New Crackdown by Obama Administration Looms on Tax-Exempt Groups

With a happy Iran at the negotiating table and plenty of reasons to take the spotlight off health care, the Obama administration now seeks to tie the hands of political opponents by limiting spending by tax-exempt groups with political messages.

The Treasury and IRS announced they were currently working on adapting the tax code to limit what kinds of groups could apply for 501(c)(4) status, a category designated for political non-profits and “social welfare” groups that follow less stringent spending rules than political action committees (PACs). The Obama administration’s proposed changes to the code would prevent 501(c)(4)s from engaging in advocacy for a specific candidate and political advocacy generally, including paying for campaign ads on television. Treasury Assistant Secretary for Tax Policy Mark Mazur called the move “a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations.”

Unlike PACs, 501(c)(4)s do not currently have to disclose donors legally. They have surpassed unions and trade associations in political spending and become a pivotal part of the post-Citizens United campaign finance landscape. They do not aid candidates directly, but take on issues and buy ads that directly argue to the public one way or another. While the groups can be of any political stripe, spending by conservative groups has greatly surpassed that by liberal organizations like Organizing for America. And although the measure would crack down on bigger organizations like Karl Rove’s Crossroads GPS, the strength of smaller, Tea Party-central advocacy groups who rely on their tax exempt status to promote messages mainstream political figures would otherwise ignore would most likely be among the hardest hit.

Conservatives both complying with the law in their roles running 501(c)(4)s and those in office have responded to the measure with uniform outrage. A spokesman for the NRA, a 501(c)(4), called the measure a “blatant abuse of the tax code designed to muzzle the American people’s free speech rights.” Rep. Darrell Issa described the move as a “crass political effort,” and placed emphasis on the fact that unions and trade organizations– often much more likely to contribute to liberal efforts– were left to their own devices while the IRS and Treasury turned on these particular political non-profits.

This isn’t the first time the IRS proposes to crack down on political groups voicing opposition to President Obama’s policies, but it is the most sweeping attempt. Controversy with such groups came to a peak this year when it was discovered that more than 80% of 501(c)(4) groups on the IRS’ watch list between 2010 and 2012 were conservative and/or Tea Party affiliated organizations. 

While the administration promises careful scrutiny of the tax code before making any large changes, President Obama’s vocal disapproval of the expressive freedoms protected by the Citizens United ruling and his administration’s targeting of opposition groups through the IRS leave little room to expect tax reforms to have anything but a chilling effect on the national political discourse.