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Defying the Odds

Defying the Odds
New book about the 2016 election.

Wednesday, November 27, 2013

IRS Proposes to Tighten 501(c)(4) Rules

At Politico, Byron Tau and Lauren French write:
The Obama administration proposed rules on Tuesday that could make it harder for some nonprofit groups that play politics to get away with claiming a tax exemption.
But don’t be fooled, this is not the end of political “dark money.”
The rules, released Tuesday by the Treasury Department and the Internal Revenue Service, are unlikely to stem the tide of anonymous donations that have flooded into politics since the 2010 Citizens United Supreme Court decision.
And even if the Obama administration takes an aggressive stance when the final regulations are released, political groups could circumvent the rules by converting into other types of entities not governed by the rules, veterans of campaign finance law and tax exempt status said.
“One of the problems of this rule is it is only talking about (c)4s and you need to get a hold of all these entities,” said Donald Tobin, an Ohio State University law professor and former Justice Department tax lawyer. “Clearly when you have an entity-based regulation, it encourages people to engage in activities from another entity.”
The proposal is the first major response to a May Treasury inspector general report blasting the IRS for added scrutiny of tea party conservative groups seeking a tax exemption — a major controversy that led President Barack Obama to fire the acting IRS commissioner and other officials to exit the agency.
At Slate, Emma Roller writes:
So now's the time groups like Americans For Prosperity should be sending out apoplectic press releases, right? Nope. They're either lying low, or they aren't all that worried about the rule being implemented. Basically, their argument is thus: The fact that the administration has to change the rules to bring these groups into violation proves that they've been following the rules all along.

"By proposing a rule change, the administration appears to be conceding that they can’t get 501(c)(4) groups to change their behavior without changing the rules," one source close to several conservative nonprofit groups said. "So while they may be able to change some behavior moving forward, it’s also a tacit validation that many of these groups have been acting properly since Citizens United."
The problem is, this is a pretty nebulous way to write a rule. Defining tax-exempt status based on whether a group uses communications with candidates could rope in nonpolitical groups. Interpreted widely, for example, it could threaten the tax-exempt status of any nonprofit group that used a member of Congress in a PSA within 60 days of an election. And even if the rule is passed, the administration would most assuredly still have James Bopp to reckon with.