Current IRS rules require groups be organized for 'social welfare.' Obama pitches new nonprofit rules

In an aggressive move designed to crack down on free-spending outside political groups, the Obama administration is proposing strict new rules curtailing nonprofits like Karl Rove’s Crossroads GPS and the pro-Obama Priorities USA.

The draft proposal, released Tuesday by the Treasury Department, would keep so-called social welfare 501(c)(4) nonprofits from getting a tax exemption if they engage in too much “candidate related” political activity.


The groups were at the heart of this summer’s scandal over Internal Revenue Service targeting of tea party and other conservative groups seeking tax exemptions.

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The proposal is the first major response to a Treasury inspector general report in May blasting the IRS for added scrutiny of tea party conservative groups seeking tax exemption — a major scandal that led President Barack Obama to fire the acting IRS commissioner and other officials to exit the agency.

The inspector general report recommended the IRS tighten its rules.

The new regulations would affect a broad swath of political nonprofit groups that have come to play an outsized and influential role in federal elections.

Crossroads, founded by George W. Bush adviser Rove, along with its sister super PAC together spent $325 million in 2011 and 2012 against Obama and Senate Democrats. Priorities, set up by former Obama aide Bill Burton, raised $10.7 million in the 2012 cycle.

Dozens of these political nonprofits have used 501(c)(4) tax status as a way to shield their donors.

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These groups can spend millions to back federal candidates and run issue ads because of ambiguity and uncertainty about the current IRS rules governing political spending by 501(c)(4)s.

Current IRS rules require that these groups be organized for the purpose of “social welfare.” The new draft Treasury and IRS regulations would explicitly exempt certain political activity on behalf of candidates as counting toward the promotion of “social welfare.”

For example, candidate-related political activity includes communications within 60 days of a general election clearly identifying a candidate or party.

The IRS and Treasury are also taking comments on how much of a political nonprofit’s activities must be geared toward “social welfare” in order to receive tax-exempt status.

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Right now the definition is murky. Many of these political nonprofits — major players in campaigns in the past few cycles — have argued that as long as their political spending is less than half of total spending, they are in the clear under IRS rules.

“This is part of ongoing efforts within the IRS that are improving our work in the tax-exempt area,” said acting IRS Commissioner Daniel Werfel in a statement. “Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations.”

Progressive reform groups have long argued that political nonprofits on both sides of the aisle use their tax-exempt status solely as a way to shield their donors from public scrutiny.

“Tony Soprano didn’t own the pork store for the sandwiches,” said Josh Orton, the political director of Progressives United. The group — founded by former Democratic Wisconsin Sen. Russ Feingold — has long advocated curtailing the role of big money in politics.

“The abuse of social welfare groups for political activity has been an embarrassment to our democratic system. Too often, 501s have simply become a front for corporate political mobsters to anonymously exert their power over our elections,” Orton said.

”What this will do is establish a clearer regime,” said Lisa Gilbert, director of Public Citizen’s Congress Watch program. Public Citizen has been pushing the IRS to establish clearer guidelines concerning nonprofits for years.

Gilbert added that the IRS should also address the role that other 501(c) groups can play in politics — including 501(c)(6) groups which include chambers of commerce and business leagues.

Conservative attorney Dan Backer — who represents dozens of tea party clients — blasted the proposed new rules.

”This is an astonishing — and from this feckless, hyperpartisan administration, unsurprising — effort to curtail the free speech of Americans who come together to better their community,” Backer wrote in an email.

“The government is clearly seeking to condition recognition of one category of non-taxable status on groups of citizens sacrificing their constitutional rights to an astonishing degree through curbs on speech and on association — activities which themselves are exempt from taxation in any event,” Backer said.