In late November, the Treasury Department and the Internal Revenue Service (“IRS”) released a Notice of Proposed Rulemaking related to the regulation of political activity by social welfare organizations, commonly known as 501(c)(4) organizations. According to the IRS, the goal of the new regulations is to better define what type of political activity can be conducted by social welfare groups. Critics of the proposed regulations fear that the new guidelines will significantly restrict activities that have historically been viewed as non-political.
To receive exemption as a 501(c)(4), an organization must demonstrate that it is operated “exclusively for the promotion of social welfare.” While some political involvement has been allowed, political activity cannot be the primary purpose of a social welfare organization. Under the current IRS regulations, activities that result in the direct or indirect participation or intervention in political campaigns on behalf of or in opposition to a candidate for public office have been characterized as being political activity. Historically, the IRS has used a “facts and circumstances” test to determine if 501(c)(4) groups are impermissibly engaging in too much political activity. The new regulations seek to replace the subjective facts and circumstances test with an objective and standardized review of these activities.
The proposed rules replace “participation in political campaigns” with a declaration that “candidate-related political activity” does not further the social welfare purposes of tax exempt organizations. While the candidate-related activity includes many of the same things that have traditionally been viewed as political activity (such as express advocacy and contributions to independent expenditure committees), the term also broadly includes things like voter registration drives, “get out the vote campaigns” and the distribution of voter guides that identify candidates or political parties. In addition, any costs incurred in connection with an event that includes an appearance by a political candidate that is held within 60 days of a general election, or 30 days of a primary election, will be deemed candidate related political activity. In the past, 501(c)(4) organizations have been able to spend money on voter registration drives, voter guides and even candidate forums or debates without having these expenditures viewed as political spending.
The IRS and Treasury Department will be collecting written and electronic comments on the proposed rules, including suggestions as to the appropriate threshold for what percentage of an organization’s funds may be spent on candidate-related political activity without having political activity become the organization’s primary purpose. The agency also seeks feedback as to whether the same rules should apply to 501(c)(5) labor unions and/or 501(c)(6) business leagues. Comments must be received by February 27, 2014. For more information and to review comments that have been submitted, visit http://www.regulations.gov/#!documentDetail;D=IRS-2013-0038-0001.