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Proposed IRS rule change: A wolf in sheep’s clothing

IRS Internal Revenue ServiceLast Thursday, comments closed for the Internal Revenue Service’s proposed rule that would affect many of the same conservative and tea party nonprofits targeted in the notorious IRS scandal. The rule is intended to help clarify existing rules, the IRS says, but it actually contains unclear and seemingly unnecessary changes at best — and destructive ones at worst.

The rule, titled “Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities,” purports to clarify in what political activity tax-exempt social welfare nonprofits may engage, and what constitutes political activity. Much of the rule is focused on 501(c)(4) organizations, which may engage in some political activity, and 501(c)(3) organizations, which may engage in none. Many social welfare organizations focus on political and policy issues, so the line between promoting that social welfare and political activity is understandably unclear. It is logical that the IRS would want to clarify this gray area.

However, the rule fails to accomplish this.

On the one hand, instead of providing clarification, many of the changes that the IRS wants to implement just replace one set of arbitrary wording with another. For example, replacing the 501(c)(4) language “participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office” with “candidate-related political activity” does little to improve clarity.

Such a change, however, is innocuous in comparison to some of the other ones. The rule has certain eyebrow-raising changes that give the IRS, which recently misused its authority and judgment, far more room to misuse its judgment.

One such change broadens the terms “candidate” and “political activity” to include almost any foreseeable allusion to a candidate, even if the intention was not political in nature.

It changes “candidate” to include even prospective candidates who are not running for office or people who may be appointed to an office. The current rule only refers to those running for elected office. This vast expansion does not provide clarification in a way that would ensure nonprofits are not engaging in political activity. Rather, it means that nonprofits will be more likely to unknowingly engage in the IRS’s definition of “political activity.”

The new regulations expand “candidate-related political activity” to include all forms of communication that express a view “on a clearly identified candidate.” A candidate is “clearly identified” by as little as “‘the incumbent’ or a reference to a particular issue or characteristic distinguishing the candidate from others.” This similarly leaves conservative nonprofits’ nonpolitical actions susceptible to the frequently malicious discretion of the IRS.

The rule extends what constitutes a communication about a candidate to include anything “intended to reach at least 500 people,” regardless of whether it actually does. Accordingly, the IRS can decide it thinks your communication was intended to reach 500 people, and decide your action violated the rule.

Additionally, it broadens the definition of “political activity” in close proximity to elections, as the activity may have a greater potential to affect the outcome of an election. It makes no sense to have different standards in close proximity to an election — either an action is political activity, or it isn’t. Proximity to an election makes no difference. This is extremely burdensome for organizations and can foreseeably prevent them from pursuing their stated goals.

Understandably, an unusual coalition of conservative, liberal and progressive groups, as well as Republican leaders in Congress, has reacted to the proposed rule with indignation, due to the innumerable possible problems with the proposed changes. Most of the public comments — more than an astonishing 140,000 in all — are in opposition to the proposal; The Washington Post cited an analysis from the Center for Competitive Politics that found 94 percent of comments in opposition to the rule. However, a chunk of Senate Democrats, led by Sen. Sheldon Whitehouse (D-R.I.), wrote that the rule is “a step in the right direction.”

It isn’t. This rule makes some insignificant changes and far more consequential ones — ones that could forever alter the way nonprofits operate. The final result does not accomplish the purported goal of clarification of existing rules, but instead places burdensome and arbitrary limits on nonprofits. At best, this rule is in extraordinarily bad taste and poor judgment. At worst, it is a blatant attempt by the IRS to continue targeting conservative organizations.

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