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Comments to IRS Offer Spectrum of Substantiveness as New Nonprofit Political Activity Rules Are Anticipated

If you’ve been following the IRS rulemaking on 501(c)(4) social welfare nonprofit political activity (and really, who hasn’t?), then you know that IRS Commissioner John Koskinen’s latest testimony in front of the Senate Finance Committee was one for the ages. Ranked among his previous thirty-something testimonies in front of legislative bodies, it rates somewhere above the time Commissioner Koskinen had to explain that the IRS actually does read the tax returns you send in.

Two years ago, the IRS announced a notice of proposed rulemaking which would clarify the rules on political activity for social welfare organizations under section 501(c)(4) of the tax code. Although the proposed rule was a step forward from the confusing “facts and circumstances” standard currently being used, the IRS withdrew the proposed rule for further revision after it received much criticism from both sides of the aisle.

This time, Commissioner Koskinen’s testimony contained hope for a new rulemaking, and a peek into the IRS’s evaluation of the more than 160,000 comments that the previous rulemaking received. Before we examine that evaluation, let’s also take a quick moment to recognize the comments that didn’t make it into the IRS Commissioner’s summary, and the beleaguered IRS officials who had to read each and every one of them anyway. Many of the comments submitted to the IRS were thoughtful, sincere, and legitimate criticisms of the proposed rule, from commenters across the political spectrum. However, some comments seemed to have little to do with the proposed rule, or really, anything at all.

Here are some highlights:

Although these comments may occasionally be entertaining to read, the heart of the issue is more complex. Tax law expert, Bright Lines Project Drafting Committee Chair, and all-around intelligent person Greg Colvin evaluated the comments summarized in Koskinen’s testimony for the Nonprofit Law Matters blog. The more substantive comments that made it into the IRS Commissioner’s testimony represented diverse viewpoints and perspectives, but featured similar themes:

  • Looking at social welfare 501(c)(4)s alone cannot solve the problems presented by the complex interplay between other 501(c) groups like charities, labor unions, business organizations, and 527 political organizations. Many commenters suggested that the rules for all 501(c)s should be consistent.
  • Although 501(c)(4) social welfare groups are supposed to engage “exclusively” in social welfare activities, the IRS seems open to arguments over what “exclusively” really means.
  • Many comments argued the proposed definition of candidate was too broad, sweeping in appointed offices in addition to elected offices.
  • Many comments pointed out that the strict limitations of timeframes surrounding elections could fail to capture political activities outside the timeframes, yet capture too much nonpartisan political activity within them.
  • The distinction between partisan and nonpartisan political activity (such as voter education and registration) is crucial to continuing civic participation.

It seems clear that the IRS has listened to what commenters had to say, and found areas of common ground across political divides, that will hopefully translate into a better and clearer rule on nonprofit political activity for everyone. A new rule is likely to come out early next year. Be ready to comment so that your voice is heard, and follow us @BrightLinesProj for updates and news.

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