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Congress Uses PATH to Cut IRS Off from Section 501(c)(4) Social Welfare Regulations

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Thanks to the “Protecting Americans from Tax Hikes” (PATH) Act, which was signed into law on December 18, 2015, no federal funds will be available in 2016 for developing new IRS regulations covering Section 501(c)(4) social welfare organizations.  The PATH Act effectively continues to suspend IRS efforts to provide much-needed clarification regarding these nonprofits’ campaign-related political activities. 

The Path to PATH2013 Proposed IRS Regulations

More than two years ago, the IRS issued proposed regulations amidst continued controversy.  The IRS’s proposed regulations were publicly trumpeted as a response to the May 2013 IRS scandal about inappropriate targeting of conservative organizations, but many believe that the regulations evolved from the U.S. Supreme Court’s Citizens United decision.  In that case, the Court affirmed the First Amendment right of corporations – including Section 501(c)(4) organizations – to spend money in politically related activity, but without the donor disclosure requirements of Section 527 political organizations (PACs). And thus so-called “dark money” emerged to fund political activities.

Abounding Problems

The IRS’s proposed regulations were problematic in numerous respects. They took aim at free speech rights that underscore our country’s democratic values and that are essential to our democratic system. For example, they prohibited voter education activities that have long been unquestioned as legitimate. In addition, the regulations prescribed 30 and 60-day “black-out” periods for educational issue advocacy that may be “related” to campaign activities, even though the U.S. Supreme Court had previously ruled such arbitrary timing-related restrictions constitutionally invalid.

Furthermore, the IRS gave itself the discretion to decide whether speech constitutes impermissible “campaign related political activities,” according to the constitutionally suspect “facts and circumstances” criteria. Such approach stands in stark contrast to the Supreme Court’s mandate in Federal Election Commission vs. Wisconsin Right to Life, Inc. (2007) that in free speech issues involving a section 501(c)(4) organization, the proverbial “tie goes to the speaker, not the censor.”  Notably, the proposed regulations did not apply to either unions or trade associations, leaving them comparatively unrestricted.

Politicians on both side of the aisle, the media, conservative and liberal nonprofits, joined the democracy bandwagon, seeking protection against far-reaching government intrusion.  Among other things, they called the proposed regulations illegitimately conceived, aimed at more inappropriate targeting, chock-full of defects, and a serious threat to constitutionally protected political speech.

IRS to Try Again?  Not for 2016

Over 150,000 comments were reportedly submitted, urging abandonment of the proposed regulations.  Contentious Congressional hearings, calls for further investigation of the IRS, and related accusations followed.   On May 22, 2014, the IRS announced that it would substantially revise the proposed regulations.

And now?  At least for 2016, the IRS will be radio-silent on on any new Section 501(c)(4) regulations.  Money talks; when no funding exist, government action gets remarkably quiet.

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