IRS backs off proposal critics warned would 'silence' conservative groups

The IRS has agreed to overhaul a controversial proposal that Republican lawmakers warned would revive the agency's "harassment and intimidation" of conservative groups, after receiving a record number of comments on the proposed regulation.

The new rules have been in the works ever since the IRS came under fire for its targeting of Tea Party and other conservative groups. In the wake of that scandal, the agency said it wanted to clarify for everybody how tax-exempt groups can engage in political activity -- by reining in the political work those groups do.

But Republicans, as well as some on the left, worried the new rules would only exacerbate the kind of targeting that stonewalled Tea Party groups in the first place.

For months, they've urged the IRS to scrap the proposal entirely, saying it would stifle free speech.

Sen. Orrin Hatch, R-Utah, among those senators, called Thursday's decision a "long overdue step in the right direction."

"The IRS is right to abandon its previously proposed rules governing 501c4 organizations that threatened free speech and the rights of all American citizens to participate in the democratic process," he said in a statement.

Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, said the proposal was "wrong from the start" and intended to "silence" conservative nonprofits.

At issue were new rules that would prohibit so-called 501(c)(4) groups from counting "candidate-related political activity" and other political work as activities that qualify them to be tax-exempt "social welfare" organizations.

Critics of the proposal warned that this would effectively force many grassroots organizations to shut down. In a statement on Thursday, the IRS said it received a record 150,000 written comments on the proposed regulation.

"Consistent with our standard rulemaking process, we intend to review those comments carefully, take into account public feedback, and consider any necessary changes," the statement said, adding that "it is likely that we will make some changes to the proposed regulation in light of the comments we have received."

The IRS indicated it would hold a public hearing "after we publish the revised proposed regulation."

While Republicans lauded the move, not everyone on the Hill was pleased.

Sen. Charles Schumer, D-N.Y., called the move "deeply disappointing and a real setback for democracy and faith in government."

"One of the greatest dangers our democracy faces is the unregulated 'Wild West' nature of 501(c)(4)s that allows a multimillionaire to spend undisclosed millions on TV ads and call it social welfare," he said in a statement. "The only hope we have is when the IRS goes back, they don't succumb to any form of political pressure and enact a very tough rule that will equally curtail liberal and conservative groups."

The Associated Press contributed to this report.