While not “reach[ing] the specifics of the [NPRM],” Commissioners Ann Ravel and Ellen Weintraub implored the IRS not to consider the FEC’s own expertise. “In deciding whether and how to clarify its rules, the IRS should not feel obligated to defer to the FEC in determining how to apply section 501(c)(4)’s ‘primary purpose’ test or in determining what constitutes ‘political activity.’”
The Commissioners’ stance is curious for several reasons. First the IRS is statutorily required to “consult and work together [with the FEC] to promulgate rules, regulations, and forms which are mutually consistent.” Second, the FEC has decades of experience classifying political activity and it has a detailed process described in a 2007 report (“Explanation”). Third, the IRS’s recent track record in regulating political activity is abysmal.
The NPRM centers on how the IRS should categorize politically active nonprofits. The “primary purpose” of Section 527 groups is to support or oppose candidates. Section 501(c)(4) social welfare organizations can actively participate in politics, but have their primary objective as issue or policy promotion.
As the Center for Competitive Politics commented, the simplest solution is to have the IRS categorize Section 527 groups as those determined by the FEC (or similar state commissions) to be ‘political committees’ i.e. those whose “major purpose” is the nomination or election of candidates. It could then classify the rest under Section 501(c)(4).
This solution would relieve the tax agency of the burdensome task of parsing “issue discussion and advocacy of a political result” on the one hand and the express advocacy of candidate support or opposition on the other. The FEC, having been a party to all major litigation in this area since 1976’s seminal Buckley v. Valeo, is uniquely positioned to make those esoteric determinations with a view toward First Amendment privacy concerns.
The IRS’s taxpayer advocate agrees:
[t]he IRS, a tax agency, is assigned to make an inherently controversial determination about political activity that another agency may be more qualified to make . . .
It may be advisable to separate political determinations from the function of revenue collection. Under several existing provisions that require non-tax expertise, the IRS relies on substantive determinations from an agency with programmatic knowledge.
Disagreeing, however, are the Democrat Commissioners. They cite the 2007 Explanation whereby the FEC refused to abandon its “major purpose” analysis simply because the IRS had previously classified a group as a Section 527. Now the Democrats say “the shoe is on the other foot” and the IRS should reciprocally ignore FEC determinations in classifying tax status.
But just because no reason exists to defer to IRS political-activity determinations, there is every reason the FEC’s expertise on this issue deserves consultation—the occasional internal disagreement notwithstanding.
Besides the Commission’s cumulative experience and the statutory command, there is the matter of IRS’s admitted bungling of conservative-group applications last year. The IRS has put itself in an uncomfortable spot it would likely rather avoid. Its experience with overly invasive questionnaires and requests for irrelevant political minutia demonstrate it is ill-equipped to determine political purposes in a First Amendment-friendly way. Commissioners Ravel and Weintraub should recognize and embrace the FEC’s own expertise and urge the IRS to stay out of the business of campaign finance.
By Paul Jossey