Today, Representative Steven Horsford (NV-4) released the following statement in reaction to the Internal Revenue Service's decision to scrap a proposal regulating social welfare groups' political activity:
"Today's decision by the IRS to delay implementing tighter regulations on so-called "social welfare' organizations after receiving pushback from conservative groups is shameful. These political groups masquerading as social welfare organizations are funded by ultra-wealthy donors and poured nearly a quarter-billion dollars to influence our democratic process in 2012. I urge the IRS to redouble its efforts to expeditiously fix this weak regulatory system that allows our elections to be corrupted by anonymously funded SuperPACs. The regulations currently in use by the IRS are out of compliance with federal law, and they need to be fixed immediately."
In June, 2013, Rep. Horsford and 25 other House Democrats sent a letter urging then-acting IRS Commissioner Daniel Werfel to reexamine the IRS rules that allow significant political activity by 501(c)(4) groups.
The letter proposes establishing a de minimus standard for 501(c)(4) political activity, which would strictly limit the amount of work a group could conduct outside its social welfare mission.
"We are asking that you reexamine the IRS rules that wrongfully opened the door to signiﬁcant political activity by 501(c)(4) groups by establishing a standard that permits 501(c)(4) only de minimus or insubstantial amount of work outside its social welfare mission," the letter reads. "The new regulation should completely prohibit any 501(c)(4) organization from making expenditures supporting or opposing a candidate for public office and making monetary or in-kind contributions to political action committees or any other entity engaged in campaign activity."
Below is the full text of the letter:
June 6, 2013
Mr. Daniel I. Werfel
Internal Revenue Service
1111 Constitution Avenue, NW, Room 3000
Washington, DC 20224
Dear Acting Commissioner Werfel:
Recent revelations that the IRS unevenly scrutinized applications for tax-exempt status highlight the need to revise regulations issued by the IRS for Section 501(c)(4) of the Internal Revenue Code. It goes without saying that any display of political bias by IRS ofﬁcials is wholly unacceptable. However, there would be no room for any such behavior if these regulations more accurately reﬂected the intent of Congress in establishing a tax exemption for social welfare organizations and civic leagues whose work beneﬁts our communities.
The tax exempt status written into the Tariff Act of 1913 clearly deﬁnes this exemption for "Civic leagues or organizations not organized for proﬁt but operated exclusively for the promotion of social welfare, or local associations of employees." The current regulations run afoul of the law by taking what was clearly deﬁned as an organization operated exclusively for the promotion of social welfare and changing it to one "primarily engaged in promoting in some way the common good and general welfare of the people of the community." The signiﬁcant distinction created here in the difference between the words "exclusively" and "primarily" is obvious to any casual observer, and the problems with the IRS interpretation of this statute has been recognized by the courts as well. These regulations have ﬂouted the Internal Revenue Code for more than half a century, and with them the IRS created a door to tax-exempt political activity that was never established by Congress.
That door swung wide open with the Supreme Court's 5-4 ruling in Citizens United v. FEC, which granted nonproﬁts and other private entities the unfettered right to inﬂuence the outcome of federal elections without disclosing their donors to the Federal Election Commission. Since that decision, the number of applications for 501(c)(4) tax-exempt status has more than doubled. Despite the inﬂux of applications, very few organizations have been denied tax-exempt status. In fact, according to the Center for Public Integrity, the IRS has only denied applications to 60 of the 8,214 groups seeking it. It is no surprise that in 2012, nearly a quarter billion dollars spent by outside groups to inﬂuence the outcome of our elections came from these 501(c)(4) entities. There are dozens of ﬂagrant examples of 501(c)(4) groups being formed for the purpose of funneling anonymous money to Super PACs. According to the IRS, however, this practice is consistent with the law so long as such transfers are not the "primary" purpose of the tax-exempt organization.
We are asking that you reexamine the IRS rules that wrongfully opened the door to signiﬁcant political activity by 501(c)(4) groups by establishing a standard that permits 501(c)(4) only de minimus or insubstantial amount of work outside its social welfare mission. The new regulation should completely prohibit any 501(c)(4) organization from making expenditures supporting or opposing a candidate for public office and making monetary or in-kind contributions to political action committees or any other entity engaged in campaign activity.
While this simple revision is no replacement for comprehensive legislation to create a more accountable and transparent campaign finance system, it is an important first step at preventing purely political organizations--of all ideological persuasions--from gaining 501(c)(4) status. As we continue to push for comprehensive campaign finance reform in Congress, we look forward to working with you on a critical rule change that will preserve the true societal value of 501(c)(4) groups and at the same time protect the American taxpayer.
Theodore E. Dutch
Louise M. Slaughter
Eleanor Holmes Norton
Alcee L. Hastings
Elijah F. Cummings
John P. Sarbanes
David N. Cicilline
Michelle Lujan Grisham
Anna G. Eshoo