IRS Moves To Restrict Nonprofits’ Politicking

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from The Wall Street Journal,

The Obama administration is moving to rein in the influence of tax-exempt groups in elections by creating rules to restrict their spending on a wide range of campaign-related activities.

Rules proposed Tuesday could at once help to curb the explosion in political spending by nonprofit groups, such as conservative heavyweight Crossroads GPS and the liberal Priorities USA, while setting clearer standards that could help the government avoid future dust-ups with politically active nonprofit organizations.

The Internal Revenue Service proposed the rules about six months after the agency was accused of unfairly scrutinizing tea-party groups seeking tax-exempt status.

“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Treasury Assistant Secretary for Tax Policy Mark Mazur. He said the goal is to “ensure that the standards for tax-exemption are clear and can be applied consistently.”

Current rules for political nonprofits have allowed a flood of money into elections, transforming how campaigns are waged and undermining the traditional political parties.

Critics say the rules are a flaw in a campaign-finance system designed to limit the influence of wealthy interest groups.

People who run the nonprofits say they are complying with the law.

The proposal by the Treasury Department and the IRS would curtail a broad array of campaign activities by tax-exempt organizations set up under section 501(c)(4) of the tax code. Such groups currently face few clear-cut rules regarding their campaign activities, other than that they can’t exist “primarily” to influence elections.

Tuesday’s proposal would better define what types of activities are considered political and which are not, for the purposes of determining whether a nonprofit is primarily focused on influencing campaigns.

The process of completing the new regulations will be highly controversial and could take months, officials from the Treasury Department said. New rules will likely not be in place until after the 2014 elections.

The use of these organizations became a prominent issue in recent campaigns when groups such as Crossroads and Priorities USA raised millions of dollars from donors who could remain anonymous under tax rules. Crossroads, the largest 501(c)(4) entity in the 2012 presidential campaign, raised $180 million in 2011 and 2012 from donors who weren’t required to disclose their identities. Priorities raised $10.7 million during those years.

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