Comments Filed in IRS Rulemaking Seek Enforcement of Statutory Mandate That 501(c)(4) Groups Focus “Exclusively” on Social Welfare
Public Citizen, Democracy 21 and the Campaign Legal Center joined with Representative Chris Van Hollen (D-MD) to submit joint comments today in an IRS rulemaking advocating new regulations to stop section 501(c)(4) nonprofit groups from engaging in campaign spending in violation of statutory limits on the activities in which they can permissibly engage.
The comments address widespread abuses of the Internal Revenue Code by groups that claim to be eligible for tax-exempt status as section 501(c)(4) “social welfare” groups but are, in fact, spend massive amounts of secret contributions to influence federal elections.
Groups claiming 501(c)(4) tax status spent more than $250 million in “dark money” contributions in the 2012 federal elections. Unlike political organizations that claim exemption under another section of the Code, section 527, section 501(c) organizations are not required to disclose their donors.
The comments commended the IRS for conducting the rulemaking proceeding, stating:
We applaud the IRS for initiating a rulemaking on the critically important issues raised by the NPRM and, in particular, for recognizing that a rulemaking addressing electoral activity by tax-exempt nonprofit organizations should include reconsideration of the IRS’s current, and in our view fundamentally erroneous, position that such groups may engage in substantial electoral campaign activity as long as such activity is not their “primary” activity.”
IRS regulations currently allows campaign spending by section 501(c)(4) groups as long as it is not their “primary” activity, meaning they can spend up to 49 percent of their resources on electioneering. But the Code itself, which the IRS is required to follow, clearly requires that 501(c)(4) groups be operated “exclusively” to promote social welfare, which does not include campaign-related activities. By equating “exclusively” with “primarily,” the IRS’s current regulations, and the agency’s practice, violate the plain meaning of the statutory language as well as Supreme Court precedent that definitively construes it to allow no more than a de minimis or insubstantial amount of non-exempt activity.
According to Scott Nelson, an attorney at Public Citizen who took the lead role in preparing the comments, “The IRS must take this rulemaking as an opportunity to bring its regulations on 501(c)(4) electoral activity into line with the Code’s exclusivity requirement. Only by enforcing that clear limit can the IRS stem the tide of dark money with which 501(c) organizations are overwhelming our elections and evading requirements of both our tax laws and election laws that promote disclosure of contributions used for electoral activity.”
Representative Van Hollen and the reform groups filing the comments today were plaintiffs in Van Hollen v. Internal Revenue Service, a lawsuit challenging the IRS’s failure to commence the rulemaking requested in an earlier petition to the IRS filed by Democracy 21 and the Campaign Legal Center. The plaintiffs voluntarily dismissed the lawsuit when the IRS initiated this rulemaking proceeding and included reconsideration of the regulation within its scope.
According to Democracy 21 President Fred Wertheimer, “The IRS has a responsibility to the American people to stop massive abuses of the tax laws by adopting new regulations to properly implement the eligibility requirements for section 501(c)(4) tax status. The IRS should carry out its statutory obligations and ignore blatantly partisan attacks and attacks from outside groups who want to spend money on campaigns without disclosing the donors funding these expenditures. A failure by the IRS to fix the eligibility requirements for 501(c)(4) groups means it won’t take many elections before the $250 million in dark money contributions laundered into the 2012 federal elections becomes $500 million in dark money laundered into future elections.”
According to Campaign Legal Center Executive Director J. Gerald Hebert, “It is important to emphasize that bringing these rules into line with the laws passed by Congress has nothing to do with restricting free speech. There is nothing ambiguous about a law requiring these groups to be ‘operated exclusively for the promotion of social welfare’ and it is time for the IRS to recognize that and enforce the statute. These groups can spend as much as they want on election speech, but groups dedicated to election speech must do so under section 527 of the tax code and disclose their donors.”
The comments submitted today called on the IRS to apply standards to all 501(c) groups that are similar to the standards that the commentators advocate for section 501(c)(4) organizations. The comments noted that absent such an approach, other section 501(c) groups would soon become vehicles for “further massive evasion of the proper limits on both permissible section 501(c)(4) activity and of the disclosure requirements on which Congress has conditioned the availability of tax exemption for political organizations under section 527.”
The reform groups are also today submitting separate comments on the definition of political activities, as they take somewhat different views of the IRS’s rulemaking proposals in that regard. They fully agree, however, that unless the IRS limits 501(c) groups to the non-electoral purposes that justify their tax exemption, such groups will continue to be misused for campaign purposes and will continue to funnel untold millions of dollars of undisclosed political contributions into our system.
Attachments: (1 total)
PC-D21-CLC-Van Hollen Comments on IRS rulemaking Size: 447 kB