Proposed IRS Rules to Limit Political Activity by Social Welfare Organizations

The U.S. Department of the Treasury and the Internal Revenue Service have proposed new rules for social welfare organizations under section 501(c)(4) of the Internal Revenue Code that could affect secretive groups engaged in political activities while claiming to promote social welfare.

The proposed guidance would amend IRS regulations to exclude "candidate-related political activity" from allowable activities for social welfare organizations. That includes communications which advocate for a clearly identified political candidate or candidates of a political party, those made within sixty days of a general election (or thirty days of a primary election) that identify a candidate or party, or those that involve expenditures that must be reported to the Federal Election Commission; contributions that must be reported under campaign finance law or grants made to section 527 political organizations and other tax-exempt groups that conduct candidate-related political activities; voter registration and "get-out-the-vote" drives; distribution of material prepared by or on behalf of a candidate or a section 527 political group; preparation or distribution of voter guides that refer to candidates; and holding an event within sixty days of a general election (or thirty days of a primary election) at which a candidate appears as part of the program.

The proposed guidance also seeks initial comments on other aspects of the qualification requirements, including what proportion of a 501(c)(4) organization's activities must promote social welfare.

Under current rules, promoting social welfare can include some political activity as well as unlimited lobbying. Large political nonprofits such as Americans for Prosperity, which is backed by conservative philanthropists Charles and David Koch, have taken advantage of the provision to make significant investments in political ads and efforts on behalf of specific candidates and issues. Administration officials described the new proposal as a response to complaints — including objections from the Treasury's own inspector general following accusations by Tea Party groups of IRS harassment last spring — that the existing regulations were too vague, leading to inconsistent and arbitrary enforcement, the New York Times reports.

Fred Wertheimer, president of watchdog group Democracy 21, which has sued the IRS along with the Campaign Legal Center, told the Times the proposal was “an important step forward." "Enormous abuses have taken place under the current rules, which have allowed groups largely devoted to campaign activities to operate as nonprofit groups in order to keep secret the donors funding their campaign activities," said Wertheimer. He told Roll Call, however, that the draft guidelines fail to address the key question of whether social welfare groups should be permitted to spend any money at all on political activities.

However, the Republican chair of the House Ways and Means Committee, Rep. Dave Camp (R-MI), accused the Obama administration of moving to shut down potential critics. "There continues to be an ongoing investigation, with many documents yet to be uncovered, into how the IRS systematically targeted and abused conservative leaning groups," said Camp in a statement. "Before rushing forward with new rules, especially ones that appear to make it harder to engage in public debate, I would hope Treasury would let all the facts come out first — something they could achieve by fully cooperating with Congress in the investigation."