Congress Considers Legislation to Block IRS’s Proposed 501(c)4 Regulations

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A group of Republican senators has introduced legislation to prevent the Internal Revenue Service from finalizing for one year proposed regulations governing how much political activity tax-exempt 501(c)4 social welfare organizations can legitimately conduct.

Sen. Jeff Flake, R-Ariz., and Sen. Pat Roberts, R-Kan., introduced S. 2011, the Stop Targeting of Political Beliefs by the IRS Act, on Tuesday. The bill is co-sponsored by 37 additional senators, including Senate Majority Leader Mitch McConnell, R-Ken., and Senators John Cornyn, R-Texas, John Thune, R-S.D., and Orrin Hatch, R-Utah, the ranking Republican on the Senate Finance Committee.

The bill aims to protect the free-speech rights of Section 501(c)(4) organizations by prohibiting for one year the finalization of regulations proposed last year by the IRS and the Treasury Department in response to the scandal that erupted last year over the extra scrutiny given to applications for tax-exempt status by the IRS’s Exempt Organizations unit from groups with terms such as “Tea Party,” “Patriot,” “9/12,” “Progressive” and “Occupy” in their names (see Treasury Department and IRS Issue Guidance for 501(c)4 Tax-Exempt Social Welfare Organizations).

The bill would also prevent additional “targeting” of 501(c)(4) organizations by restoring the IRS 501(c)(4) standards and definitions that were in place before the agency’s began giving extra scrutiny of such groups in 2010. 

“The proposed IRS rule is overly broad and would codify the IRS’ ability to attack certain groups, opening the door to further encroachment on Americans’ first amendment rights,” Roberts said in a statement. “It is clear the IRS has no capacity to regulate political activity without running roughshod over people’s fundamental constitutional rights. As a result, our legislation is very simple. We simply halt further action on the proposed regulations until the Justice Department and congressional investigations into the IRS actions are complete. We don’t need the IRS regulating constitutionally guaranteed free speech.”

The Treasury Department published a proposed IRS rule last November that would broadly define 501(c)(4) political activity to include voter registration, voter education, communications that mention a candidate or party, grants to Section 527 organizations, and events in which a candidate participates, among other activities. Even non-partisan activities would be limited, the senators contended. The regulations specifically single out 501(c)(4) organizations, and do not apply to other nonprofit organizations such as charities, labor unions or trade associations.

Last May, the Treasury Inspector General for Tax Administration released a report finding that the IRS had inappropriately applied excessive scrutiny to the applications of conservative groups applying for 501(c)(4) tax-exempt status. Several IRS employees, including the acting commissioner, resigned as a result of the scandal. Investigations by the House, the Senate and the Department of Justice are ongoing. It later emerged that not only conservative groups received extra scrutiny, but also some on the left as well. The IRS has since pledged to stop using so-called “BOLO” (short for Be on the Lookout) lists to group together applications from organizations based on terms in their names such as “Tea Party” and “Progressive.”

“The Stop Targeting of Political Beliefs by the IRS Act will prevent this rule or any other that seeks to continue the targeting of groups based on their ideology,” said Flake. “It’s time to end the intimidation and harassment. Let’s preserve the First Amendment rights of all groups, regardless of their ideology, especially those that commit themselves to improving our society. And let’s restore the public’s faith in the ability of the IRS to fairly administer our nation’s tax laws.”

Meanwhile, lawmakers on the other side of the Capitol began markup Tuesday on a House version of the same legislation within the tax-writing House Ways and Means Committee.

“Some in Washington have tried to sweep this under the rug, calling the IRS targeting an attempt to ‘streamline determinations’ that was based in ‘confusion’ about the rules,” said Ways and Means Committee chairman Dave Camp, R-Mich. “That rhetoric does not match the reality of what this investigation has uncovered so far. Before February 2010, the IRS was processing and approving Tea Party cases within three months without Washington, D.C., intervention. Tea Party cases were flagged due to ‘media attention’ in February 2010, not as a result of any confusion as to how to interpret 501(c)(4) law. Additionally, we now know that the IRS targeted not only right-leaning applicants, but also right-leaning groups that were already operating as 501(c)(4)s. At Washington, D.C.’s direction, dozens of groups operating as 501(c)(4)s were flagged for IRS surveillance, including monitoring of the groups’ activities, Web sites and any other publicly available information. Of these groups, 83 percent were right-leaning. And of the groups the IRS selected for audit, 100 percent were right-leaning.”

Camp’s Democratic counterpart on the committee, ranking member Sander Levin, D-Mich., pointed out that the IRS had wasted valuable time and manpower in responding to the prolonged investigations.

“It has been nearly nine months since the Inspector General’s IRS audit report was published,” said Levin. “And yet, Republicans are no closer today to finding any evidence to back up their baseless allegations of White House corruption than when they began making those claims immediately after the report came out, including during this committee’s first hearing on the matter May 17. Instead of this prestigious committee using its broad jurisdiction to address critical issues that confront us, it has been consumed by a tireless effort by Republicans to find political scandal, regardless of what the truth holds, as they look toward the November election. That focus does not live up to the long, honorable tradition of this vital committee. More than 500,000 pages of IRS documents have been turned over to congressional committees. Five dozen interviews of current and former IRS employees have taken place. Lawmakers at 15 congressional hearings have questioned IRS officials. In all, more than 150 IRS employees have worked 70,000 hours—time taken away from taxpayer services—to accommodate the ongoing requests for information from congressional investigators. And yet, there’s been absolutely no evidence of any corruption unearthed. Not a single piece of evidence showing any political motivation. Nothing showing any involvement outside the IRS.”

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