I.R.S. May Modify Disputed Lobbying Proposal

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Officials of the Internal Revenue Service have announced that they may withdraw all or part of their controversial plan to sharply limit the political activities of many nonprofit organizations.

A set of proposed regulations, first published by the agency last November, could threaten the tax-exempt status of about 3,300 education groups and other charitable organizations that operate under section 501(c)3 of the tax code.

The proposed rules would greatly expand the I.R.S.'s definition of lobbying, especially of so-called "grassroots'' activities directed at organization members and the general public.

Under federal tax law, nonprofit charities may only devote a small portion of their total resources to efforts aimed at supporting or opposing particular pieces of legislation. Groups that exceed the allowable maximum can face a variety of penalties, such as a demand for back taxes or the loss of their tax-exempt status.

Officials from nonprofit groups have contended that the I.R.S.'s new definitions of lobbying are far too inclusive and would force them to suspend or curtail many of their basic functions, such as policy research and fundraising. A number of Congressional leaders, including Representative Dan Rostenkowski, chairman of the House Ways and Means Committee, have also criticized the proposed rules.

In a statement issued earlier this month, the I.R.S. announced that it would "consider whether it is appropriate to repropose part or all of the regulations.'' The agency has also promised that no matter what rules it eventually adopts, they will not be applied retroactively.

Officials of many nonprofit groups have expressed alarm over the agency's original plan to apply the new rules to their activities over the past 10 years, saying that such an approach might result in demands for staggering amounts in back taxes.

"We continue to have fundamental disagreements on the substance of the proposed regulations,'' Brian O'Connell, president of Independent Sector, a coalition of nonprofit organizations, said in a statement.

But the I.R.S. announcement, he added, "helps clear the air and allows a reasoned discussion on the merits of these issues.''

The I.R.S. plans to hold public hearings on May 11 to discuss the proposed lobbying regulations.--W.M.

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