IRS to Revise Regs for Tax-Exempt Groups on the QT | AccountingWEB

IRS to Revise Regs for Tax-Exempt Groups on the QT

Politics and nonprofit organizations usually don't mix. Now the IRS is taking steps to ensure that tax-exempt groups stay well within the tax law boundaries when they engage in political activities. In response to public outcry—it received more than 15,000 public comments on the issue—the nation's tax collection agency announced on May 22 that it would revise proposed regulations governing political activities of Section 501(c)(4) organizations (also called "social welfare organizations").

But this time around, as reported by Politico and Bloomberg News, among other media sources, the IRS is going out on a limb. It says it will implement the new rules without holding a public hearing.

"It is likely that we will make some changes to the proposed regulation in light of the comments we have received," said an IRS spokesperson in prepared statement. "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 origins for the IRS' actions can be traced back to the scandal over extra scrutiny of the tax-exempt applications of "Tea Party" and certain other conservative groups that first broke about a year ago. Subsequently, heads rolled at the IRS, including Acting IRS Commissioner Steven Miller and Lois Lerner, the head of the Exempt Organizations division at the time of the improprieties. Several congressional committees, as well as the US Justice Department, are still probing into the matter.

Essentially, a 501(c)(4) group must be organized "exclusively" to promote social welfare to qualify for a tax exemption. However, political activity cannot be the organization's "primary purpose." These vague depictions have led to confusion over how to measure political activity.

The proposed regulations initially issued last year, which have drawn flak from both the right and the left, were designed to provide guidance on the political involvement social welfare groups could engage in without jeopardizing tax-exempt status or being forced to reveal their donors. Activities that would be treated as political involvement included advertising, voter guides, voter-registration drives, get-out-the-vote campaigns, online references to candidates and certain appearances by candidates at events hosted or sponsored by the tax-exempt group. But the IRS never quantified how much political activity would be "too much."

Now it's back to the drawing board, although the IRS intimates it won't be working with a completely blank slate. It has stated that it will keep certain portions intact but make adjustments based, at least in part, on the public comments.

"Today's decision is a long overdue step in the right direction," said Senator Orrin Hatch (R-UT), the ranking Republican on the Senate Finance Committee. "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." His sentiments were generally echoed by Representative Dave Camp (R-MI), the powerful chairman of the House Ways and Means Committee. "The American people spoke out loud and clear against it, and hopefully the IRS and the Obama administration will think twice before ever trying to go down this path again," said Camp, as quoted in USA Today.

The latest announcement by the IRS didn't come as a complete surprise to observers, since current IRS Commissioner John Koskinen had commented on the revisions several weeks ago. But the news that the IRS won't be soliciting public feedback on the changes wasn't expected, especially since it contradicts previous statements. In any event, Koskinen has predicted that the IRS isn't likely to wrap up the revisions before the end of the year.

Related articles:

Bramwell's Lunch Beat: Lots of Back Taxes Owed on Capitol Hill
Bramwell's Lunch Beat: Will IRS Pare Back 501(c)(4) Rules?


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