Senate Republicans question new IRS rule for non-profits

Treasury Secretary Jack Lew sparred with Senate Republicans on Wednesday over proposed changes to an IRS rule designed to clarify the definition of political activity allowed by certain non-profit organizations.

Republican Sens. Pat Roberts (Kansas) and Richard Burr (N.C.) each expressed concerns during a Senate Finance Committee hearing on the fiscal 2015 budget that expanding the rule could stifle political speech and, potentially, lead to more IRS targeting.

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Burr questioned whether the administration is trying to “codify bad behavior” and deter non-profits from political activity, a concern expressed by a broad range of business and conservative groups.

Roberts said he has sponsored legislation aimed at “stopping IRS intimidation” that would halt any work on the proposed rule until an ongoing congressional investigation is complete.

But Lew argued that the current definition of political involvement is vague and contributed to the confusion at the IRS that led to extra scrutiny of some conservative groups.

The comment period for the rule ended last month.

Lew told lawmakers that the Obama administration is merely following through on a recommendation made by the inspector general following the targeting revelations.

He told the panel that the IRS actions “reflected bad judgment not malicious action” and that the closer examination of mostly Tea Party groups was not politically motivated.

"The incident was unacceptable,” Lew said.

“We’ve put policies into place to change those practices.”

He said those included appointing an interim IRS head, Danny Werfel, to examine the agency's practices.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) said his panel is continuing its investigative work.

Meanwhile, former IRS official Lois Lerner was pleading the Fifth again at the House Oversight Committee over her role at the agency.

If implemented, the new rule for 501(c)(4) nonprofits would apply to all political affiliations.

Democrats have argued that the current rule has allowed a minority of 501(c)(4) groups to abuse the system and hide behind the non-profit banner to pour millions into elections while hiding their donors.

That involvement, they say, goes well beyond the idea of social welfare as their "primary focus" as IRS regulations state.

The new regulations would not allow the groups to count “candidate-related political activity” toward their stated mission of improving the social welfare. Plus, they would not be able to release political ads within 60 days of a general election or 30 days before a primary election.

The House recently passed a measure by House Ways and Means Committee Chairman Dave Camp (R-Mich.) that would delay the IRS rules for a year.

Still, with nearly 150,000 comments to sort through, a new rule is far from imminent and isn't expected to be completed until after the November midterm elections.

The comments, which have been largely negative, would help shape the rule and provide the specifics for the rewrite, Lew said.

John Koskinen, the IRS commissioner, has said it would take time to pore through the comments, and that he will hold a public hearing.