IRS to Rethink Law Limiting Activities of Tax-Exempt Organizations

The IRS is rethinking proposed legislation that would have limited the types of political activities that tax-exempt organizations could perform.  The decision by the IRS comes after complaints by Republican lawmakers and conservative tax-exempt organization that were targeted by the IRS in 2013.

John Koskinen, IRS Commissioner, said earlier this week that the IRS would rework the proposed legislation and take more time to allow lawmakers to comment on the wording.  Given the additional time needed, Koskinen said the IRS will likely not finalize the legislation until sometime next year.

Koskinen continued by saying the revisions will focus on addressing concerns raised about limiting the free speech rights of tax-exempt organizations.  Groups expressed concerns the original proposed wording would have limited the ability of tax-exempt organization to drive voter registration and support specific candidates or political parties.

“I think we have to take all of that into consideration,” continued Koskinen.  “There are very thoughtful comments and concerns, and one of the questions that has evoked a lot of comment is, once you define what political activity is, to what organizations should it apply in the 501(c) context and how much of it should be allowed?  All of that is going to be very important.”

The proposed legislation that drew such hard criticism came out in November.  The legislation received over 140,000 comments.

The current laws governing tax-exempt organizations allow organizations concerned with social welfare work to also conduct political activities, so long as those political activities are not the main activity of the organization.  The proposed legislation now going under revision would have prevented tax-exempt organizations from specifically endorsing a specific political candidate or political party.

Lawmakers Believe Proposed Wording Would Legalize Targeting of Tax-Exempt Organizations

Republican lawmakers felt the proposed wording was a direct act by the Obama administration to legalize the targeting of conservative organizations as done by the IRS in 2013.  They felt so strongly about the matter that the Republican-controlled House of Representatives passed a measure to delay passage of the proposed changes to tax-exempt organizations until Congress completes its investigation into the IRS targeting scandal.

Lois Lerner, the former IRS Director of Exempt Organizations, continues to stand out as the main leader responsible for directing the additional scrutiny of applications for tax-exempt status submitted to the IRS by conservative organizations.  Earlier this month, Congress moved to find Lerner in contempt for failing to answer questions about the targeting scandal.

In addition, several members of the House have reached out to the House Appropriations Committee asking that they prohibit the payment of bonuses to the division of the IRS responsible for the targeting of conservative tax-exempt organizations.

The IRS originally suspended bonuses for those involved in the targeting of conservative tax-exempt organizations.  However, in February 2014, the IRS reinstated those bonuses under union pressure.

“It sends the wrong message to the American people that Congress would allow these ‘performance awards’ to be doled out after the wrongdoing that occurred,” the lawmakers wrote in a letter to Hal Rogers, Chairman of the House Appropriations Committee and a Republican from Kentucky.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.