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Obama Admin. Proposes New Rule to Reign in Nonprofit Groups

Control.

Demonstrators with the Tea Party protest the Internal Revenue Service (IRS) targeting of the Tea Party and similar groups during a rally called "Audit the IRS" outside the US Capitol in Washington, DC, June 19, 2013. AFP PHOTO / Saul LOEB

Nonprofit groups could see their influence diminished dramatically if a new rule proposed Tuesday by the Treasury Department and Internal Revenue Service goes into effect.

Getty Images.

The rule would revisit regulations regarding groups set up as “social welfare” organizations under section 501(c)4 of the tax code, the Washington Post notes.

The rule change is “part of ongoing efforts within the IRS that are improving our work in the tax-exempt area,” acting IRS commissioner Daniel Werfel said in the Tuesday statement. “Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations."

The proposal would affect nonprofit organizations including Crossroads GPS, the League of Conservation Voters and several of the same groups targeted by the IRS over the past few years.

Under the current regulations, such groups are supposed to make “social welfare” their primary focus. This rule has been commonly interpreted to mean that these groups must spend at least 51 percent of their budget on issues including education and community projects. But the new rule would redefine what constitutes “social welfare,” meaning nonprofit political groups could become restricted in how they spend their budgets.

The rule would affect groups that engage in activities that include handing out voter guides and preparing candidate ads close to elections.

The rule would have to go through several steps, including the public comment process, before being implemented, but it marks a major step in Washington’s efforts to have more control over nonprofit groups.

President Barack Obama and his allies have regularly complained that nonprofits, which are not required to reveal their donors, have been “unfairly” exploiting a loophole in the campaign finance system.

"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Treasury Assistant Secretary for Tax Policy Mark J. Mazur in a statement.

"We are committed to getting this right before issuing final guidance that may affect a broad group of organizations.  It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently,” he added.

But not everyone is thrilled with the proposed rule.

Sen. Orrin Hatch (R-Utah), ranking Republican on the Finance Committee, said Tuesday he would “thoroughly oversee this process to ensure politics aren’t brought to bear,” referring to the IRS’ targeting of conservative groups.

The IRS has defended its targeting of conservative groups by claiming it was merely investigating whether nonprofits were behaving in an overtly political manner .

“I find it unfortunate that the administration decided to move ahead with these new rules before the Finance Committee could conclude its bipartisan investigation into the targeting of those applying for tax-exempt status,” he added.

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Follow Becket Adams (@BecketAdams) on Twitter

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