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IRS to Redraft 501(c)(4) Proposed Rules On Political Activity After Barrage of Letters

Thursday, May 29, 2014

By Diane Freda  

May 22 — The Internal Revenue Service will propose revised rules governing the political activity of tax code Section 501(c)(4) organizations following an unprecedented number of comments—many of them critical—on rules the agency released in November 2013.

In a May 22 statement, the IRS said it is likely it will make changes to those rules (REG-134417-13) in light of the 150,000 comments it has received. The Service will also hold a public hearing only after it has revised the proposed rules, it said.

“Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation,” the statement said.

The previously proposed rules included a new definition of “candidate-related political activity,” which commenters including the American Civil Liberties Union and the NAACP said would turn standard activities of 501(c)(4)s, such as nonpartisan get-out-the-vote drives and candidate forums, into prohibited political activities.

The proposed rules would also insert terminology from Federal Election law such as “clearly identified candidate” and “express advocacy” into tax law, which some found problematic. They would make communications made by the groups within 60 days of a general election or 30 days of a primary, forbidden candidate-related political activity.

Rules Threaten Free Speech

Finance Committee ranking member Sen. Orrin Hatch (R-Utah) and other Republicans said it was a step in the right direction.

The proposed rules “threatened free speech and the rights of all American citizens to participate in the democratic process,” Hatch said in a May 22 statement.

Both he and House Ways and Means Committee Chairman Dave Camp (R-Mich.) said the rules were aimed at silencing conservative groups.

“The American people spoke out loud and clear against it, and hopefully the IRS and the Obama administration will think twice before ever trying to go down this path again,” Camp said in a statement.

The Alliance for Justice said the rules show that IRS realized it needed to go back to the drawing board.

While the stated goal of providing greater clarity about how much politicking 501(c)(4)s can do was laudable, the group called the proposal “a club when what we really needed was a scalpal.”

“It means that the IRS has acknowledged that the commenters are right in saying both that there are a lot of ways the rules need to be improved, and that guidance in this area is needed,” John Pomeranz, an attorney with Harmon, Curran, Spielberg + Eisenberg said in a May 22 e-mail.

IRS Commissioner John Koskinen has said the revision process isn't expected to be completed before the end of the year.

To contact the reporter on this story: Diane Freda in Washington at dfreda@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com

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