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New Campaign Rules Proposed for Tax-Exempt Nonprofits

The IRS building in Washington, D.C.
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The IRS building in Washington, D.C.

The Obama administration on Tuesday moved to issue new rules that would curtail political activity by tax-exempt nonprofit groups, with potentially significant ramifications for one of the fastest-growing sources of campaign spending.

The proposed rules, announced by the Treasury Department and the Internal Revenue Service, would expand and clarify how the I.R.S. defines political activity and then establish clearer limits for how much activity nonprofits can engage in. Such a change — long urged by government watchdog groups — would be the first wholesale shift in a generation in the regulations governing political activity.

The move to curtail nonprofits follows years of legal and regulatory shifts, such as the Supreme Court's Citizens United ruling in 2010, that have steadily loosened the rules governing political spending, particularly by big corporations, labor unions and wealthy individuals.

(Watch: New calls to tax the rich more)

The rules would not prohibit political activity by nonprofit organizations. But by establishing clearer limits for campaign-related spending, the new rules could have a significant impact on the big-spending nonprofit groups that have played a central role in national politics in recent years, spending hundreds of millions of dollars on political advertising and voter outreach.

The administration's proposal would apply to nonprofit groups organized under Section 501(c)4 of the tax code, which are permitted tax exemption in exchange for devoting themselves primarily to the promotion of "social welfare," which under current rules can include some political activity.

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The largest political nonprofits — such as Crossroads Grassroots Policy Strategies, co-founded by Karl Rove, the Republican operative, or Americans for Prosperity, backed by the conservative philanthropists Charles and David Koch, have exploited that provision to spend heavily on election-themed advertising.

But the proposed guidance, a broad swath of campaign-related activity — including any ads that mention a candidate within 60 days of an election — would be excluded from the definition of "social welfare."

"Depending on the details, this could be dramatic," said Marcus S. Owens, a former chief of the I.R.S.'s exempt organizations division.

The rules would also effect political activity by conservative and liberal grass-roots organizations, including Tea Party groups whose complaints of aggressive treatment and harassment by I.R.S. employees led to the resignation of several high-ranking agency officials last spring.

More details of the proposal were scheduled to be released later on Tuesday. The final rules are unlikely to be issued until after the 2014 election, after a lengthy public comment period, possible hearings and more deliberation by the agency.

"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Mark J. Mazur, the assistant Treasury secretary for tax policy.

Unlike candidates, parties and "super PACs," such groups do not have to disclose donors, giving rise to the label "dark money" for organizations that spend heavily on elections but claim to be engaged in promoting social welfare.

The vague — and inconsistently enforced — rules for political nonprofits, along with the anonymity they offer donors, have made them the vehicle of choice for wealthy individuals, corporations and unions seeking to influence elections in secret. From 2006 to 2012, election spending by tax-exempt groups rose to more than $300 million from less than $5.2 million.

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