WASHINGTON D.C. – The Obama administration moved on Tuesday to rein in the use of tax-exempt groups for political campaigning.
The effort is an attempt to reduce the role of such loosely regulated yet influential super PACS as Crossroads GPS, which was co-founded by GOP political strategist Karl Rove, and Priorities USA, which ran searing ads against rivals of President Barack Obama to support his re-election last year.
The Internal Revenue Service and the Treasury Department proposed new rules that they said would prohibit such groups from using “candidate-related political activity” like running advertisements, registering voters or distributing campaign literature as activities that qualify them to be tax-exempt “social welfare” organizations.
“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, the Treasury’s 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,” Mazur said.
The rules would become final after a lengthy comment period, the federal agencies said, giving the super PACS ample time to raise millions of dollars from anonymous donors before next year’s congressional elections.
Conservative groups bitterly attacked the proposed rules, charging that they represented yet another attack on free speech by the Obama White House.
“This is a feeble attempt by the Obama administration to justify its own wrongdoing with the IRS targeting of conservative and tea party groups,â€ Jay Sekulow, a lawyer representing more than three dozen of the groups in a federal lawsuit against the tax agency, told The New York Times.
The lawsuit stemmed from the IRS’ monitoring of tea party, conservative, and religious groups for extra scrutiny in their applications for tax-exempt status.Â A Treasury Department inspector general disclosedÂ in May that the agency was doing the special screenings for those groups seeking 501(c)(4) status.
The status allows such organizations to keep their donors private.
The IRS screening had occurred between 2010 and through the 2012 presidential election. During the period, IRS agents had placed groups with words like “tea party and “patriot” in their names on a “be on the lookout” â€” or BOLO â€” list for additional screening of its applications for the tax-exempt status.
â€œUnfortunately, it appears that the same bureaucrats that attempted to suppress the speech of conservative groups in recent years has now put together new rules that apply to (c)4 groups but do not apply to liberal groups like labor unions,â€ Nick Ryan, founder of the American Future Fund, told the Times.
The organization spent at least $25 million on political advertising last year, according to the Times.
â€œI wish I could say I am surprised,â€ Ryan added, â€œbut I am not.”
As 501(c)(4) organizations, the groups can raise millions of dollars to influence elections.
They can, however, also be small-scale tea party groups â€” many had contended that the were singled out by the IRS.
House Ways and Means Committee Chairman Dave Camp questioned the White House’s decision.
“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,” the Michigan Republican said. “This smacks of the administration trying to shut down potential critics.”
In 2010, the U.S. Supreme Court in its Citizens United decision lifted the limits on donations by labor unions and companies to 501(c)(4) groups. This allowed 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” groups may conduct some political work as long as it does not remain their primary activity. The proposed rules would block such activities as running ads that “expressly advocate for a clearly identified political candidate or candidates of a political party” as fulfilling their tax-exempt mission.
In addition, spots that simply mention a politician in urging a certain way to vote â€” for instance â€” could not be run 60 days before a general election or 30 days before a primary.
The rules also would limit voter drives and voter registration efforts and the distribution of literature.
According to the federal agencies, the new rules seek to solidify the current regulations, which are confusing and prone to abuse.
“Depending on the details, this could be dramatic,” Marcus Owens, a former chief of the IRSâ€™ exempt organizations division, told the Times.
Treasury and the IRS do not yet have a proposal about what specific proportion of a 501(c)(4) group’s activities must promote social welfare and are soliciting input. Essentially, they do not have a recommendation as to what percentage of a group’s time and money can be spent on politics.
Representatives of both Crossroads and Priorities USA declined to comment to the Times on the proposed rules. The groups, however, are expected to weigh as the process moves forward.
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 â€” what is political activity â€” 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.”