IRS pushes to rein in tax-exempt campaigns

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WASHINGTON -- The Obama administration on Tuesday launched a bid to rein in the use of tax-exempt groups for political campaigning.

The effort is an attempt to reduce the role of loosely regulated big-money political outfits such as Republican political guru Karl Rove's Crossroads GPS and the pro-Obama Priorities USA.

The Internal Revenue Service and the Treasury Department said they want to prohibit such groups from using "candidate-related political activity" -- such as running ads, registering voters or distributing campaign literature -- as actions that qualify them to be tax-exempt "social welfare" organizations.

The agencies say there will be a lengthy comment period before any regulations will be finalized. That means groups such as Crossroads and Priorities USA will be able to collect millions of dollars from anonymous donors ahead of next year's campaign.

"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Mark Mazur, the Treasury Department's assistant secretary for tax policy. "We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently."

Organized under section 501(c)(4) of the tax code, such groups are able to raise millions of dollars to influence elections. But they can also be small-scale Tea Party groups, many of which say they were harassed by the IRS after seeking tax-exempt status.

House Ways and Means Committee Chairman Dave Camp, R-Mich., was skeptical of the administration's move. "There continues to be an ongoing investigation, with many documents yet to be uncovered, into how the IRS systematically targeted and abused conservative-leaning groups," he said. "This smacks of the administration trying to shut down potential critics."

The 2010 Supreme Court decision in the Citizens United case lifted the limits on donations by labor unions and companies to 501(c)(4) groups, allowing Crossroads -- the largest of them -- to raise huge sums outside the limits that apply to candidates' campaigns and traditional party committees.

"Enormous abuses have taken place under the current rules, which have allowed groups largely devoted to campaign activities to operate as nonprofit groups in order to keep secret the donors funding their campaign activities," said Fred Wertheimer, president of Democracy 21, which advocates limits on money in politics.

Under current rules, social welfare organizations may conduct some political work as long as it is not their main activity. The proposed new rules would block such activities as buying ads that "expressly advocate for a clearly identified political candidate or candidates of a political party" in the guise of fulfilling their tax-exempt mission. Ads that simply mention a politician, for instance, to urge him or her to vote a certain way, couldn't be run 60 days before a general election or 30 days before a primary. The rules also would limit voter drives and voter registration efforts and literature distributions.

The idea behind the new regulations, proponents say, is to simplify the rules of the road going forward. Critics assert that the current rules are confusing and prone to abuse.

The Treasury and the IRS don't yet have a proposal regarding what proportion of a 501(c)(4) group's activities must promote social welfare. They are soliciting input on what percentage of a tax-exempt group's time and money can be spent on politics.

Any changes to the regulations likely would not affect the 2014 elections because of legal challenges, but they could shape the next presidential election, said campaign finance attorney Kenneth Gross, the Federal Election Commission's former head of enforcement.

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