Unlikely Allies Agree: Clearer IRS Rules Needed

Washington, DC – Groups that usually do not share the same stage joined today to urge the IRS to clarify the definition of political activity.

At a symposium at the National Press Club, the Evangelical Council on Financial Accountability (ECFA), the Center for American Progress, the Alliance Defending Freedom and Public Citizen called for better IRS guidance for charities and churches, which are not permitted to engage in any political activity but are left in the dark about what is and is not political by the current vague test the IRS uses to define that activity.

This conversation is especially useful now that a bill has been proposed to delay an IRS rulemaking, begun in November 2013, that could provide the clarity these groups demand.

The IRS began working on that rulemaking after the 2013 admission that IRS employees used inappropriate criteria, such as the names of nonprofits, to select groups for increased scrutiny of their level of political activity. A new draft of the rulemaking is expected in March.

“Since Citizens United, an unprecedented flood of secret money has overrun our political system,” said US Sen. Sheldon Whitehouse (D-R.I.), who participated in the symposium. “Current IRS rules enable ‘social welfare’ groups to abuse their tax-exempt status by spending millions of undisclosed dollars in our elections. New IRS guidelines defining ‘political activity’ – and clarifying the restrictions on such activity – for nonprofits would be a welcome development. It’s time for the IRS to put an end to these abuses and for Congress to pass legislation to shine a light on dark money.”

Much of the discussion on the topic of changing tax rules for nonprofits has focused on 501(c)(4)s, which are allowed to engage in a certain amount of political campaign-related activity and have become more engaged than ever in our electoral system. Indeed, the withdrawn rule proposed by the IRS would have applied only to 501(c)(4)s.

But the vague “facts and circumstances” test (whether an activity is political is based on all the “facts and circumstances” surrounding the case) that defines political activity has been criticized by charities and churches as well, for its failure to provide clear guidance on what is permissible and what is not. During today’s discussion, the panelists widely agreed that the facts and circumstances test is deeply flawed and that clearer rules are essential for all nonprofits. They offered their perspectives on the consequences of the vague rules and outlined their ideas for what better rules might look like. Today’s conversation demonstrates that there is ample common ground on an issue frequently portrayed as deeply partisan.

“We hope that showing willingness to discuss our agreements and new ideas honestly and openly can lead to real progress on this issue, which has become so political,” said Dan Busby, president of ECFA, an organization that provides accreditation to churches and religious nonprofits that meet its standards for financial accountability, transparency, fundraising and board governance. “Our cooperation on this should show the IRS, and the rest of the government, that civil and honest discussion leads to progress in even the most difficult areas.”

“Charities and religious organizations have been waiting decades for better rules in this area,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “Ideas like those offered here today should show the IRS that this confusion is solvable and workable solutions are out there.”