Thanks to Congressional Inaction, Seeking Clarity From the IRS Is No Joke | Commentary

A few months ago, the Internal Revenue Service was accused of improperly targeting conservative nonprofit organizations for special scrutiny. Whoops. Now the IRS and the Treasury Department have proposed new rules to curb the political influence of one type of nonprofit organization.

This is a significant step towards increasing transparency in politics. So-called “dark money” flows freely throughout our political system. Outside groups with innocuous sounding names raise and spend unlimited sums, much of it undisclosed, to influence voters.

This system of secrecy significantly hinders voters’ ability to evaluate the credibility of speech aimed at influencing their ballot box decisions. Knowing the source of the spending is arguably the most important piece of information that a voter can receive. A group called “America Now” does not convey anything useful. However, the knowledge that America Now is funded by Monsanto, General Electric, Sheldon Adelson or George Soros would provide voters with helpful information.

So that’s the problem, but is the IRS the best body to provide a solution? Maybe not. Congress could step in and change the way nonprofits are organized. Don’t laugh. The latest so-called “do nothing” Congress could do something, but the truth is, they will likely fail to act.

In light of congressional inaction, here comes the IRS. The IRS’ proposed rules would affect particularly wily organizations known as social welfare organizations, which are nonprofits organized under section 501(c)(4) of the Internal Revenue Code. These organizations must have the promotion of social welfare as their primary purpose; 501(c)(4)s can engage in political activity as long as that activity is not their primary purpose. If these standards sound confusing, vague and susceptible to abuse, that is because they are.

First, what is a primary purpose? Does spending less than 50 percent of that organization’s money on political activity satisfy this test? Second, what is political activity? What if an organization is dedicated to promoting after-school programs and a candidate has made those programs her main campaign platform? Where is the line between promoting social welfare and engaging in political activity?

Given these perplexing standards, it should be no surprise that the IRS faced problems in determining whether or not groups were actually social welfare organizations or were political action committees clothed in the protective 501(c)(4) status.

Why is it suddenly all the rage to organize as a social welfare organization? First, in 2010 the Supreme Court handed down a decision in a little case called Citizens United v. FEC, which opened the door for the raising and spending of unlimited sums by outside organizations. Second, many of these organizations have to disclose their contributors.

Not so with social welfare organizations. This actually makes a great deal of sense. The public does not have the same interest in knowing the identity of contributors to organizations seeking to promote after-school care programs as they do in contributions to organizations seeking to support or oppose a political candidate. But now organizations are clothing themselves in the special social welfare cloak of secrecy, while functioning as political committees.

There are a variety of congressional options. Perhaps the bluntest solution is for Congress to eliminate 501(c)(4)s. Less drastically, Congress could clarify the two problematic standards at issue: what is political activity, and how much such activity is too much when it comes to 501(c)(4)s? For instance, Congress could provide that social welfare organizations cannot engage in any political activity. Or Congress could take a different tact and require 501(c)(4)s to disclose their donors. Congress has done nothing.

Enter the IRS. Attempting to bring clarity to this muddled mess, the IRS has tried to identify political activity that falls outside the scope of an organization’s primary purpose. To that end it has defined a new term: “candidate-related political activity.” Activities falling within this category include communications seeking to urge voters to support or oppose a candidate, voter registration, get-out-the-vote drives and the preparation and distribution of voter guides.

Critics of the new rules have complained that they are targeted only at one type of nonprofit organization. Guess what? Those are the organizations spending the most money in political campaigns. Social welfare organizations, 501(c)(4)s, spent more than $256 million in the 2012 elections. By comparison 501(c)(6)s, business leagues such as chambers of commerce, and 501(c)(5)s, labor organizations such as unions, spent about $55 million and $23 million, respectively, during the same period.

By the time new regulations to into effect cunning contributors may have found a new vehicle through which to pour unlimited sums to attempt to sway the voters. But before we throw up our hands, it is well worth implementing these or similar rules. They are a step in the direction of transparency.

Jessica A. Levinson is a professor at Loyola Law School, Los Angeles, where she teaches on election law, campaign finance and the Supreme Court.