Finally: A Move To Reign In Phony “Social Welfare” Groups

When hearing yesterday that the Treasury Department and the IRS had promulgated proposed new rules governing campaign activities by 501(c)(4) “social welfare” organizations, I decided to wait until someone familiar with the ins-and-outs of this arcane subject offered an interpretation before weighing in here. The New York Times‘ Nick Confessore obliged:

New rules proposed by the Treasury Department and the Internal Revenue Service would clarify both how the I.R.S. defines political activity and how much nonprofits are allowed to spend on it. The proposal covers not just television advertising, but bread-and-butter political work like candidate forums and get-out-the-vote drives.

Long demanded by government watchdogs and Democrats who say the flow of money through tax-exempt groups is corrupting the political system, the changes would be the first wholesale shift in a generation in the regulations governing political activity by nonprofits.

As Confessore indicates, the proposed rules pretty clearly reclassify a lot of political activity as “candidate-related,” but we’ll have to wait on the proposed final version to find out whether the informal guideline of allowing up to 50% of a (c)(4)’s activities to be “candidate-related” will be changed, as it most definitely should be.

Depending on the group, some want (c)(4) status for the tax exemption, while others are mainly interested in the ability to disguise donors that the status provides.

The line in Confessore’s story that made me LOL was a complaint by Rep. Dave Camp, chairman of the tax-writing House Ways & Means Committee, that the IRS was “rushing forward with new rules.” The last binding interpretation of (c)(4) qualifications by the IRS was in 1981, and the last action by Congress on this subject occurred in 1959. If that’s “rushing,” then God help us if more deliberation is in order.

The impetus for new rules was, of course, the claims of conservatives earlier this year that the IRS was holding conservative groups to greater scrutiny. Now we’ll hear them complain that (c)(4)’s as a whole shouldn’t be held to a higher standard of scrutiny than, say, labor unions, who don’t pretend to be “social welfare organizations” and don’t enjoy a tax exemption. Congress is free to change the law any time it wishes, but I strongly suspect the conservative groups benefitting from his loophole want to keep the track as muddy as possible.

Support Nonprofit Journalism

If you enjoyed this article, consider making a donation to help us produce more like it. The Washington Monthly was founded in 1969 to tell the stories of how government really works—and how to make it work better. Fifty years later, the need for incisive analysis and new, progressive policy ideas is clearer than ever. As a nonprofit, we rely on support from readers like you.

Yes, I’ll make a donation

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.