SUBJECT: Minimizing Disclosure of Confidential IRS Information about IRC Section 501(c)(4) Organizations
DATE: MAY 6, 2002

Quite often, the efforts by the Free Speech Coalition go unknown in the ongoing battle to protect nonprofits from excessive government regulation. They are unknown because they take place out of the public spotlight and they are often so time sensitive that we donŐt even have time to alert our members and friends.

One such battle took place recently when the Congress was considering an amendment to IRC section 6104(c). State regulators were interested in receiving from the IRS more information about charities than is currently disclosed under section 6104(c) (permitting disclosure to State charity officials only the denial or revocation of tax-exempt status, and the assessment of certain excise taxes).

An amendment to the tax code was proposed to allow specific notices to be sent to State charity regulators disclosing "a notice of proposed refusal to recognize an organization as 501(c)(3) or (4), or a notice of proposed revocation of such organizationŐs recognition as an organization exempt from taxation."

FSC co-counsel, Bill Olson and Mark Weinberg asked House Ways and Committee staff to schedule a conference call to argue against such expanded disclosure of information to State officials. During that call, they pointed out the reasons why it was inappropriate and unnecessarily damaging to the nonprofits for notices of intermediate actions to be disclosed. The obvious, but not only, reason is that final IRS agency action could be quite different than intermediate action. Upon learning that passage of the amendment was a foregone conclusion as it related to IRC Section 501(c)(3) organizations, they continued to oppose the proposal in its entirety, but also developed arguments as to why such new disclosures should NOT be applied to 501(c)(4) organizations.

The Committee markup determined that the new disclosure legislation will NOT apply to 501(c)(4) organizations. The bill was brought before the House under a Suspension of the Rules, a special procedure generally reserved for non-controversial bills. Under this rule, passage requires a two-thirds majority. The bill, which includes many amendments to the tax code, failed to gain the required two-thirds majority. Thus, it will have to be brought back before the House under regular rules. We will continue to monitor HR 3991.

I just thought you ought to know that your Free Speech Coalition was on the job and even though it was unable to hit a home run, still helped defend (c)(4)s against the scourge of excessive regulation.