IRS should keep eye on the goal

With thousands of comments submitted, the IRS’ proposed rules for 501(c)(4) organizations have elicited a record response from groups calling for meaningful tax code reforms. Now that the comment period has ended, the IRS should take this chance to go beyond the partisan fray and refocus on the goals that led it to draft the rule in the first place: clarifying the definition of political activity and preventing government abuses. 

The IRS’ recognition of those problems and its bold attempt to solve them is to be applauded.  With this rulemaking, the IRS has a rare chance to remake the rules governing nonprofits under the tax code so they work for everyone. 

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The existing rules have allowed the groups willing to aggressively flout tax rules and pour millions into manipulating elections to do so freely, while smaller groups dedicated to civic engagement have waited on the sidelines, too afraid of jeopardizing their nonprofit status to participate in our democracy as fully as they are allowed. The IRS’ new rules seek to fix this imbalance by resolving the ambiguity of the current “facts and circumstances” test. The lack of clarity concerning the definition of political activity allowed some 501(c)(4) organizations, also called “social welfare” groups, to spend millions of dollars on elections in 2012 without disclosing their donors. Improving this definition should lead to more clarity for IRS agents as they work to monitor abuses. The proposed IRS rules also will clear the way for nonprofit groups to feel more secure in becoming involved in the political process. To engage confidently, groups need to know what they can and cannot do.

The currently proposed rules aren’t the full solution, though. The IRS was on the right track when it asked for comments on whether the proposed definition of candidate-related activity should apply to other 501 organizations. This is a sensible reform to the proposed rules that would prevent those seeking to abuse the tax system from merely shifting their spending from 501(c)(4)s to nonprofits organized under other provisions of the code. This clarity would allow nonprofits to fully enjoy the freedom that nonprofit status is meant to confer: helping make our democracy a better place through encouraging civic participation.  

The IRS is not alone in wanting to solve these problems. Public Citizen’s Bright Lines Project has been working for years to create clear, fair rules that would apply to all nonprofits and would encourage nonpartisan civic engagement while removing opportunities for abuse. The legal experts who drafted the Bright Lines plan have provided a clear and simple way to encourage nonprofit civic participation without risking exploitation of the political system. The comments submitted by the Bright Lines Project, and the thoughtful comments from other good-government groups, should be given weighty consideration by an agency looking for solutions. 

The IRS should and will consider every single comment on the rulemaking, but they must remember that beginning to deal with dark money abuses and clarifying rules on political intervention will foster the kinds of nonprofit activities that our democracy seeks to encourage.  Heeding the calls of extreme commenters calling for the end of the rulemaking process would be a mistake when meaningful clarity for the definition of political activity is finally within reach. 

The IRS has a long review process ahead, but should not lose focus on the realities that nonprofits face in navigating the confusion caused by the current rules.  Those rules have allowed some groups to game the system while preventing others from engaging with the public as completely as they could under a clearer system of rules.  The IRS has asked for solutions to these problems, and the Bright Lines Project has offered them. 

Peterson-Cassin is Bright Lines Project coordinator at Public Citizen.