The effort was the first major response to the IRS tea party targeting controversy. IRS hit from all sides on nonprofits

Will a record-breaking amount of criticism force the Obama administration’s hand to soften proposed new rules for political nonprofits?

Opponents sure hope so.


Three months after the administration unveiled a controversial new rule for 501(c)(4) nonprofits, both liberal and conservatives groups are hoping a record amount of comments and a deluge of attention from Capitol Hill will persuade the Internal Revenue Service to at least pare back the proposals before finalizing the new rule.

“No one thinks the proposals are perfect. There is near unanimity among liberals and conservatives that the effort was a bit too broad,” said Stephen Spaulding, a staff counsel with the liberal advocacy group Common Cause, which is generally supportive of revamping campaign finance laws .

At issue is the vague tax law that currently governs these nonprofits, which count among their number Crossroads GPS, founded by former George W. Bush adviser Karl Rove, and the liberal-leaning Patriot Majority. As it stands now, the law on 501(c)(4)s says such groups need to “exclusively” focus on social welfare, while the IRS regulations say social welfare must be their “primary” focus.

The IRS and Treasury proposed a new standard, applying to groups regardless of political affiliation , classifying any communications within 60 days of a general election that clearly identifies a candidate or party or some get-out-the-vote efforts as political. It would replace a vague “facts and circumstances” test that currently applies.

Also considered political would be events within 30 days of a primary election or 60 days of a general election at which any candidate appears — even if the event is bipartisan.

The comment period for the draft proposal, which closed on Thursday, garnered nearly 145,000 comments from trade groups, 501(c)(4)s and other nonprofits, lawmakers and a number of former Federal Election Commission and IRS bigwigs.

The effort was the first major response to the IRS tea party targeting controversy, which led President Barack Obama to fire the acting IRS commissioner and cause other officials to exit, giving the IRS a major public-relations black eye.

But it was the inclusion of voter education, registration and get-out-the-vote efforts that brought on a flood of criticism from groups traditionally allied with Democrats.

“That’s certainly one of our biggest problems. You see how it’s overly broad, as get-out-the-vote efforts [are] neither candidate-related or politically related. It’s odd,” Spaulding said.

The NAACP called the regulations “sweeping” in its comments to the Treasury.

“The tax law should continue to encourage our nonpartisan efforts to ensure that every American citizen has equal access to the voting booth,” its comments read. “We believe that the proposed rules would make matters worse, not better, by further muddying the waters in this area of the law, and by dramatically restricting the NAACP’s ability to address the latest efforts to suppress voting rights.”

Even longtime critic of the current nonprofit standards Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said the voter education classification was too broad and that he hoped the Treasury took a significant look at the criticism.

“Rarely is a regulation proposed that isn’t changed, and that should be true here. The argument often used on voter guides … I think should not be included,” Levin said.

Some on the left dismiss worries that the rules violate First Amendment rights. A letter from 15 Democrats to the IRS last week called on the agency to put a strict test of political activities — from 5 percent to 15 percent — as a standard.

But some are calling for an even more aggressive approach.

“They cannot be salvaged,” said Marcus Owens, a former director of the Exempt Organizations Division of the IRS. “For these regulations … the most appropriate course of action is [for them] to be withdrawn in their entirety.”

Owens’s objections center on the use of election-law definitions and standards in what are thoroughly tax laws — a complaint echoed by the Koch brothers-backed American Future Fund in its comments. It said the rule is a major overstep of the Obama administration’s oversight of the nonprofits and ignores past case law from the Citizens United v. FEC ruling.

“This rulemaking absolutely must grapple with those issues, and to the extent that the IRS continues to pretend that it operates in a tax administration or revenue collection vacuum that has no relation whatsoever to the Supreme Court’s First Amendment and campaign finance jurisprudence, this rulemaking will remain fundamentally flawed,” the comments read.

IRS Commissioner John Koskinen said the comments will be seriously looked at as the government begins creating a system to analyze the feedback.

“I really have an open mind about this, and we need to see what the comments say,” he told POLITICO last week.

Koskinen said a public hearing is highly likely given the intense interest.

IRS regulation of political nonprofits was always going to be controversial after the Citizens United ruling. But the IRS-tea party scandal turned it explosive, prompting congressional hearings and a threat of subpoenas.

Republicans see the regulations as an extension of the extra scrutiny faced by conservatives.

“It is disturbing that the IRS is proposing new rules that would attempt to further limit the free speech rights of Americans, while the IRS and the Department of Justice still refuse to provide the American people with all the facts surrounding the IRS’s targeting of certain organizations based on their political activity,” Texas Republican Sen. Ted Cruz wrote in his comments. “The IRS should not be used as a tool for partisan warfare. And the federal government must respect the First Amendment rights of our citizens. The proposed new rules do neither.”

And because of the fiery connection, the regulations have prompted comparisons by nearly 1,000 commenters to Nazi Germany and the Soviet Union.

On Capitol Hill, the criticism is more measured — and mostly aimed at halting the regulations until the four congressional probes into the tea party targeting conclude. There is also concern that the regulations could limit free speech.

House Ways and Means Chairman Dave Camp (R-Mich.) has taken up the battalion in Congress to beat back the regulations. His bill to place a one-year moratorium on finalizing the regulations passed, with about a dozen Democrats helping out, on Wednesday.

“The construction of the proposed new rules will restrict the free speech of citizens and the groups with which they may freely associate under the Constitution. … This purported government interest in clarity must be weighed against the fundamental First Amendment freedoms of speech and association,” Camp said in his comments.

The political drama caused the Treasury to write Camp last week to clarify what it called misstatements to the press from Republicans.

“There have been numerous misleading reports and public statements regarding the [proposed regulations]. … The [rule change] does not restrict any form of political speech,” said a letter authored by Assistant Secretary for Legislative Affairs Alastair Fitzpayne. “The [regulation] does not favor any individual or political party or group. It applies to all organizations regardless of political affiliation.”

The letter to Camp also attempts to push back a Republican narrative that the Obama administration was secretly working on the regulations before the May 2013 inspector general report that broke the IRS extra scrutiny of tea party groups.

The Treasury has said looking at the issue as it were in an “off-plan” manner — that is, not published on the public schedule — was standard for emerging issues.