Updated 11/26/13: This post has been updated to incorporate language from the proposed regulations, as opposed to the press release that was available earlier.

The IRS and Treasury Department on Tuesday issued proposed rules that could sharply cut back the amount of political activity that 501(c)(4) social welfare organizations can undertake and still maintain their tax-exempt status.

The proposed rules — on which the government said it expects extensive public comment — attempt to more clearly define what counts as political activity in the eyes of the IRS. Under the proposal, for instance, the groups would have to report as political spending to the IRS any outlays they report to the Federal Election Commission; currently not all of them do so. Americans for Tax Reform, for instance, told the FEC it spent $15.8 million on independent expenditures in 2012, while it told the IRS it spent just $9.8 million.

The proposal lists other actions that the IRS and Treasury said would fall under political spending, including grants to other tax-exempt groups that “conduct candidate-related political activities,” and any communications within 60 days of a general election or 30 days of a primary that “clearly identify a candidate or party.”

Experts said the proposal would not be finalized in time to apply to the 2014 elections. It could, however, be in effect for the next presidential race in 2016. In the 2012 elections, 501(c)(4) groups — which aren’t required to disclose their donors — spent nearly $260 million, according to their reports to the FEC.

One thing the guidance does not do is set a limit on how much political activity is permissible for a 501(c)(4) group. Treasury and the IRS invited public comment on that issue, however, and they are expected to address it in the future. Currently, it’s assumed that a group can spend up to 49 percent of its resources on politics.

The guidance came in response to an inspector general report earlier this year after the IRS targeted tea party and other organizations for intensive questioning about their activities to determine if the groups were too political. The report recommended that the IRS issue more specific rules about what constitutes political activity. Currently, the determination relies on a “facts and circumstances” test that requires intensive case-by-case research.

Certain language in the proposal raised concerns among some experts on exempt organizations that the IRS, previously often criticized for allowing social welfare groups to become highly political, was going too far in the other direction.

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“This is the most ambiguous, potentially far-reaching set of regulations I’ve ever seen,” said Marcus Owens, a former head of the IRS’ exempt organizations division and a partner at the law firm Caplin & Drysdale.

Owens pointed, for example, to the fact that voter registration and get-out-the-vote drives would be considered political under the proposal — though the language in the document allows that nonpartisan efforts might not fit the definition and encourages public comment. The government wants to “avoid a fact-intensive analysis,” the document says.

Events within 60 days of a general election with a candidate appearing as part of the program would fall within the proposed definition of political activity, under the new proposal. That may be too cut-and-dried, Owens said. “What about nonpartisan candidate debates?” he asked. The proposal “doesn’t eliminate ambiguity, it creates more,” he said, noting that lawyers like himself would be “very busy” under the new guidance.



Under the proposal, grants from 501(c)(4)s to other similar groups would be added to an organization’s political spending total unless the group obtained a “written representation” from the authorized representative of the recipient organization Ellen Aprill, a professor at Loyola Law School who specializes in this area, agreed, for some of the same reasons. “I’m very ambivalent about this,” she said. She added that it wasn’t clear whether the government planned to change the rules for all 501(c) groups, including (c)(5)s (labor unions) and (c)(6)s (trade associations). “And if not, do we wind up with a big divide between these groups?” Aprill asked. To some degree the guidance is similar to the letter issued by the IRS in June allowing groups that had been waiting a long time for approval of their tax status to certify that they weren’t involved in certain activities. But that expedited application process — which came about after the “targeting” scandal — also required the groups that used it to promise their political activity was limited to 40 percent of what they did.



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