Wertheimer Statement: “Treasury Dept/IRS Inititiate Rulemaking of 501c4s”

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Treasury Department and IRS Open Door to Preventing 501(c)(4) Organizations from Being Misused to Launder Secret Contributions into Federal Elections

Key Issues Remain to be Decided in “Guidance” Proceeding

Democracy 21 applauds the action taken today by the Treasury Department and the Internal Revenue Service to initiate a rulemaking to address the inadequate rules that have been used by the IRS to determine 501(c)(4) tax-exempt status.

This is an important step forward.

However, key decisions remain that will determine whether the new rules will bring an end to the practice of using 501(c)(4) groups to serve as vehicles to improperly inject secret money into federal elections.

Enormous abuses have taken place under the current rules, which have allowed groups largely devoted to campaign activities to operate as non-profit groups in order to keep secret the donors funding their campaign activities. These abuses have resulted in hundreds of millions of dollars in secret contributions being laundered into federal elections by these groups.

To solve this problem, two sets of changes to IRS rules are required.

First, the definition of what constitutes “political intervention” must be changed from the current ineffective “facts and circumstances” test.  The initial proposal made by the Treasury Department today moves in the right direction, although Democracy 21 will carefully examine the full rulemaking proposal that the Department has yet to issue.

But secondly, the amount of political intervention that a section 501(c)(4) group is allowed to engage in must be set to comply with the statutory requirement that social welfare groups must be “exclusively” engaged in social welfare activities, not political activities.

The Treasury Department statement today provides no specific proposal on this pivotal question, although its state that the rulemaking will address this important issue as well. How this critical issue is resolved will determine whether the new rules will be effective in ending the misuse of the tax laws to hide donors financing campaign activities.

Democracy 21 will participate in the rulemaking proceeding which could solve a major campaign finance problem facing the country.

We urge the Treasury Department and IRS to seize this opportunity to end the scandalous practice of groups abusing the tax laws to hide from the American people campaign finance information to which they are entitled.