The 501(c)(4) Wormhole

Finally, after weeks of investigations of the selective scrutiny by the IRS of organizations seeking to exploit a sort of wormhole at the intersection of tax and campaign finance laws, someone is taking action to question whether all applicants should be subjected to such scrutiny, and/or whether the agency’s interpretation of the laws and regulations is wrong in the first place. Here’s HuffPost’s Paul Blumenthal with a report:

Rep. Chris Van Hollen (D-Md.) said Tuesday that he and two campaign finance watchdog groups would sue the IRS, challenging regulations that allow nonprofit groups to be involved in politics if they’re “primarily” devoted to a social welfare purpose.

Van Hollen said he and watchdog groups Campaign Legal Center and Democracy 21 would sue to clarify an IRS regulation that he said was at odds with the law, which requires certain groups to “exclusively” engage in social welfare to earn nonprofit status. The IRS regulation permitting groups “primarily” engaged in social welfare allows the organizations to participate in an undefined amount of political activity, said the congressman, a leading advocate of campaign finance reform and ranking member of the House Budget Committee.

The 1959 IRS regulation has become an issue since the Supreme Court’s 2010 Citizens United decision opened the door for nonprofit groups organized under section 501(c)(4) and 501(c)(6) of the tax code to raise and spend corporate and union money on elections without disclosing donors. The scandal involving the agency’s singling out conservative groups applying for nonprofit status has increased attention to the regulation, especially among Democratic lawmakers.

“The statute is very clear,” Van Hollen said during the keynote address at a conference on money and politics held by the Brennan Center for Justice. “It says that a 501(c)(4) organization is reserved for entities that are engaged ‘exclusively’ in social welfare activities, and it’s not clear to me what part of ‘exclusive’ the writers of the regulation didn’t get when it came to this particular provision of the law.”

If Van Hollen is right, this doesn’t, of course, make the selective application of an erroneous interpretation of the law AOK. But it does knock the props from beneath Republican efforts to conflate organizations seeking a tax exemption and donor anonymity while engaging in partisan political activity with everyday targets of much-resented IRS enforcement tactics.

It’s gotten almost zero attention, but Senate Democrats have actually talked about going to the root of the problem: the law itself.

Nearly every Democratic member of the Senate Finance Committee blasted the IRS’ regulation during a hearing on IRS scandal. Sen. Michael Bennet (D-Colo.) asked then-acting IRS Commissioner Steve Miller to defend the regulation. Miller responded, “I’m not going to defend it or attack it. It is what the regulation is.”

The finance committee later suggested changes to the nonprofit tax laws as part of a package of reforms.

Let’s hear more about that.

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Ed Kilgore

Ed Kilgore is a political columnist for New York and managing editor at the Democratic Strategist website. He was a contributing writer at the Washington Monthly from January 2012 until November 2015, and was the principal contributor to the Political Animal blog.