IRS backtracks on 501(c)4 rule after flood of negative comments

Will the IRS retreat from managing political speech through the tax code? One might have thought that the scandal that erupted a year ago this month would have discouraged the tax agency from pressing forward again, but they still proposed a more extensive enforcement mechanism for 501(c)4 groups just months after the targeting of conservative groups was exposed. After an avalanche of negative comments in the public-review period, though, the IRS is rethinking their approach (via Instapundit):

The U.S. Internal Revenue Service said today that it will revise proposed rules governing nonprofit groups’ involvement in politics.

The rules, released last year, were an attempt to provide guidance for how much political activity groups organized under section 501(c)(4) of the U.S. tax code could engage in without risking loss of their tax exemption or being forced to reveal their donors. …

After the IRS released the new rules, groups across the political spectrum objected with more than 150,000 comments, calling them too broad and an attack on free speech. Opponents included the American Civil Liberties Union and the American Family Association.

Republicans called on the IRS and the Treasury Department to start over. Until today, the IRS had said it was planning a public hearing in the next few months.

“It is likely that we will make some changes to the proposed regulation in light of the comments we have received,” the IRS said in a statement today. “Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation.”

Note that they’re not dropping the matter altogether, either. The flood of criticism has only forced them into a tactical retreat, not into a full surrender. A delay buys them more space between the scandal and the expanded enforcement that new rules will bring, and hopefully (from their perspective) short memories will allow them to proceed in time for the 2016 cycle rather than the 2014 cycle.

The Wire’s congratulatory message may therefore be premature:

The IRS proposed deleting the clause’s reference to “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office,’’ and replacing it with the supposedly clearer “[t]he promotion of social welfare does not include direct or indirect candidate-related political activity.’’ Similarly, the agency wants to replace ‘‘participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office,” with “‘candidate-related political activity.”

Apparently, people are not happy with the changes. Last month, IRS CommissionerJohn Koskinen told the Washington Post that the high volume of comments was making it difficult to forge ahead with the proposed rule …

Finally, an issue the right and left both hate enough to try to successfully derail. Good job, team.

It’s not derailed, at least not yet. It’s merely sidetracked until the political winds shift in a more favorable direction.

The underlying problem isn’t really at the IRS anyway, but in Congress. By erecting a Byzantine structure for campaign and issue donations and mixing them with tax-free statuses, Congress has forced IRS into the speech-police business. The real solution to this would be to eliminate the hard/soft money categories altogether, allow for unlimited donations with full and immediate disclosure over an aggregate amount to campaigns and political parties, and to eliminate tax-exempt status for all political donations. That would get the IRS and the federal government out of the speech-police business and put an end to the massive hypocrisy of the incumbency-protection racket that “campaign finance reform” has become.

Don’t expect the next formulation of 501(c)4 rules to fix anything, so the lesson is to stay vigilant.