Nonprofit leaders worry that the dispute will further confuse the public, which has trouble distinguishing between 501(c)(3) charities, which are not allowed to engage in any kind of partisan activities, and 501(c)(4) advocacy groups, which can do so, as long as it is not their primary activity. The latter tend to run into more controversy because they sometimes face accusations that they are arms of political candidates or parties.
“All nonprofits are being smeared as though we are engaging in political activity,” said Tim Delaney, president of the National Council of Nonprofits.
He worries that tens of thousands of charities that are navigating the slow process of getting their tax-exempt status approved could now face delays as Congress reviews how the IRS handled applications from the much smaller universe of 501(c)(4) groups. Charities make up the vast majority of the 60,000 applications for tax-exempt status the IRS manages each year, with about 3,500 applications coming from advocacy groups in 2012.
If the IRS is distracted, both charitable and advocacy groups could also operate outside of regulations with less oversight, Mr. Delaney added. “We depend on the IRS. We need a tough cop on the beat.”