IRS Will Take A New Pass At Rules for “Social Welfare” Groups

By Daniel Weissglass

Common Cause and other government reform groups scored an important victory on Thursday as the Internal Revenue Service announced that it will re-draft proposed new rules on political activity by non-profit “social welfare” groups. The tax agency’s initial draft rules received more public feedback than any proposed rules change in IRS history.

These social welfare organizations, classified as 501(c)(4)s, are supposed to be operated exclusively for “charitable, educational, or recreational purposes.” But under current regulations, they’ve been able to keep the social welfare designation even as they poured hundreds of millions of dollars — mostly from secret donors — into political campaigns.

As an example, a $1.5 million ad buy this week promoting Senate candidate Tom Cotton, an Arkansas Republican, is likely to be the most expensive ad campaign in the state’s history. But because the buy came from an out-of-state 501(c)(4) group, “The Government Integrity Fund,” the source of this money will never be disclosed.

In the 2012 presidential election, the social welfare groups Crossroads GPS, run by Karl Rove, and Americans for Prosperity, backed by the Koch Brothers, spent more on political advertising than every Super-PAC combined.

Common Cause and other watchdog groups have pushed the IRS to adopt stricter rules that would force such groups to do their political spending through political committees organized under Section 527 of the tax code. The groups would remain tax exempt but would have to report their donors. The agency’s first draft of the rules, however, could also have impacted organizations working in areas like voter registration and nonpartisan debate organization. The first draft also failed to cover state and local expenditures, as Common Cause wrote to the IRS last February.

Common Cause on Thursday praised the IRS’s continued attention to this issue and offered support for rules that provide reasonable regulations on undisclosed political expenditures while allowing groups that engage in nonpartisan activities to maintain their (c)(4) status.

The IRS will conduct a public hearing after the next set of regulations is proposed. While the IRS has not set a date for issuing the final rules, this delay means that new rules will not be in place for the 2014 elections.