Treasury And IRS To Crack Down On Super PACs Masquerading As Tax-Exempt Social Welfare Groups

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The United States Treasury building

The U.S. Department of the Treasury and the Internal Revenue Service issued proposed guidelines on Tuesday that could force dark-money political groups like Crossroads GPS and the American Future Fund to spend less of their money on campaign advertising and other overt electioneering. If implemented, this guidance would clarify what actions by tax-exempt social welfare organizations are limited “candidate-related political activity” and what actions can count toward their principal purpose.

Since the Supreme Court’s controversial 5 to 4 ruling in the Citizens United v. FEC case in 2010, the IRS has seen a large increase in the number of groups applying for 501(c)(4) status — the section of the federal tax code that governs non-profit groups dedicated to social welfare. Some of these 501(c)(4)s have functioned much like super PACs, but evaded campaign finance disclosure laws.

Not all 501(c)(4)s engage in political activity of any kind — the United States Chess Federation, for example, is a fairly apolitical group. Political 501(c)(4) groups are required to adhere to certain rules, including that they not be “primarily engaged” in electioneering activity, in order to maintain their tax-exempt status. In a failed attempt to sort out which groups were apolitical and which needed additional scrutiny, the IRS inappropriately singled out Tea Party groups and some progressive organizations.

But the guidelines for what is and is not an acceptable level of political activity for a (c)(4) has never been clear — a vague “primary purpose” test — and has been little enforced. The draft guidance would clarify the question for the first time.

According to the Wall Street Journal, these rules would label “campaign advertising, voter registration, get-out-the-vote efforts, and distribution of voter guides and campaign materials,” as “candidate-related political activity.” None of that would be able to count as part of the group’s tax-exempt purpose — meaning only a minority of its work could fall into those categories. While 501(c)(4)s would still be free to engage in those activities, they couldn’t be the main focus. This could mean groups accused of masquerading as (c)(4)s could have to find new ways to spend their money.

IRS Acting Commissioner Danny Werfel called the clarifications, “part of ongoing efforts within the IRS that are improving our work in the tax-exempt area,” adding, “Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations.”

Note: ThinkProgress is a project of the Center for American Progress Action Fund (CAPAF), which has been recognized by the IRS as a 501(c)(4) organization. CAPAF does not endorse candidates, nor does it fund “independent expenditures” or any other kind of candidate-related advertising.