Proposed IRS Rule Change Fractures the Left

by Eliana Johnson
The revised regulations would classify social-welfare groups’ activities as political.

The proposed Internal Revenue Service regulations governing political activity by nonprofits that have united the Right in opposition are now fracturing the Left.

While Senate Republicans, following the lead of their House colleagues, are backing a bill to delay the rules for a year, and the protests of right-leaning nonprofit groups, big and small, are reaching fever pitch, Democratic politicians who are urging the IRS to move forward with the regulations have found themselves at odds with some of their largest constituencies, chief among them the country’s labor unions.

The proposed changes, which were unveiled in late November, would classify much of the day-to-day activity of 501(c)(4) social-welfare groups, including voter education and registration, as political, thereby endangering their tax-exempt status. They would also prohibit public communication 60 days before a general election or 30 days before a primary election that identifies a political candidate — that is, nearly every advertisement aired by groups such as the conservative Americans for Prosperity or the liberal League of Conservation Voters — during the period when they are most effective.

The proposed regulations have a host of left-leaning groups worried that the 501(c)(4) rules could serve as a template for regulations governing 501(c)(5) nonprofits (unions) and 501(c)(6) groups (trade associations), and they are speaking out. Service Employees International Union associate general counsel John Sullivan told the Washington Post that the proposed rules “would be totally inappropriate for unions” because they are “broadly phrased and categorical,” and that they would “seriously affect [unions’] ability to function.”

The American Civil Liberties Union, meanwhile, submitted a 26-page comment to IRS commissioner John Koskinen slamming the proposed regulations. “Social welfare organizations praise or criticize candidates for public office on the issues and they should be able to do so freely, without fear of losing or being denied tax-exempt status, even if doing so could influence a citizen’s vote,” the group wrote, calling such advocacy “the heart of our representative democracy.” The ACLU argued that, if the advocacy of social-welfare groups influences voting, it does so only by “promoting an informed citizenry.”

Then, late last week, the liberal magazine The Nation piled on with an op-ed arguing that the rules would “do almost nothing to fix the things you think are broken and may, in fact, do some real damage to the ability of everyday Americans to have an impact on the political process” — that is, that groups funneling big money into the electoral process would find a way around the rules, perhaps by recategorizing themselves, while the little guy would effectively be silenced.

“There is pretty widespread agreement that this is not a good first draft of these rules,” says John Pomeranz, a partner at the Washington, D.C., law firm of Harmon, Curran, Spielberg & Eisenberg and an expert on lobbying and election-related activity who represents left-leaning groups. The IRS, he says, erred by including “a lot of things that are and always have been non-political activities in their definition of political activities.” These “clearly shouldn’t be treated as political activity,” he says.

On the right, the forces are cheering the liberal groups joining their ranks. “The reality is that the White House and the incumbent Democrats are willing to treat the liberal grassroots organizations as collateral damage in their efforts to silence conservatives,” says Cleta Mitchell, an election-law attorney at Foley & Lardner who represents several tea-party groups that were targeted by the IRS. “The destruction is finally dawning on the liberal organizations, and they are stepping up and speaking out, much to the surprise and dismay of the Democrats in Congress and the White House. They are being very brave to do so.”

Indeed, as left-leaning groups raise their voices in protest, Democrats in Congress are not echoing their concerns. With the midterm elections in sight, they are striking a different tone, urging the IRS to move forward with the proposed rules in advance of the elections in November. It is no coincidence that in several battleground states, ads paid for by Americans for Prosperity, which has spent nearly $30 million this election cycle, are pounding away at vulnerable Democrats such as Arkansas’s Mark Pryor, Alaska’s Mark Begich, and Louisiana’s Mary Landrieu.

Some of them are now crying out for help. Begich said he is opposed to the IRS’s giving nonprofits “cover so they can do political activity” and called that an abuse of the tax code. “There are two things you don’t want in political money, in the fundraising world and expenditure world,” Pryor told The Hill. “You don’t want secret money, and you don’t want unlimited money, and that’s what we have now.”

Mark Holden, a senior vice president and general counsel for Koch Industries, vigorously defends anonymous giving. Allowing donors to fund a cause behind a cloak of anonymity, he says, is “a big deal to a lot of people because they’ve seen what’s happened with Charles Koch and David Koch.” The brothers, who sit atop Koch Industries and have provided the seed money for network of right-leaning nonprofit groups, including Americans for Prosperity, “have had death threats against them and threats against some of our company facilities because they say or support things that some people don’t agree with, or the Left attributes certain beliefs or activities to them, even when it isn’t true,” Holden says, and many businessmen who give to the causes they support don’t want to see the same happen to them.

The move to rewrite the 501(c)(4) guidelines, which have remained unchanged since 1959, appears to have come at the behest of Democratic senators. Former IRS commissioner Steven Miller told congressional investigators he wasn’t “sure there was a problem” with the existing rules, but that Senator Carl Levin (D., Mich.) was “complaining bitterly about our regulation . . . so we were thinking about what things could be done.” As far back as 2010, Max Baucus, the Democratic chairman of the Senate Finance Committee, asked then-IRS commissioner Douglas Shulman to survey the activity of major 501(c)(4), (c)(5), and (c)(6) groups “to ensure that political campaign activity is not the organization’s primary activity” and to “determine whether they are acting as conduits for major donors advancing their own private interests regarding legislation or political campaigns.”

Despite the protests of groups across the political spectrum, sources and analysts say they appear unlikely to be implemented in current form. “There’s a long history of the IRS putting out a draft regulation, getting lots of heat for it, working with the critics, and putting out a different and better one,” says Pomeranz, the election attorney.

An exempt-organizations official tells me that, within the IRS, agents “haven’t had much guidance on the proposed (c)(4) regulations.” There, he says, the division is still recovering from the targeting scandal that rocked it last May, and morale is beginning to improve, if only a little. “I’d rather be led by any one person of the first 400 names in the Cincinnati phone directory than by Lois Lerner,” he says, but cautions that it’s too early to tell whether better days lie ahead.

— Eliana Johnson is media editor of National Review.

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