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Politics

IRS proposal governing nonprofits draws fire

Agency attempts to track hidden political funding

Former IRS official Marcus Owens said the Treasury backed mixing tax, election laws.

Former IRS official Marcus Owens said the Treasury backed mixing tax, election laws.

WASHINGTON — The Internal Revenue Service, one of the most beleaguered federal agencies, is seeking to assume a new role in regulating election financing. And the reaction, perhaps predictably, has been critical.

Many of the nearly 67,000 comments following the IRS’ proposal to rein in politically active nonprofits urge the organization to focus on its day job: tax collection.

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“It sounds to me like the IRS is making law, not enforcing it. Leave rule-making to the buffoons in Congress,” one comment reads.

Another puts it more bluntly: “Stick to taxes.”

The public opposition comes from both liberals and conservatives, who are blasting draft regulations released by the Treasury Department in November that would tighten restrictions on political spending by nonprofit “social welfare’’ organizations, formally called 501(c)(4) groups under a section in the tax code.

The backlash highlights the difficulty the federal government has encountered in attempting to respond to the Supreme Court’s Citizen’s United ruling in 2010, which said corporations could spend unlimited amounts of money to influence elections.

The IRS is trying to control the explosion of political activity by nonprofit organizations triggered by the ruling, including attack advertising funded by anonymous contributors. But now advocates on all sides of the political spectrum say the response by the IRS may have gone too far.

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“The IRS can’t win,” said Brett Kappel, a campaign finance lawyer. “They’ve come out and drawn bright-line rules, but nobody likes them.”

The new rules probably would not be finalized in time to affect 2014 elections but could influence conduct in 2016. They would classify broadcast and print advertising, voter guides, and registration drives that cite candidates or political parties 60 days before an election as “candidate-related political activities.”

The IRS has previously said nonprofits’ primary purpose must relate to social welfare, a requirement that tax lawyers have interpreted as meaning 51 percent of total spending. Critics have said the lack of precise definitions of what can be called social welfare has led some organizations to distort the IRS rules.

“Clarification of these rules is an important goal and one that we are committed to,” a Treasury Department spokesman said in a statement.

Paul S. Ryan, senior counsel at the Campaign Legal Center, a Washington advocacy group, said it is “quite possible” the rules were accelerated by the IRS controversy last year, when an audit showed employees gave extra scrutiny to groups whose names included words such as “tea party” or “patriot.”

“The IRS was really struggling to enforce the law,” Ryan said.

If enacted, the changes would probably be met with legal challenges, election law experts say.

Activists criticize the plan as overly broad. Republican lawmakers, who say it is an attempt to muzzle President Obama’s political opponents, are already rallying behind legislation to delay the regulations even further. Among the sticking points: The IRS has not said how it would measure political work or what level of such activity would threaten an organization’s tax-exempt status.

Meanwhile, the spending by such groups continues unabated. In several states, conservative groups are ramping up efforts to hit vulnerable Democratic senators for their vote on the health care law.

Tax-exempt nonprofits such as the GOP-allied Americans for Prosperity are bombarding the airwaves in what is poised to become the costliest midterm election year.

In the 2012 election, so-called dark money groups pumped $256 million into campaigns, according to the nonpartisan Center for Responsive Politics. This cycle, all outside spending has already exceeded $32 million — more than three times as much as they did at this point in 2010.

Americans for Prosperity — a group backed by the billionaire Koch brothers that is emerging as a dominant force in 2014 — has unleashed ads tying the controversial health care law to senators who could face tough reelection battles, including Democrat Jeanne Shaheen of New Hampshire. Since October, the nonprofit has spent about $28 million on ads opposing the law.

On the left, such groups as Patriot Majority USA are answering with ads of their own, spending more than $1 million opposing Senate candidates in states including North Carolina and Kentucky.

The rules could also affect lesser-known groups whose influence on elections is much smaller.

By proposing that civic initiatives — such as voter guides and candidate questionnaires — constitute political activities, the agency could burden grass-roots organizations dedicated to issue work, critics say.

“The more complex we make the rules, the more we leave the political space to the wealthy,” said Abby Levine, a lawyer with the left-leaning Alliance for Justice.

That the IRS is drawing up political definitions has also raised questions over the agency’s role in what has traditionally been the Federal Election Commission’s domain.

“The combination of tax law and election law has not been authorized by Congress,” said tax attorney Marcus Owens, a former top IRS official. “It’s brand new and was thought of by the Treasury Department.”

Conservative groups and Republican lawmakers say the plan could be used to intimidate Americans from exercising their free speech rights. They cite the IRS scandal last year as an indication that organizations supporting small government could be targeted further.

Kimberly Railey can be reached at kimberly.railey@globe.com.
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