Defending Nuance in an Era of Tea Party Politics: An Argument for the Continued Use of Standards to Evaluate the Campaign Activities of 501(C)(4) Organizations

57 Pages Posted: 9 Sep 2015

See all articles by Jennifer Mueller

Jennifer Mueller

American University Washington College of Law

Date Written: December 1, 2014

Abstract

Tax-exempt groups such as 501(c)(4) “social welfare” organizations have become popular channels by which to steer money into federal elections. If they engage in too much campaign activity, however, they risk losing their tax-exempt status. The IRS polices the political activity line by looking at all relevant “facts and circumstances,” an approach that led to charges of delay and political bias in a recent high-profile report. As a result of the “Tea Party scandal,” numerous experts have called on the IRS to now replace its “vague” ex post standard for evaluating excessive campaign activity with a “bright line” ex ante rule.

This Article reaches a very different conclusion. I argue that continued use of a standard is a more efficient and effective way to limit abuse of the tax system. I reach this conclusion through two lines of analysis. First, I consider the “rules/standards” dialectic and conclude that a standards-based regime is preferable where, as here, there is (1) a high level of complexity, (2) a culture of circumvention, and (3) problems with enforcement. Second, I look at the parallel area of campaign finance reform, where rules predominate over standards, and find that many of the problems predicted by the theoretical analysis are borne out in fact. Indeed, I argue that the “scandal” resulted in large part not from a failure of the IRS’s standards-based approach to tax exemption, but instead from the inherent limitations of a series of rules. The Article concludes with recommendations for reforming and re-invigorating the IRS’s current “facts and circumstances” approach.

Keywords: social welfare, campaign finance, tax exempt, 501(c)(4), facts and circumstances, rules, standards, tax

Suggested Citation

Mueller, Jennifer, Defending Nuance in an Era of Tea Party Politics: An Argument for the Continued Use of Standards to Evaluate the Campaign Activities of 501(C)(4) Organizations (December 1, 2014). 22 George Mason Law Review 103 (2014) , American University, WCL Research Paper No. 2015-14, Available at SSRN: https://ssrn.com/abstract=2574958

Jennifer Mueller (Contact Author)

American University Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States

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