IRS aiming to limit nonprofit groups' role in political campaigns

WASHINGTON -- The Obama administration is trying to rein in the use of tax-exempt groups for political campaigning.

The effort launched Tuesday is an attempt to reduce the role of loosely regulated big-money political outfits like GOP political guru Karl Rove's Crossroads GPS and the pro-Obama Priorities USA.

The Internal Revenue Service and the Treasury Department said they want to prohibit such groups from using "candidate-related political activity" like running ads, registering voters or distributing campaign literature as activities that qualify them to be tax-exempt "social welfare" organizations.

The agencies say there will be a lengthy comment period before any regulations will be finalized. That means groups like Crossroads and Priorities USA will be able to collect millions of dollars from anonymous donors ahead of next year's campaign.

"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Mark Mazur, treasury assistant secretary for tax policy. "We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently."

Organized under section 501(c)(4) of the tax code, such groups are able to raise millions of dollars to influence elections. But they can also be small-scale tea party groups, many of which say they were harassed by the IRS after seeking tax exempt status.

House Ways and Means Committee Chairman Dave Camp, R-Mich., was skeptical of the administration's move.

"There continues to be an ongoing investigation, with many documents yet to be uncovered, into how the IRS systematically targeted and abused conservative-leaning groups," he said. "This smacks of the administration trying to shut down potential critics."

The 2010 Citizens United Supreme Court decision lifted the limits on donations by labor unions and companies to 501(c)(4) groups, allowing Crossroads, the largest of them, to raise large sums outside the limits that apply to candidates' campaigns and traditional party committees.

"Enormous abuses have taken place under the current rules, which have allowed groups largely devoted to campaign activities to operate as nonprofit groups in order to keep secret the donors funding their campaign activities," said Fred Wertheimer, president of Democracy 21, which advocates limits on money in politics.

Under current rules, social welfare organizations may conduct some political work as long as it's not their main activity. The proposed new rules would block such things as running ads that "expressly advocate for a clearly identified political candidate or candidates of a political party" as fulfilling their tax-exempt mission. And ads that simply mention a politician to, for instance, urge him or her to vote a certain way couldn't be run 60 days before a general election of 30 days before a primary.

The rules also would limit voter drives and voter registration efforts and distribution of literature.

The idea behind the new regulations is to simplify the rules of the road going forward, proponents say. The current rules are confusing and prone to abuse, critics say.

Treasury and the IRS don't have a proposal yet about what proportion of a 501(c)(4) group's activities must promote social welfare and are soliciting input. In other words, they don't have a recommendation as to what percentage of a group's time and money can be spent on politics.

Some of the outside groups that could be affected by the proposal, including Crossroads GPS and Priorities USA, did not have any initial reaction to the announcement. The groups are expected to weigh in on the rulemaking as it proceeds.

Any changes to the regulations likely would not affect the 2014 elections because of legal challenges but the rule changes could shape the next presidential election, said Kenneth Gross, a campaign finance attorney and former head of enforcement for the Federal Election Commission.

"Brightening what are now blurred lines - what is political activity - is not only useful but necessary to have some kind of clarity to a vehicle that has been used to the tune of millions and millions of dollars," he said.

But Gross cautioned that "this is a long and winding road before anything is in ink."