IRS to ‘consider’ tightening election spending rules for nonprofits

After more than a year of needling the Internal Revenue Service to tighten standards for election spending by nonprofit groups, advocates for campaign finance reform may have finally provoked the agency to make a change.

Crossroads GPS on the Republican side, Priorities USA on the Democratic side and other, similar, groups have taken advantage of a provision of the tax code that allows them to shield the names of their donors from public view. The provision, Sec. 501(c)4 of the code, was originally written for groups whose purpose is to promote social welfare, including local cultural preservation committees or community associations, but because of the anonymity it allows, it has become the favored way to set up entities that seek to influence elections.

The IRS says intervention in politics cannot be a social welfare group’s primary activity, but exactly what that means has been unclear. Campaign finance lawyers have interpreted the rules to mean that up to 49% of a group’s spending can be political.

Now, however, the IRS says it “will consider proposed changes” to the rules, which date back to 1959.

“The IRS is aware of the current public interest in this issue,” Lois Lerner, director of the exempt organizations division of the IRS, wrote in a letter to Democracy 21 and Campaign Legal Center, campaign finance reform groups that want to curtail the political use of social welfare groups.

If the IRS does decide to change the rules, it will take many months for the change to take effect.

“It’s not likely to have an impact on this November’s election, but we’re in this for the long haul,” said Paul Seamus Ryan, senior counsel at Campaign Legal Center. The group has sent a flood of letters urging the IRS to investigate groups like Crossroads and Priorities.

“The standard should be that a (c)4 group can only engage in candidate activity if that activity is insubstantial,” Ryan said. “We envision insubstantial to be 10%, not 49%.”

Social welfare groups spent more than $60 million on the 2010 midterms and are expected to dump even more into the November elections.

Crossroads GPS, a group co-founded by Karl Rove, spent $17 million in 2010, according to data compiled by the Center for Responsive Politics. Priorities USA was formed last year by former aides to President Obama as an effort to combat groups like Crossroads.

The letter comes on the heels of a Treasury Department audit, which concluded earlier this month that the IRS needs to do a better job of managing complaints about tax-exempt groups. The agency has trouble keeping track of complaints and processing them in a timely way, the audit concluded.

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