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IRS Targets Money Transfers In Social-Welfare Politicking


The IRS is taking aim at the growing political role of tax-exempt social welfare groups. It's a category of American politics where spending has increased 80-fold in the last decade. Donors can give as much money as they want to these groups, and their names are not disclosed to the public. The IRS wants to roll back the social welfare politicking, after a summer of controversy over the way it treated Tea Party groups applying for tax-exempt status.

NPR's Peter Overby reports.

PETER OVERBY, BYLINE: Social welfare groups are also known as 501(c)(4) organizations under the tax code. But whatever you call them, they've become favored vehicles for big donors giving big money while avoiding public scrutiny.

The IRS would upset that arrangement for 501(c)(4)s. One significant restriction targets a growing activity

DONALD TOBIN: Organizations who are using other organizations, who are using other organizations as a way of funneling money through.

OVERBY: A strategy that makes tracking 501(c)(4) money next to impossible, says law Professor Donald Tobin of Ohio State University's Moritz College of Law.

TOBIN: I think, in many ways, that's the most interesting part of the regulation.

OVERBY: It's also a good illustration of how social welfare groups operate in politics today, and how hard it might be for the IRS to change things.

Last month, NPR and the watchdog group Center for Responsive Politics analyzed the flow of money among 501(c)(4)s and focused on one low-profile organization.

In three years, the Virginia-based Wellspring Committee gave other groups nearly $17 million. The money went all over the country - for everything from state judicial elections - to presidential politics.

Existing law says social welfare groups have to concentrate on social welfare, not politics. The IRS proposes to define such transfers as political spending for the donor group if the recipient group does any political spending at all.

Again, Donald Tobin.

TOBIN: This rule is just saying, we don't want to play that game.

OVERBY: So that's one perspective. Here's another. Attorney Cleta Mitchell represents Wellspring and other conservative 501(c)(4)s. She says the proposed rule on transfers is wrong, as is the whole package of IRS proposals.

CLETA MITCHELL: I find it highly objectionable. I think it has constitutional problems and I think that this is something that people need to be very upset about.

OVERBY: Mitchell says the IRS is trying to rebuild its reputation after conservatives alleged last spring that the agency unfairly targeted Tea Party groups.

MITCHELL: Look, I mean I think that some of the hysterical hyperventilating that the left has done on a number of these issues, you know, has clearly been heard in the halls of the IRS.

OVERBY: Another critic is lawyer Jason Torchinsky. His law firm's clients include the Center to Protect Patient Rights, another conservative 501(c)(4) that disburses funds to other groups.

JASON TORCHINSKY: You know, the way they've written the rule, what it's really going to do is it's going to discourage 501(c)s from giving to other 501(c)s at all.

OVERBY: And that's an opinion widely shared by lawyers for liberal social welfare groups.

John Pomeranz says the official notice of proposed rule-making, the NPRM, overreaches on the transfer rules and all sorts of other provisions affecting social welfare groups. He was speaking at a conference this week.

JOHN POMERANZ: The NPRM is a sledgehammer that's aimed at a fly. And it's in a place with a lot of breakable stuff.

OVERBY: Holding the opposing view - that there's more good than bad in the IRS plan - are the advocates of political money disclosure. Fred Wertheimer is a longtime campaigner against secret money.

FRED WERTHEIMER: We filed a petition at the IRS two years ago.

OVERBY: A petition for an IRS crackdown on 501(c)(4)s. Wertheimer says it's badly needed.

WERTHEIMER: The American people have been denied information to which they are entitled about who's paying for ads to influence their votes.

OVERBY: That stance was embraced this week by the non-partisan League of Women Voters. The League is a social welfare group itself.

Critics of the IRS say the League would have a hard time under the new rules. But League president Elizabeth McNamara said they are thrilled that the IRS is taking action. She said the politicking by social welfare groups has come to threaten the integrity of American elections.

Peter Overby, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

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