The IRS and “Bright Lines”

May 28, 2013
posted by Bob Bauer

The Bright Lines Project is a production of experienced tax law specialists seeking a clearer, more predictable test for “political intervention by 501(c)(4) organizations. In a detailed Drafting Committee Explanation, the team (including my partner Ezra Reese) lays out its proposed test and the rationale for it, and additional explanation of their goal appears in an op-ed written by Gary Bass and Beth Kingsley. The Bright Lines Project: Clarifying IRS Rules on Political Intervention (Interim Draft, May 23, 2013). What the Project authors have come up with is constructive and interesting, but this is the key question: does its utility lie in a fruitful application to the tasks the IRS faces, or in showing that even well-reasoned, thoughtful tests will bog the agency down in the political analysis—and therefore political resistance and controversy—that it is or should be trying to escape?

One short evaluation of the Project cannot do justice to its complexity. This is already a problem: turning over a complex standard to the IRS for implementation puts the agency in an impossible position. Complexity means hard judgments; the judgments are about sensitive political matters; and the recent controversy demonstrates, if anything, that the IRS is at risk when making judgments of this nature.

But there is a quick check that can be run on the Bright Lines Project’s prospects for success in moving the IRS to less contested ground in its administration of the (c)(4) exemption. What about the “facts and circumstances” test for determining when a tax-exempt is engaged in “political intervention”? The Project authors acknowledge that this test as it is currently in use is vague and cannot meet the goals of “predictability, simplicity or ease of understanding.” Id. at 2. Under their proposed test, however, the test lives to fight, and be fought, another day. Organizations may still use it to show that a communication that might otherwise appear to the IRS to be election related is nonpartisan and consistent with its exempt purposes.

So the Project in its promotion of “bright lines” leaves the reader with the hope that a new rule has sailed and left the facts and circumstances test to wave good-bye on the dock—only to discover that “facts and circumstances” have snuck into steerage and are ready to be summoned back on deck as needed.

To appreciate the lingering role of “facts and circumstances,” one has to consider the basic structure of the proposed rule as it would deal with communications that criticize the performance in office of elected officials running for re-election or for another office. We are back, in other words, to “issue advertising,” which the Project authors rightly take on directly as central to the problems the IRS (and for that matter, the campaign finance law) has run into.

The rule generally defines “political intervention” to include any speech that refers to a clearly identified candidate and reflects a view on that candidate. But only generally: the test is subject to safe harbor exceptions and related provisos that are left to the IRS to interpret and apply. In simplified terms, this is how it would work:

1. A safe harbor would exist for communications shaped to influence official action, if the IRS would find that the communication has a “direct, limited and reasonable relationship to specific actions the officeholder may yet perform in his or her current term of office” (assuming no mention of candidacy or election);

2. Each of these terms, “direct,” “limited” and “reasonable” carries a meaning that the authors explicate and that the IRS would have to apply;

3. But if a communication appears to fail under this test, then the organization could still defend itself under a “facts and circumstances” demonstration showing that it is engaged through the communication in the non-partisan pursuit of its exempt purpose, EXCEPT

4. This defense is not available to communications that are either:

        • a) made through paid mass media; or
        • b) targeted to states or districts in which there is a “close” election.

Without a doubt, in the construction of the test, the authors have worked with the law and their discernment of constitutional limits to establish a framework that stands on firmer logical and legal ground than the amorphous test of today. But the political challenge that the IRS would face under this test, which is the challenge of applying a political test while remaining outside politics, would remain daunting.

For example, in applying the safe harbor and determining that the commentary on official actions is “limited” and therefore not “political,” the IRS would have to find that the communication “does not go beyond facts and arguments that pertain to the specific action that the organization is attempting to influence.” Id. at 15. The IRS would have delicate task here: it would be enforcing boundaries around the types of “facts” and “arguments” asserted on behalf of a public policy position. And the agency would also have to ensure that the relationship between the communication and the official acts it is seeking to influence is “reasonable,” by which the Project’s authors mean that “the speech has a logical and visible connection, apparent to the audience, between the portrayal of the public official and persuading him or her to take the specific action.” Id. Those officials administering our tax laws would have to pronounce on the logical connection between speech and persuasion.

And if the safe harbor does not apply, the “facts and circumstances” test makes its appearance yet again, now available to an organization that persists in the cause of showing that its communications serve its exempt purpose. The organization tendering this defense can compel the IRS to consider these non-exclusive factors:

Timing, range of issues, whether they are “wedge” issues, use of political code words, factual credibility, disclaimers of partisanship, disclaimers and attribution of personal statements, basis for targeting [other than targeting to close elections], history, impartiality of preparation, external events, the reaction of candidates and the media, and the amount and nature of organizational resources used.

And, for good measure, the Project adds that the “organization’s past record, corrective measures, and future safeguards are also relevant.” Id. at 30.

So under the Bright Line test, the IRS in at least these circumstances might have to adjudicate a communication’s “factual credibility,” the “impartial manner in which it was prepared, the “media reaction” it drew, or its use of “political code words.” Is this work the IRS should be asked to do?

It may be seriously doubted, and no easier would be the rule’s call for the IRS to decide which “mass media” are included within those that, if used for paid advertising, deny an organization use of the safe harbor or the back-up use of the facts and circumstances test. The concern is that the use of such media correlates most closely with “surreptitious campaign speech.” Id. at 15. The authors have in mind for the moment the usual suspects, like broadcast, cable and satellite facilities, but they acknowledge that the “very nature of mass media is evolving” and propose that the IRS review and republish every two years the list of mass media subject to the rule. Id. To ask that the Internal Revenue Service carry out this mission—deciding which mass media are used to conduct “surreptitious campaign speech”—is to ask much of the agency, given its history, function and capabilities.

Perhaps this is too much to ask of any agency: the experience with the FEC suggests as much. And it is to ask even more of the community of tax-exempts, or the general public, that they accept the IRS’s performance of this task.

The Bright Lines Project is a thorough, careful consideration of what might make more sense as law than the standard the IRS now applies. Its chief merits are the additional and much needed transparency and consistency that would be gained from a clear statement of the rules supplemented by the plentiful examples the authors provide. But as a model for the law that we would want the IRS to be involved in administering, it would not answer the objection to having the IRS in the middle of politics. It would invite more of the same, which few think is a good idea.

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