WASHINGTON – In a long-anticipated move to restrict the flood of secret money in campaigns, the IRS for the first time proposed rules to rein in the political activities of tax-exempt groups that have emerged as heavyweight players in American elections.
Tuesday’s proposal, which faces a long and likely arduous path before becoming final, could dramatically reshape the campaign landscape.
Since the Supreme Court’s Citizens United decision in 2010, nonprofit groups organized under section 501(c)4 of the tax code have poured hundreds of millions of dollars into television commercials to back candidates and political causes – without revealing their donors.
The groups include conservative organizations, such as Americans for Prosperity backed by billionaire brothers Charles and David Koch, as well as liberal ones, such as Organizing for Action, which started out as President Barack Obama’s campaign operation.
Nonprofit groups and trade organizations reported spending $309 million in the 2012 election, according to the Center for Responsive Politics, but much of their spending remains in the dark.
Such groups also have funneled millions into California elections, prompting an investigation and fines this year for some conservative groups that had concealed the sources of their money in ways that violated state rules.
As the influence of these groups has grown, advocates of campaign finance reform, along with many Democrats in Congress, have pushed the Internal Revenue Service to limit their activities.
“Unfortunately, groups on both ends of the political spectrum have tried to take advantage of the ambiguity in the law,” said Senate Finance Committee Chairman Max Baucus, D-Mont.
Paul Ryan, senior counsel of the Campaign Legal Center, which advocates for tougher campaign finance rules, called the IRS proposal “a good sign coming from an agency that has done little or nothing” to regulate spending by nonprofits in politics.
Although the rules would apply to liberal and conservative groups alike, the announcement drew attacks from conservatives and Republicans in Congress, who said the proposed rules would be an abuse of power.
“This smacks of the administration trying to shut down potential critics,” said Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, which, like the Senate Finance Committee, has jurisdiction over the IRS.
The process of writing new rules to cover these influential groups touches on sensitive issues of free speech and the proper role of government in regulating political spending, adding to the complexity of the effort.
“This is protected First Amendment activity, and it seems to me, unless you have it strictly limited, it’s unconstitutional,” said Cleta Mitchell, an attorney who represents conservative groups before the IRS.
The 501(c)4 organizations are defined by the IRS code as promoting “the common good and general welfare.” They are permitted to engage in some campaign-related activity, as long as politics is not their “primary purpose.”
But the IRS has never spelled out exactly what that means.
The vague language set the stage for the agency’s scrutiny of tea party and progressive groups, which came to light this year. IRS agents sent some groups long lists of questions to determine whether their main purpose was politics.
The proposed new rules wouldn’t ban political activity, but would attempt to draw a clearer line between activities that are political and those that promote the general welfare.
The IRS has not proposed a new standard for how it would decide whether politics or social welfare is a group’s primary purpose. The agency is soliciting comments on whether it should do that.
“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity,” Mark Mazur, Treasury assistant secretary for tax policy, said in a statement. “We are committed to getting this right before issuing final guidelines that may affect a broad group of organizations.”
Some of the IRS proposals reflect Federal Election Commission rules. Any communications that “expressly advocate” for a candidate would count as politics, including all references to candidates of a political party.
Any communication that even mentions a candidate would also be considered political activity if it fell within 60 days of a general election, or 30 days of a primary. That rule, however, would leave groups free to spend money without restriction on ads during the summers of election years so long as they do not promote a candidate.
Unlike the FEC’s rules, the IRS limits would also cover state and local races.
The new definitions would expand the reach of IRS regulations into areas long considered acceptable for civic groups, including get-out-the-vote drives, publication of voter guides, voter registration efforts and candidate forums. Those would be considered political activity whether they’re done by advocacy groups or the nonpartisan League of Women Voters.
By focusing on the activity, not the intent, the IRS is trying to get away from the “fact-intensive inquiries” it now uses to determine whether groups are neutral.
But Rep. Darrell Issa, R-Calif., who conducted hearings this year on the IRS scrutiny of conservative groups, objected that the proposal “will have a much more profound impact on grass-roots and community organizations than on the well-heeled groups it supposedly targets.”
The new approach will raise almost as many questions as it answers, said Marcus Owens, a former director of the IRS’ nonprofit division.
“What we have here is not clearly a step forward,” he said. “It’s a lawyer’s relief bill.”
The agency will invite comments for 90 days. There is no timetable for writing the final rules.
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