IRS chief promises stricter rules for ‘dark money’ nonprofit groups

Introduction

The Internal Revenue Service will propose new and specific rules defining how much money “social welfare” nonprofits may spend on political campaigns, Commissioner John Koskinen said Tuesday during an interview for an upcoming Center for Public Integrity investigative report.

Such rules could curb the influence of “dark money” nonprofits engaging in overt political activity that proliferated after the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in 2010.

The new rules would seek to define what constitutes political activity. The new regulations could also further regulate labor unions and trade associations — two kinds of politically active nonprofits that the IRS didn’t address in a highly contentious rulemaking attempt the agency itself short-circuited in May.

“There are three issues: What should be the definition, to whom should it apply and how much … can you do before you jeopardize your exemption?” said Koskinen, the IRS’ top official who took office in December.

The IRS asked for comments on all three issues but addressed only one in the first round of proposed regulations.

“The next resolution will differ from the first draft because it will deal with all three questions,” he said.

Sitting on Koskinen’s desk at IRS headquarters in Washington, D.C., was a 4-inch binder with 1,200 pages: a sampling of comments on all sides of the three issues.

He said he plans to personally read 85 to 100 comments and ultimately wants to see “regulations that are fair to everyone, clear and easy to administer.”

“We’d be much better off if we had clearer definitions and a clearer roadmap,” he said.

Such definitions, Koskinen said, wouldn’t just benefit the IRS but “people running 501(c)(4)s in terms of knowing what they can do and can’t do, what the rules are.” Nonprofit leaders, he added, shouldn’t get “surprised or concerned that when they undertake more of an activity that after the fact somebody is going to say, ’You’ve now jeopardized your exemption.’”

Koskinen said he expects a new draft of the regulations to be out by early 2015. At that point, people will be able to weigh in with additional comments in writing or at public hearings.

The IRS issued its first set of regulations, proposed in November, only to withdraw them this year after receiving more than 150,000 public comments. Many comments were highly critical and came not only from conservative organizations stung by the recent targeting of tea party-related and other nonprofit organizations but some liberal groups that feared the rules would affect nonpartisan activities, such as voter drives or candidate forums.

Social welfare groups, organized under Sec. 501(c)(4) of the U.S. tax code, must operate “exclusively to promote social welfare” and “primarily to further the common good and general welfare of the people of the community,” according to the IRS.

Some people have interpreted that to mean campaigning expenses may only constitute less than half of a “social welfare” nonprofit’s total expenses.

Koskinen explained that the IRS today determines whether a social welfare nonprofit is getting too political based on the “facts and circumstances” of each case. He acknowledged that this is “subjective” and makes it difficult for nonprofit leaders to determine “when are they getting too close to the line” with their politicking.

Koskinen didn’t say what, precisely, the IRS will propose as a political spending threshold for various nonprofits.

Without clear rules, politically active social welfare nonprofits — such as conservative Crossroads GPS and liberal America Votes — have largely operated without fear they’ll lose their tax exempt status or be forced to register as a political committees that must publicly reveal their funders. Labor unions and trade associations, like social welfare groups, are not required to disclose their donors.