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Facing 140,000 Comments, Treasury Braces for IRS Hearing, Legal Fight

As Treasury officials wade through more than 140,000 public comments on draft IRS rules to redefine permissible political activity by tax-exempt groups, they must now brace for at least one public hearing and a possible legal challenge.  

Released last year in response to the scandal triggered by the agency’s overzealous scrutiny of conservative organizations and other advocacy groups, the proposed regulations were assailed on both sides of the aisle as sloppily written and over-broad.  

Comments poured into Treasury steadily through the final hours of a Thursday deadline from activists on the left and right, tax and legal experts, academics, advocacy and trade groups of all stripes, and from thousands of ordinary citizens and taxpayers.  

Some urged the IRS to police what Democrats call abuses of the tax and campaign finance laws by politically active nonprofits that operate outside the disclosure rules. But most were overwhelmingly critical, attacking the IRS for proposing to define political activity to include voter registration and mobilization, distribution of voter guides and candidate appearances.  

“The IRS’s proposed rules would stifle political activity by preventing 501(c)(4) groups from engaging in political speech and voter registration that these groups have engaged in for decades,” wrote Sen. Ted Cruz, R-Texas, one of several members of Congress to weigh in. “Given the IRS’ recent targeting of conservative groups based on their political activity, these rules would only further politicize an already troubled agency.”  

By contrast, more than a dozen Senate Democrats, led by Rhode Island’s Sheldon Whitehouse, urged the IRS to “make clear that it is impermissible for political operatives to create what are for all practical purposes PACs, obtain 501(c)(4) status for those PACs, and then spend essentially unlimited money to influence elections without disclosing their donors, as is now common practice.”  

Rep. Chris Van Hollen, D-Md., a leading advocate of campaign finance disclosure, also joined with the watchdog groups Democracy 21 and the Campaign Legal Center in comments urging the IRS to rewrite its rules. The groups’ organizers have long argued that IRS regulations contradict tax laws that require 50(c)(4) organizations to operate “exclusively” for the social welfare.  

But many progressive watchdog groups, while commending the agency for tackling existing rules that are widely regarded as subjective and confusing, said the proposed regulations are badly flawed.  

A broad coalition of progressives, including civil liberties and environmental organizers, have joined conservative activists in assailing the proposed IRS rules as over-broad and chilling to free speech. Left-leaning activists have in essence told the Treasury Department “thanks, but no thanks” for the IRS rules.  

“We would not be happy if the rules as they were initially drafted were finalized,” said Lisa Gilbert, director of Public Citizen’s Congress Watch and manager of the Bright Lines Project . The project has brought together a team of experts to examine how the IRS may clarify its hazy rules regarding what tax-exempt groups may do politically. Gilbert said the project is “happy that the IRS is tackling this problem” but has urged its allies to voice concerns to Treasury.  

The Democratic senators’ comments do caution the IRS not to reach too broadly. The proposed rules are “a step in the right direction,” state the comments, whose authors include Sens. Richard Blumenthal of Connecticut and New York’s Charles E. Schumer. “However, it is important that nonpartisan activities with social welfare benefits, such as voter registration and get-out-the-vote drives, are excluded from the definition of candidate-related political activity.”  

Newly installed IRS Commissioner John Koskinen has told members of Congress that the agency will review all public comments with care, and the draft regulations themselves state that the agency will hold a public hearing on request. Koskinen acknowledged at a recent House Appropriations subcommittee hearing that the chances that the rules would be finalized by this fall’s midterm elections are “fairly slim.”  

Actually, the rules are broadly regarded as dead on arrival, given the innate challenges of distinguishing legitimate advocacy from overt political activity, and the ongoing uproar over IRS actions in this arena. Several congressional committees continue to investigate the agency’s mishandling of activist groups’ applications for tax exemption, and the House Oversight and Government Reform panel has called former IRS official Lois Lerner to testify again next week.  

When Lerner first testified before the committee in May, she denied culpability then immediately invoked her Fifth Amendment right to remain silent to avoid self-incrimination. Her attorney has told the panel that she would do so again. But Republicans on the panel are threatening to hold her in contempt of Congress.  

Republicans on and off Capitol Hill have renewed their assaults on the agency. The House approved legislation on Wednesday that would bar the IRS for one year from proceeding with its regulations. The Democrat-controlled Senate is not expected to take up that bill, and the Obama administration has threatened to veto it.  

But conservative activists are pushing to keep the issue in the spotlight. FreedomWorks announced that it will mobilize its members for a Senate vote on the bill. Conservative activists have promised to sue the administration if it proceeds with the draft IRS regulations as written.  

“I think the IRS would have a difficult time [arguing] for these to withstand legal scrutiny,” said Cleta Mitchell, a GOP election lawyer at Foley & Lardner.