On Clarifying IRS Rules for Nonprofits, Senator Hatch Takes Bold Stand on Both Sides of Issue

Once again, a new kind of shadowy organization is threatening the integrity of our nation’s public and political engagement.

If you’re familiar with campaign finance law, you might be thinking of groups famous for spending on political campaigns, such as Karl Rove’s Crossroads organizations, which have been accused of violating federal election law. Or maybe you’re thinking of the Koch-backed political network of more than a dozen different registered groups. Maybe you’re thinking of Patriot Majority USA, which has poured millions into political advertisements on behalf of Democratic candidates. But those aren’t the groups Senate Finance Committee Chairman Orrin Hatch (R-Utah) is concerned about.

On April 15, 2015, Sen. Hatch and Representative Paul Ryan (R-Wis.) wrote to IRS Commissioner John Koskinen, urging the IRS to “clarify” the status of workers’ centers, charitable organizations which provide training and resources to low-wage workers. Because they advocate for workers in disputes, Sen. Hatch and Rep. Ryan have asked the IRS to classify these organizations as labor unions instead of charities for tax purposes, even though they operate very differently from unions.

Meanwhile, two days earlier, Sen. Hatch wrote to Commissioner Koskinen asking that the IRS stop working to clarify the definition of political activity for nonprofits, including politically active nonprofits like Crossroads and the Koch-backed political network. Many of these groups are registered as “social welfare” organizations, which do not have to disclose their donors and yet are able to spend millions of dollars influencing political outcomes due in part to ambiguities and inconsistencies in the IRS rules.

In his letter, Sen. Hatch called the IRS’s rule-making efforts “a quixotic and bizarre mission” that “will be viewed with the presumption of political bias and bad faith.” In reality, the proposed rules seek to bring much-needed clarity and consistency to the rules for nonprofit activity, which would cut abuses and increase democratic participation.

That’s right. Sen. Hatch warned the IRS that clarifying rules related to multimillion dollar politically active tax-exempt organizations “would not be tolerated,” and two days later, wrote to the IRS asking them to “clarify” the tax-exempt status of charitable workers’ centers.

In his letter, Sen. Hatch says workers’ centers should not qualify for tax-exemption under section 501(c)(3) of the tax code “because their benefits accrue to specific employees instead of the general public.” This is especially troubling considering that Hatch himself has connections with Freedom Path, a tax-exempt 501(c)(4) organization whose benefits accrued to his campaign, rather than to social welfare at large.

It is astounding that politicians such as Sen. Hatch are so eager to demand the IRS take away the tax-exempt status of legitimate charitable organizations while simultaneously leveraging threats to prevent the IRS from even questioning the tax-exempt status of dark money groups.

Public Citizen’s Bright Lines Project has been advocating for clear, consistent definitions of political activity for years. Our proposed definitions would apply to all nonprofits (whether a charity, union or social welfare organization) to ensure fairness and prevent the flow of political money into less-regulated and less-transparent vehicles.

A new draft of the rules governing political activities could be released as soon as this summer, and once released will be available for comment by the general public. Whether you are with the Senate Finance Committee Chair’s demand for clearer rules, or with the Senate Finance Committee Chair’s demand against clearer rules, make sure your voice is heard! Follow @brightlinesproj on Twitter or keep an eye on this space to know exactly when the new rules come out.