The road to reform the rules related to tax-exempt organizations appears to have hit a few bumps. And by a few, I mean close to 77,000.

That’s the number of comments recorded as of last night on the Federal eRulemaking Portal for IRS REG–134417–13. It’s one of the most popular commented matters currently pending on the portal – attracting more attention than the Keystone XL pipeline, greenhouse gas emissions standards, and the use of mobile wireless devices on airplanes.

And it’s bad news for the Internal Revenue Service and the administration: most of the comments are not positive.

Last year, it seemed that providing some kind of clarity to the IRS after the scandal related to allegations of unfair targeting and flagging of tax-exempt applications would be a no-brainer. Conservatives and liberals alike decried the current scheme, though the two sides clearly disagreed on how extensive and systemic the behaviors were inside the agency. What they did agree on was the need for some kind of reform.

After months of hearings, investigations, and what turned out to be, quite frankly, a lot of grandstanding by politicians, nothing much has changed. There were no arrests. There were a few resignations. There were a lot of angry letters.

But mostly there was just radio silence. The IRS practically begged Congress for some direction, a request which

Congress seemed happy to ignore so long as the cameras weren’t rolling.

And that’s how we landed here – with IRS taking a stab at defining those terms.

For more than 100 years, section 501(c)(4) of the Tax Code has allowed federal income tax exemption for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” Exactly what that entailed was the source of speculation for some time and in 1959, Treasury attempted to add some clarity by issuing regulations that defined those organizations as “engaged in promoting in some way the common good and general welfare of the people of the community” but would not include “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” The language was broad enough – unlike the rules for public charities at section 501(c)(3) – that some participation in political campaigns was thought to be allowable. Exactly how much some might be was not defined. The IRS, therefore, took a “facts and circumstances” approach. Read: it was subjective.

The case that would challenge the right to subjectivity wasn’t even a tax case. It was a free speech case. In 2008, a conservative group called Citizens United, which defines itself as an “organization dedicated to restoring our government to citizens’ control” wanted to promote Hillary: The Movie, a film heavily critical of Hillary Clinton who was, at the time, seeking the Democratic presidential nomination. The Federal Election Commission (FEC) said no, claiming that it was a violation of the McCain–Feingold Act. Eventually, the case ended up at the Supreme Court.

In 2010, the Supreme Court, in a narrow decision, ruled 5-4 in favor of Citizens United (downloads as a pdf), finding that the law, as written, impinged on the right to free speech. Specifically, Justice Kennedy, writing for the majority, found:

Governments are often hostile to speech, but under our law and our tradition it seems stranger than fiction for our Government to make this political speech a crime.

It appeared to be a win for free speech. So not a tax case, right?

But what happened after the ruling – which seemed to allow for nearly unlimited political expenditures – is that, with what appeared to be the Supreme Court’s blessing, political groups felt pretty good about their right to engage in politicking. Tax-exempt status would sweeten the pot and section 501(c)(4) of the Tax Code, as compared to a PAC (political action committee), doesn’t require donor disclosure, allowing contributors to remain relatively anonymous. With that, organizations began flooding the IRS with tax-exempt organization applications.

The IRS should have expected this outcome. Either they didn’t or someone was asleep at the wheel. Many have speculated that the “someone” was Lois Lerner, former director of the Tax-Exempt Organization Division of IRS (although it’s also been suggested that former IRS Commissioner Doug Shulman knew about the problem since at least 2012). To deal with the sudden flurry of applications, a system of tagging for additional review was adopted. Applications were pulled for review based on keywords and politically charged language. Those terms were dubbed “BOLO” for “Be on the Lookout” and were used in the review of applications which might carry a political agenda. The targeting was discovered and the IRS became embroiled in scandal. You can review a brief timeline of the scandal here.

Of course, in the middle of all of the yelling and screaming over the scandal, was the elephant in the room: the underlying problem which led to the BOLO lists was not resolved. The confusing part for organizations applying for status and for IRS employees charged with reviewing those applications is that while Citizens United allowed for political groups to make more political noise, it did not change the criteria under the Tax Code for those groups to obtain tax-exempt status. Remember: Citizens United was not a tax case.

What has happened after the dust has settled (well, a bit, anyway) is that IRS is still facing the same dilemma as before the scandal: how do you review social welfare groups for purposes of determining tax-exempt status?

Since Congress punted on the matter (again and again, despite their righteous indignation), the Treasury Department and the IRS proposed to amend the regulations in order to address the issue. Specifically, they wanted to amend Treas. Reg. § 1.501(c)(4)-1(a)(2) to identify specific political activities that would be considered candidate-related political activities that do not promote social welfare.

What hasn’t changed under the proposed rules is that the review is still subjective – that has some taxpayers worried. What has changed is that the proposed rules attempt to draw parallels to federal election campaign laws, which have been established and monitored (what with those getting elected caring more about them and all) with a somewhat firmer hand than the current state of tax-exempt organization applications. As with federal election campaign laws, this means more scrutiny on activities that relate to contributions and communications (including a website) that are meant to promote or defeat a specific candidate. The proposed rules also place a greater weight on the timing of campaign activities because, as has been determined with respect to election laws, certain actions that occur close in time to an election have a greater potential to affect the outcome of an election.

You’d think the changes would be met with relief from somebody. But the exact language of the rules has groups on both sides of the aisle worried.

The Alliance for Justice, an organization “committed to progressive values and the creation of an equitable, just, and free society” has a prominent call on the front page of its website to “Tell the IRS to Withdraw Proposed Rules for 501(c)(4)s.” The organization believes that the IRS went too far, saying, “[t]hough the new definitions attempt to clarify existing rules, they also create a danger to citizen participation in our democracy.”

The Heritage Foundation, a think tank “whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense” fired off a 14-page letter (downloads as a pdf) to Treasury Secretary Jacob Law, offering comments on the proposed rules, most of them negative. The letter, written by the organization’s Group Vice President for Research, David S. Addington, cited, among other concerns, a “lack of statutory authority” for certain of the proposed rules.

Even the League of Women Voters, which has encouraged IRS to “stop dark money polluting our elections” has expressed concerns about the language in the proposed rules. Specifically, they believe that the current IRS proposal “must be changed to make sure that truly nonpartisan voter service activities by the League of Women Voters can continue.” Elisabeth MacNamara, President of LMV, offered her own take, nine pages of comments, in response to the proposed rules (downloads as a pdf).

Other groups, like the National Association for the Advancement of Colored People (NAACP), have remained relatively quiet. It’s a surprising move considering the potential impact that the rules could have across the board for voter advocacy. Marc Owens, a member of Caplin & Drysdale, and a former IRS director of exempt organizations, specifically referenced the activities of the NAACP, noting, “The NAACP has been doing voter registration and get-out-the-vote drives in places like Mississippi and Alabama for 100 years, and this rule would make it impossible for them to continue.” Ditto for National Council of La Raza, the largest national Hispanic civil rights and advocacy organization in the country, which has remained silent.

And the Tea Party Express, which describes itself as “the most aggressive and influential national Tea Party group in the political arena” has not been as outspoken as you’d expect. While clearly opposed to the IRS’ targeting of conservative groups, the group has not made reacting to the proposed rules an action item or issued a directed statement.

While it may be that some advocacy groups are sorting out how to best approach the proposed rules – or whether to simply wait and see – it’s clear that there is considerable opposition to the writes as written.

If you’d like to make your comments available to the IRS, you can do so on or the old fashioned way. You can mail submissions to:

CC:PA:LPD:PR (REG-134417-13)
Room 5205
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

You can hand-deliver your comments Monday through Friday between the hours of 8 a.m. and 4 p.m. to:

CC:PA:LPD:PR (REG-134417-13)
Courier’s Desk
Internal Revenue Service
1111 Constitution Avenue NW.,
Washington, DC

All comments must be received by February 27, 2014, to be considered. Once the official comment period on the proposed rules is closed, the IRS will contemplate what to do next. No matter how the IRS decides to proceed, the new rules would not take effect in time for the 2014 elections.

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Kelly Erb is a tax attorney, tax writer and podcaster.

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