Today, the IRS announced that it will be issuing new guidance on the kinds of campaign-related political activity that social welfare nonprofits (501c4) can engage. This comes after a year of controversy where Tea Party groups camouflaged as "social welfare" organizations have cried foul against the IRS, accusing the tax agency of delaying or denying their tax-exempt status applications for partisan reasons. Organizations with 501c4 status historically have been able to support or endorse candidates running for office so long as that activity doesn’t make up a substantial amount of the nonprofit’s overall agenda. But what constitutes "substantial amount" has been vague, and as a result billionaire activists — many of them on the extreme conservative side, like the Koch Brothers — have taken advantage of that ambiguity by setting up shadowy 501c4s that in recent elections have collected millions in "dark money" for their favored candidates, or against candidates they oppose. Donors who contribute to 501c4s do not have to disclose their identity.
But new IRS rules plan to demystify what "subtantial amount" means and clarify what exactly 501c4s can and can’t do when it comes to elections. According to this wire from the Wall Street Journal, the IRS and Deparmtent of Treasury are seeking to define "social welfare" by excluding "candidate-related political activity." What is included in "candidate-related political activity" [from WSJ]:
- Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
- Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
- Communications expenditures that must be reported to the Federal Election Commission.
- Grants and Contributions
- Any contribution that is recognized under campaign finance law as a reportable contribution.
- Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).
- Activities Closely Related to Elections or Candidates
- Voter registration drives and "get-out-the-vote" drives.
- Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
- Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
- Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.
Treasury and IRS are seeking public comment on their proposed new guidelines, but if the above definitions hold up, it seems it will set tough limits on what 501c4s can do close to elections. Many of the organizations affected by these new guidelines are those that have propped up Tea Party candidates: Karl Rove’s Crossroads GPS, which spent over $70 million in elections activity last year — and likely much more than that if you count the grants it issued to other nonprofits that performed elections-related work. Also impacted will be organizations like the National Rifle Association Institute for Legislative Action, the Koch Bros.-funded Americans for Prosperity, and the anti-marriage equality Focus on the Family Action. Non-conservative nonprofits like League of Women Voters might also be impacted, though.
Ultimately, this is about checking organizations that have been abusing their tax-exempt status to ride for candidates in violation of IRS policies.
"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Treasury Assistant Secretary for Tax Policy Mark J. Mazur in a statement. "We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently."