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Big-Money Politics Groups Get Clarity From IRS They Hate

Groups that want to spend millions of dollars on political campaigns without disclosing their donors are getting a clear road map on how to do so from the U.S. Internal Revenue Service.

And some of the groups don’t like it one bit.

Republicans criticize the proposed IRS rules as an attack on free speech because they would limit voter guides and candidate forums. The rules also would provide a legal path for groups organized under section 501(c)(4) of the tax code to air campaign ads.

That would give some of the biggest players from the 2012 campaign, including Crossroads Grassroots Policy Strategies, greater certainty to run ads in ways that don’t risk their tax-exempt status going forward. They could run issue-based ads that mention candidates’ names months before an election, and then switch to a direct pitch closer to the vote.

“If I were sitting in the chair of a conservative political operative, I would be rubbing my palms together hoping that these (c)(4) rules would be adopted,” said Greg Colvin, an attorney at Adler & Colvin in San Francisco who specializes in the political activity of nonprofit groups.

That prospect of benefits for big-money political nonprofit groups -- which are mostly Republican-leaning -- runs counter to the message from Republican lawmakers, who call the IRS rules a political maneuver by the Obama administration to restrict groups favoring smaller government.

$256 Million

According to the Center for Responsive Politics, 501(c)(4) groups spent $256 million on the 2012 election, more than three times what they spent in 2008. Such groups are different from super-political action committees, which disclose their donors.

Republicans including Senator Pat Roberts of Kansas and House Ways and Means Committee Chairman Dave Camp of Michigan have rallied their colleagues and constituents over the past month in opposition to the IRS proposal. They say the guidelines continue a pattern of anti-Republican actions by the tax agency.

The rules “would codify the IRS’s ability to attack certain groups, opening the door to further encroachment on Americans’ First Amendment rights,” Roberts said in a statement.

Voter guides, voter-registration drives, get-out-the-vote campaigns, Internet references to candidates and some appearances by candidates at groups’ events would be considered political actions. Too many of those activities would threaten a group’s tax-exempt status.

Issue Ads

Issue ads months away from an election, though, aren’t included in the definition of political activity.

Organizations across the U.S. political spectrum, including the American Civil Liberties Union and the American Family Association, oppose the IRS proposal.

Republicans say it would have a disproportionate effect on Tea Party groups organized under section 501(c)(4) and have made opposition to the proposed rules an urgent political cause.

Camp’s committee approved a bill on Feb. 11 that would prevent the IRS from implementing the rules for a year. The measure is scheduled to reach the House floor next week.

Senate Minority Leader Mitch McConnell is trying to advance similar legislation in the Senate. He said IRS Commissioner John Koskinen could show himself to be a “hero” and not a “political pawn” if he withdrew the rules.

Koskinen, who was confirmed as IRS commissioner after the rules were proposed, has given no hint that he’ll change them. Instead, he told reporters this month the IRS will weigh the comments it is receiving and schedule a public hearing.

2014 Election

The rules aren’t expected to affect the 2014 election.

So far, the IRS has received more than 38,000 comments on the rules, most in opposition. Some commenters have accused the tax agency of shredding the Constitution and others compared the limits to speech restrictions in China.

The IRS is accepting comments until Feb. 27 at www.regulations.gov.

Meanwhile, organizers of big-money groups are looking at how they can take advantage of the rules even before they go into effect. The groups also are looking for other structures, such as 501(c)(6) trade associations or taxable corporations, that could let them pay for political advertising without having to disclose their donors.

“The nefarious part of what the IRS is doing is that any big, national organization that can afford legal advice is going to be able to reorganize based on whatever the new regulations are,” said Matt Kibbe, president of FreedomWorks, a small-government group that has a 501(c)(3) charitable arm, a 501(c)(4) and a political committee. “The real victims here are the mom-and-pops that can’t afford to do that.”

Extra Scrutiny

The IRS proposed the rules after acknowledging last year that, in examining groups seeking tax-exempt status, it gave extra scrutiny to some Tea Party organizations solely because of their names. Those groups had delays of up to three years and were asked questions the IRS later said were too extensive and inappropriate.

Under the tax code, groups organized under 501(c)(4) must be organized “exclusively” to promote social welfare. Since 1959, IRS regulations have defined that to mean the groups can’t have politics as their primary purpose.

The rules proposed by the IRS in November 2013 are designed in part to keep the agency from having to analyze a group’s messages to determine whether they are political.

Setting Limit

The agency would set a limit on the amount of “candidate-related political activity” by 501(c)(4) groups. Such activity would include voter-registration drives, get-out-the-vote efforts and “express advocacy” advertising for or against candidates.

Other actions would count as political activity only if they occur within 30 days of a primary election or 60 days of a general election. Those include “issue” ads that mention candidates and their views without specifically endorsing or opposing them.

That means 501(c)(4) groups could conduct issue advertising outside the 30- or 60-day time frames and then do as much political activity close to the election as the rules allow.

The IRS hasn’t said how much political activity it would allow or how it would be measured.

“These rules still allow groups to engage in a significant amount of political campaign activity,” said Donald Tobin, a law professor at Ohio State University who studies the intersection of tax and campaign finance law. “We’re now going to know how to play the game.”

Angus King

Senator Angus King, a Maine independent, said in a letter to Koskinen released today that the IRS should more strictly enforce the law’s requirement that such tax-exempt groups be devoted “exclusively” to social welfare. At most, political activity should be limited to an “insubstantial” share of their activities, he wrote.

Groups are using the proposed rules to plan the timing of advertising and are seeking ways to work around them, said Rob Kelner, a Republican campaign-finance lawyer who is a partner at Covington & Burling LLP in Washington.

“It’s already clear that a lot of political activity is moving into taxable vehicles rather than these tax-exempt organizations,” he said.

The IRS also has asked for comments on whether the definition of political activity should be incorporated into restrictions on charities, labor unions and trade associations.

Crossroads GPS

Jonathan Collegio, a spokesman for Crossroads GPS, an organization founded with help from President George W. Bush’s political adviser Karl Rove, didn’t respond to requests for comment.

Levi Russell, a spokesman for Americans for Prosperity, one of the biggest 501(c)(4) groups, said in an e-mail that the rules would set an “arbitrary restriction” on Americans’ ability to voice their concerns with elected officials. The group advocates limited government.

“Because the proposed rules are so sweeping, categorical, and prohibitive, they will almost certainly affect organizations both large and small with equally draconian effects,” he said.

The 501(c)(4) groups became more commonplace after Congress required other political groups to disclose their donors, and court cases and IRS rulings allowed more paths for donations, Tobin said.

Colvin, chairman of the Bright Lines Project at Public Citizen, a consumer group that says it works to counter corporate interests, said the IRS should find a better way to separate partisan from nonpartisan activities.

The rules, he said, were “designed to stimulate the nonprofit sector to rise up and explain how important nonpartisan civic engagement actually is to them.”

Based on the 38,000 comments and counting, those messages are coming through.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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