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IRS caught in the middle of debate over influence groups

WASHINGTON -- The Internal Revenue Service got an earful from both sides of the partisan divide on Monday in a debate over the tax status of a breed of increasingly powerful political pressure groups, including some with ties to the conservative Tea Party movement.

Ten Republican senators warned IRS Commissioner Doug Shulman in a letter not to buckle under to what they called pressure from Democrats as the tax collection agency decides what to do about tax-exempt "social welfare" groups.

Known as 501(c)(4) groups after the section of the tax code that makes them tax-exempt, the groups are raking in money and spending it on a tidal wave of negative advertising.

The groups include one run by Republican political operative Karl Rove's Crossroads GPS organization. President Barack Obama has one, too, under his Priorities USA group.

The IRS, in an uncomfortable spot in a presidential election year, is trying to decide whether these increasingly influential groups fulfill legal requirements allowing them to remain tax-exempt, and whether those requirements need to change.

"We urge you to resist allowing the IRS rulemaking process to be subverted to achieve partisan political gains," the Republican senators said in the letter to Shulman.

Democratic Senator Charles Schumer shot back in a statement, calling the letter an "unsubtle threat ... clearly designed to put a chilling effect on the agency's enforcement of the law."

Last month the IRS said it "will consider" changing the rules for 501(c)(4) groups. That statement came in response to a March 2012 letter from public interest groups demanding that the IRS clarify standards for the groups' tax-exempt status, amid concerns some are going too far in their campaign activities.

The Republican senators asked the IRS to say whether or not it is drafting rule changes. The IRS did not immediately respond to requests for comment.

The 501(c)(4) groups can raise unlimited campaign contributions and do not need to disclose donors' identities, unlike Super-PACs, which do have to reveal contributors. Without tax-exempt status, the groups would likely need to disclose their contributors to the Federal Elections Commission.

To stay tax-exempt, these groups cannot endorse a candidate or political party. The groups have been financing negative ad campaigns on both sides of the presidential election contest between Obama and presumptive Republican challenger Mitt Romney.

The number of political groups requesting 501(c)(4) status has jumped since the Supreme Court's 2010 "Citizens United" decision that eliminated limits on political contributions in federal elections.