Welcome
Daily Tax Report ®

House Bill Would Lift Ban on IRS Politicking Rules for Nonprofits

Jan. 4, 2019, 11:01 AM

House Democrats’ oversight package would allow the IRS to again issue rules clarifying the permitted political activities of some tax-exempt groups and require presidential and vice presidential nominees to disclose their tax returns.

A GOP-led Congress—through measures included in past funding legislation—for years has prohibited the Internal Revenue Service from clarifying the permissible political activities of tax-exempt Section 501(c)(4) social welfare organizations, such as the National Rifle Association, Americans for Prosperity, and Priorities USA.

The new House package, known as H.R. 1 would remove that barrier, according to a section-by-section summary. It also includes provisions to strengthen oversight, expand conflict-of-interest laws, and overhaul the Office of Government Ethics.

The package is largely a messaging tool, and comes after Democrats took control of the House on Jan. 3.

‘Dark Money’

Section 501(c)(4) organizations—called “dark money” groups by critics because they don’t have to publicly disclose their donors—are allowed to engage in political activity as long as it isn’t their primary activity. Up until recently, they were required to report the names and addresses of their donors to the IRS, but the agency in July 2018 revoked the decades-old requirement.

The groups have drawn attention over the last decade for their growing role in campaign spending. During the 2018 cycle, for instance, such groups spent about $107 million, down from a 2012 peak of $257 million, according to Federal Election Commission data compiled by the Center for Responsive Politics.

The IRS in November 2013 issued proposed rules (REG-134417-13) that would exclude “candidate-related political activity”—defined by the agency as communications that expressly advocate for clearly identified political candidates—from the list of activities in which Section 501(c)(4) groups can engage. The rules faced much criticism, and received close to 176,000 comments.

The 2016 Consolidated Appropriations Act (H.R. 2029) barred the Treasury Department and IRS from using funds provided by Congress to issue, revise, or finalize guidance involving activities standards for those groups—effectively stopping the proposed rules in their tracks. The prohibition resurfaced in budget bills enacted for fiscal years 2017 (H.R. 244) and 2018 (H.R. 1625).

House Democrats have previously said the ban handcuffs the IRS from improving the laws for nonprofits.

Democrats’ new oversight package would also require 501(c)(4) groups—as well as super PACs and other organizations spending money in elections—to disclose donors who contribute more than $10,000.

Tax Return Disclosure

The oversight package would also require sitting presidents and vice presidents—as well as nominees for the presidency and the vice presidency—to release their tax returns, according to the summary. In any of those cases, an individual would be required to disclose 10 years of returns, a House Democratic aide told Bloomberg Tax.

Senate Finance Committee ranking member Ron Wyden (D-Ore.) Jan. 3 reintroduced a similar measure requiring sitting presidents and presidential nominees to release three years of tax returns to the public.

It’s unlikely the Senate will act on the House’s package. Senate Majority Leader Mitch McConnell (R-Ky.) has openly opposed the effort.

The calls from Democrats for mandatory tax return disclosure come after President Donald Trump broke from nearly 40 years of tradition by refusing to release his returns during his 2016 presidential bid. His running mate and current Vice President Mike Pence released a decade of his own filings during the 2016 campaign.

No Small Donor Credit

The oversight tax package doesn’t contain a provision to create a refundable tax credit for small political contributions that a House aide previously said Democrats planned to include.

The provision would have created a $25 tax credit for small donors, and twice that amount for joint tax filers. The credit would have been available per election, allowing donors to double their tax break by taking advantage of it in both primary and general elections.

To contact the reporters on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com; Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com