On August 14, 2023, the House Ways & Means Committee and its Subcommittee on Oversight issued a request for information about 501(c)(3) and (c)(4) organizations’ political activities, including ten specific questions including whether there was a need for new IRS guidance on the definition of “political campaign intervention,” the involvement of foreign nationals in American political campaigns, and several related topics.

The Public Policy Legal Institute, host of this website, filed an extensive set of comments.

Other comments were filed by Stephanie Robbins and Beth Kingsley from Harmon Curran, and People United for Privacy.

Here is the summary of the 62-page long PPLI Memorandum (page numbers refer to the full memorandum of PPLI responses to the Committee’s questions):

Summary of Technical Assistance Responses to the Ways & Means Committee and Subcommittee on Oversight

            The Public Policy Legal Institute, a 501(c)(3) organization protecting Americans’ rights to advocate for or against public policies, is providing comments in response to the Committee’s requests for technical assistance. Before answering the Committee’s questions, PPLI offers two background points:

            1) (Beginning on P. 6) Protecting taxpayer confidence that the tax system is politically-neutral is essential to maintaining a high voluntary tax compliance rate. Previous instances of political interference with the IRS have produced an impeachment of President Nixon and the 2010-2013 “IRS Targeting Scandal.” The Committee has a model in IRC § 7611, enacted in 1984, for providing the high-level oversight and accountability that might have prevented the “Targeting Scandal.”

            2) (Beginning on P. 9) Unlike most tax-related matters, the Committee’s legislation regulating tax-exempt organizations is significantly limited by the Supreme Court’s interpretation of the First Amendment. For example, successive Administrations have argued that tax exemptions and deductions are “subsidies” that “waive” First Amendment rights, but the Supreme Court has rejected that theory four times in the last ten years, most recently in Americans for Prosperity Foundation v. Bonta (2021). The Committee must legislate narrowly and specifically, which, though difficult, Congress has successfully done for more than 100 years.

            3) Responses to the Committee’s Questions:

Question 1: Should the IRS Issues Updated Guidance Defining “Political Campaign Intervention?” (Beginning on P. 13)

            After 100 years of trying, no one has crafted guidance which redresses all then-current concerns about the political activity prohibition (political campaign intervention or “PCI”). There are hundreds of thousands of pages of private guidance on how to comply with the prohibition on PCI, much of which is excellent. IRS guidance, in contrast, was far better before the IRS Targeting Scandal. There are three basic tests of how to interpret PCI in particular circumstances, but none are “bright line tests;” there will always be some ambiguity. A first step is to determine whether a proposed activity is “issue advocacy” (which generally cannot be limited) or “express advocacy (or its functional equivalence).” We have clear Supreme Court guidance on the distinction, and even a tie-breaker (ties go to the speaker, not the censor).

            The second step is to look at the “Three T’s:” Timing (how close to an election), Targeting (is the message directed at voters), and Text (are there references to an election or other indices of campaign intervention in the text or content of the communication). Each of these tests is a spectrum, not a “bright line.”

            The third step is to see if a good written policy is followed up by training, monitoring implementation, and modification as needed.

            The answer to your question is not the availability of information, but the implementation of the policy itself. This is more a function of the operation of the IRS than of the language of the law. After 100 years, there is an enormous amount of explanation available; the fact that the IRS has fallen down on the job recently is likely balanced by the private advice freely available to all who want to comply. The result of implementing a new IRS guidance policy will likely confuse as much or more than clarify. The Committee should follow a “first do no harm” strategy, and concentrate on specific instances of miscreants who try to evade the law.

Question 2. Does Current IRS Guidance Cover New Forms of Political Advocacy? (Beginning on P. 22)

            With the sweeping authority, tough penalties and relatively clear statutory language already in the IRC after almost a century of Congressional effort, the emergence of new forms of advocacy likely will not be of such a sweeping character as to evade actual regulation. It is more likely than not that the current definition, even with all its unsolved details, is still preferable than the alternative of spending decades trying to iron out the problems associated with changing the rules in mid-stream. It would seem more advisable to deal with specific problems as they arise.

Question 3. Are There Voter Education or Registration Efforts That Favor A Candidate or Party? (Beginning on P. 23)

            The response looks in some detail at the Congressional investigation of “Hermandad Mexicano Nacional” and its effect on the 1996 election. Although in that case the organization admitted knowingly violating voter registration laws, that is not the case with most voter education and registration drives that might appear to be politically-slanted, but are actually legally compliant. As with most areas of political involvement by tax-exempt organizations, there is ample and readily-understandable IRS and private guidance available to those who wish to comply with the law.

Question 4. Could Changes to IRS Form 990 Clarify How Contributions Are Used to Fund Political Activities? (Beginning on P. 26)

            The core Form 990 does contain substantial information about political activities, triggering additional reporting on separate detailed Schedules like C (Political Activity) and R (Relationships with other organizations). Failure to file complete or timely forms may result in personal, joint and several, liability on organizational managers, which generally increases compliance.

            The bigger question is about collecting and revealing donor information, generally captured on Schedule B, and likely to be included in some responses to the Committee’s questions. Donor information is among the most-protected in the tax system, and two years ago, in Americans for Prosperity Foundation, the Supreme Court forbade “dragnet collection” of donor information without a strong showing that individualized inquiry would not suffice. Ironically, Schedule B was designed to help IRS employees identify protected information, not to uncover wrong-doing. Schedule B is a useless, dangerous form, and, because it contains donor information, when it leaks, it harms taxpayers and taxpayer confidence. Schedule B is not needed or used by either the IRS or any state since well before the AFPF decision. The IRS has been trying to get rid of Schedule B since 2016, but can’t because of statutory language. The Committee should consider whether to remove the last requirement to file Schedule B.

            Further, the often-repeated claim that filings with the Federal Election Commission differing from those filed with the IRS demonstrate “abuse” of the political definitions is misguided. The agencies and their organic laws are different, and so are the filing requirements.

Question 5: Are Policy Changes for Contributions from Foreign Nationals Needed? (Beginning on P. 36)

Question 6: Does the IRS Collect Information That Might Help the FEC Enforce the Foreign National Prohibition? (Beginning on P. 38)

Question 7. Should IRS Examiners Review the National Origin of Sources of Donations to Tax-Exempt Organizations? (Beginning on P. 39)

Question 8. Can 501(c)(3) or (c)(4) Organizations Make Additional Disclosures That Could Prevent Illegal Foreign Nationals’ Political Influence? (Beginning on P. 40)

            The IRS is not in a position to collect or analyze foreign nationals’ political activity. Tax-exempt organizations, which often struggle to obtain enough donations to survive, also are not in a position to make these judgments. There are many accounting and record-keeping burdens in requiring the IRS or its regulated tax-exempt organizations to start collecting and evaluating information on foreign nationals. IRS employees are not trained to make these judgments and already far behind on their current workloads.

            It is possible that tax-exempt organizations which become aware of foreign nationals contributing to the organizations’ political activities could make disclosures of those findings, but the net effect of such a requirement in the absence of narrow tailoring under current Supreme Court cases is likely to be unconstitutional chilling of legitimate activity by these same organizations. Twice in the last ten years, in the two Alliance for Open Society International cases (2013 and 2020), the Supreme Court has heldthat Congressional regulation of tax-exempt organizations’ First Amendment rights cannot be overly burdensome. The Committee likely would be more successful by looking specifically at particular situations and dealing with those rather than imposing any form of “dragnet” generalized search.

Question 9. Do Some Tax-Exempt Organizations Have A True Purpose of Influencing Elections In Favor of One Political Party? (Beginning on P. 40)

            There are probably more organizations that appear to some observers to favor one party but who are doing so compliantly than there are those who are out of compliance. Those out of compliance tend to be ideological organizations whose positions tend to match those of the increasingly polarized parties. There are also media reports of organizations who have revealed more specific partisan intentions.

Question 10. Have Some Tax-Exempt Organizations Benefited Insiders? (Beginning on P. 41)

            IRC § 4958 was intended to identify and punish “substantial influence persons” and organizational managers who direct funds in their favor. The legislative history and interpretations of that statutory language contain information about the need for that legislative action that could be useful to the Committee.

4) Appendix A – Excerpts from Legislative History (Beginning on P. 43)

5) Appendix B – Some Additional Areas of Possible Committee Inquiry (Beginning on P. 47)

            A. Preventing Another IRS Targeting Scandal Using IRC § 7611 As a Model (Beginning on P. 47)

            B. Are “Nonprofit Newsrooms” Exempt From Regular Tax-Exempt Organization Rules Such as the Political Prohibition, Private Benefit or the Illegality/Public Policy Doctrines (Including the Publishing of Illegally Leaked IRS Records)? (Beginning on P. 47)

            C. Remove the Requirement That 501(c)(3) Organizations File The Useless, Burdensome, Leak-Prone Schedule B to Form 990. (Beginning on P. 55).