Obama Administration Proposes New Curbs on Campaigning by Tax-Exempt Groups

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Feb 12, 2013
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Obama Administration Proposes New Curbs on Campaigning by Tax-Exempt Groups

WASHINGTON—The Obama administration Tuesday proposed a crackdown on the widespread use of tax-exempt organizations for political campaigning, seeking to reduce the influential role that the secretive groups have played in recent elections.

The new "guidance" issued Tuesday by the Treasury Department and the Internal Revenue Service would curtail a broad array of these tax-exempt entities' activities, including campaign advertising, voter registration, get-out-the-vote efforts, and distribution of voter guides and campaign materials.

The process of completing the new regulations could take months, and officials said they expected a lot of feedback, acknowledging the political battles ahead.

The involvement in politics of tax-exempt groups organized under section 501(c)(4) of the tax code has been viewed by many as the biggest abuse of modern campaign finance rules, which aim to limit the influence of wealthy donors in elections.

The use of these organizations became a prominent issue in recent campaigns when groups such as the conservative Crossroads GPS and liberal Priorities USA raised millions of dollars from donors who could remain anonymous under tax rules. Critics say the groups have been too lightly regulated by the IRS, due in part to confusing regulations.

The issue generated more political heat after numerous tea-party groups became frustrated in their efforts to obtain tax-exempt status and said the agency had singled them out for scrutiny.

A Treasury official said one aim of the new rules was to simplify the task of policing the groups for the IRS, by drawing brighter lines.

"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Treasury Assistant Secretary for Tax Policy Mark Mazur. "We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently."

The proposed new rules wouldn't take effect until after officials field comments and draft final regulations. That process could take more than a year, officials said, meaning that they might not be in place for next year's midterm campaigns. Still, the eventual impact on the current campaign landscape likely would be dramatic, and could cause wealthy individuals, corporations, labor unions and other large donors to reconsider whether to contribute to the groups.

Current IRS rules say groups organized under section 501(c)(4) must be primarily promoting "social welfare." They can engage in some political activities, but it can't be their primary focus. In general, the proposed new rules would classify more campaign-related actions as political and therefore not part of groups' tax-exempt activities. 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—specified what types of spending are considering political or nonpolitical. That has given the people who run 501(c)(4) groups tremendous flexibility in their spending.

In particular, the new guidance defines a broad new category, "candidate-related political activity," that it says cannot count toward fulfilling a group's tax-exempt purpose. Specific actions that would cross the line include: advertising that expressly advocates a candidate's election or falls within 60 days of a general election and clearly identifies a candidate or party; acceptance of contributions that are reportable campaign contributions, or grants to other groups that do election advocacy; distribution of campaign materials that mention candidates; voter registration drives and get-out-the-vote efforts; and some types of candidate events.

The IRS currently applies a "facts and circumstances" test to determine whether an organization is engaged in political campaign activities that don't promote social welfare. In addition to being confusing, it also requires the IRS to engage in lengthy fact-finding in many cases. The rules outlined on Tuesday would clarify and in several cases sharply restrict what these groups could do under the banner of tax-exempt activity.

Under the current standard, for example, a tax-exempt entity could run TV ads in the run-up to an election, congratulating a candidate for introducing a bill, and urging the legislature to enact it into law and viewers to support candidates who back that issue, officials said. Under the new standards, the group wouldn't be able to count that as exempt activity if it is run within the 60-day or 30-day window.

Groups also are able to do voter registration drives and get out the vote efforts now, as long as it isn't done in support of a particular candidate. But under the new standard, groups couldn't do voter registration drives as part of their exempt activity, even voter drives that aren't overtly partisan or political.

The fuzziness of the current standards was highlighted in the recent controversy over IRS handling of grass roots tea-party groups' applications for tax-exempt status. Many of those groups were applying to become social-welfare organizations under 501(c)(4). The IRS withheld ruling on dozens of the applications beginning in early 2010, amid a lengthy internal reconsideration of the standards for determining excessive political involvement. The Treasury inspector general for the IRS later concluded that the agency engaged in improper targeting of the conservative groups. Some Democrats argue that the agency also has targeted liberal groups.

The acting IRS commissioner, Daniel Werfel, said the proposed new guidance is "part of ongoing efforts within the IRS that are improving our work in the tax-exempt area."

As part of its proposal, Treasury also said it would consider the possibility of making even bigger changes—for example, clarifying what proportion of a group's activities must advance its tax-exempt purpose. Treasury and IRS also are seeking comments on whether new curbs should be placed on the political activities of "other tax-exempt organizations." The tax code allows a wide range of such entities, including business and labor associations that are often very active in politics.

The rising influence of 501(c)(4) groups in political campaigns is considered by many to be an unintended consequence of a 2002 campaign-finance law that was intended to reduce the influence of wealthy donors in politics.

That law, championed by Sen. John McCain (R., Ariz.), banned companies, labor unions and individuals from making unlimited financial donations to the national political parties.

As a result, wealthy individuals and interest groups sought other vehicles to spend large amounts of money to influence elections by creating outside campaign organizations. Such independent political entities were incorporated in one of several different ways.

Political groups set up as 501(c)(4)'s could not make election campaigning the "primary purpose" of their existence, but they are permitted to raise unlimited sums of money from corporations, unions and wealthy individuals to spend on campaigns.

A string of major court decisions in 2010, including the landmark Citizens United decision, provided a major boost to 501(c)(4) entities by making it easier for companies and labor unions to contribute money to them. That led to a flood of donations.

The largest such organization, Crossroads GPS, which is run in part by GOP strategist Karl Rove, raised $180 million for the 2012 campaign from about 1,500 donors.

The biggest single contribution to Mr. Rove's group was $22.5 million. By contrast, the Republican and Democratic parties were prohibited from accepting donations larger than $30,800. Donors to individual candidates were capped at $2,500 per election.

President Barack Obama criticized the existence of outside political entities, though a group of his supporters created Priorities USA to support his re-election.

A total of 10 of these 501(c)(4) entities raised more than $10 million each to spend on the 2012 election, according to data from the Center for Responsive Politics.

Obama Administration Proposes New Curbs on Campaigning by Tax-Exempt 501(c)(4) Groups - WSJ.com
 
What's the matter? Afraid you can't win if the super-rich have to disclose just how much they have been bankrolling the so-called populist tea party?
 
Good, the Koch's, Adelson, Rove, and the other right wing puppetmasters need to be shut down from their fascism.
 
What's the matter? Afraid you can't win if the super-rich have to disclose just how much they have been bankrolling the so-called populist tea party?

Would you be afraid if the same held true for the far left country killers that are in power now?

Not a bit, letting the light of day into the process will be beneficial to the electoral process and the country as a whole. There should not be secret money in elections, period. Corruption grows behind locked doors and in secret ledgers.
 

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