Controversial IRS rules changes for tax-exempt political groups on hold

By: CBS
By: CBS

Washington, DC (CBS) - After getting serious blowback from groups across the political spectrum for its attempts to rein in politically-engaged nonprofits, the IRS on Thursday evening announced it will attempt to rewrite its proposed rules to rein in politically-engaged nonprofits.

The setback means that the new rules -- heavily scrutinized in the wake of revelations that the IRS unfairly scrutinized certain conservative and progressive groups -- won't be in place for the 2014 elections. Yet even Democrats who supported the IRS's efforts had suggested the proposed rules needed to be amended.

For months, congressional Republicans pushed the IRS to drop they proposed rules, arguing that they would only encourage the agency to harass groups that attempt to speak out politically. Furthermore, the proposed rule change clearly hit a nerve with the public -- after the IRS opened the draft rules up for public comment, more than 140,000 comments were submitted, setting a clear record for the number of comments any draft federal regulations have ever received.

Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, said he is pleased the IRS is heeding the serious concerns raised about the rule changes.

"Ultimately, the flawed IRS rule drew the ire of First Amendment advocates on both the left and right," he said in a statement. "These Americans, who broke records with critical comments about the proposed rule, deserve the most credit for blocking the implementation of the Administration's wrong-headed and ill-advised proposal."

Sen. Chuck Schumer, D-N.Y., meanwhile, called the delay "deeply disappointing and a real setback for democracy and faith in government."

"One of the greatest dangers our democracy faces is the unregulated 'Wild West' nature of 501(c)(4)s that allows a multimillionaire to spend undisclosed millions on TV ads and call it social welfare," he said. "The only hope we have is when the IRS goes back, they don't succumb to any form of political pressure and enact a very tough rule that will equally curtail liberal and conservative groups."

Gabe Rottman, a policy adviser for the ACLU, said his organization applauded the IRS's attempt to take initiative and improve the regulations that govern political spending.

However, he said, the proposed rule change "didn't address the problem that many have identified, and at the same time it created new problems."

Currently, "social welfare" organizations, which fall under the 501(c)4 classification, are allowed to spend unlimited sums of money on politics as long as politics isn't their main focus. These tax-exempt organizations are not required to disclose their donors -- so after the Citizens United Supreme Court case in 2010 cleared the way for corporations to spend unlimited amounts of money in politics, the number of applications for 501(c)4 status more than doubled.

The proposed changes would have limited the "candidate-related political activity" that these groups can conduct -- including certain communications that mention a certain candidate, giving certain grants or donations, and other activities like voter registration drives.

Several groups, including the ACLU complained that activities like voter registration drives can be clearly nonpartisan. Additionally, they said, limiting communications that mentions a candidate would create a problem for groups genuinely trying to educate voters on the issues.

As the IRS revamps its proposed rules, "the most important thing they need to do is define what constitutes political intervention by tax-exempt groups as narrowly as possible," Rottman said.

The ACLU had called on the IRS to adopt a "bright-line standard" that would give guidance on permissible political activity.

"They drew a bright line, but it went in the sort of opposite direction and was more expansive and swept in a vast amount of speech that was completely nonpartisan," Rottman said.
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