WASHINGTON (AP) -- A century of laws and rules curbing political activity by tax-exempt organizations has left us with this: One statute says to qualify, groups must engage "exclusively" in social welfare projects while a regulation eases the threshold to "primarily."
Confused? So are President Barack Obama, the Internal Revenue Service and members of the very Congress that has been enacting contradictory laws on the subject for decades.
"We have not done a good job, I think, of putting out guidance on even how to figure out what 'primarily' means," Steven Miller, IRS acting director until Obama recently replaced him, told the Senate Finance Committee last month.
The puzzlement over the requirements, which Obama recently called "a bunch of ambiguity," is one sub-plot in the outcry over the IRS' heavy-handed treatment of tea party and other conservative groups that sought tax-exempt status from 2010 to 2012.
No one defends how the IRS purposely looked for conservative groups and demanded details about donors, website postings and other queries that the agency has conceded were inappropriately intrusive. Yet tax experts, former IRS officials and others agree that the rules governing political activities by tax-exempt groups — including a welter of vague government regulations — are maddeningly hard to follow.
"It's good for lawyers, it's hard for organizations" trying to qualify for tax-exempt designation, said Abby Levine, who advises scores of liberal groups as legal director of the Alliance for Justice.
Part of the confusion stems from Congress' reaction to New York University Law School's entry into the noodle business — but more on that later.
In the spotlight is a revenue code section that has become increasingly attractive to many organizations, 501(c)(4), which grants tax-exempt status to so-called social welfare groups. Many organizations targeted recently by the IRS sought that designation.
Over the years, such groups have been allowed to participate in overt election campaign activity as long as they focus mostly on social welfare — one of many broadly defined terms in this arena. While many groups engage seldom or never in politics, those who do, enjoy a valuable benefit: Donors can remain anonymous.
After the Supreme Court's 2010 Citizens United decision allowing unfettered political spending by companies and unions, campaign expenditures by social welfare groups mushroomed. Between the 2008 and 2012 elections, it tripled to $254 million, according to the nonpartisan Center for Responsive Politics.
The IRS received 3,357 applications for Section 501(c)(4) status last year, nearly double the number in 2010, according to the Treasury Department.
Yet even as interest in the designation has grown, uncertainty over its requirements has remained.
The story behind the confusion began in 1913, when Congress enacted legislation laying the groundwork for the modern income tax.
Exempted from the corporate income tax were nonprofit organizations, including those "operated exclusively for the promotion of social welfare." An IRS history says it is assumed that provision was requested by the U.S. Chamber of Commerce.
Fast forward to 1947, when wealthy graduates donated the C.F. Mueller Co., a pasta maker, to the NYU law school. That transaction, and a court ruling letting NYU keep its Mueller profits tax-free, helped call attention to the tax treatment of nonprofits.
NYU and other nonprofits had been fattening their coffers through ownership of factories, department store chains, cattle ranches, the Encyclopedia Britannica and other profitable businesses on which they were not paying taxes. One congressional estimate put the lost tax revenue at $173 million a year, a large sum at the time.
Urged on by President Harry Truman, Congress passed a law in 1950 allowing some nonprofits to keep unrelated businesses if they paid income tax on them.
But that left a contradiction: a 1913 statute saying groups must operate "exclusively" for social welfare purposes and the 1950 law saying they could do unrelated things, as long as they paid taxes on the profits.
"So 'exclusively' couldn't mean 'exclusively,' because later law acknowledged these organizations could engage in other activities" if you tax them, said Ellen Aprill, a tax law professor and expert on tax-exempt organizations at Loyola Law School in Los Angeles.
The government soon faced another issue — a 1954 revamping of the entire federal tax code. Feeling a need to overhaul tax regulations, the Treasury Department issued new ones in 1959.
The new regulations addressed the two laws defining nonprofits by, for the first time, saying groups need only be "primarily engaged in promoting in some way the common good and general welfare." The rules permit "direct or indirect participation or intervention in political campaigns" for or against candidates, as long as that isn't the group's principal activity.
"Congress made no effort to harmonize those statutes," said Marcus S. Owens, a Washington tax attorney who spent the last decade of his 25-year IRS career heading its tax-exempt organizations division. So the government adopted the "primarily" approach "as the only methodology they could think of to harmonize the statutes," Owens said.
Despite decades of IRS rulings and court cases refining the rules, definitions remain hazy for terms like "primarily," ''social welfare" and "intervention in political campaigns." Many lawyers, for example, say "primarily" means such groups can devote up to 49 percent of their resources to campaign activity, while others are more cautious.
"Social welfare" can include political issues if the work doesn't clearly support or oppose the election of a candidate. That is a blurry distinction in an age when sophisticated political ads tie politicians to specific viewpoints without explicitly calling for their defeat or re-election.
Mark W. Everson, IRS commissioner from 2003 to 2007, said there's a "virtue to vagueness," a view shared by many. "It's difficult to say you should write regulations or statutes that can contemplate all possible events."
The ambiguous wording serves another purpose too.
The IRS has removed tax-exempt status for groups supporting each major political party, including the conservative Christian Coalition and the Democratic Leadership Council. But the imprecision of the regulations makes that hard to do and makes it easier for groups to wade into politics, benefiting Democrats and Republicans alike, analysts say.
"Congress was pretty happy leaving it up to the IRS to enforce this case-by-case," Owens said. Because the IRS had dealt with groups that clearly overstep the boundaries, "there's been no incentive for Congress to dabble there" with additional fine-tuning, he added.
Owens said he's unaware of any congressional efforts to clarify the rules over the decades.
To this day the IRS investigates each group to see whether it is engaging in political activity, using tests such as whether an election is approaching or whether the group gives opposing candidates equal opportunities to participate in events. If it is, the agency determines whether politics is the group's primary activity — a difficult judgment that can involve measuring money, time spent by workers and other factors.
"Congress put the IRS in the position of being the gatekeeper," said Gregory Colvin, a San Francisco attorney who has helped advise numerous nonprofit groups. He said that forces the agency to do "a huge job with an inadequate staff."
Colvin said he would prefer to see political activity restricted to an "insubstantial" part of their work, perhaps 15 percent.