[EL] IRS Response to Campaign Legal Center and Democracy 21 on 501c4s
Rick Hasen
rhasen at law.uci.edu
Mon Jul 23 09:19:16 PDT 2012
"IRS Responds to Rulemaking Petition Submitted by Democracy 21 and
Campaign Legal Center, Says Agency Will Consider Changing Rules for
501(c)(4) Eligibility" <http://electionlawblog.org/?p=37338>
Posted on July 23, 2012 9:18 am <http://electionlawblog.org/?p=37338> by
Rick Hasen <http://electionlawblog.org/?author=3>
Via email:
*IRS Responds to Rulemaking Petition Submitted by Democracy 21 and
Campaign Legal Center, Says Agency Will Consider Changing Rules for
501(c)(4) Eligibility*
In a letter sent today to the IRS, Democracy 21 and the Campaign Legal
Center acknowledged and welcomeda July 17, 2012 letter from Lois Lerner
<http://www.democracy21.org/vertical/sites/%7B3D66FAFE-2697-446F-BB39-85FBBBA57812%7D/uploads/Letter_from_IRS_7_20_12.pdf>,
IRS Director of the Exempt Organizations Division, stating that that the
IRS "will consider proposed changes" in the regulations governing
eligibility for section 501(c)(4) tax-exempt status.
On July 27, 2011, Democracy 21, joined by the Campaign Legal Center,
submitted to the IRS a "Petition for Rulemaking on Campaign Activities
by Section 501(c)(4) Organizations."
<http://www.democracy21.org/vertical/sites/%7B3D66FAFE-2697-446F-BB39-85FBBBA57812%7D/uploads/D21_and_CLC_Petition_to_IRS_7_27_2011.pdf>
The groups wrote the IRS again on March 22, 2012 urging the agency to
undertake the rulemaking.
<http://www.democracy21.org/vertical/sites/%7B3D66FAFE-2697-446F-BB39-85FBBBA57812%7D/uploads/Letter_to_IRS_re_Petition_for_rulemaking_on_501c4_groups.pdf>
According to today's letter to the IRS:
We welcome Ms. Lerner's statement in your July 17 letter that the IRS
"will consider proposed changes" in the regulations governing
eligibility for tax-exempt status under section 501(c)(4) organization.
But we want to stress once again that the need for urgent action we
noted in our July 27, 2011 letter is all the more true today.
We strongly urge the IRS to promptly institute a rulemaking proceeding
to address this matter. We also strongly urge the IRS to act
expeditiously in the interim to stop the blatant abuses of the tax laws
that are resulting in massive amounts of secret money being laundered
into our national elections by groups claiming to be "social welfare"
organizations.
According to Democracy 21 President Fred Wertheimer:
The letter we have received from the IRS provides an important new
development in the effort to end the massive amounts of secret money
being spent in federal elections by groups claiming 501(c)(4) tax-exempt
status. We believe this is the first time the IRS has publicly indicated
it will consider new regulations to govern the eligibility of groups for
501(c)(4) tax-exempt status.
Ms. Lerner states that the IRS regulations have been in place since
1959, more than a half century ago. Circumstances have changed
dramatically since then. Effective new IRS regulations would eliminate
the current efforts by phony "social welfare" groups to inject secret
contributions into federal elections by claiming to be 501(c)(4) groups.
The IRS letter provides a potential second breakthrough in the
multi-prong effort to end the massive amounts of secret money that have
returned to federal elections for the first time since the Watergate
scandals. The first breakthrough occurred in federal district court on
March 30, 2012 when Representative Chris Van Hollen (D-MD), represented
by the Democracy 21 Legal Team, won a lawsuit striking down an FEC
regulation that gutted existing disclosure requirements for
contributions spent to make electioneering communications. Another
important part of the multi-prong effort involves the fight that will
continue in Congress next year to enact comprehensive new disclosure
laws for outside spending groups.
In her July 17 letter to the reform groups, Ms. Lerner stated:
The IRS is aware of the current public interest in this issue. These
regulations have been in place since 1959. We will consider proposed
changes in this area as we work with the IRS Office of Chief Counsel and
the Treasury Department's Office of Tax Policy to identify tax issues
that should be addressed through regulations and other published guidance.
According to today's letter from the reform groups to the IRS:
We believe the letter from Ms. Lerner recognizes the controversy that
currently exists over the role that groups claiming status as "social
welfare" organizations are playing in our elections, post-/Citizens United./
The letter to the IRS from the reform groups stated:
[D]evelopments in the course of the 2012 national elections have served
to underscore that IRS regulations that are contrary to law are
facilitating widespread misuse and abuse of the tax laws by
organizations claiming tax-exempt status under section 501(c)(4) as
"social welfare" organizations, in order to keep secret the donors
financing their campaign-related expenditures.
Campaign-related spending by section 501(c)(4) groups whose overriding
purpose clearly appears to be influencing elections, has grown
exponentially since we first called on the IRS to conduct a rulemaking
proceeding a year ago.
According to today's letter, the Petition submitted to the IRS by
Democracy 21, joined by the Campaign Legal Center, stated:
The large scale spending ofsecret contributions in federal elections by
section 501(c)(4) organizations is doing serious damage to the
integrity and health of our democracy and political system. The IRS
needs to act promptly to address this problem by issuing new regulations
to stop section 501(c)(4) organizations from being improperly used to
inject tens of millions of dollars in secret contributions into federal
elections. The new regulations must conform with the IRC and withcourt
rulings interpreting the IRC. The regulations should provide a
bright-line standard that implements the insubstantial expenditures
standard set forth by the courts and specifies a limit on the amount of
campaign activity that a section 501(c)(4) organization may undertake
consistent with its tax-exempt status. The IRS needs to act
expeditiously to ensure that the new regulations are in effect in time
for the 2012 presidential and congressional elections. Petition at
18-19 (emphasis added).
Today's letter to the IRS also noted that the reform groups have sent
several letters to the IRS challenging the claims by a number of groups
that they were entitled to tax-exempt status as 501(c)(4) "social
welfare" groups and asking the IRS to investigate the groups. The groups
included Crossroads GPS, Priorities USA, American Action Network and
Americans Elect.
The letter sets forth recent published reports that show why the reform
groups believe the overriding purpose of Crossroads GPS is to influence
elections.
The letter stated:
Political operatives are using "social welfare" organizations as
conduits for injecting secret money into federal elections by attempting
to exploit what they claim to be purported ambiguities in existing IRS
standards.
These operatives argue, for example, that as long as ads do not contain
"express advocacy" they can attack or promote candidates in whatever way
they want and such ads do not constitute "intervention or participation"
in campaigns, and thus may be run without limit by a section 501(c)(4)
organization.
The IRS, however, has made clear that ads do not need to contain
"express advocacy" in order to be treated as "intervention or
participation" in campaigns for purposes of section 501(c)(4). /See,
e.g.,/ Rev. Rul. 2004-6 (listing six factors that "tend to show" that an
ad is for the purpose of influencing a candidate election.)
The political operatives also argue that a "social welfare" organization
can spend up to 49 percent of its revenues on overt campaign
intervention, without running afoul of the rules that currently require
a section 501(c)(4) organization to be "primarily engaged" in social
welfare activities. /See/ 26 C.R.F. 1.501(c)(4)-1(a)(2)(i).
Such claims have gone unchallenged by the IRS, despite the fact that the
IRS has never set forth a "49 percent" rule. The IRS has failed to
clarify its rules regarding the amount of candidate election-related
activity a section 501(c)(4) "social welfare" group is permitted to
conduct. As a result, groups claiming status as section 501(c)(4)
organizations have been allowed to become major players in influencing
the 2012 federal elections and to use secret contributions to do so.
The failure of the IRS to take action on this matter has allowed groups
that are in reality campaign operations -- but claim to be 501(c)(4)
"social welfare" groups -- to make assertions about IRS rules that are
unsupported by law, and thereby to provide a veil of secrecy for the
donors financing their campaign-related expenditures.
# # #
*Note to the Media*
Enclosed is a link to the letter sent today by Democracy 21 and the
Campaign Legal Center
<http://www.democracy21.org/vertical/sites/%7B3D66FAFE-2697-446F-BB39-85FBBBA57812%7D/uploads/IRS_letter_--_July_21_2012.pdf>
to the Internal Revenue Service (IRS) and described in our press release
sent out earlier this morning entitled, "IRS Responds to Rulemaking
Petition Submitted by Democracy 21 and Campaign Legal Center, Says
Agency Will Consider Changing Rules for 501(c)(4) Eligibility."
Share
<http://www.addtoany.com/share_save#url=http%3A%2F%2Felectionlawblog.org%2F%3Fp%3D37338&title=%E2%80%9CIRS%20Responds%20to%20Rulemaking%20Petition%20Submitted%20by%20Democracy%2021%20and%20Campaign%20Legal%20Center%2C%20Says%20Agency%20Will%20Consider%20Changing%20Rules%20for%20501%28c%29%284%29%20Eligibility%E2%80%9D&description=>
Posted in campaign finance <http://electionlawblog.org/?cat=10>, tax law
and election law <http://electionlawblog.org/?cat=22> | Comments Off
--
Rick Hasen
Chancellor's Professor of Law and Political Science
UC Irvine School of Law
401 E. Peltason Dr., Suite 1000
Irvine, CA 92697-8000
949.824.3072 - office
949.824.0495 - fax
rhasen at law.uci.edu
http://law.uci.edu/faculty/page1_r_hasen.html
http://electionlawblog.org
Pre-order The Voting Wars: http://amzn.to/y22ZTv
www.thevotingwars.com
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://webshare.law.ucla.edu/Listservs/law-election/attachments/20120723/ea286a20/attachment.html>
-------------- next part --------------
A non-text attachment was scrubbed...
Name: share_save_171_16.png
Type: image/png
Size: 1504 bytes
Desc: not available
URL: <http://webshare.law.ucla.edu/Listservs/law-election/attachments/20120723/ea286a20/attachment.png>
View list directory