A group of 10 Republican senators have written a letter to IRS Commissioner Doug Shulman urging him to resist changing regulations for tax-exempt organizations organized under Section 501(c)(4) of the Tax Code.

Orrin Hatch

An increasing number of political fundraising organizations have been applying for 501(c)(4) tax-exempt status, and the Internal Revenue Service has been under pressure from both political parties in Congress. Republican lawmakers have generally been urging Shulman to grant the tax exemptions, particularly to Tea Party-affiliated groups, without subjecting the groups to requests for detailed information about their finances and donors, while Democratic lawmakers have pushed Shulman to deny tax exemptions to such groups (see GOP Lawmakers Prod IRS to Grant Tax Exemptions to Political Groups, IRS Probe of Tax-Exempt Political Groups Questioned and Senate Republicans Ask IRS to Hasten Approval of Tax-Exempt Political Groups).

After the IRS signaled its intention to consider proposed changes to the tax treatment of nonprofit 501(c)(4) organizations, 10 Senators asked Shulman on Monday to clarify the agency’s intentions for the 52-year-old regulation.  In a letter led by Senator Orrin Hatch, R-Utah, ranking Republican member of the Senate Finance Committee, the lawmakers questioned the IRS’s response to a public rulemaking petition from outside groups pressuring the agency to take action on 501(c)(4)s and said it was essential that politics not play any role in its decision-making process.

“We believe these petitions have less to do with concerns about the sanctity of the tax code and more about setting the tone for the upcoming presidential election, and we urge you to resist allowing the IRS rulemaking process to be subverted to achieve partisan political gains,” wrote the Senators.

On July 17th in a letter to petitioners, the IRS said it “was aware of the public interest” in 501(c)(4)s and that it “will consider proposed changes,” raising questions on whether the agency has already started a an internal process to amend its regulations.

The Senators continued, “Your acknowledgement of the political character of the public interest in 501(c)(4) organizations would caution against sudden changes to well-established law. Yet, your letter seems to suggest that outside political pressure is actually what is triggering your agency’s considering of changes to the law.”

Joining Hatch on the letter were Senators Chuck Grassley of Iowa, Jon Kyl of Arizona., Pat Roberts  of Kansas, Mike Enzi of Wyoming, John Cornyn of Texas, John Thune of South Dakota, Mitch McConnell of Kentucky, Lamar Alexander of Tennessee, and Kay Bailey Hutchison of Texas.

Earlier this year, a dozen Republican Senators called on the IRS to prevent politics from playing a role in any action taken on nonprofit 501(c)(4) organizations after several groups applying for the status received detailed follow-up inquiries from the agency. A similar group questioned the agency’s preservation of privacy protections for these groups in June.

Groups organized as tax-exempt 501(c)(4) organizations are able to raise funds without disclosing the names of donors. Republican-leaning groups such as Crossroads GPS and Democratic-leaning groups such as Priorities USA have been raising funds in conjunction with so-called Super PACs to advocate for each party in advance of the November elections. Under the law, 501(c)(4) groups are not permitted to make political activity their primary purpose. Section 501(c)(4) of the Tax Code is intended to be used to promote social welfare. However, the ability to keep donors' identities anonymous has made them attractive as a vehicle for raising unlimited funds for both parties.