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IRS Uproar Intensifies

As thousands of negative comments flood the Internal Revenue Service on the eve of a Feb. 27 deadline, GOP leaders are moving on several fronts to block the proposed IRS regulations that would curb political activity by tax-exempt groups.  

The House has passed legislation that would bar the IRS from issuing new regulations for one year. Also, the House Oversight and Government Reform Committee has released a letter demanding further testimony from Lois Lerner, the ex-senior IRS official at the heart of an ongoing scandal over the agency’s self-admitted targeting of the Tea Party and other groups seeking tax exemption. The National Republican Congressional Committee has publicly challenged more than three dozen House Democrats on whether they will “stop IRS targeting,” pushing the IRS controversy onto the campaign trail as midterm elections heat up. The NRCC has dubbed this week, “Stop Government Abuse Week,” and sent press releases asking how Rep. Ann McLane Kuster, D-N.H., and 41 of her fellow Democrats will vote on the IRS bill.  

The Office of Management and Budget announced that the Obama administration “strongly opposes” the legislation and would veto it. The "Stop Targeting of Political Beliefs by the IRS Act"  was introduced in the House by Ways and Means Chairman Dave Camp, R-Mich., and matches a Senate companion bill introduced by Minority Leader Mitch McConnell, R-Ky.  

Senate Democrats have long called on the IRS to more forcefully rein in political activity by tax-exempt social welfare and trade groups that spent hundreds of millions on the 2012 elections without disclosing their donors. At a January public forum, Sen. Charles E. Schumer, D-N.Y, said the IRS and other agencies should “immediately” redouble efforts to stop what he called election law abuses by tax-exempt groups that engage in politics outside the disclosure rules.  

But when it comes to the draft IRS regulations, congressional Democrats are directly at odds with their progressive allies, from labor unions to civil rights and environmental groups. Organizers on the left have joined Tea Party and conservative activists in assailing the regulations, which would define political activity so broadly that it would include voter registration and mobilization, as an assault on the First Amendment.  

In public comments that echo those submitted by conservatives, the American Civil Liberties Union warned that defining legitimate advocacy and voter engagement as campaigning would chill activities that are “at the heart of our representative democracy.” The IRS proposal’s deep flaws have managed to unite a broad array of Washington players at odds on other fronts, from the Chamber of Commerce to watchdog groups and tea party activists.  

The agency has faced criticism for decades on both sides of the aisle for its failure to clearly define how aggressively social welfare and other tax-exempt groups may engage in politics without losing their tax-exempt status. According to the tax law, 501(c)(4) social welfare groups must operate “exclusively” for the public welfare. But IRS regulations say such groups must be “primarily” for the social welfare, a standard that’s widely interpreted to mean 50 percent.  

Lerner triggered an uproar last year when she admitted that the agency had singled out the tea party and other groups for special scrutiny, delaying their applications for tax exemption for up to two years. A federal inspector general faulted the agency for mishandling the applications and recommended that it write new rules to clear up longstanding confusion over what’s permitted.  

But the proposed regulations, released by the Treasury Department in November, have only redoubled attacks on the IRS. Congressional Republicans have vowed to continue investigating what they say is part of a pattern of administration overreach, and have faulted federal investigators for taking no action.  

“This week should be an interesting week for us,” said Rep. Mike Kelly, R-Pa., who has called the proposed regulations “a naked attack on the First Amendment.” Kelly sits on the House Ways and Means Committee, one of the House panels investigating the IRS. He said the agency has failed to fully respond to inquiries, sending in documents with extensive redactions.  

The administration has denied knowledge of the IRS targeting, which Obama has attributed to incompetence, not malicious intent. The recent OBM statement urges the agency to move forward with its attempt to rewrite regulations that “are broadly recognized as unclear.” Democracy 21 has joined with several other watchdog groups to lobby against the Camp legislation, arguing that delaying the rule-making would simply “prolong the opportunity for the abuses of the tax laws” and undisclosed political spending.  

But many of the very groups that oppose a delay, including Citizens for Responsibility and Ethics in Washington and Public Citizen, also oppose the IRS regulations as written. Said CREW Executive Director Melanie Sloan: “They are both over- and under-inclusive in ways that are particularly troubling.”  

Like many IRS-watchers following the rule-making process, Sloan predicts that there is “actually zero chance” that they will ultimately be enacted. That the agency has produced such predictably controversial draft regulations has prompted much head-scratching among campaign finance and tax experts.  

“One might assign nefarious motives to the IRS, or one might say that they don’t know what they’re doing,” said former FEC chairman Bradley Smith, chairman of the Center for Competitive Politics, at Heritage Foundation panel discussion last week on the IRS regulations. “Neither of those reflects well for putting forward this kind of rule.”