IRS Commissioner John Koskinen testifies on Capitol Hill in Washington in July.

IRS Commissioner John Koskinen testifies on Capitol Hill in Washington in July. Andrew Harnik/Associated Press

IRS Spared Some Budget Cuts But Loses Power to Curb Nonprofits

Impact of targeting controversy continues in omnibus bill nearing passage.

For two years, Republicans in Congress have pursued budget cuts at the Internal Revenue Service as punishment for its mishandling of applications for tax-exempt status.

But some of those cuts—long protested by Commissioner John Koskinen and others as destructive to taxpayer service—would be restored under the 2,000-page $1.1 trillion omnibus spending bill Congress appears ready to approve on Friday. At the same time, the agency’s ability to further regulate permitted political activities by 501(c)4 social welfare groups would be negated under the bill.

IRS would receive $11.23 billion in fiscal 2016, a hike of some $290 million over the current level—specifically for the issues the agency has struggled with, such as customer service, identity theft and cybersecurity. The National Treasury Employees Union called that amount “an improvement” over the nearly $838 million cut that House Republicans had approved, though it is less than the $12.9 billion total budget President Obama had requested in February.

The bill also specifies that during fiscal 2016 “none of the funds made available in this or any other act may be used by the Department of the Treasury, including the Internal Revenue Service, to issue, revise, or finalize any regulation, revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code.”

A proposed rule the IRS released in November 2013 drew thousands of mostly negative comments and was withdrawn.

Also in the bill are new limits on who at the IRS gets bonuses and re-hiring of former employees with tax issues. And a separate bill moving through Congress to extend multiple tax provisions prohibits IRS from imposing the gift tax on contributions to nonprofit organizations.

House Speaker Paul Ryan, R-Wis., praised the provision. “Congress is stopping the IRS from suppressing civic participation in 501(c)(4) organizations,” he said. “We have found that the IRS meddles in the political affairs of people. They turned the IRS into a political weapon in 2012, and we are not going to let them turn the IRS into a political weapon again.”

Less pleased were advocates for greater disclosure of campaign spending. Fred Wertheimer, president of Democracy 21, issued a statement expressing deep disappointment. “The damaging campaign finance riders incorporated into the final omnibus bill include a rider that will prevent the IRS from issuing new regulations to govern the campaign activities of 501(c)(4) groups. Such regulations could have addressed the current problem of 501(c)(4) groups engaging in far more campaign activity than the law allows in order to launder hundreds of millions of dollars in secret contributions into federal elections.”

Attorneys had mixed interpretations. Marcus Owens, former head of the IRS Exempt Organizations division and now a partner with Loeb and Loeb, told Government Executive, “This isn’t the first time Congress has precluded the use of money to finalize or implement a particular piece of Treasury guidance.” He cited legislation from the 1980s that blocked an IRS revenue procedure banning discrimination at tax-exempt private schools. “This is clearly an attempt to prevent the IRS from moving aggressively to enforce the rules generally against political activity by 501(c)4’s. But that regulation wouldn’t actually be the instrument by which the government would move to take an adverse action, he added, citing decades of revenue rulings, regulations and court decisions. “This effort does nothing to effect actual enforcement actions the IRS might take.” In addition, a new appropriations bill the following year could change it.

John Pomeranz, an attorney with Harmon, Curran, Spielberg and Eisenberg, LLP, complained that “hypocrites in Congress have decided to freeze any effort to fix” the problem that, as he put it, delayed many applications for tax-exempt status.

“There are certainly other provisions, good and bad, in this bill and the related tax-extender bill that are relevant to exempt organizations, but this is the one that seems to me the most short-sighted and cynical of all of them,” he said. “I can only hope that the IRS, thwarted in its efforts to create more reasonable rules, doubles down on its enforcement efforts targeting politically active nonprofits (of all ideologies) under the existing vague ‘facts and circumstances’ analysis.”

Paul Streckfus, a tax attorney who edits a newsletter on exempt organizations, doesn’t think the funding ban is all bad. “I never thought Commissioner Koskinen's plan to get the regs done in 2016, to be effective in 2017, had a ghost of a chance. Better to let work on the revised proposed regs slide, as now they must, into 2017 at the earliest,” he said. “The 2016 elections may either help or harm any future efforts, depending on the outcomes.”

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.