IRS to revise regulations limiting activities of tax-exempt groups after outcry

March 22, 2013: This photo shows the exterior of the Internal Revenue Service building in Washington. (AP)

The Internal Revenue Service plans to rewrite proposed regulations limiting the political activities of the same type of tax-exempt groups the agency was accused of targeting after backlash from GOP lawmakers and politically active nonprofit groups.

IRS Commissioner John Koskinen told USA Today on Monday that the agency will likely "re-propose a redefined rule and ask for more public comment." He expects the process will take "until the end of the year and beyond" to complete.

Koskinen said the revised rule will take into account criticism from conservative groups concerned the regulations will put free speech rights at risk. Some liberal groups voiced concerns that the regulations could bar voter education and registration programs, Koskinen said.

"I think we have to take all of that into consideration," Koskinen told USA Today. "There are very thoughtful comments and concerns, and one of the questions that has evoked a lot of comment is, once you define what political activity is, to what organizations should it apply in the 501(c) context and how much of it should be allowed? All of that is going to be very important."

In November, Treasury and the IRS issued draft regulations that would limit the political activities of such groups that fall under section 501(c)4 of the tax code. The proposed regulations attracted a record 150,000 public comments.

Under current rules, social welfare organizations may conduct some political work as long as it is not their main activity. The proposed new rules would block such things as running ads that "expressly advocate for a clearly identified political candidate or candidates of a political party" as fulfilling their tax-exempt mission.

The rules proposed in November also would limit voter drives and voter registration efforts and distribution of literature.

Republicans accused the Obama administration of trying to legalize the targeting of conservative groups. In February, the House voted in favor of a bill that would "put a hold" on the proposed rules until Congress and the Treasury Department's inspector general complete their investigations of the IRS targeting scandal.

Last week, the House Oversight and Government Reform Committee voted to hold Lois Lerner, a former IRS official at the center of the targeting scandal, in contempt of Congress for refusing to answer questions at a pair of hearings.

Lerner previously headed the IRS division that processes applications for tax-exempt status. She refused to answer questions at a House Oversight Committee hearing last May about IRS agents improperly singling out tea party applications for extra scrutiny. She again refused to answer questions at hearing in March.

Lerner has emerged as a central figure in investigations by two congressional committees. On April 9, the House Ways and Means Committee voted to refer her to the Justice Department for possible criminal prosecution.

The IRS' inspector general said in a report last year that tax-exempt applications from tea party and other conservative groups were set aside for special scrutiny simply because they included words such as "tea party" and "patriots." Several hundred applications, from both conservative and liberal groups, languished for years without a ruling by the IRS, the report said.

Meanwhile, Rep. Paul Gosar, R-Ariz., and six other House Republicans wrote to House Appropriations Committee Chairman Hal Rogers, R-Ky., earlier this month requesting that the next general spending bill prohibit bonuses for the IRS division that carried out the agency's screening efforts.

The Washington Post reported that the GOP lawmakers also criticized the agency's decision in February to reinstate performance bonuses for its employees after reaching a deal with the Union for Federal Employees.

“It sends the wrong message to the American people that Congress would allow these ‘performance awards’ to be doled out after the wrongdoing that occurred,” the lawmakers wrote.

The Associated Press contributed to this report.