Treasury proposes new rules for 501(c)(4) tax exempt status

Posted by AzBlueMeanie:

About damn time! Treasury proposing new rules on tax-exemption:

The Treasury Department proposed new guidelines Tuesday that would affect so-called social welfare groups applying for tax-exempt status[.]

The intended rule change would establish a new term, “candidate-related political activity,” to help the IRS determine which organizations should be disqualified from 501 (c)(4) status.

The department said it will also seek recommendations for changing how much of a group’s activities could fall into that prohibited category before they would be ineligible for tax-exemption.

Many lawmakers have criticized the IRS’s current policy of allowing organizations to qualify as long as the majority of their activities do not involve political actions, a standard that is difficult to measure.

The newly proposed rules would clarify that social welfare does not count as prohibited activity. It would also define the term “candidate-related political activity” to include communications, grants and contributions and activities closely related to elections or candidates advocating for a clearly identified political candidate.

The Notice of Proposed Rule Making is Here.

As MSNBC's Lawrence O'Donnell has frequently explained, "Viewers of The Last Word have always known that the real IRS scandal happened in 1959, when a law that changed the definition of tax-exempt organizations operated “exclusively” for social welfare ['Exclusively' vs. 'primarily'.] Today, the Treasury Department decided to act."

Unfortunately, the proposed rule making does not propose to restore the statutory "exclusively" standard. POLITICO Tiger Beat on the Potomac reports Obama tax-exempt crackdown may be easy to skirt:

The Obama administration proposed rules on Tuesday that could make it harder for some nonprofit groups that play politics to get away with claiming a tax exemption.

But don’t be fooled, this is not the end of political “dark money.”

The rules, released Tuesday by the Treasury Department and the Internal Revenue Service, are unlikely to stem the tide of anonymous donations that have flooded into politics since the 2010 Citizens United Supreme Court decision.

And even if the Obama administration takes an aggressive stance when the final regulations are released, political groups could circumvent the rules by converting into other types of entities not governed by the rules, veterans of campaign finance law and tax exempt status said.

“One of the problems of this rule is it is only talking about (c)4s and you need to get a hold of all these entities,” said Donald Tobin, an Ohio State University law professor and former Justice Department tax lawyer. “Clearly when you have an entity-based regulation, it encourages people to engage in activities from another entity.”

The proposal is the first major response to a May Treasury inspector general report recommending the IRS tighten its rules.

Lawrence O'Donnell discussed the proposed rule making on Tuesday night with Marcus Owens, former head of IRS Exempt Organizations, and Julian Epstein.

Rick Hasen at Electionlawblog.com comments, "The ideal solution here is for Congress to take away the benefits of shadow super PACs from forming as 501(c)(4)s, by requiring the same disclosure of funding of election-related advertising regardless of the organizational form the group takes.  (My thoughts on that point here.)  But Congress is not going to act on this any time soon, and so this is a good second-best solution."

Comments are closed.