US gov't to crackdown on spending by tax exempt groups

The Obama administration Tuesday pledged to crack down on campaigning by tax exempt groups, which spent millions in the 2012 election, by narrowing the definition of who can claim the special status.

Over the past several years, a number of groups have been created as “social welfare organizations” — a special category in the tax code that allows them to keep their donors names secret.

This category, officially labeled “501(c)4,” had traditionally been reserved for civic groups and nonprofits designed to promote social welfare, while political groups had been more strictly regulated.

But in the last few elections, the number of clearly political groups using this tax-exempt category has exploded, instigated mainly by conservative political figures who saw a way to raise money discreetly from rich donors.

One of the most well-known, Crossroads GPS founded by Karl Rove, spent $71 million in the 2012 election cycle on ads against President Barack Obama. Rove had been one of ex-president George W. Bush’s top advisors.

In response to the phenomenon, the US Treasury and the Internal Revenue Service, or IRS, on Tuesday published a reform to the tax code which would clearly define political activities and would forbid those involved from applying for the tax status for “social welfare” groups.

For example, if Crossroads GPS were to air an ad mentioning a candidate in the two months before an election, the ad would be considered to be a political activity, and therefore against the rules for a “social welfare” group. Under current laws, the ad would be allowed.

Also forbidden to groups wanting to claim 501(c)4 status: any communications urging votes for a particular candidate or a political party and distributing material prepared by or on behalf of candidates or political action committees.

Under the current rules, “social welfare promoting activities” were only very vaguely defined, which didn’t allow the IRS to penalize groups abusing the system.

The IRS sparked a scandal last year, when the agency admitted to targeting dozens of groups linked to the ultra-conservative Tea Party for extra questioning over their applications for tax exempt status.