Gary D. Bass is executive director of the Bauman Foundation and an affiliated professor at Georgetown University’s Public Policy Institute. Elizabeth J. Kingsley is a partner with the law firm Harmon, Curran, Spielberg & Eisenberg and co-chair of American Bar Association’s Tax Section Exempt Organization Committee’s subcommittee on politics and lobbying activities.
The IRS’s improper scrutiny of conservative groups’ applications for tax-exempt status certainly warrants investigation. But we must not lose sight of the underlying problems that led to this situation: the lack of workable standards to determine what activity the Internal Revenue Service considers “political” and how much of it a nonprofit group can do.
This issue was highlighted last Friday during a House hearing on IRS activity. Asked if he could define when a group applying for tax exemption as a 501(c)(4) “social welfare organization” is being too political, Steven T. Miller admitted that he could not say for sure. If the IRS’s former acting commissioner doesn’t know, it is impossible to expect front-line staff reviewing applications to know what to look for, nor for citizen advocacy groups to understand what rules govern their conduct.
Under current protocol to determine whether an applicant qualifies for 501(c)(4) status, the IRS assesses “all the facts and circumstances” to determine whether an activity is political or furthers social welfare. Employees then apply another ambiguous facts-and-circumstances test to determine whether the applicant is primarily furthering social welfare or engaged in too much politics. In other words, overburdened mid- and lower-level IRS staff are asked to flag possibly political organizations based on no clearer a standard than knowing political activity when they see it.
This also raises questions about how the agency can be expected to enforce unclear rules that its employees do not understand.
Much of this problem could be addressed by adopting objective, substantive criteria to define political intervention for nonprofit organizations. For the past four years, we have worked with legal experts and nonprofit leaders at the Bright Lines Project (now housed at Public Citizen) to develop just such a proposal.
Using standards similar to those that have worked for more than two decades to define lobbying for charities, we crafted working definitions for political intervention that would apply to tax-exempt entities. Communications that refer to a clearly identified candidate and reflect a view on that candidate would meet the threshold definition of “political intervention.” Our test provides exceptions for bona fide lobbying and other non-electoral activity. For example, lobbying aimed at moving a public official to take a specific official action, voter-education materials developed using an impartial methodology and limited responses to candidates who take aim at an organization would not be treated as campaign advocacy unless the communication consists of paid mass-media advertising.
The Bright Lines proposal, which is to be released Friday, is accompanied by more than 30 examples to illustrate how each concept would apply in the real world. For instance, if the group is trying to influence a pending vote, highlighting that a politician seeking reelection had voted against similar legislation in the past would not be politicking. But it would be political activity for the group to bash an incumbent’s record while there was no prospect of a legislative vote. (Our proposal allows a different definition for 527 organizations, which must disclose their donors and their expenditures, to avoid discouraging political actors to opt for this classification.)
Our proposal or similar definitions could be enacted by the IRS as a regulation. If the agency cannot or will not act, Congress should direct it to implement a clear rule.
Congress also needs to put forth standards on the extent of allowable political activity by nonprofit groups. The lack of clarity means that 501(c)(4) groups can spend as much as 49 percent of their budget on politics and still be considered “primarily” social welfare. Given the vast amounts of undisclosed political money that passes through 501(c)(4) social welfare groups, Congress should limit the amount of 501(c)(4) political activity, so that such activity is channeled toward organizations that must disclose their donors.
The IRS must also have the resources to put its clear definitions to work and make sure that groups do what they say they will do. Congress cannot continue to be penny-wise and pound-foolish: Providing the resources for strong enforcement would enable the agency to fairly enforce its rules and foster an environment where civic engagement can flourish.
Without clear rules, missteps — though not justifiable — are understandable. Adopting an unambiguous definition of political intervention and clearly articulated levels of permissible political activity will significantly reduce uncertainty and greatly reduce the chilling impact created by the IRS’s facts-and-circumstances approach. Such changes would also further insulate the IRS from political manipulation.