposed capping the amount at 5 to 15 percent of an organization’s activities.

“The lawless zone that now exists, with essentially no meaningful limits on political activity by 501(c)(4) groups, call for decisive action that is already long overdue,” they wrote.

Josh Hicks contributed to this report.

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