Campaign finance reformers withdraw IRS lawsuit

A top House Democrat and campaign finance reform groups said Friday that they were pulling a lawsuit against the IRS, after the Treasury Department proposed new standards for how tax-exempt groups could dabble in politics.

Rep. Chris Van Hollen (D-Md.), the Campaign Legal Center, Democracy 21 and Public Citizen announced their lawsuit in August, saying the IRS was allowing too much political activity from so-called 501(c)(4) groups.

They’re withdrawing the suit after the Treasury took new steps to rein in “dark money” groups, including Crossroads GPS on the right and groups led by former aides to President Obama on the left, that spent hundreds of millions of dollars in the 2012 election.

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Still, the Maryland Democrat and campaign finance groups also warned that they’d be closely watching the federal government to ensure that it followed through on the new rules.

“If the agency fails to adopt new regulations to properly implement the tax laws and prevent groups from misusing the laws to obtain 501(c)(4) tax-exempt status, the lawsuit will be filed again,” Democracy 21, Public Citizen and the Campaign Legal Center said in a statement.

The Treasury Department announced the new steps last week, more than six months after the IRS acknowledged that it had inappropriately singled out Tea Party groups seeking tax-exempt status.

Those steps include clearly stating that “candidate-related political activity” cannot count toward a 501(c)(4) group’s stated mission of promoting social welfare.

Van Hollen and the campaign finance reform groups were seeking to force the IRS to only give 501(c)(4) status to groups engaged in promoting social welfare.

Under current law, those groups are to be exclusively working on social welfare issues. But Treasury rules have said that 501(c)(4) groups primary activity should be social welfare, which has led some groups to believe that just under half their work could be political.

The Treasury also said last week that it would be seeking input on just how much political work a group could do and still qualify for 501(c)(4) status.

The campaign finance reform groups said Friday that the final rules should clearly state that those groups “may not engage in any campaign activity, or, at most, in any more than an insubstantial amount of campaign activity.”

Experts said following the Treasury announcement last week that, even with the new proposed rules, it would be difficult to totally rid the political system of “dark money.”