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Guidance on Political Activities of 501(c)(4) Social Welfare Organizations


12/11/13

Synopsis:
 
On November 29, 2013 proposed regulations issued by the IRS and Department of the Treasury were published in the Federal Register that provide guidance on political campaign activities of social welfare organizations that are tax exempt under section 501(c)(4) of the Internal Revenue Code.
 
The regulations, if adopted, would provide more definitive rules as opposed to the IRS’s traditional facts and circumstances approach. The IRS is also considering applying similar rules to organizations that are tax exempt under section 501(c)(3), 501(c)(5), 501(c)(6), or 527. In addition, the IRS is considering changing the existing standard under current regulations that treats a section 501(c)(4) organization as being operated exclusively for the promotion of social welfare if it is “primarily” engaged in activities that promote the common good and general welfare of the people of the community. The IRS requests comments on all aspects of the proposed rules, which are due by February 27, 2014.
 
A recent IRS report relating to IRS review of applications for tax-exempt status stated that “[o]ne of the significant challenges with the 501(c)(4) [application] review process has been the lack of a clear and concise definition of political campaign intervention.” The proposed regulations are an attempt to provide clearer definitions of these concepts. For a discussion of the report, please see our previous alert.
 
Issue:

Current regulations provide that “the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” The proposed regulations would replace this language with the following – “[t]he promotion of social welfare does not include direct or indirect candidate-related political activity.”
 
“Candidate-related political activity” is defined in the proposed regulations as:

  • Any communication expressing a view for or against the selection, nomination, election, or appointment of one or more candidates of a political party;
  • Any public communication within 30 days of a primary election or 60 days of a general election that refers to a candidate, or, in the case of a general election, a political party;
  • Any communication the expenditures of which are reported to the Federal Election Commission;
  • A contribution, grant, loan, etc. of money or anything of value to, or the solicitation of contributions on behalf of (a) any person if the transfer is a reportable contribution under campaign finance law, (b) any section 527 organization, or (c) any section 501(c) organization that engages in candidate-related political activity (but the grantor can rely on a written representation from the grantee that the organization does not engage in such activity);
  • Conduct of a voter registration drive or “get-out-the-vote” drive;
  • Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization;
  • Preparation or distribution of a voter guide that refers to a candidate or, in the case of a general election, a political party; or
  • Hosting or conducting an event within 30 days of a primary election or 60 days of a general election at which one or more candidates in such election appear as part of the program
     

The proposed regulations provide detailed definitions of many of these terms as well as rules for attributing political campaign activities of officers, directors, employees, and volunteers to the organization. The regulations would be effective as of the date they are published as final regulations.
 
What Does CohnReznick Think?
Section 501(c)(4) social welfare organizations may want to consider reviewing their activities to determine whether there may be political campaign activities under the proposed regulations. Organizations exempt under section 501(c)(3), 501(c)(5), 501(c)(6), or 527 may want to conduct a similar review to prepare for the possibility that they may become subject to comparable rules. Section 501(c)(4) organizations may also want to determine the proportion of their activities that promote social welfare in the event the “primarily” standard in the current regulations is modified.

Contact:
 
For more information, please contact Phil Royalty, Director, at 916-930-5222 or Tom Lanning, Partner, at 646-834-4108.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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