Regulatory Solutions

Regulatory Proposal

Detailed Explanation

Fact Sheet

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.

Under current law, the IRS considers all the relevant “facts and circumstances” when determining whether a nonprofit organization has engaged in restricted political activity. Over time, the uncertainty created by this vague approach has had a tremendous chilling effect on free speech by charities and other 501(c) organizations and a sense of uneven enforcement.

Even in 2009 when the Bright Lines Project (BLP) was started, which was before the Citizens United decision, there was widespread agreement that it was time to replace the ambiguity of the “facts and circumstances” test with predictability, simplicity, and ease of understanding. In the aftermath of that decision, it became imperative that the IRS establish clear and comprehensive rules on political activity.

To address this problem, OMB Watch (now called Center for Effective Government) convened a group of tax law experts, legal practitioners, and nonprofit leaders met for two days in June 2009 to discuss IRS political activity rules and assess what changes were needed.

In the aftermath of the retreat, working with Colvin, OMB Watch created the Drafting Committee comprised of nine experts on nonprofit tax with Colvin as chair and Beth Kingsley of Harmon, Curran, Spielberg & Eisenberg as vice chair. These proposed rules seek to establish a new definition of political intervention that uses bright lines and safe harbors. If the organization’s speech is not clearly covered by that definition, it can fall back on the current “facts and circumstances” approach in its defense. But never again would a nonprofit that spoke out on an issue, without relating it to a choice of candidate, face the jeopardy of IRS prosecution solely for entering the vague terrain of “facts and circumstances.”

This project has taken on new urgency in the wake of recent revelations about the IRS’s use of improper criteria to screen some exemption applications for further scrutiny. It has become apparent that a major factor in this systematic breakdown of the review process was the lack of clear, neutral, objective standards by which IRS employees and managers could determine whether applicants were engaged in political intervention. In other words, the difficulty experienced in the nonprofit world, with many organizations very unsure of how to comply with the IRS’ vague “facts and circumstances” approach to cases of political intervention, was mirrored inside the IRS, with line staff concocting their own selection criteria and managers unable to communicate useful guidance to them.

Charities already have clear and predictable lobbying rules they can follow. They can elect to be subject to the 1990 lobbying rules developed by the IRS, often called the expenditure test or 501(h) rules. The Colvin Committee’s proposed test of whether a charity is engaging in permissible nonpartisan speech activity is modeled on these successful 1990 lobbying rules.