New rules proposed for some tax-exempt groups

The Columbus Dispatch – by Patrick Temple-West and Andy Sullivan

WASHINGTON — The Obama administration proposed new rules yesterday to rein in tax-exempt groups that have transformed the political landscape by harnessing hundreds of millions of dollars in anonymous donations to influence elections.

The proposal would alter definitions in the tax code that allow limited campaign and fundraising activities by the tax-exempt groups, some of which have been at the center of allegations that the Internal Revenue Service targeted conservative tea party groups for extra scrutiny.  

These tax-exempt social-welfare groups, organized under section 501(c)(4) of the tax code, mushroomed after a 2010 U.S. Supreme Court ruling that relaxed campaign-finance rules. Part of their appeal is that the groups do not have to disclose the identities of their donors as long as they spend less than half their time and money on political activities.

Critics say the relaxed rules have opened the door to the abuse of campaign-finance rules meant to curb the influence of wealthy donors in U.S. politics.

The proposed rules do not address other tax-exempt fundraisers such as labor unions and business organizations such as the U.S. Chamber of Commerce, which are classified as 501(c)(6) tax-exempt organizations and can also raise and spend political money anonymously.

“The fact that the administration’s new effort only affects social-welfare organizations — and not powerful unions or business groups — underscores that this is a crass political effort by the administration to get what political advantage they can, when they can,” said Rep. Darrell Issa, R-Calif.

Americans for Tax Reform, a nonprofit that spent about

$14 million to oppose Democrats in the 2012 elections, according to the Center for Responsive Politics, said the Obama administration is aiming to hurt conservatives at the polls.

“We expect the constitutionality of such a rule would be immediately challenged on solid grounds,” said John Kartch, spokesman for the group, which is led by anti-tax activist Grover Norquist.

But Paul S. Ryan, senior counsel at the Campaign Legal Center, called the announcement “a very positive development.”

“The devil, of course, will be in the details,” he said.

The proposed rules introduce several tests that would determine when a 501(c)(4) is doing too much campaign activity and is violating its tax-exempt status.

The rules do not apply to another type of tax-exempt political group, the so-called super-PACs, which accept unlimited donations. Unlike social-welfare groups, super-PACs must disclose donors and may not give money directly to candidates.

Anonymous spending has ballooned from $5 million in 2004 to $311 million last year, according to the Center for Responsive Politics, accounting for nearly one in three dollars spent.

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