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As IRS Takes Aim at Fake Social Welfare Organizations, Will Some in Congress Take Aim at the IRS?

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In a surprise announcement, the IRS has opened the door to rewriting outdated rules regarding political activity of so-called social welfare organizations. The move is long overdue. Over a year ago, Sunlight urged the agency to take a look at rules that have not been updated since 1959. We also told Congress that after it held hearings on the IRS’s targeting of groups with conservative sounding names, it should provide guidance for the agency as to how it could more effectively, efficiently and fairly enforce the law. Even though that congressional leadership never materialized, the IRS should be congratulated for taking the first steps toward reforming its broken rules.

The IRS doesn’t have an easy road ahead of it. In the best case scenario, rules won’t be finalized until after the 2014 elections, ensuring that fake social welfare organizations—organizations like Crossroads GPS on the right and Patriot Majority USA on the left—will continue spending the vast majority of their money on election-related activity, not "social welfare." The IRS will face obstruction from congressional Republicans (in the form of legislation attempting to ban the IRS from enacting new rules, threats to its budget, or still more hearings) as well as court challenges that will further threaten the adoption of clear regulations.

Critics of the IRS’s clumsy examination of certain nonprofits’ political expenditures should embrace new rules that clearly define what counts as election related activity. Instead, those same congressional investigators have already begun to attack the IRS’s nascent effort at updating the rules. Congressman Darrell Issa, R-Calif., issued a statement condemning the proposed regulations as continuing “this administration’s unfortunate pattern of stifling constitutional free speech.” This is the same tired old argument that has been used against the DISCLOSE Act and any effort aimed at uncovering the names of dark money contributors to political organizations. And it is simply wrong. No one’s free speech rights are unconstitutionally stifled. Fake social welfare organizations that want to engage in political activity can do so by reorganizing as Super PACs and continue spending unlimited sums to influence elections. The difference? The groups would have to begin disclosing the names of their donors to the public, in the same way that the names of donors to candidates, parties and traditional PACs are already disclosed, in order to inform voters and prevent corruption of the political process.

In fact, the proposed rules indicate the IRS is willing to allow social welfare organizations to continue to engage in some degree of political activity. The IRS is seeking input as to “what proportion of a 501(c)(4) organization's activities must promote social welfare” as compared to the proportion that is devoted to political activity. Reports of the demise of free speech have been greatly exaggerated.

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During the 90-day comment period, Sunlight, like many others, will take a close look at the proposed rules and suggest improvements. After our initial review, Sunlight has found provisions we can champion, and at least one that gives us pause. Defining as “candidate-related expenditures” activities like advertisements that mention a candidate within 60 days of an election makes sense and draws upon existing law. We are concerned that “content previously posted by an organization on its Web site that clearly identifies a candidate and remains on the Web site during the specified pre-election period would be treated as candidate-related political activity,” may be overly broad, capturing as political activity communications that are not intended, at the time they are made, to influence elections. We think some of those communications should, as the IRS notes, “be excluded from the definition because they can be presumed to neither influence nor constitute an attempt to influence the outcome of an election.”

On the other hand, we strongly support that the proposed definition of candidate related political activity includes making grants to other organizations that are engaged in political activity. IRS regulations should ensure that loopholes are closed and campaign related contributions cannot be laundered through other organizations in an effort to evade the law.

An update to the IRS’s rules on the political activities of social welfare organizations is long overdue. It should not be derailed by false claims of threats to free speech, or hyperbolic fairy tales pretending that the rules changes are a tool the Obama administration can use to go after its enemies. Both parties are playing the dark money game, taking advantage of lax rules around social welfare organizations to hide political spending. Changing the rules to reflect reality, while clarifying for all social welfare organizations what they can and cannot do, is a cause both sides of the aisle should embrace.