A Sampling of Organizations' Responses to the IRS Proposed Rules on 501(c)(4)s

Calendar « A Sampling of Organizations' Responses to the IRS Proposed Rules on 501(c)(4)s

On Nov. 26, 2013 the Treasury Department and the IRS announced proposed new regulations for tax exempt social welfare organizations, 501(c)(4)s, seeking to restrict "candidate-related political activity" by such groups. During the comment period, which ran to Feb. 27, 2014, the IRS received tens of thousands of unfavorable comments from organizations and individuals from across the political spectrum. Here is a tiny sample of some of the responses:

For Immediate Release: Tuesday, February 25, 2014
Contact: Mandy Fletcher Fraher

American Future Fund Files Comprehensive Comments With IRS In Opposition To The Obama Administration’s Latest Effort To Silence 501(c)(4) Advocacy Organizations

DES MOINES, IA – Today, American Future Fund (AFF) filed comprehensive comments with the Internal Revenue Service (“IRS”) in opposition to the Obama Administration’s latest effort to silence Section 501(c)(4) organizations. The IRS’s proposal has been widely criticized by the left and the right from the start, and AFF today adds its voice to the call to the IRS to abandon this rule making.

AFF Founder Nick Ryan said, “When it comes to 501(c)(4) groups, it is the IRS who is at fault, and it is just unconscionable that their response to their targeting scandal is to try to make their crackdown on non-profit speech permanent.”

Ryan added, “Thanks to Congressional investigations, we know that the IRS began secretly working on these new regulations to restrict Section 501(c)(4) groups years ago, after the Supreme Court’s 2010 decision in Citizens United. The IRS’s proposal doesn’t mention this history, but it also doesn’t mention the First Amendment, not even once in their entire proposal document. They apparently believe that there are no limits on the government’s ability to limit the free speech of citizens and citizen organizations.”

AFF’s comments provide the troubled history of this regulatory proposal, explain how the actual details of the proposed rules are almost as troubling as the IRS’s disregard for the First Amendment, and point out the Constitutional problems this rule would create if enacted as proposed. A full copy of AFF’s comments can be found here.

American Future Fund is an Iowa-based Section 501(c)(4) organization that works to provide Americans with free market, conservative views with a voice and outlet for communicating and advocating on the issues of greatest importance to them. American Future Fund accomplishes its goals primarily through citizen education and issue advocacy efforts.

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For Release: December 5, 2013 Contact: Joe Trotter

Group Offers Alternative for New IRS Rules on Non-Profits’ Political Activities

Proposed IRS rules have significant flaws, say First Amendment experts

Alexandria, Va. – The Center for Competitive Politics (CCP) today submitted comments to the Internal Revenue Service on the agency’s proposed rules governing the political activity of social welfare groups. The group also proposed an alternative draft rule that it says would “greatly reduce the risk of selective enforcement” and protect First Amendment rights.

The proposed IRS rules “suffer from significant flaws,” according to the comments, which were submitted by CCP Chairman and former FEC Chairman Bradley Smith and CCP Legal Director Allen Dickerson. Smith and Dickerson write that the IRS proposal “regulates far more speech than can be justified, under either administrative law or the First Amendment, given Supreme Court precedent over the past several decades.”

“The IRS should not be regulating political speech at all,” said Smith. “It is a tax collecting agency, not a campaign finance regulator. As noted in our comments, if an entity with a social welfare purpose is a PAC under Federal Election Commission rules, it ought to be regulated as a Section 527 organization. If it is not, it should be regulated as a Section 501(c)(4) social welfare group.”

The comments submitted by Smith and Dickerson note that “This straightforward approach would harmonize the IRS’s rules with those of the Federal Election Commission, the body entrusted by Congress with ‘exclusive jurisdiction’ for civil enforcement of the nation’s campaign finance laws…. [This] approach offers real clarity without dragging the IRS further into the thicket of political regulation, a tangle from which it—and the Service’s reputation for the neutral, nonpartisan collection of revenue—may never recover.”

The IRS National Taxpayer Advocate made a similar recommendation in June, saying that the IRS could “rely on a determination of political activity from the Federal Election Commission (FEC) or other programmatic agency.”

Should the IRS determine that this approach is insufficient, CCP suggests an alternative rule that provides “greater clarity than either the proposed or current guidance.” CCP’s comments say its alternative proposal “provides greater certainty to the regulated community, and does so with less chill to constitutionally protected issue speech and fewer administrative costs than the proposed rule announced” by the IRS and Treasury Department.

The CCP comments say that “in order to regain the public’s trust, clarification via rulemaking must comport with [the landmark Buckley v. Valeo ruling], a unanimous Supreme Court decision that provides an elegant solution to the complex problem of regulating political speech and association.”

The CCP proposed rule would adopt the Buckley case’s definition of political activity, which includes only direct support for candidates and political parties and express advocacy for candidates — e.g., “Vote for Jones” — as “political activity” subject to limits. CCP’s proposal also adopts “the major purpose” test from the Buckley decision for analyzing “primary purpose” under the tax laws to determine whether a group would be a Section 501(c)(4) social welfare group or not.

“The IRS’s current rules are clear as mud — and are a key reason that agency bureaucrats unfairly delayed Tea Party groups who applied for tax exempt status,” said CCP President David Keating, who helped draft CCP’s proposed rule. “Unfortunately, the proposed rules contain ridiculous definitions of political activity that even charities are allowed to conduct without limit.” Under the tax laws, charities are banned from intervening in political campaigns.

“It’s time the IRS issue simple, clear rules that comport with Supreme Court precedent and treat all non-profit groups fairly,” added Dickerson.

The comments filed with the IRS can be found here.

About the Center for Competitive Politics

The Center for Competitive Politics is one of the nation’s premier centers of public interest litigation. It is the only public interest law firm with in-house litigation staff solely focused on the defense of First Amendment rights to free political speech, assembly and petition. CCP was co-counsel in SpeechNow.org v. Federal Election Commission, which held that there can be no limits on contributions to independent expenditure committees. This case created what is now known as Super PACs.

For Immediate Release	Contact: Alexandra Booze
February 28, 2014

CCAGW Submits Comment Regarding IRS Proposed Rule on 501(c)(4) Groups

(Washington, D.C.) – On Thursday, February 27, 2014, Council for Citizens Against Government Waste (CCAGW) President Tom Schatz joined hundreds of thousands of concerned citizens and advocacy groups submitting comments in response to the Notice of Proposed Rule Making issued by the Internal Revenue Service (IRS) on November 29, 2013. The proposed rule is purported to “provide guidance to 501(c)(4) organizations regarding the promotion of social welfare and political activity.” However, if implemented, the rule would undermine and significantly hinder “social welfare” organizations from engaging in standard practices that have been in place for nearly 50 years. Since the release of the proposed rule and the deadline for filing comments on February 27, 2014, more that 144,000 comments have been submitted. The CCAGW comment reads in part as follows:

“The IRS proposal would arbitrarily designate such common practices as “Candidate-Related Political Activity.” The new rules would not only prohibit long-standing practices, they would also severely restrain free speech by restricting any criticism of an incumbent federal, state, or local politician within 30 days of a primary or 60 days of a general election, and effectively requiring groups to remove any reference to politicians from their websites or any other publications during those time periods. The rules would not apply to labor unions, which are 501(c)(5) organizations, or trade associations, which qualify under Section 501(c)(6) of the tax code. In addition, the IRS apparently began working on these new rules at the same time the agency was targeting conservative groups, lending credence to the argument that the new rules are politically motivated.

“It is reasonable to question whether the IRS should even be involved in categorizing what is and is not political activity. In a June 2013 report to Congress, National Taxpayer Advocate Nina Olson suggested, “it may be advisable to separate political determinations from the function of revenue collection.” Such advice is particularly noteworthy at a time when the IRS has demonstrated an inability to effectively execute its core functions, including the protection of taxpayers against tax refund fraud and the reduction of improper payments.

“Each year, countless Americans are defrauded by a growing cabal of sophisticated criminals who steal the identities of these unsuspecting victims and use their names to submit fraudulent tax returns. Not only are these scam artists getting away with millions at the expense of hard-working, legitimate taxpayers, in a July 2012 report, the Treasury Inspector General for Tax Administration (TIGTA) projected that American taxpayers will lose $21 billion in tax dollars to fraudulent returns related to identity theft in the next five years.

“A separate TIGTA report on improper payments, released on August 28, 2013, revealed that the IRS is still not in compliance with the requirements of Executive Order 13520, which requires the agency to establish annual improper payment reduction targets. Instead of clamoring for more personnel in the current climate of severely constrained resources, the agency should focus its efforts toward its core function of efficient and effective collection of tax revenue, while protecting taxpayers against refund fraud and improper payments, without sinking itself into a counterproductive, politically-motivated quagmire.

“Protecting freedom of speech should be the first priority of government. These proposed regulations chill free speech and prevent citizens from educating each other about important policy matters. Tens of thousands of 501(c)(4) organizations have been granted tax-exempt status by the IRS in order to engage in advocacy and lobbying activities. Many of these groups hold politicians at every level of government accountable for the expenditure of tax dollars. Taxpayers have made it clear that they oppose these new rules; as of 11:59 p.m. on February 26, 2014, the proposed IRS rule had received 116,140 comments, a higher volume of comments than other popular issues, such as the Keystone XL Pipeline, greenhouse gas emission standards, and the use of mobile wireless devices on airplanes.

“This latest power grab by the IRS must be stopped. H.R. 3865, the Stop Targeting of Political Beliefs by the IRS Act of 2014, introduced by Chairman Dave Camp (R-Mich.) would prohibit, for one year, the Department of the Treasury and the IRS from enacting any changes to the rules governing 501 (c)(4) organizations. On February 26, 2014, the House of Representatives approved this legislation by a vote of 243-176. The president has issued a veto threat for H.R. 3865, setting up a contentious battle if Chairman Camp’s legislation is approved by the Senate. I urge you to preempt this battle and protect the First Amendment rights of social welfare, non-profit organizations by withdrawing these onerous rules.” The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.

February 19, 2014

CREW Files Comments Criticizing IRS's Proposed Section 501(c)(4) Regulations

Washington, D.C. — Today, Citizens for Responsibility and Ethics in Washington (CREW) filed comments with the Treasury Department and the Internal Revenue Service (IRS) strongly criticizing proposed regulations for tax exempt organizations involved in politics. Current IRS regulations grant tax-exempt status under section 501(c)(4) of the tax code to groups “primarily engaged” in promoting social welfare. The tax laws, however, require such groups to be “operated exclusively” for social welfare purposes. The administration’s proposal fails to address this issue, instead merely soliciting comments on whether — at some unspecified future date — the IRS should propose a fix to this.

Read CREW's comments on the proposed IRS regulations

"Despite the torrent of bad publicity the IRS received about its handling of section 501(c)(4) groups, the agency’s proposal does nothing to address the root problem. The IRS has recognized difficulty for more than 50 years, but continually kicks the issue down the road," CREW Executive Director Melanie Sloan said.

The existing IRS regulation not only contravenes the law, but has paved the way for section 501(c)(4) groups to spend hundreds of millions of dollars trying to influence elections without disclosing their donors. Making the regulation consistent with the statute would limit this spending, enhance disclosure, and drastically reduce the need for fact-intensive analysis – the IRS’s stated goal in proposing the rules.

The proposed regulations take a different tack, attempting to provide a clearer definition of political activity. In the view of CREW – and many others across the political spectrum – the regulations miss the mark.

“While the agency’s intentions may be good, the proposals are not. They both exclude activities that are clearly political and include activities that clearly are not. It is hard to understand how the IRS could think it makes sense to treat non-partisan voter registration activities as political, but exclude political sham issue ads run more than 60 days before an election,” Sloan said.

In addition to filing these comments, CREW is encouraging members of the public to submit their own comments telling the Treasury Department and IRS to close the regulatory loophole that allows vast amounts of dark money to pour into our political system.

February 27, 2014

Judicial Watch Files Major Objections to New Obama IRS Rules on Free Speech

“… given the Service’s targeting of conservative non-profits, the Service cannot claim authority to overturn 53 years of consistent interpretation with regulations that target these very same groups in the middle of an election year.”

(Washington, DC) – Judicial Watch announced today that on February 26, 2014, it sent a letter to the Internal Revenue Service (IRS) requesting that it direct the Treasury Department to withdraw a new IRS proposal to change the rules governing nonprofit First Amendment activity. The watchdog group criticizes the new “plainly unconstitutional regulation that arbitrarily reverses 53 years of administrative and judicial precedent.” Judicial Watch is the nation’s largest government watchdog organization.
Judicial Watch specifically objects to the proposed rules concerning First Amendment-protected activity of nonprofit (exempt organizations) organized under Section 501 (c)(4) of the Internal Revenue Code. Conservative “(c) (4)’s” have been improperly targeted by the IRS under the Obama administration. Indeed, the letter details Judicial Watch concerns about IRS abuse:

[Judicial Watch] is very concerned about both the opaque process by which the proposed regulations were developed, as well as the context—the apparent abuse of authority and potentially unconstitutional and criminal conduct by IRS employees with respect to the review of applications for exemption under §501(c)(4) filed by hundreds of organizations, the vast majority of which were “tea party” or other organizations supporting conservative policy principles and opposing many of the initiatives promoted by President Obama and his liberal allies—out of which the proposed regulations apparently arose. The secret manner in which these proposed regulations were developed, and the substantive provisions that would overturn more than 50 years of settled precedent regarding what is “intervention in a political campaign,” only increase the suspicion that the IRS is not attempting to administer the law as it is, but is attempting to arrogate to itself the making of the law, a function belonging solely to Congress, and not to the IRS.

The Judicial Watch letter notes that the Obama IRS’s recent “targeting of conservative non-profits” made the new “regulations that target these very same groups during an election year” particularly suspect, adding:

Although the Service has alleged that its true motivation behind promulgating these rules is not to shut down the speech of conservative § 501(c)(4) organizations in the middle of an election year, the timing, overbreadth, and under-inclusiveness suggest otherwise. Further, this would not be the first time that the impetus for a tax statute or regulation was to shut down the speech of opponents.

Under a new Notice of Proposed Rulemaking, Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities (NPRM), the IRS seeks to replace the decades-old definition – “participation of intervention in political campaigns on behalf of or in opposition to any candidate for public office” – with a new term – “candidate-related political activity.” Judicial Watch notes that the new rules violate the First Amendment and would censor free speech.
The groups targeted by these new rules have a First Amendment right to “fully contribute to the debate and thereby foster our democratic system. Associational activity should be encouraged, rather than prohibited, because it protects citizens from overreaching by the government.”

The Judicial Watch letter, which included a request for a public hearing, concludes with a call for the IRS to withdraw the Notice of Proposed Rulemaking:

- The Notice of Proposed Rulemaking violated the Paperwork Reduction Act by failing to include all of the new recordkeeping that will be required by §501(c)(4) organizations if the proposed regulations are adopted.

- The Service has no authority to adopt a regulation that departs so radically from its prior, long-standing interpretation of the definition of intervention in a campaign for public office.

- The proposed regulation also arbitrarily creates a separate definition of “intervention in a political campaign” that irrationally applies only to §501(c)(4) organizations.

- If adopted, the proposed regulation would violate the constitutional rights of §501(c)(3) organizations that, as noted by Justice Blackmun in Regan v. Taxation with Representation of Washington, must depend on affiliated §501(c)(4) organizations to engage in substantial lobbying.

- The proposed regulation arbitrarily defines certain activities as “candidate-related political activities” even when they are conducted on a nonpartisan basis. These arbitrary definitions reverse 53 years of administrative and judicial interpretations regarding “intervention in a campaign for public office,” and would improperly cause many nonpartisan activities and issue advocacy conducted by §501(c)(4) organizations in support of their civic and social welfare objectives to be treated as political activity.

- The proposed regulation’s definition of “candidate” is impermissibly broad, because the Service has no authority to overturn Congress’ decision to effectively ratify the definition in Treas. Reg. §1.501(c)(3)-1(c)(3)(iii) by not amending that definition when it enacted §527 in 1976, and by re-enacting §501(c)(4) without amendment in 1986.

- In addition, the proposed definition of candidate will create additional complexity for §501(c)(4) organizations that do engage in candidate-related political activity, because they will have to keep one set of records for purposes of measuring and reporting on Form 990, Schedule C, the extent of their “candidate-related political activity,” and a second set of records for purposes of reporting and paying any tax due on exempt function expenditures pursuant to §527(f), using Form 1120-POL.

The letter to the IRS was signed for Judicial Watch by attorneys Alan P. Dye, Charles M. Watkins, Heidi K. Abegg, and Sarah Moone, recognized national experts in nonprofit law, First Amendment law and government regulation, of the law firm Webster, Chamberlain & Bean, LLP.

Judicial Watch is part of a coalition of conservative and liberal groups, including the ACLU, opposed to the rules.
“These new IRS rules are a dagger aimed at the heart of the conservative movement,” said Judicial Watch President Tom Fitton. “These unconstitutional rules are a continuation of the IRS scandal that saw the entire Tea Party movement suppressed by the IRS to help President Obama’s reelection. President Obama and his partisan allies in Congress want to stifle the speech of Americans opposed to their policies. This abuse of the IRS is every bit as much of a crisis for this Republic as anything Nixon did.”

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February 27, 2014

NAACP Files Comments in Opposition to Proposed IRS Regulations Restricting Civic Engagement

(Washington, DC) Today, the NAACP filed comments in opposition to proposed IRS regulations that would redefine political activity for 501(c)(4) organizations.

“In a rush to combat legitimate abuses of 501(c)(4) status, the IRS has proposed overbroad regulations that throw the proverbial baby out with the bath water,” stated NAACP Interim President and CEO Lorraine C. Miller. “For more than a century, the NAACP has fought tirelessly to protect the rights of everyday Americans to participate in the political process – a process based on one man, one vote. The proposed regulations undermine that effort and the efforts of other organizations to secure unfettered access to the ballot box. For the NAACP, it is not about political campaigns nor a political candidate, it is about the American right to vote.”

As drafted, the proposed regulations would cause the “primary” activity—by any measure—of these NAACP units to be counted as “candidate-related political activity,” with the result that most branches and conferences would lose their tax-exempt status. The proposed regulations would also impede the NAACP’s state and regional conferences’ ability to support their branches. Specifically, the proposed rules would take the drastic approach of treating a grant from one section 501(c)(4) organization to another as “candidate-related political activity” unless the recipient branch agreed not to engage in any such activity.

“We are requesting that the Proposed Regulations be withdrawn because they would have a chilling effect on nonpartisan voter engagement,” stated NAACP General Counsel Kim M. Keenan. “For over 105, NAACP members of branches around the nation have overcome threats, intimidation, and actual violence to register and encourage citizens to vote. Treasury regulations should not be used to suppress nonpartisan civic engagement in America. “

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Founded in 1909, the NAACP is the nation's oldest and largest nonpartisan civil rights organization. Its members throughout the United States and the world are the premier advocates for civil rights in their communities. You can read more about the NAACP’s work and our five “Game Changer” issue areas here.