November 29 2013

New IRS Crackdown to Hurt Conservative Groups

Patrice J. Lee

The Administration has proposed new rules to crack down on organizations seeking tax exemption if they engage in too much candidate-related political activity. The President is making made an aggressive move in light of this summer’s scandals over IRS targeting of tea party and conservative groups, which left him with a lot of egg on his face.

The aim of the rules is to go after what liberal like to call “dark money” groups or 501(c)4 organizations that spend private donations to affect political campaigns without disclosing their donors.

The IRS scandal and subsequent congressional investigations tarnished the Administration and IRS, so it’s no surprise that pay-back would be in order.

The Hill reports:

The move springs directly from the controversy over IRS targeting of Tea Party groups, which began after compliance officers singled out political groups seeking tax-exempt status for extra scrutiny.



The guidance, if adopted, would make clear that the promotion of social welfare — the stated purpose of so-called 501(c)(4) groups — does not include “candidate-related political activity.” At the same time, the administration is asking for input on how much social welfare work a group must engage in to qualify for 501(c)(4) status.

That could have major ramifications for the political nonprofits, which critics argue are being set up solely to hide from public scrutiny. 

Under the proposed rules, groups with the exemption couldn't count political advertisements, participating in "get-out-the-vote" or voter registration drives or holding events involving candidates as "social welfare" work.

Acting IRS Commissioner Danny Werfel said the new draft guidance, to be published later Tuesday in theFederal Register, is intended to clear up ambiguity in the law.

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

Liberal watchdog organizations are giddy, because these new rules will primarily hit conservative and libertarian organizations. Such groups have made impacts in state and federal races across the country over the past decadeand most recently in the past two election cycles. (In full disclosure: I work for a 501(c)4 organization).  

The director of a progressive group likened social welfare groups to Tony Soprano saying, “Too often, 501s have simply become a front for corporate political mobsters to anonymously exert their power over our elections.” Really? Mobsters?

What exactly do 501(c)4 groups do that is so egregious they warrant being compared to mobsters and goons? They run voter registration and get-out-the-vote campaigns. They also launch tv and radio ads highlighting the records of candidates on issues that voters care about. Sounds really outrageous right?

The Wall Street Journal explains further:

Under current rules, 501(c)(4) organizations must promote "social welfare" causes and can't be "primarily" a campaign organization. That has been interpreted by lawyers for 501(c)(4) organizations to mean that they can't spend more than 50% of their funding on campaigns.

But the IRS hasn't—until now—had clear rules to specify precisely what types of spending are considering political or nonpolitical…

Groups classify much of their spending as social welfare, so they have more left over for direct campaign spending, according to lawyers for nonprofit organizations. In essence, every expenditure a 501(c)(4) can define as nonpolitical leaves them with more money to spend on election campaigns.

In its proposal, the IRS spelled out specific activities that must be considered political, including donations to other groups that spend money on elections, voter-registration drives and voter guides. The IRS also said it would consider changing the proportion of money that 501(c)(4) organizations can spend on political activities.

Taken together, the actions could be a major blow to the use of 501(c)(4) organizations in campaigns. By forcing the groups to count certain spending as political, the IRS would, in effect, reduce the amount of money 501(c)(4) entities can spend on campaign activities.

So why should we care?

Planning for the 2014 and 2016 election cycles are well underway on both sides of the aisle. Organizations that can engage in educating and activating the public on issues and candidates may face severe limits on what they were up until now able to do. It’s no secret that conservative groups will bear the brunt of these changes because they far outnumber liberal (c)4s. Liberals rely on other established organizations like organized labor to get their politicking done.

Don’t be fooled. This is all about short-term election strategy and long-term political changes that will harm one side –even if it doesn’t directly help the other.

The IRS has been monkeying around with (conservative) groups for some time and now the President is legitimizing their efforts. This is an issue to watch and watch closely.

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