It’s been over six months since the IRS inspector general’s report was released, revealing that the agency had improperly targeted conservative groups for extra scrutiny by withholding approval of what have traditionally been routine applications for organizations to operate as social-welfare organizations under Section 501(c)(4) of the tax code.
Despite assurances that both the FBI and the IRS were conducting investigations of the wrongdoing, many of the conservative groups that were targeted complain that they have yet to hear from anyone in the government. Meanwhile, dozens of conservative groups still are waiting on IRS approval, and the National Organization for Marriage waits for any sign that Eric Holder’s Department of Justice plans to prosecute the IRS employee who leaked its confidential tax data to NOM’s political enemies. Instead, Justice sits idly by as the IRS protects his identity.
But the IRS has not been completely inactive. Just before heading off for the Thanksgiving holiday, the agency dumped a proposed rule into the Federal Register that, if enacted in its current form, would place further restrictions on the political activity of citizen groups, including nonpartisan voter-registration efforts, “meet the candidate” nights and debates, and communications aimed at informing citizens about pending legislation in Congress and the states. It appears, frankly, to be an effort to institutionalize political discrimination in the tax code.
The proposed rule is not entirely without merit. It would do away with the broad, indeterminate “facts and circumstances” test that was a major contributing factor to the IRS scandal. Under that rule, it was left to IRS agents, considering all the “facts and circumstances,” to decide whether an organization’s activities constituted “social welfare activities” (good) or “electioneering” (bad). Obviously, that gave huge discretion to the IRS agents, and once agency higher-ups approved “Be On the Lookout” (BOLO) lists, targeting groups with words such as “Freedom” and “Tea Party” in their names, it was not surprising how this discretion was used. Replacing the “facts and circumstances” test with more objective criteria is a plus.
The problem is in the proposed criteria. First, the proposed rule would limit the ability of 501(c)(4) non-profits to engage in voter education that even mentions a candidate within 30 days of a primary or 60 days of a general election. Thus, if Congress is debating a budget next October, as it was this past October, non-profits would be limited in attempting to run ads urging citizens to contact members of Congress. Moreover, don’t think this applies only to big TV campaigns. It applies to any form of advertising that might reach over 500 people. Inexpensive Internet ads purchased by a local Tea Party outfit, or a mailer announcing a meeting and sent to 2,500 area residents, could endanger a group’s tax-exempt status under the proposed rule.
Moreover, “candidate” is defined to include judicial nominees and other presidential appointees. Thus, starting next February 3, 30 days before the March 4 Texas primary, and all the way through Election Day on November 4, 2014, a non-profit 501(c)(4) would face problems if it urged voters to contact a senator to vote against (or for) confirmation of one of President Obama’s judicial nominees.
That’s not all. The proposed rule would not only limit speech, it would go backward to censor speech. The rule proposes to require groups, starting 60 days before the election, to scrub their websites of any material mentioning a candidate. Thus, an article written last month quoting Democratic members of Congress echoing the president’s assurances that “if you like your plan, you can keep your plan” would have to be taken down next Labor Day, just as the campaign was heating up.
The proposed new rules have been widely described in the press as a “crackdown” on political activity by 501(c)(4) non-profit groups, which is strange in and of itself. The law, after all, allows 501(c)(4) organizations to engage in substantial political activity. From the Anti-Saloon League in the 1910s and 1920s to the Sierra Club, Planned Parenthood, the NAACP, and the NRA today, non-profit social-welfare organizations have been deeply involved in political activity. The simple constraint is that electoral activity cannot be their primary purpose, their raison d’être.
Rarely does a government agency decide to “crack down” on legal activity. So what is really going on?
Basically, if 501(c)(4) organizations are prevented from mentioning candidates close to an election, or speaking out about judicial nominees, then that activity will have to be conducted by political-action committees organized under Section 527 of the Internal Revenue Code. From a revenue standpoint, there is little difference — neither 501(c)(4) organizations nor 527 political committees pay tax on the contributions they receive, and in neither case can donors take a tax deduction for their contributions.
However, the Supreme Court has held, in a series of cases from the 1940s through the 1970s involving unions, picketers, and the NAACP and other civil-rights organizations, that the government cannot force private organizations to divulge their membership or donors. Such forced disclosure violates rights of privacy and freedom of association and can infringe on speech rights by subjecting speakers to official or unofficial harassment. An exception exists, however, for organizations that have a “primary purpose” of influencing elections. That exception was long understood to apply only to political parties, candidate campaign committees, and political-action committees.
What the Left is now trying to do is to broaden the definition of political activity so that more groups fall under Section 527 of the Code as political-action committees. Then the government can force them to disclose their donors, paving the way for both official and unofficial retaliation. For example, two years ago the Obama administration floated a possible executive order requiring companies bidding on government contracts to disclose their political affiliations. The effort was beaten back by near-universal public condemnation, but this new rule would pretty much provide the administration with the desired information. Unofficial retaliation is also a problem. For example, the left-wing group Media Matters has been pitching donors on boycotting and harassing political opponents and the people who support them. We’ve seen this in action in the vandalism and boycotts that cost numerous Californians their jobs after the vote on Proposition 8 — gay marriage — in that state.
And why now? The reason is relatively obvious. In the past, there were some important conservative 501(c)(4) organizations, such as the NRA, that engaged in politics, but most of the big actors — NARAL Pro-Choice, Planned Parenthood, the NAACP, various environmental groups — were on the political left. However, in recent years a variety of 501(c)(4) groups have sprung up on the right, such as Crossroads GPS, Let Freedom Ring, and Americans for Tax Reform. Democrats, facing a 2014 electoral debacle, are worried. They now want to get these groups out of the political fight by forcing them to operate under Section 527, and then harassing and boycotting their disclosed donors. These threats can be expected to dry up conservative financial support.
That also explains why the new rules would prohibit even nonpartisan voter registration and get-out-the-vote efforts. Who thinks lawful voter-registration drives are a bad thing? But the Left sees that the new, conservative-leaning 501(c)(4) organizations are starting to do this work. On the left, however, such work has traditionally been done by groups organized under Section 501(c)(3) of the Code. For example, the ACORN Institute and many other affiliates of the disgraced ACORN empire were organized under Section 501(c)(3). Unlike contributions to 501(c)(4) groups, contributions to 501(c)(3) organizations — churches, non-profit hospitals, private colleges, and traditional charities such as the Red Cross — may be deducted from taxes. Yet the IRS proposes no change in the rules governing 501(c)(3)s. The 501(c)(3) community, still dominated by the Left, will be left unchecked, while the 501(c)(4) community, where the Right has gained a stronger position, will be hit.
If the Obama administration and Democrats in Congress are serious about avoiding another scandal — or even terminating the existing one — the solution lies not in a further “crackdown” on political speech by erstwhile tax authorities, but in taking the power to regulate speech away from those authorities. But then, who says the administration, or congressional Democrats, are serious?
— Bradley A. Smith is Josiah H. Blackmore II/Shirley M. Nault Professor of Law at Capital University Law School, a former chairman of the Federal Election Commission, and the chairman of the Center for Competitive Politics.