The IRS last week fulfilled its pledge to clarify federal rules on nonprofit political activity, a much-needed follow-up in the wake of news that unfolded this spring when the agency revealed it had inappropriately denied tax-exempt status to groups on both the right and the left of the political spectrum.
But the proposal itself is flawed in so many ways that it will undermine one of the key ways through which nonprofits do their work: helping Americans understand major issues in elections and encouraging them to register to vote and cast ballots.
By making participation harder for the important nonpartisan voices of groups that represent the public interest, our nation would be left weaker.
The IRS is clearly responding not just to the anger that erupted last spring but to intensifying disapproval from the left about the soaring amounts of money flowing through “social welfare” groups to support political campaigns—and escape disclosure of such donors—and vehement objections from the right over the agency’s exclusion of conservative organizations.
The tax agency was exactly right about the nature of the problem it faced. For many years, it has used a subjective definition of what kinds of political activity nonprofits could pursue.
So much ambiguity left room for some nonprofits to undertake activities that reasonably could be considered political in nature. What’s more, it allowed IRS examiners to impose an unclear rationale in reviewing applications for tax-exempt status. The ambiguity is a key reason so many charities and other nonprofits stayed clear of getting involved in completely legitimate nonpartisan efforts to influence elections.
The rules the IRS proposed do provide greater clarity, and that is to be applauded. By moving fast and inviting public comment, the IRS shows it wants to start a conversation rather than simply imposing its approach to changing the system. We welcome that.
But the problems the proposal itself would cause are too worrisome to endorse its approach.
The rules apply only to social-welfare groups classified under Section 501(c)(4) of the tax code, which are allowed to pursue political work as long as that is not their primary activity. But the IRS proposal would now force such groups to count so many types of activities as political that some groups would either need to stop doing some of their activities or risk losing their tax-exempt status because the political work would be considered their primary activity.
Perhaps most worrisome, the IRS is not solving the key problems at stake in our political system because the rules simply encourage social-welfare groups to shift their activities to related organizations, like tax-exempt trade groups.
Even though these rules technically apply only to social-welfare groups, they will have significant implications for charities also.
To help charities, foundations, and other nonprofits understand what is at stake, here are some of the biggest concerns:
The IRS fails to understand that there’s a difference between partisan and nonpartisan activities.
The tax agency proposes to include nonpartisan voter registration, efforts to encourage people to go to the polls, and voter guides as political activities. Thus, many more activities currently undertaken by social-welfare groups will now be considered political and could push those groups over permissible levels of political involvement. This shows that the IRS fundamentally misunderstands the role nonprofits play in encouraging the public to participate in our democracy.
Congress recognizes this role in legislation. For example, in the Motor Voter Act, lawmakers spelled out the role nonprofits play in registering citizens through nonpartisan means so they can cast ballots on Election Day.
Many communities rely on the nonpartisan resources provided by both charities and social-welfare groups to assist in voter registration, the election process, the mechanics of voting, and helping the public understand issues debated by the candidates.
The IRS should welcome nonpartisan nonprofit efforts to encourage people to vote and participate in democracy—and not do anything that makes it harder for any tax-exempt organization to reach out to people who should be exercising their civic responsibility.
Many advocacy activities by social-welfare groups would now be counted as political activity in the days and weeks ahead of an election.
Under the IRS plan, any “public communication” that clearly identifies a candidate or any forum where candidates appear within 30 days of a primary and 60 days of an election would now be defined as political activity. That means social-welfare groups that undertake such efforts would face limits on just how much of that kind of activity they could pursue.
Among the concerns:
• Any effort to influence legislation that refers to an official in his or her legislative capacity who is running for re-election in the 30- or-60 day period would now be counted as political activity. Currently such activities are considered lobbying, and social-welfare groups can pursue them with no limits.
• Lawmakers sometimes shape legislation within 30 days of primaries or two months of an election. For example, the law banning assault weapons expired within 60 days of the 2004 general election, and the Newtown school massacre occurred within 60 days of the 2012 election.
The IRS proposal would prohibit some organizations from expressing long-held positions and could invite mischief from lawmakers looking to bypass the objections of those organizations and use this time to pass controversial legislation.
• All candidate forums, whether partisan or nonpartisan, would now be considered political activity even when the organization invites all candidates to be heard. These forums are essential in helping the public understand candidate positions. Making them all count as political activity within the 30- or 60-day period may mean the public has less opportunity to learn about candidates.
• An incumbent whose work in an elected position is important to a nonprofit’s programs and services would become “untouchable,” and any engagement with nonprofit organizations in her official capacity, or even acknowledgment of her role in developing issues and ideas, would be curbed. This forced separation of nonprofits from decision makers stifles informed policy debates and strains the crucial relationship between civil society and elected officials.
• Nonprofits would need to check their websites and newsletters during the 30- or-60 day periods to make sure they do not mention a candidate, even if that person is a seated elected official who is engaged in legitimate and continuing work with the nonprofit. Presumably, the nonprofit would be required to remove content from websites mentioning such officials during the blackout period or else risk counting the communication as a political activity.
Charities and foundations would face new challenges.
Defining nonpartisan voter work as political for social-welfare groups is akin to imposing it on charities. Some risk-averse charities and their supporters will hesitate to undertake or fund any activities the IRS has declared as overtly political, even though the rules would not directly apply to them.
Perhaps just as troubling, this approach by the IRS enables social-welfare groups to shift their voter-education efforts to their charity arms—or to create new charity arms. For example, a social-welfare group would be required to count a nonpartisan candidate forum within the 30- or 60-day blackout period as a political activity, but its affiliated charity could conduct the same activity during the same time. Thus if the IRS thinks it is stamping out this kind of activity, it is quite mistaken—it is just moving the action elsewhere and allowing donors to receive tax deductions.
The problems of too much money, too little disclosure, and other concerns about how politics work today would remain unsolved.
The IRS’s proposal does nothing to deal with the increasing amounts of money funneled through social-welfare groups that remains hidden from public view. The IRS fails to define how much political activity is permissible for those groups even as it reclassifies more activities as political. By not defining that key fact, the IRS has not done as much to clarify vague rules as it clearly hoped to.
Even if the IRS does provide limits on how much is permissible, the proposed rule allows donors simply to shift their money to groups covered by other parts of the tax code—such as 501(c)(6) trade associations. Some large contributors have already begun using this strategy.
The IRS proposal would be devastating for democracy and for all nonprofits that do legitimate work to get the public involved in elections and influencing policy. It would send a message to donors, foundations, and nonprofit groups that even longstanding and widely accepted nonpartisan behavior is “political.” These raise troubling constitutional issues in their ambiguity and uneven treatment of charities, social-welfare groups, and other tax-exempt groups.
Fortunately, there is an alternative.
The Bright Lines Project, an effort housed at Public Citizen, was created to develop clear rules on what constitutes political activity. A team of legal experts developed a proposal to deal with the problems the IRS faces today with its overly vague rules. The plan those experts developed provide a predictable and simple way to help nonprofits know what is acceptable and what is not when it comes to political activity. It protects free speech and encourages Americans to get involved in civic activities while still preventing abuse of the political system.
It’s important that all nonprofits rally now to tell the IRS to adopt the ideas the legal experts shaped—and drop a proposal that creates too many problems and solves none.
Diana Aviv is chief executive of Independent Sector and Gary Bass heads the Bauman Foundation.