In Support of … the Internal Revenue Service

The IRS social welfare organization proposal is an effort to update and clarify old laws, through an open democratic process that invites everyone to participate. So why is the House and The Wall Street Journal taking aim?

February 7, 2014

Even when the Internal Revenue Service does the right thing, for some people, it’s too attractive a punching bag. On Wednesday, House leadership called on the IRS to withdraw its proposed rulemaking meant to clarify the proper role of tax code Section 501(c)(4) social welfare organizations, and The Wall Street Journal accused the IRS of political bias. House leadership went so far as to call the IRS process an “affront to free speech itself.” The IRS may not be everyone’s favorite federal agency, but these politically motivated detractors have it wrong. 

The regulations proposed by the Internal Revenue Service are not politically biased. Instead, the proposal would close a loophole that has enabled political funding groups on both the left and right to define themselves as ‘social welfare organizations.’ It would do this by clearly defining certain activities meant to influence our elections as “candidate-related political activity.” The IRS has invited the public to weigh in on how much “candidate-related political activity” these social welfare organizations should be permitted to do before losing their status as nonprofit organizations – and to date, more than 22,000 Americans have submitted comments. The proposed rules would replace or augment outdated laws from the 1950s that have been badly exploited by wealthy special interests seeking to influence American elections by circumventing campaign finance laws.    

The letter from House leadership to the IRS hyperbolically claims that the rules target grassroots organizations, and that “…grassroots groups all across the country will likely be forced to shut down simply for engaging in the kind of non-partisan educational activities the 501(c)(4) designation was designed to support.”  This is a misleading characterization of reasonable limits on the amount of candidate-related political activity that a social welfare organization can fund. Social welfare organizations seeking to influence elections will continue to have the ability to set up a separate segregated fund for donations and expenditures under Section 527 of the Internal Revenue Code.

 This requires a bit more paperwork, but it is how legitimate social welfare organizations have operated most effectively within the law for decades when engaging in electioneering activity.  Because this option might be burdensome for very small organizations, the IRS should ensure that the proposed rule does not sweep too broadly in its definition of electioneering.  And legitimate, nonpartisan voter education efforts should be an allowable activity. 

The IRS social welfare organization proposal is an effort to update and clarify old laws, through an open democratic process that invites everyone to participate. Stopping this process in its tracks would leave murky and outdated laws on the books, ready to be exploited.  Which path is the greater threat to free speech?