by Kim Barker

The IRS and Treasury Department announced proposed guidelines
clarifying the definition of political activities for social welfare nonprofits
Tuesday afternoon, a move that could restrict the spending of the dark money
groups that dumped more than $254 million of anonymous money into the 2012
elections. Read the
guidelines here.

However, the guidelines, which finally define what constitutes “candidate-related political activity,” aren’t a done deal. They will take some time for public comment and debate, and more time to finalize. (The IRS asks that all comments and requests for a public hearing be submitted by Feb. 27.) Experts also cautioned that the real test of oversight on the political spending by nonprofits will be how these regulations are enforced, something that the IRS has been so far reticent to do.

The proposed regulations “are only as good as the extent of compliance with them, which history would indicate requires a realistic threat of enforcement and significant sanctions on the groups involved and probably the individuals running those groups,” said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance.

Social welfare nonprofits are allowed to spend money on
election ads without reporting their donors, as long as they can prove that
social welfare – and not politics – is their primary purpose. But
the IRS guidelines for political spending have been vague. They state that the
agency will apply a “facts and circumstances” test to each ad, meaning that if
an ad walks and talks like a political ad, it’s a
political ad.

ProPublica
and others
have written extensively
about how many social welfare nonprofits have exploited loopholes in Federal
Election Commission and IRS rules since the Supreme Court’s 2010 Citizens
United ruling opened the door to unlimited election spending by corporations
and nonprofits.   

Some of the groups spend more than political action
committees. GOP strategist Karl Rove’s group Crossroads
GPS, for example, told the IRS it spent more than $74.5 million on election
activities in 2012, more than any other dark money group and all but two super
PACs, which are allowed to raise and spend unlimited amounts of money from
reported donors.

The proposed regulations could dramatically change how the
nonprofits spend money. The proposal defines political activity as including
any expenditures reported to the FEC and any grants to
other tax-exempt organizations that do candidate-related political activity.
(We wrote yesterday about
one such grant from Rove’s group.) Political
activity would also include voter-registration drives and “get out the vote”
drives — even for nonpartisan groups. It would also include holding
events featuring candidates within two months of a general election.

“This proposed guidance is a first critical step toward
creating clear-cut definitions of political activity by tax-exempt social
welfare organizations,” said Mark Mazur, Treasury’s assistant secretary for tax
policy, in a statement. “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.”

Until now, many groups have counted some ads reported to the
FEC — those that stop short of telling people how to vote—toward
their education mission. Some groups have also counted
direct political spending reported to the FEC as part of their social
welfare mission. Most nonprofits have counted grants to politically active
social welfare nonprofits as part of their social welfare mission.

The regulations represent the first time the IRS has pushed
back against political activity by these groups since revealing that the agency
targeted the applications of conservative groups for extra review in May,
kicking off a political
firestorm. (Conservative groups accounted for about 85 percent of the
spending by social welfare nonprofits in 2012.)

The proposed regulations appear similar to ones used by the IRS
last summer for groups that wanted to expedite approval of their applications.
However, the new regulations don’t propose a limit on spending, unlike last
summer’s rules, which said no more than 40 percent of a group’s expenditures
could be made on political activities.

If adopted, the rules would also make social welfare
nonprofits operate much differently than unions and trade associations,
nonprofits that are also allowed to spend money on political activity. If that
happens, it’s likely trade associations like the U.S. Chamber of Commerce will
become the vehicle of choice for anonymous money in politics, experts said.