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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.

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