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June 18, 2014 1:28 PM Straightening Out the (c)(4) Mess Definitively

By Ed Kilgore

After one false start based on conservative shrieking about tax-exempt eligibility rules for labor unions, the IRS is now indicating it will promulgate more comprehensive rules for 501(c)(4) “social welfare” entities next year, per a report from the Center for Public Integrity’s Julie Patel:

The Internal Revenue Service will propose new and specific rules defining how much money “social welfare” nonprofits may spend on political campaigns, Commissioner John Koskinen said Tuesday during an interview for an upcoming Center for Public Integrity investigative report.
Such rules could curb the influence of “dark money” nonprofits engaging in overt political activity that proliferated after the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in 2010.
The new rules would seek to define what constitutes political activity. The new regulations could also further regulate labor unions and trade associations — two kinds of politically active nonprofits that the IRS didn’t address in a highly contentious rulemaking attempt the agency itself short-circuited in May.
“There are three issues: What should be the definition, to whom should it apply and how much … can you do before you jeopardize your exemption?” said Koskinen, the IRS’ top official who took office in December.
The IRS asked for comments on all three issues but addressed only one in the first round of proposed regulations.
“The next resolution will differ from the first draft because it will deal with all three questions,” he said.

That’s good; the more comprehensive this review is, the better. But it would be far better if Congress cleared it up, perhaps by eliminating the whole “social welfare” category and/or simply banning campaign spending (as opposed to non-campaign advocacy work) for those meeting its conditions. The truth is that if the IRS itself is seeking to “clarify” the rules, conservatives will again feed public fears of that agency to imply that (c)(4)s are having their doors knocked down or their assets seized or their books audited, while in this area all the IRS is actually doing is certifying a tax status that relieves the affected entity of the obligation to identify donors to the Federal Election Commission. This is all about hiding donors.

Not that long ago, the standard line for most conservatives on campaign finance was to favor total donor disclosure in exchange for the elimination of both spending and contributions limits. Not any more: the current demand is for unlimited spending without disclosure or even the inconvenience of filing tax returns. If it were up to me, I’d probably abolish the whole (c)(4) category and make advocacy groups either become campaign committees with disclosure required or true non-profit charitable organizations that stay out of electioneering. But making the IRS police this matter will guarantee bogus “scandals” to the end of time.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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