IRS Looks at Political Activity by 501(c)(4) Organizations

Washington D.C.-based Roll Call reports that the IRS – at the urging of campaign reform advocates – will consider changes in the rules relating to political activity by 501(c)(4) organizations.

Such groups are able to maintain their tax-exempt status and keep their donor lists private so long as their “primary purpose” is not political.  Campaign reform advocates consider these groups to be partisan political groups masquerading as social-welfare nonprofits.

In its response to a March 2012 request by the Campaign Legal Center and Democracy 21 that the IRS institute a formal rulemaking procedure to establish a “bright-line” rule for exactly how much campaign activity 501(c)(4) “social welfare” organizations can engage in under the Internal Revenue Code.  The groups argue that some of these group are misusing their tax- exempt status to fund political activity, while also enabling donors to such groups avoid public disclosure of their donations.

The IRS did not say that it will move forward with a formal rulemaking procedure, that had been requested by Democracy 21 and the Campaign Legal Center.  Rather, the IRS says merely that the IRS will consider proposed changes.  Lois Lerner, the IRS’s director of exempt organizations, wrote:

 

“We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other public guidance.”

The Internal Revenue Code [26 U.S.C. 501(c)(4)] provides that such groups must be operated “exclusively for the promotion of the social welfare,” but IRS regulations state only that social welfare must be a 501(c)4 group’s “primary activity.”

The reform groups cite the extensive political activity of groups like Crossroads GPS, which are expected to spend over $100 million during the 2012 campaign cycle.

If the IRS does decide to change the rules, it will not happen before the November elections.