WASHINGTON, D.C. – As Congress inquires into allegations of misconduct at the Internal Revenue Service (IRS), U.S. Senator Angus S. King, Jr. (I-ME) today in a letter urged Treasury Secretary Jacob Lew not to overlook the underlying issue: that 501(c)(4) organizations are being improperly utilized to circumvent campaign finance law.

“I am appalled by what appears to be an improper focus on identifying conservative 501(c)(4) applications and the undue burdens placed on such organizations in complying with requests for information,” Senator King wrote. “I am even more troubled by an issue that the current scandal threatens to obscure: the problematic emergence of 501(c)(4) organizations as a means to circumvent established campaign finance restrictions and to funnel money into political activities under the guise of promoting ‘social welfare.’”

The Internal Revenue Code clearly defines 501(c)(4) organizations as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” The statute does not bear any mention of political activity, but subsequent IRS regulations have interpreted the statute to permit such activity as long as it’s not the “primary” activity of the social welfare organization. The inconsistency between the statute and the rule means that no clear definition exists to determine what level of political activity violates the regulatory standard.

“I believe that this regulatory interpretation, though longstanding, is incorrect on its face,” wrote Senator King. “There is no way that ‘exclusively’ can be construed to mean ‘primary.’ This is particularly concerning in the context of campaign finance law, for 501(c)(4) organizations do not have to disclose the names of their donors, and no restrictions are imposed upon monetary contributions to these organizations. As a result, 501(c)(4) organizations have emerged as the preferred mechanism through which donors can shield their identity while exercising extensive political influence during campaigns.”

Senator King urged the IRS to bring its regulations in line with the intent of the law:

“From my perspective, the solution is simple: the law should be enforced as written. The IRS should engage in new rulemaking that accurately reflects the intent of the original statute. In addition to being over 50 years old, the existing rule fails to fit the current campaign finance landscape, whereby entities are using 501(c)(4) organizations to intentionally shield the identities of donors.”

The complete text of the letter is as follows:

May 20, 2013

The Honorable Jack Lew

Secretary of the Treasury

Washington, DC 20220

Dear Secretary Lew,

I write today to express my deep concern about the recent findings of the Treasury Inspector General for Tax Administration (TIGTA) regarding the indiscretions of a group of employees at the IRS Determinations Unit. I am appalled by what appears to be an improper focus on identifying conservative 501(c)(4) applications and the undue burdens placed on such organizations in complying with requests for information. I am even more troubled by an issue that the current scandal threatens to obscure: the problematic emergence of 501(c)(4) organizations as a means to circumvent established campaign finance restrictions and to funnel money into political activities under the guise of promoting “social welfare.”

Let me be clear: the IRS, with its extensive reach into the lives of all Americans, must carry out its mission with unwavering integrity, and it is absolutely essential that the agency act with complete impartiality. Given the inappropriate criteria used to screen the applications for 501(c)(4) organizations, the substantial delays in processing applications, and the unnecessary information requested from selected groups, it is clear that a group of employees failed to meet that standard.

All organizations seeking 501(c)(4) classification, regardless of their political interests, should be subject to fair and rigorous review of their applications in a timely fashion. The TIGTA report lays out a pattern of poor judgment exercised by certain employees at the IRS Determinations Unit as well a troubling lack of direction from managers. I support the recommendations of the Inspector General as well as the efforts of the Obama Administration to remedy an obvious lack of oversight that led to the inappropriate focus on conservative applications over the past three years.

At the same time, it is imperative that we not lose sight of the other scandal that this recent news reveals. We must ask ourselves: Why do we permit these organizations to engage in broad political activity without clear regulations regarding what constitutes excessive political activity and without the disclosure requirements of other entities that engage in substantial campaign activity?

The Internal Revenue Code lays out a clear definition for 501(c)(4) organizations, describing them as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” It bears emphasizing that the original statute contains no mention of political activity – these organizations were never intended to engage in extensive campaign activity. IRS regulations for implementing the statute, which were adopted in 1959, state that political activity cannot be the “primary” activity of a social welfare organization, but no clear definition exists for how to determine what level of political activity violates this standard. I believe that this regulatory interpretation, though longstanding, is incorrect on its face. There is no way that “exclusively” can be construed to mean “primary.”

This is particularly concerning in the context of campaign finance law, for 501(c)(4) organizations do not have to disclose the names of their donors, and no restrictions are imposed upon monetary contributions to these organizations. As a result, 501(c)(4) organizations have emerged as the preferred mechanism through which donors can shield their identity while exercising extensive political influence during campaigns. In the wake of the 2010 Citizens United v. FEC decision, the IRS has seen applications for 501(c)(4) organizations dramatically increase. Many of the largest SuperPACs in the country have developed 501(c)(4) arms specifically to evade the requirements of campaign finance law. As a result, 501(c)(4) organizations spent more than SuperPACs in the 2012 election cycle on political activity, to the tune of over $300 million.

I am profoundly troubled by the way in which 501(c)(4) organizations are being utilized to circumvent campaign finance law and to violate their statutory purpose. From my perspective, the solution is simple: the law should be enforced as written. The IRS should engage in new rulemaking that accurately reflects the intent of the original statute. In addition to being over 50 years old, the existing rules fail to fit the current campaign finance landscape, whereby entities are using 501(c)(4) organizations to intentionally shield the identities of donors. 

The IRS Determinations Unit acted in an inexcusable manner, and all involved parties must be held accountable. However, we must not let outrage over the current issue distract us from the problem that underpins their actions. I urge the Treasury Department to work to implement the recommendations outlined in the TIGTA report, and I call upon President Obama to swiftly nominate a permanent IRS Commissioner who can lead in a fair, principled manner that restores the American people’s faith in the agency. Finally, the underlying misinterpretation of the law pertaining to 501(c)(4) organizations must be corrected.

Thank you in advance for your attention to this important issue, and I look forward to working with you and my colleagues in Congress as we find ways to accurately enforce the law.

Sincerely,

Angus S. King, Jr.

United States Senator

cc:  President Barack Obama

       The Honorable Daniel Werfel, Acting Commissioner, Internal Revenue Service

       The Honorable Max Baucus, Chairman, Senate Committee on Finance

       The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance

       The Honorable Charles Schumer, Chairman, Senate Committee on Rules and Administration

       The Honorable Pat Roberts, Ranking Member, Senate Committee on Rules and Administration

###