IRS Commissioner John Koskinen says the agency may expand a yet-to-be-released rule governing 501(c)(4), “social welfare” groups, to include political groups known as 527s. | John Shinkle/POLITICO IRS may broaden rule to police political nonprofits

The IRS may broaden a looming controversial rule to police political nonprofits to include political parties and political action committees, the agency’s chief said Wednesday.

IRS Commissioner John Koskinen said the agency may expand a yet-to-be-released rule governing 501(c)(4), “social welfare” groups, to include political groups known as 527s, which focus on elections. It could require them both — as well as other types of tax-exempt groups — to operate under the same definition of “political activity.”


“If it’s going to be a fair system, it needs to apply across the board,” Koskinen said when asked by POLITICO if such groups would be included in the new rule. “[I]f we have a set of definitions for 501(c)(4)s, what about everybody else? Can they do more or less [political activity]? And for us as [an] administration, for ease of administration, it makes sense to have this common definition.”

The impact of extending the proposed rule to groups registered under section 527 of the code is unclear, since a majority of these groups that are most active at the federal level are also registered with the Federal Election Commission.

Those include committees ranging from the national political parties to super PACs to candidate campaigns. Such 527 groups are already subject to the FEC rules governing what constitutes political activity, as well as the agency’s disclosure requirements, which are far more rigorous than those of the IRS.

To be sure, some 527 groups that are quite active are registered only with the IRS, but not with the FEC, including the most robust arms of the Democratic and Republican governors associations, as well as Wisconsin Gov. Scott Walker’s primary political vehicle and all manner of state-focused political groups.

Good-governance groups will cheer the application of uniform rules across the board, but GOP lawmakers — who staunchly oppose the rule and accuse the IRS of infringing on free speech — may balk.

The news comes as the political world awaits a highly contentious draft IRS rule aimed at ensuring social welfare organizations like Karl Rove’s giant Crossroads GPS and Obama-loyalist group Organizing for Action are following rules limiting political activity.

Revamping the rules was a major recommendation of the treasury inspector general that set off a firestorm in 2013 when it blasted the agency for applying inappropriate scrutiny to conservative “tea party” groups.

The rule, originally set for release early this year but now seemingly delayed, is supposed to define what exactly constitutes “political activity” and also tell 501(c)(4) organizations more precisely how much they can participate in campaigns without crossing the line.

The law is currently vague, requiring that 501(c)(4)s operate “primarily” for social welfare. It’s one of the reasons the IRS found itself in hot water for pulling tea party groups for extra scrutiny between 2010 and 2012 — a scandal that has scarred the IRS’ image in the public eye.

Such groups are allowed to engage in advocacy and even lobby on policy topics — it’s only when they actually get involved in campaigns that they have to limit their work.

The IRS had released a draft rule governing such nonprofits at the close of 2013 but retracted it because its definition of “political activity” was too broad — netting activities like voter registration — and angered people on both sides of the aisle.

Generally, Democrats and sunlight groups want social welfare groups, which do not have to disclose their donors, to be allowed to engage in campaigns only to a small degree — or not at all. Republicans see the issue differently, wanting such groups to participate while still keeping their tax exemptions and protecting donor identities.

Republicans don’t want the IRS to release the rule until after the 2016 presidential election, afraid it could hinder conservative groups.

The IRS has said that even if it does issue the rule before 2016, it likely will not apply it to anyone until after the election to avoid the appearance of partisan motivation.

The news that the new rule could include political groups may come as a surprise to the nonprofit sector following the issue. Although the IRS had floated expending the rule to include other tax-exempt groups like 501(c)(3)s (charities), 501(c)(5)s (unions) and 501(c)(6)s (trade groups), political groups haven’t come up nearly as often.

Political parties; campaign committees for candidates for federal, state or local office; and political action committees are all political organizations subject to section 527 of the Tax Code.

Koskinen on Wednesday had hinted at the movement during a hearing with House appropriators when he said all tax-exempt entities “need to have a clear road map so you know what you’re doing and don’t have to worry that someone’s going to come in, look over your shoulder and second-guess you.”

“We’re looking at, to be fair, applications across the entire spectrum,” he told them. “So it shouldn’t just be [501]c4s. We need to make sure that as Congress has legislated in all of these areas, there’s a consistent and appropriate framework for [501]c3, [501]c4, [501]c5, [501]c6, 527s.”

Emily Peterson-Cassin of the left-leaning Public Citizen told POLITICO it’s “great news” because there are currently discrepancies in what constitutes “political activity” between 527s and other types of groups.

“Applying the same standards to all nonprofits including 527s is the most sensible way to make sure the rules are clear, fair, and easy to enforce,” Peterson-Cassin wrote in an email. “That the IRS is considering doing so is a good indication that they’re being careful with their drafting to make sure their proposed regulations are practical and work for the whole nonprofit sector.”

But Matt Nese of the conservative Center for Competitive Politics didn’t like what he was hearing and asked: What’s the point?

“It doesn’t seem to make much sense, because [these groups] already disclose their donors,” he said. “They do political activity. That’s why they’re organized … primarily to influence the selection, nomination or appointment of candidates … so I’m not sure what they feel they need to do to regulate in this.”

Ken Vogel contributed to this report.