Campaign Legal Center & Democracy 21 Join with Rep. Van Hollen to File IRS Comments Today Calling for Effective Definition of “Candidate-Related Campaign Activity” for 501(c)(4) Groups


The Campaign Legal Center and Democracy 21 joined with Representative Chris Van Hollen (D-MD) today to submit joint comments in an IRS rulemakingthat called on the IRS to adopt a new definition of “campaign-related political activity” to replace the existing vague “facts and circumstances” test.   According to the comments, the new test should rely on clear and objective standards to define campaign activities by non-profit groups.

In July 2011, Democracy 21 and the Campaign Legal Center petitioned the IRS to initiate a rulemaking to revise the existing IRS regulations governing eligibility for section 501(c)(4) tax status, which the reform groups challenged as contrary to law.

In August 2013, Democracy 21 and the Campaign Legal Center joined with Representative Van Hollen and Public Citizen as plaintiffs in Van Hollen v. Internal Revenue Service, a lawsuit that challenged the IRS’s failure to commence the rulemaking requested in the July 2011 petition. The plaintiffs voluntarily dismissed the lawsuit when the IRS initiated the current rulemaking proceeding.

Donald Simon, Counsel to Democracy 21, took the lead role in preparing the comments submitted today.

The comments submitted today applaud the Treasury Department and the IRS for undertaking the rulemaking and for recognizing that problems exist with the current regulations, which were adopted more than a half century ago.

The comments support a proposal made by the IRS to use a test that treats as campaign-related activity any public communication that refers to a candidate in the period 30 days before a primary election or 60 days before a general election.  This test is based on an existing provision of the campaign finance laws which treat as an “electioneering communication,” any broadcast that refers to a candidate within that same time period. 

The comments disagree with another key part of the proposed IRS test.  Outside the 30/60 day time frame, the IRS proposes to treat as campaign activity only communications that include “express advocacy” or the functional equivalent of express advocacy — ads that are susceptible of no reasonable understanding other than advocating the election or defeat of candidates.

As the comments explain, this “express advocacy” test is too narrow, and allows sham issue ads to be used to attack candidates without being treated as campaign ads.  Such ads, which skirt words of express advocacy or their functional equivalent, are a common form of campaign attack ads.  Under the proposed IRS rule, social welfare organizations could spend an unlimited amount of their money to run such campaign attack ads without jeopardizing their status under section 501(c)(4).

The comments submitted by Representative Van Hollen and the reform groups urge the IRS to adopt another standard used in the campaign finance laws – and treat as “candidate-related political activity” any public communication that promotes, supports, attacks or opposes a candidate, commonly known as the “PASO” test.

 This standard was reviewed by the Supreme Court in the 2003McConnell case and upheld as satisfying constitutional standards of not being impermissibly vague.  The Supreme Court stated that the PASO words “provide explicit standards for those who apply them” and “give the person of ordinary intelligence a reasonable opportunity to know what is prohibited.”

The comments urge the IRS to adopt this standard in order to include in the definition of “candidate-related political activity” campaign attack ads that are widely used by section 501(c)(4) groups to sharply attack candidates, while posing as issue ads.

According to Democracy 21 President Fred Wertheimer, “The current vague IRS “facts and circumstances” test for determining political activity is being used by 501(c)(4) groups to run multi-million dollar candidate attack ad campaigns, while disingenuously claiming they are “issue ads.” The vague IRS standard for political activity has been difficult for the IRS to enforce and has been widely abused by outside groups to inject “dark money” contributions into federal elections.  Any effective definition of “candidate-related political activity” must include the tens of millions of dollars of candidate attack ads being run by section 501(c)(4) groups.”

According to Campaign Legal Center Executive Director J. Gerald Hebert, “The IRS must not be bullied from this rulemaking or from enforcing the law by those in Congress who want to keep secret the identities of billionaires seeking to buy election results and corrupt our democracy.  This rulemaking is critically important to stem the growth of what is already widespread abuse of this privileged tax status.  Any group that wants to engage in substantial campaign-related spending is free to do so, it would only need to register as a 527 organization and reveal its donors.”

The comments also call on the IRS to revise its proposal to treat all voter registration and get-out-the-vote activity as campaign related activity.  The comments urge the IRS to exclude non-partisan voter drive activities that do not favor any candidate or party in an election. Such non-partisan activities should not be treated as “candidate-related campaign activity” according to the comments.

The comment urge the IRS to adopt a uniform definition of “candidate-related political activity” applicable to all 501(c) groups.

Representative Van Hollen, Democracy 21 and the Campaign Legal Center also joined today with Public Citizen to submit separate comments on the amount of political activity a 501(c)(4) organization is allowed to undertake under the Internal Revenue Code and court decisions interpreting the code.


According to the comments:

The discussion in the NPRM emphasizes that a principal reason for a new rule is that “more definitive” guidance than “the existing, fact-intensive analysis” would be “helpful” by providing “greater certainty and reduc[ing] the need for detailed factual analysis” in determining whether an organization qualifies for section 501(c)(4) status.  Id. at 71536-37.  We strongly agree that greater precision and clarity is needed in the definition of what constitutes political intervention for purposes of non-profit tax status.  Indeed, much of the abuse of the law in the last two election cycles by groups like Crossroads GPS, which operate under a claim of section 501(c)(4) status, has resulted from the indeterminacy of the existing law—indeterminacy that has given room for campaign operatives to wrongly argue that their activities are issue-related and not campaign related.  Thus, the promulgation of clearer and more definitive standards is an important step to countering this abuse.

The IRS proposed as part of the definition of “candidate-related political activity” to include any public communication that refers to a candidate in the period 30 days before a primary election or 60 days before a general election.  In approving of this part of the proposed definition, the comments state:

We agree that the proposed time-frame test, which is based on the existing definition of “electioneering communications,” is a valuable component of an IRS definition of “candidate-related political activity.”  This kind of time-frame standard is a test that has been determined by Congress to encompass public communications that are substantially likely to be campaign-related.  Importantly, this test has been upheld by the Supreme Court for purposes of the federal disclosure laws.  In Citizens United, the Court, by an 8-1 vote, rejected a number of challenges, including an overbreadth challenge, to disclosure requirements imposed on groups making electioneering communications.  In particular, the Court rejected the “contention that the disclosure requirements must be limited to speech that is the functional equivalent of express advocacy.”  558 U.S. at 369.  The Court said that “[e]ven if the ads only pertain to a commercial transaction, the public has an interest in knowing who is speaking about a candidate shortly before an election.”  Id. (emphasis added).

This same informational interest supports the proposed time-frame definition of “candidate-related political activity” for section 501(c)(4) organizations.  The time-frame definition is also supported by the agency’s interest (and the public’s interest) in clarity and precision in the standards used for determining tax exempt status under section 501(c)(4).

But the comments do not support another part of the proposed definition, which is to use an “express advocacy” test outside the 30/60 day time frame.  The comments state:

Both the “magic words” test and the “functional equivalent” test are narrow, and exclude many ads that attack or promote candidates and influence elections, while avoiding magic words of advocacy.  More importantly, such ads typically are framed around discussion of an issue so that, while sharply attacking a candidate, they are also “susceptible” of an interpretation that the ads are discussing an issue, not calling for the election or defeat of a candidate.  As such, they would not fall within the strict confines of the “functional equivalent” test, even though the ads would unmistakably be understood as attacking a candidate and discouraging voter support for that candidate.

Further, the comments state:

The proposed rule is thus likely to make matters worse, not better, by giving a green light to exactly the kinds of campaign ads masquerading as “issue” ads that have been the stock-in-trade for organizations like Crossroads GPS.  These ads run outside the narrow pre-election time frame, skirt the use of “magic words” and are consistent with a claim that they are “susceptible” to an interpretation as discussing an issue, even though the ads primarily constitute sharp attacks on a candidate and would certainly be understood by the public as urging a vote against that candidate.  In other words, not only would the proposed IRS rule not end the existing abuse by sham “social welfare” organizations, it would license the continuation and growth of that abuse.

Instead, the comments urge the IRS to treat as “candidate-related political activity” any communications that “promote, support, attack or oppose” a candidate, commonly known as the PASO test.  The comments state:

The Supreme Court, in McConnell v. FEC, 540 U.S. 93 (2003), upheld the statutory PASO standard in the context of BCRA’s provisions limiting the funding of Federal election activities by party committees to Federal funds, noting that “any public communication that promotes or attacks a clearly identified Federal candidate directly affects the election in which he is participating.”  McConnell, 540 U.S. at 170. 

The Court further found that the PASO test was not unconstitutionally vague because, according to the Court, the “words ‘promote,’ ‘oppose,’ ‘attack,’ and ‘support’ clearly set forth the confines within which potential party speakers must act in order to avoid triggering the provision.”  Id. at 170 n.64.  The Court stated that the PASO words “‘provide explicit standards for those who apply them’ and ‘give the person of ordinary intelligence a reasonable opportunity to know what is prohibited.’”  Id. (quoting Grayned v. City of Rockford, 408 U.S. 104, 108-09 (1972)) (emphasis added).

McConnell thus makes clear that the PASO test is, on its own terms, sufficiently definite to satisfy constitutional requisites regarding vagueness.  The Court’s conclusion applies not only to party committees, but also to any “person of ordinary intelligence.”  McConnell, 540 U.S. at 170 n.64.  In other words, the terms comprising PASO are clear on their face—regardless of the regulatory context in which they are employed, and will provide an additional, necessary bright-line test for the rules defining “candidate-related political activity.”

In the rulemaking notice, the IRS proposed to treat all voter registration and get-out-the-vote drive activity as “candidate-related political activity.”  With regard to this proposal, the comments state:

In this regard, the proposed rule sweeps too broadly.  As drafted, it would cover purely non-partisan voter drive activities as well as partisan activity.  Such non-partisan drives are not covered by existing IRS rules, which exempt non-partisan voter drives (and indeed, permit section 501(c)(3) charitable organizations—which are otherwise prohibited entirely from intervening or participating in political campaigns—to nonetheless conduct non-partisan voter drives).  Such non-partisan activities have also traditionally been exempt from the campaign finance laws, including from restrictions such as the ban on corporate expenditures to influence elections that was in place prior to Citizens United..  11 C.F.R. § 114.4(c)(3).

The overall point is that truly non-partisan voter drive activity has important benefits to the public interest, and does not threaten to cause the same problems caused by partisan candidate-related political activity, including the use of undisclosed money to fund such activity.  The non-partisan character of the activity is itself the best protection against the problems of corruption, undue influence and appearance of corruption that are threatened by partisan activities.

The comments conclude:

This is an extraordinarily important rulemaking.  The IRS has a responsibility to see that the tax laws are properly interpreted, implemented and enforced.  The tax laws provide that social welfare organizations operating under section 501(c)(4) of the tax code will be devoted “exclusively” to their exempt purposes, which do not include campaign-related activity.  The tax laws further provide that any group that wishes to engage in substantial campaign-related spending is free to do so, but must organize under § 527 of the code.

The difference is not merely form over substance.  Section 527 provides for public disclosure of spending, and of the sources of funding, for expenditures by “political organizations.”  This requirement of the tax code is being frustrated by groups that are engaging in substantial amounts of campaign-related spending and claiming tax-exempt status as social welfare organizations, in violation of the requirements of section 501(c)(4), and without complying with the disclosure obligations imposed by the tax code on section 527 groups. 

There have been two election cycles since the Citizens Unitedopinion was issued, and we are well into a third.  The amount of money spent by 501(c)4 organizations on candidate-related political activity from undisclosed sources grew dramatically between 2010 and 2012, and there is every reason to believe further growth will occur in the future.  This is a problem that is directly within the purview of the IRS, since the principal vehicle for such spending has been groups claiming tax-exempt status as section 501(c)(4) social welfare organizations, which are taking advantage of lax, ill-defined and poorly enforced rules to exceed restrictions on campaign activities by such groups.

It is the responsibility of the IRS to fix this problem.  Although the agency has been remiss in failing to start this rulemaking earlier, it is now underway and the agency should move forward with determination to take the steps necessary to restore effective disclosure of campaign money to elections in this country, by closing the loopholes that have allowed undisclosed money to flow into campaigns since Citizens United.

To read the full IRS comments, click here.