In an effort to bring secret political spending to light, on Tuesday the Obama Administration announced new rules limiting tax-exempt organizations' political activity. It sounds dry, an adjustment to the rules pertaining to a subsection of tax code — and an adjustment that still has a number of hurdles before it is enacted — but the ramifications for elections could be significant.
Largely in response to the passage of the Bipartisan Campaign Reform Act in 2002 (better known as McCain-Feingold), organizations that wanted to collect anonymous contributions to use for political purposes (so-called "dark money") began to organize as 501(c)(4) non-profits under the IRS tax code. The law is meant to provide tax-exempt status to "social welfare" organizations, but rapidly became a preferred vehicle for campaign activity, given that the only prohibition against political work was that it couldn't be the organization's "primary purpose."
We explored the history of such groups a few months ago when the IRS' increased scrutiny of (c)(4) applications from Tea Party groups first came to light — scrutiny that was meant in part to try and determine if the groups violated either the vaguely defined "social welfare" or "primary purpose" criteria.
With Tuesday's announcement, The Wall Street Journal reports, the IRS and Department of Treasury will no longer allow any express political activity from (c)(4)s, and will define those two criteria more clearly.
In general, the proposed new rules would classify more campaign-related actions as political and therefore not part of groups' tax-exempt activities. That has been interpreted by lawyers for 501(c)(4) organizations to mean that they can't spend more than 50% of their funding on campaigns.
But the IRS hasn't—until now—specified what types of spending are considering political or nonpolitical. That has given the people who run 501(c)(4) groups tremendous flexibility in their spending.
The new rules, according to a statement from the government, would exclude political activity from "social welfare" work — and define that activity to include (among other things) the following:
- Expressly advocating for a candidate or political party in communications.
- Any communication within 60 days before an election that mentions a candidate or party.
- Grants to non-profit political organizations like 527s.
- Distribution of material from political groups, candidates, or parties.
- Holding an event within 60 days before an election at which a candidate for office appears.
There are important subtleties in that list. Often, groups will send out communications that are focused on "issues," in order to get around existing express advocacy rules. Instead of saying "Vote against President Obama," such a group would say something like, "Killing babies is wrong, yet politicians like President Obama support abortion." The effect is often the same. By barring the identification of a candidate at all before an election, the government clearly hopes to eliminate some of those loopholes.
Last week, ProPublica detailed a less subtle effort by a 501(c)(4) — Karl Rove's Crossroads GPS. The group explained its "social welfare" mission to the IRS by saying it worked on "grassroots mobilization and advocacy" to influence legislation. In reality, it sent millions of dollars to groups that did political work — another explicit no-no under the new rules. It's a case study in walking the blurry line in the new rules.
Of those grants, Crossroads gave $26.4 million to Americans for Tax Reform, and $2.15 million to the Center for Individual Freedom. It told the IRS that these grants were not supposed to be spent on elections.
In the group’s statement, Collegio said the group had a ratio of 60.2 percent of social welfare spending to 38.8 percent of political spending in 2012. (It is not clear where the missing 1 percent went.)
Among the things Crossroads appears to have counted as part of its spending on social welfare are tens of millions on ads criticizing Obama in swing states in 2012.
"The process of completing the new regulations could take months," the Journal said of Tuesday's announcement, "and officials said they expected a lot of feedback, acknowledging the political battles ahead." Whether or not the rules would be in place by 2014 isn't clear.