The IRS has issued new proposed regulations regarding qualification requirements for exemption from taxation as a social welfare organization under Code Sec. 501(c)(4). The proposed regulations define the term “candidate-related political activity,” and would amend current regulations by indicating that the promotion of social welfare does not include this type of activity. The proposed regulations also seek initial comments on other aspects of the qualification requirements, including what proportion of the activities of such an organization must promote social welfare.
The IRS currently applies a “facts and circumstances” test to ascertain whether an organization is engaged in political campaign activities that do not promote social welfare. The proposed regulations would reduce the need for such fact-intensive inquiries by replacing this test with specific rules. In defining the new term “candidate-related political activity,” the IRS drew on existing definitions of political activity under state and federal campaign finance laws, other IRS provisions, and suggestions from the public.
The term “candidate-related political activity” under the proposed regulations includes communications, grants and contributions, and activities that are closely related to candidates or elections. Communications include those that expressly advocate for a candidate or party, those made within 60 days of an election (30 days for primaries), and communications expenditures that are required to be reported to the Federal Election Commission. Grants and contributions include those reportable under campaign finance law and those made to Code Sec. 527 organizations and other tax-exempt organizations that conduct political activities related to particular candidates. Activities that will be scrutinized include voter registration drives, distribution of election materials on behalf of a candidate, preparation of voter guides that refer to candidates or political parties, and holding an event within 60 days of an election at which a candidate appears. In addition, consistent with Code Sec. 527 and related regulations, candidate-related political activity would include activities relating to selection, nomination, election or appointment of individuals to serve as public officials, officers in a political organization, or presidential or vice-presidential electors.
The IRS is planning on issuing other related guidance and has asked for comments from the public on the proposed regulations. The proposed regulations also ask for comments as to whether standards similar to those proposed should be adopted to define the political activities that do not further the tax-exempt purposes of other tax-exempt organizations and to promote consistent definitions in the area of tax-exempt organizations. In particular, the IRS seeks opinions on the advisability of adopting rules similar to those proposed here in the context of Code Sec. 501(c)(3) charitable organizations, for which political interventions is currently absolutely prohibited, unlike the situation with Code Sec. 501(c)(4) social welfare organizations. Comments and requests for a hearing must be received by February 27, 2014. Submissions should be mailed to CC:PA:LPD:PR (REG-134417-13), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, or may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-134417- 13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, D.C., or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-134417-13).
Senate Finance Committee Chairman Max Baucus, D-Mont., called the IRS’s action an important step toward removing gray areas in the guidelines for 501(c)(4) organizations and leveling the playing field for the treatment of tax-exempt social welfare organizations. “Unfortunately, groups on both ends of the political spectrum have tried to take advantage of the ambiguity in the law when it comes to the tax treatment of 501(c)(4)s,” said Baucus in a statement. “We need to ensure clear standards and equal footing for the treatment of tax exempt social welfare organizations.”
House Ways and Means Committee Chairman Dave Camp, R-Mich., said he hoped the Treasury would cooperate with lawmakers and allow Congressional investigators to finish their work. “Before rushing forward with new rules, especially ones that appear to make it harder to engage in public debate, I would hope Treasury would let all the facts come out first,” said Camp. “This smacks of the administration trying to shutdown potential critics.”
By Glenn Borst and Jeff Carlson, CCH News Staff
IR-2013-92, 2013FED ¶46,576
Proposed Regulations, NPRM REG-134417-13, 2013FED ¶49,595
Ways and Means Press Release: Camp Statement on Proposed Changes to 501(c)(4) Rules
Ways and Means Press Release: Levin Statement on Proposed Guidance for Tax-Exempt Social Welfare Organizations
Code Sec. 501
CCH Reference – 2013FED ¶22,611.76
Tax Research Consultant
CCH Reference – TRC EXEMPT: 9,304