Immediately upon the Treasury and IRS’s publication of proposed rules on 501(c)(4) activity, the political jockeying began. Reformers said high time; critics replied that the suppression of free speech was at hand. The IRS Notice is not all that dramatic because what the Service may eventually do is up in the air: the IRS invites comments on all aspects of the definition of (c)(4) political activity. There is no way of knowing how this will all end up many months from now. But the IRS appears to be doing what both sides had demanded that it do for different reasons—improve on current rules—and its notice of proposed rulemaking simply calls for comment on a baseline proposal, which is fairly normal for this type of agency rulemaking setting. This is a reasonable place to begin. Moreover, the goal of clarity the IRS is emphasizing is a sound one. The tax authorities should not be called upon to make nuanced political judgments about what does or does not constitute political activity. And the IRS should not be asked to bear the full burden of disappointments over the enforcement of the campaign finance laws. To the extent that the Service has in mind simplifying its task and keeping quite limited its presence in political activity, it seems to be marching in the right direction.
Of course, it is possible to embrace the Service’s general approach—the emphasis on definitive rules and clarity—and not agree with some of the directions suggested in its first cut at proposed rules. Some of the proposals seem to sweep too widely, and others pull up short of addressing significant questions of campaign activity by (c)(4)s. The Service admits as much, but then it does not explain, or in the design of the rules reveal, how it wound up going too far in some respects and not far in enough in others. As a result, the proposed rules do not distinguish between partisan and nonpartisan activity, or between issues and campaign speech.
The rules have this effect because of an apparent ambiguity in its core enforcement theory that in the coming rounds of comments will need to be brought clearly to light and sensibly addressed. Are the proposed rules a means of enforcing the campaign finance rules by limiting certain social welfare activity during election periods, or are they intended to clarify key terms in the application of the tax code to the conduct of social welfare activity even on campaign issues? The questions are related, but not the same, and whether the one concern or the other predominates will have a decisive impact on the shape and coherence of final rules.
Full Article: The IRS Proposed Rules on (c)(4) Political Activity –.