In a letter sent to Internal Revenue Service (IRS) Commissioner John Koskinen, reform groups called on the IRS to end the misuse use of nonprofit groups to launder secret contributions into Federal elections.
The reform groups included the Campaign Legal Center, Common Cause, Demand Progress, Democracy 21, League of Women Voters, People For the American Way, Public Citizen, and Sunlight Foundation.
According to the letter, IRS regulations governing the eligibility of groups for tax status as section 501(c)(4) “social welfare” fail to comply with the tax laws.
The letter stated that the IRS, for years, has informally acceded to an interpretation of the regulation, without any written explanation or justification, that allows section 501(c)(4) groups to spend up to 49 percent of their expenditures on political intervention, or campaign activities. IRS Commissioner Koskinen also reportedly took this position in recent testimony before the Senate Judiciary Committee.
According to the letter, however, this position “is not legally sustainable because the existing IRS regulations contradict the nation’s tax laws and court decisions interpreting these laws”. The fact is the IRS for many years has misinterpreted and failed to properly enforce the eligibility standards for obtaining section 501(c)(4) tax-exempt status under the Internal Revenue Code.
The letter stated that in order for IRS regulations to comply with the tax laws and applicable court decisions, the agency must “limit the campaign-related expenditures by a “social welfare” group to an “insubstantial amount: The requirement to limit a section 501(c)(4) organization to an “insubstantial” amount of campaign activities means, in our view, that an organization can engage in only a limited amount of campaign-related expenditures, such as no more than 5 or 10 percent of total annual expenditures.”
According to the letter: “Under the language of the statute and the applicable court decisions, there is simply no way, consistent with the law, to interpret the “insubstantial” test to allow a social welfare organization to spend up to 49 percent of its expenditures on non-social welfare activities, like campaign activities.”
The letter stated: “This is contrary to the framework set up by Congress to govern non-profit organizations and contrary to court decisions interpreting that framework. The tax laws require the IRS to change the regulation.”
The organizations strongly urged the IRS to use the ongoing rule-making process to conform the IRS regulations to the statute and to applicable court decisions that require social welfare organizations to spend no more than an “insubstantial” amount on campaign activities.
CLICK HERE to read the three page (PDF) letter.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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