IRS will revise proposed rules on political nonprofit groups

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WASHINGTON -- The Internal Revenue Service said Thursday that it will revise proposed rules governing nonprofit groups' involvement in politics.

The rules, released last year, were an attempt to provide guidance for how much political activity groups organized under section 501(c)(4) of the U.S. tax code could engage in without risking loss of their tax exemption or being forced to reveal their donors.

The IRS disclosed in May 2013 that it gave some Tea Party groups seeking tax-exempt status extra scrutiny because of their names, not their activities. President Barack Obama forced out acting IRS commissioner Steven Miller, and several other senior executives left their jobs, including Lois Lerner, who was the agency's director of exempt organizations.

The rules, designed to provide clearer guidelines for IRS employees, were part of the government's response to the issue. Some actions would be considered political involvement, including advertising, voter guides, voter-registration drives, get-out-the-vote campaigns, Internet references to candidates and some appearances by candidates at groups' events. Under the proposed rules, a group would risk losing its tax-exempt status by engaging in too many of those activities, though the rules didn't define what would be considered too much.

After the IRS released the new rules, groups across the political spectrum objected with more than 150,000 comments, calling them too broad and an attack on free speech.

Opponents included the American Civil Liberties Union and the American Family Association.

Republicans called on the IRS and the Treasury Department to start over. Until Thursday, the IRS had said it was planning a public hearing in the next few months.

"It is likely that we will make some changes to the proposed regulation in light of the comments we have received," the IRS said in its statement Thursday. "Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation."

The statement doesn't specify how extensive the changes will be, when a new rule would be released or when it would take effect.

Utah Sen. Orrin Hatch, the Senate Finance Committee's top Republican, called the IRS announcement a "long overdue step in the right direction."

"The IRS is right to abandon its previously proposed rules governing 501(c)(4) organizations that threatened free speech and the rights of all American citizens to participate in the democratic process," Mr. Hatch said in a statement. "I am glad the IRS heard the concerns of hundreds of thousands of Americans, and I will continue to advocate for an IRS that is independent and nonpartisan."

New York Sen. Chuck Schumer, the chamber's third-ranking Democrat, said in a statement that the delay in the rules is "deeply disappointing and a real setback for democracy and faith in government." He said he hoped that the IRS would "enact a very tough rule that will equally curtail liberal and conservative groups."

IRS commissioner John Koskinen has previously said it was very unlikely that the process would be completed this year.

The 501(c)(4) groups, including Crossroads Grassroots Policy Strategies, have become increasingly prominent in U.S. elections. According to the Center for Responsive Politics, such groups spent $256 million on the 2012 election, more than three times what they spent in 2008. These groups are different from super-political action committees, or SuperPACS, which must disclose their donors.

The tax law says 501(c)(4) groups must be organized "exclusively" to promote social welfare. The IRS has interpreted that to mean politics cannot be such a group's primary purpose, leading to conflicts over how to measure what is politics and what amounts to a primary purpose.



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