IRS Rulemaking

Special tax benefits for nonprofit organizations were created to encourage the work of nonprofits, but unclear rules from the IRS have hindered that work for too long. The IRS is currently revising a draft of new rules that could clarify the definition of political activity for nonprofits while protecting civic engagement.

The public comment period on the first draft of the rules has now closed, with more than 160,000 comments submitted. A new draft is expected in June 2015.


Regulatory Solutions

The Bright Lines Project (BLP) began many years ago with the assumption that the project should focus on encouraging the IRS to modify its regulations regarding tax exempt political activity so that the rules are clearer. The BLP relied on a Drafting Committee of nonprofit tax law experts, chaired by Greg Colvin of Adler & Colvin, to craft a regulatory framework that addressed the definition of political intervention. That framework, once developed, was reviewed by nonprofits at events in different parts of the country and through interviews with many nonprofit leaders and tax experts. Based on that feedback, the Drafting Committee modified the regulatory framework and then proceeded to develop a draft regulation, accompanied with many case examples.

Legislative Solutions

In light of the tax exemption determination process becoming national news, Congress has begun looking at fixes. In response, leaders in the Bright Lines Project have worked to convert the regulatory proposal developed over four years into legislative language. We have done this in two parts. First, we would amend the Internal Revenue Code (Chapter 42 of Title 26, US Code) by adding a new Section 4956 on political intervention that tracks the regulatory proposal developed by the BLP. This establishes clear definitions for political intervention across all tax exempt categories and sets out exactly the safe harbors in the regulatory proposal. Second, we have proposed parallel modifications to Section 527 of the Internal Revenue Code. This is needed so that it is easier for tax-exempt groups that may engage in too much political activity to move those activities to a 527 organization.