IRS Proposal on Social Welfare Group Spending Draws Early Concerns

Social welfare groups shouldn’t have limits on Internet “expression” they don’t pay to place, said Craig Holman, government affairs lobbyist of Public Citizen, a group that is a traditional 501(c)(3) organization under the IRS code and also has a 501(c)(4) arm. “There should be a de minimus allowance” so a group like his can express its views on its website, said Holman, who is paid under the 501(c)(4) capacity. “When it should be subject to regulation is when we actually pay” such as “paid mass media,” he said. Public Citizen representatives are meeting with the Treasury Department Tuesday to discuss their feedback on the NPRM, parts of which Holman and Campaign Legal Center Policy Director Meredith McGehee called positive.

A communication is considered “public” if made “using certain mass media (specifically, by broadcast, in a newspaper, or on the Internet), constitutes paid advertising, or reaches or is intended to reach at least 500 people (including mass mailings or telephone banks),” said the NPRM set for publication in Friday’s Federal Register (http://1.usa.gov/1hiWvyP). “Content previously posted by an organization on its Web site that clearly identifies a candidate and remains on the Web site during the specified pre-election period would be treated as candidate-related political activity.” What’s on a 501(c)(4) group’s website “is an official publication of the organization, so that material posted by the organization on its Web site may constitute candidate-related political activity,” said the NPRM. It sought comment on whether third-party content on such a group’s site “should be attributed to the organization for purposes of this rule."

The proposals about online and traditional media could raise First Amendment issues and perhaps legal challenges if the IRS adopts them, said a veteran lawyer representing 501(c)(4) and other tax-exempt groups. “There are a lot of practical and potentially constitutional issues in regulating any of this stuff,” as “the proposed definitions are fairly broad” in terms of types of communications that would be limited for social welfare groups, said Wiley Rein’s Jan Baran. He and campaign finance disclosure advocates noted the proposal doesn’t clarify the threshold for what percentage of such an organization’s budget can be spent on what’s known as political intervention. Interpretations about the threshold vary widely, from up to 50 percent being allowed to 40 percent or lower, said experts in interviews.

Communications could be classified as campaign-related “when in fact they might not be, and might fall under other types of campaign activity” such as issue ads, said Baran. “Having links and other content somehow imputed to the host of the website is problematic as well,” he said of the request for comment on third-party content on social welfare groups’ sites. “That’s not their own speech, it’s someone else’s communications. They are simply disseminating someone else’s speech.” Baran and advocates for disclosure said they welcome more clarity on what 501(c)(4) groups can do and can’t while not having to pay taxes. Nonprofits spent at least $305 million in the 2012 election cycle, said the Sunlight Foundation on Tuesday (http://bit.ly/1gj7hlz), citing its review of Federal Election Commission data. “Those figures likely represent the tip of the dark money iceberg as the groups’ privileged tax status exempted them from disclosing not only their donors but many of their expenditures."

The NPRM “defines the term ‘candidate-related political activity'” and would say “promotion of social welfare does not include this type of activity,” said a Treasury and IRS news release Tuesday (http://1.usa.gov/1fK10lA). It noted the item asks “what proportion of a 501(c)(4) organization’s activities must promote social welfare.” The NPRM is “a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Assistant Secretary for Tax Policy Mark Mazur. “We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently.” That likely means the rules won’t be ready for the 2014 elections, said McGehee, while Baran said it’s possible it could take many years. He cited the five-year gap from when Congress amended law affecting 501(c)(4)s to when the IRS in 1959 issued rules.

Disclosure advocates said the proposed amounts of time in the runup to elections when the limits would apply are too short, because ads occur throughout an election cycle. The limits would apply 60 days before a general election and 30 days before a primary when ads identify a candidate or party, said the NPRM. That’s not enough time, said McGehee. Holman wants it to apply “on an ongoing basis, if someone is going to run a campaign ad,” he said. “That should be assumed to be political intervention, unless it would fall under reasonable safe harbor” such as addressing legislative or policy implications and not a “viewpoint on a candidate,” said the lobbyist. NAB declined to comment.

Broadcasters might dislike if not oppose the NPRM for limiting what social welfare groups could spend on candidate or party-identifying spots, said industry lawyers who said they hadn’t heard about any plans NAB might have. If the rules “would discourage such organizations from advertising -- particularly on broadcast stations -- that would likely be a disappointment to broadcasters who have been getting political ad revenues NOT subject to lowest unit rate limits from such organizations,” said Fletcher Heald’s Harry Cole. Lowest unit rates are what stations must sell ads to campaigns for in the runup to general and primary elections. What Treasury and IRS propose “probably would,” if implemented, hurt stations, said Drinker Biddle’s Howard Liberman. “It seems that for most, if not every, closely contested election -- including primaries, and maybe especially primaries -- there are these ads from non-candidate organizations attacking candidates.” -- Jonathan Make (jmake@warren-news.com)