Money & Business

IRS to Revise Proposed Rule for Nonprofit Political Activity

By / May 23, 2014 (iStock/Thinkstock)

After receiving a record-setting number of public comments on a single rule, the Internal Revenue Service and Treasury Department announced they will rewrite a proposed rule that would govern political activities conducted by 501(c)(4) social welfare groups.

Social welfare groups can breathe a sigh of relief—for now.

The Internal Revenue Service, which planned to hold a public hearing this summer to discuss a proposed rule restricting political activity by 501(c)(4) groups, is pumping the brakes on the proposal so it can make a few changes. The agency announced last week that it will delay the meeting until it can finish sifting through more than 150,000 comments—the most ever received on a single proposed rule—and revise the proposal based on that feedback.

“Consistent with what [IRS] Commissioner [Jack] Koskinen has previously stated, it is likely that we will make some changes to the proposed regulation in light of the comments we have received,” IRS said in a joint statement with the U.S. Department of the Treasury. “Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation.”

In its current form, the rule requires that any organization seeking tax-exempt status as a 501(c)(4) must “operate to promote social welfare” and limits the amount of “candidate-related political activity” the group can engage in. Under the proposed guidelines, those activities would include things like voter-registration drives, meet-and-greets, and candidate forums.

More recently, the IRS said it was considering whether the new rule should be applied to 501(c)(5) labor groups and 501(c)(6) trade and professional associations as well.

Sen. Orrin Hatch (R-Utah), the ranking Republican member of the Senate Finance Committee, called the IRS’s decision long overdue and a step in the right direction.

“The IRS is right to abandon its previously proposed rules governing 501(c)(4) organizations that threatened free speech and the rights of all American citizens to participate in the democratic process,” Hatch said in a statement. “I am glad the IRS heard the concerns of hundreds of thousands of Americans, and I will continue to advocate for an IRS that is independent and nonpartisan.”

Hatch’s fellow committee member Sen. Charles Schumer (D-NY), who has been pushing for tighter restrictions on 501(c)(4) organizations, was less pleased.

“One of the greatest dangers our democracy faces is the unregulated ‘Wild West’ nature of 501(c)(4)s that allows a multimillionaire to spend undisclosed millions on TV ads and call it social welfare,” Schumer said, according to CNN. “The only hope we have is when the IRS goes back, they don’t succumb to any form of political pressure and enact a very tough rule that will equally curtail liberal and conservative groups.”

In a statement, ASAE said it is encouraged that the IRS decided to rewrite the proposed rule and hopes the agency will rethink expanding the definition of political activity.

“We continue to believe that restricting groups from engaging in this type of nonpartisan activity would regulate far more speech or advocacy than is warranted and could create a chilling effect on the role nonprofit organizations play in fostering civic engagement and democracy,” said Jim Clarke, CAE, senior vice president of public policy at ASAE. “We look forward to reviewing the IRS’s revised regulations when they are published.”

The rule, introduced last November, came in response to revelations last year that the IRS inappropriately targeted conservative groups that were seeking tax-exempt status as social welfare groups. A follow-up report by Treasury’s inspector general for tax administration revealed that employees of the IRS Determinations Unit were unclear as to what kinds of political activities were allowed by 501(c)(3) and 501(c)(4) organizations.

Rob Stott

Rob Stott is a contributing editor for Associations Now. More »

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