The Internal Revenue Service and Treasury Department proposed new rules on November 29 to provide clearer definitions of political activity for 501(c)(4) nonprofits. In recent years, thanks in part to the IRS' ambiguous "facts and circumstances" definition of political activity, 501(c)(4)s have become the vehicle of choice for individuals and corporations seeking to secretly influence elections: so-called "dark money" nonprofits have effectively acted as political committees, but sidestepped the disclosure requirements of campaign finance laws. Faced with this ambiguity [3] in the rules, some low-level IRS officers relied on inappropriate criteria to scrutinize certain nonprofits for political activity.

For the past five years, The Bright Lines Project [4] -- a diverse coalition of nonprofit leaders, organizations, and tax law experts -- have been working to develop bright line rules for nonprofits that strike a balance between protecting free speech and ensuring that politicking is not subsidized by tax exemption. The proposed rules from IRS/Treasury reflect some of the principles put forward by the Bright Lines Project, but according to an analysis by the nine tax lawyers on the drafting committee [5], the new rules are underinclusive in some ways, while being over-inclusive in others.

Below is the initial reaction of the Bright Lines Project to the IRS/Treasury proposed rules.

The Center for Media and Democracy endorses the Bright Lines Project proposal, and CMD's Executive Director Lisa Graves has acted as an advisor to the project.

Bright Lines Project Reaction to Proposed Regulations from IRS/Treasury on Tax-Exempt Political Campaign Activity

1. We are happy that the IRS and Treasury have taken a bright-line approach to defining political activity under the Internal Revenue Code in the form of new regulations proposed on November 29th.

2. It is the first step toward emerging from decades of uncertainty under the vague "facts and circumstances" approach that has chilled the free speech and democratic participation of many nonprofits. At the same time, the old approach has allowed a few to game the tax system, seeking to use large undisclosed donations to manipulate election outcomes in America.

3. However, the first draft from the IRS and Treasury addresses only one type of tax-exempt nonprofit -- 501(c)(4) social welfare organizations -- leaving the rest under the unpredictable "facts and circumstances" regime.

4. Furthermore, the rules proposed in the IRS/Treasury draft, in the effort to avoid "fact-intensive" decisions about the tax-exempt status of such organizations, have labeled whole categories of civic engagement as political "candidate-related activity," while at the same time failing to apply that label to some clearly partisan activity. This is the result:

a. Expressly advocating for or against candidates or political parties, soliciting political contributions, and distributing a candidate's materials, would be deemed political, properly so.

b. All voter registration, get-out-the-vote drives, and voter guides referring to candidates or parties, would be deemed political, even though they may be completely nonpartisan.

c. A line would be drawn, 30 days before a primary election and 60 days before a general election. After that point, any communication to 500 or more people that mentions the name of a candidate or a party and any event (including a debate) at which one or more candidates appear, would be deemed political. This would include grass roots lobbying unrelated to the upcoming election.

d. Before the 30/60 day blackout, the draft suggests, communications short of express advocacy would NOT be deemed political, even if they conspicuously praise or criticize a candidate.

e. A contribution that a 501(c)(4) makes to another 501(c) group would be deemed political if the recipient does any candidate-related activity, no matter how little -- even if both organizations agreed that the contribution wouldn't be used for politics.

f. The draft rules have no safe harbors for nonprofit speech; they contain no bright-line definition of the civic participation that would qualify as social welfare.

5. Confining the proposed regulation to 501(c)(4) groups is dangerous. Those who prefer the shadows of the uncertain "facts and circumstances" regime will move to other tax-exempt categories, such as 501(c)(6) business associations, and perhaps even to 501(c)(3) organizations where the multi-factor rules on issue advertising remain subject to creative manipulation.

6. 501(c)(3) charities have reason for concern. Although the IRS's treatment of nonpartisan voter registration and get-out-the-vote efforts as political might not apply directly to charities, it is likely to have a chilling effect on charities and their donors. Even if the 501(c)(4) definitions of political activity are not extended to charities (as they easily could be), two different sets of rules would lead to widespread confusion. This is especially true for the many 501(c)(3) organizations with 501(c)(4) affiliates that do important policy work together.

7. At the same time, the IRS proposal contains the seeds of a wonderful opportunity -- to replace much, if not all, of the vague "facts and circumstances" regime with clear, objective standards defining the political prohibition of Section 501(c)(3). No nonprofits are in greater need of such a definition than 501(c)(3)s. They are the most numerous class of tax-exempt organizations (more than all others combined) and, unlike others, risk their tax-exempt status if they engage in any political activity.

8. Bright-line definitions of political activity would not force disclosure of large donations to nonprofits used to influence elections, but they would be essential to any fair and effective disclosure system. Without bright line definitions, disclosure might needlessly tangle nonpartisan groups in burdensome requirements or allow big money efforts to influence elections to avoid disclosure.

9. In essence, we don't want a bad political definition that applies only to 501(c)(4) groups. We want a good political definition that applies to everybody.

10. Once again, we are very encouraged that the IRS is interested in drafting rules in this area. We do not want to lose the momentum created by the issuance of these draft rules and we call upon the IRS and Treasury, upon receiving comments from the affected community, to significantly rework and improve these proposed regulations promptly, inviting public comment on the reworked proposal and engaging the nonprofit sector throughout the process. The new rules should fairly distinguish between partisan and nonpartisan activities and provide the benefit of bright-line certainty, universally, to all varieties of tax-exempt organizations.