Reboot: IRS Revising Political Activity Rules

The Internal Revenue Service’s (IRS) announcement that it would revise proposed regulations governing the political activity of 501(c)(4) organizations before holding a public hearing – rather than after – was cheered all around Capitol Hill.

The Department of Treasury and IRS received more than 150,000 written comments – the most ever on a proposed tax regulation.

“Consistent with our standard rulemaking process, we intend to review those comments carefully, take into account public feedback, and consider any necessary changes,” the IRS said in a statement released yesterday. “Consistent with what Commissioner [John] Koskinen has previously stated, it is likely that we will make some changes to the proposed regulation in light of the comments we have received.

“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. Treasury and the IRS remain committed to providing updated standards for tax-exemption that are fair, clear, and easier to administer,” the statement concluded.

The IRS typically holds a regulatory public hearing before revising regulations, according to David Thompson, vice president of public policy for the National Council of Nonprofits. That public hearing was expected sometime this summer but given the huge response during the public comment period in this case, he said it made little sense to have a public hearing on regulations that will be changed anyway.

“It doesn’t make sense to keep fanning the flames of flawed regulations when you know you will revise them,” said Thompson. “It makes sense for them to downplay it too. They’re doing something that just makes sense,” he said. “It presumes there will be a major rewrite but they can’t say that.”

A major overhaul of the original regulations is likely forthcoming and some viewed the move by the IRS as scrapping the original regulations altogether.

“We are delighted that the IRS realizes it needs to go back to the drawing board,” the Alliance For Justice (AFJ) said in a statement. The Washington, D.C.-based AFJ went so far as to call the IRS move a withdrawal of the original proposal. “While we appreciated the stated goal of providing greater clarity, the proposal withdrawn today vastly overreached and threatened to do serious damage to the ability of everyday Americans to have an impact on the political process.

“The proposal was a club when what we really needed was a scalpel.”

Via a statement, Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) said yesterday’s announcement by the IRS was long overdue. “The IRS is right to abandon its previously proposed rules…that threatened free speech and the rights of all citizens to participate in the democratic process.

Rep. Steve Scalise (R-La.), chairman of the Republican Study Committee, went so far as to call the IRS announcement “an admission” of its “targeting of civic organizations for the political beliefs of their members was wrong.

Representatives from a variety of nonprofits testified before a House subcommittee hearing in February, urging lawmakers to scrap the proposed regulations. Nonprofits fear that the new rules would restrict altogether the already limited ability of 501(c)(4) charities to lobby while potentially outlawing nonpartisan activities like voter education efforts as political activity. While current regulations need more clarity, many said the proposal goes too far.