IRS to propose specific limits on nonprofits’ political activities

The Internal Revenue Service will propose new guidelines next year that would cap the amount of political activity allowed for tax-exempt advocacy groups, according to the agency’s commissioner.

The new plan, the agency’s second attempt at writing guidelines for so-called social welfare groups, could be a game-changer for organizations such as Americans for Prosperity, part of a conservative network supported by Charles and David Koch, and the League of Conservation Voters, a group on the left.

Campaign-finance watchdogs have complained that a growing number of nonprofits are using “dark money” to influence elections, since the existing 501(c)(4) rules allow them to collect unlimited financial contributions without disclosing their donors. Stricter guidelines could make the groups less attractive to donors.

The IRS’s latest plan would address questions left unanswered from the controversial draft guidelines that it unveiled in November. The initial proposal focused on defining political activity, leaving aside matters such as how much activity would be allowed.

The Center for Public Integrity first reported the latest IRS strategy Wednesday, citing an interview with IRS Commissioner John Koskinen. Koskinen said he expects a new draft of the 501(c)(4) regulations by early 2015.

Under the upcoming proposal, the IRS might limit political activity to a certain percentage of the overall activities for tax-exempt groups. It could also extend the rules to other types of organizations such as labor unions and trade associations.

The IRS rules will no doubt draw heavy scrutiny. The first set of draft guidelines drew more than 150,000 comments during a public-input phase that ended in February. Criticism came from across the political spectrum, with liberals complaining the rules defined even voter-registration efforts as political activity, while conservatives said the effort was part of a scheme to silence President Obama’s critics.

Koskinen took over the IRS last year in the wake of the agency’s tea party controversy, which erupted after former IRS official Lois Lerner acknowledged in May 2013 that the agency had inappropriately targeted some conservative organizations.

An inspector general’s report that month confirmed the agency had applied extra scrutiny to groups based on their names and policy positions.

The IRS said vague rules on prohibited political activities for nonprofit advocacy groups contributed to the problem. Federal law says the organizations must be engaged exclusively in social welfare, but a 1959 IRS regulation states that they should be “primarily engaged” in such efforts.

The new rules are meant to provide greater clarity.

Democracy 21, a campaign­finance group that has pushed for stricter guidelines, said the IRS is moving in the right direction.

“By far, the most important step that needs to be taken to conform the regulations with the statute is to make clear that only a minimal amount of campaign-related activity can be conducted by a 501(c)(4) group, such as no more than 10 percent,” said Fred Wertheimer, the organization’s president.

The Center for Competitive Politics was less enthusiastic, saying the Federal Election Commission is better suited for dealing with campaign-finance matters.

“The idea that a tax-enforcement agency is getting involved in politics is an extremely dangerous thing,” said David Keating, the group’s president. “It’s not in their area of expertise.”

House Ways and Means Committee Chairman Rep. Dave Camp (R-Mich.) proposed a bill in January to stop the IRS from modifying its 501(c)(4) regulations for one year while Congress continued investigating the targeting matter. The House passed the measure in February with support from 14 Democrats, but the legislation has stalled in the Senate.

Camp spokeswoman Sarah Swinehart said in a statement on Wednesday that the congressman will monitor the ongoing rule-making process closely.

“Whatever action the agency considers, you can bet Congress is watching and stands ready to block any effort to continue their abuse of conservative groups — and that of any other group,” she said.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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