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Senate Republicans Urge IRS to Hasten Approval of Tax-Exempt Political Groups

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By Michael Cohn
March 16, 2012

A group of Senate Republicans is increasing the pressure on the Internal Revenue Service to grant tax-exempt status to political organizations.

In a letter Wednesday to IRS Commissioner Doug Shulman, 12 Republican senators, led by Orrin Hatch, R-Utah, the ranking member of the Senate Finance Committee, and Rob Portman, R-Ohio, questioned the IRS’s process for approving and renewing the tax-exempt designations of such groups under Section 501(c)4 of the Tax Code. The 501(c)4 groups have become a hot topic of debate, as a number of them have become aligned with the so-called SuperPACs that raise money on behalf of particular candidates.

Several 501(c)4 groups such as Karl Rove’s Crossroads GPS and the American Action Network helped raise money for Republican candidates in the 2010 elections, and Democrats have responded by forming their own 501(c)4 groups such as Priorities USA. However, under pressure from Democratic lawmakers on the other side, the IRS has begun questioning the organizations more closely on their goals to ensure that their primary purpose is not to advance particular candidates.

Orrin Hatch

On Monday, a group of Democratic senators wrote to Shulman urging the IRS to impose a strict cap on political spending by the 501(c)4 groups (see Senators Ask IRS to Cap Political Spending by Nonprofits). They also urged the IRS to stop political donors from claiming tax deductions for contributing to the groups.

In the letter from Republicans, who include Senate Minority Leader Mitch McConnell, R-Ken., the lawmakers press Shulman to take the opposite tack and ease up on the groups. They questioned what they consider to be selective enforcement on tax-exempt organizations.

Along with Hatch, Portman and McConnell, other senators signing the letter included Chuck Grassley of Iowa, Lamar Alexander and Bob Corker of Tennessee, Pat Roberts of Kansas, John Cornyn  and Kay Bailey Hutchison of Texas, Jon Kyl of Arizona, John Thune of South Dakota, and Rand Paul of Kentucky.

“As you know, the designation as a tax-exempt organization under section 501(c)(4)(A) is reserved for ‘[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, … the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.’ An organization ‘may carry on lawful political activities and remain exempt under section 501(c)(4) as long as it is primarily engaged in activities that promote social welfare.’ The 501(c)(4) designation has been conferred on many organizations in America that espouse political or public policy viewpoints—including Priorities USA, the sister organization of ‘[t]he super PAC supporting President Obama,’  and American Crossroads, the sister organization of a super PAC supporting Republicans.

“Civic and social welfare organizations have long performed valuable roles and offered numerous benefits to our society, and tax exemptions for such organizations can be traced all the way back to the Tariff Act of 1913,” the senators added. “It is imperative that organizations applying for tax-exempt status are able to rely on a consistent and foreseeable review structure from the IRS. Any significant changes to the IRS review process should be implemented only after appropriate notice and opportunity for comment from the public and affected parties.

“A number of our constituents have raised concerns that the recent IRS inquiries sent to civic organizations exceed the scope of the typical disclosures required under IRS Form 1024 and accompanying Schedule B—the forms that all 501(c)(4) organizations must submit,” the letter continued. “Understandably, this has prompted some concerns about selective enforcement and the duty to treat similarly situated taxpayers similarly.”

The senators then asked Shulman a series of questions about the IRS’s approval process for 501(c)4 tax-exempt status. The battle is a replay of one last year in which the IRS began sending letters to several donors to tax-exempt political groups asking about why they should not be subject to the gift tax. In that case, the IRS was forced to back down and suspend the probe (see IRS Suspends Gift Tax Examinations of Political Donors and IRS Heat is Off 501(c)4 Political Contributions). In this case, however, the tug-of-war between Democratic and Republican lawmakers, with the IRS in the middle, probably won’t end until after the elections.

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