The IRS and the Treasury Department have released proposed regulations that provide definitive rules regarding the activities of Section 501(c)(4) “social welfare” organizations that will be treated as political campaign activities. The proposed regulations, issued on Nov. 26, would replace the flexible, fact-specific approach of current law with a bright-line definition of “candidate-related political activity.”
The proposed definition includes a number of activities that would not constitute political campaign activities under current law. The goal here, according to the IRS, is to “provide greater certainty and reduce the need for detailed factual analysis” in determining whether an organization qualifies for federal tax exemption under Section 501(c)(4). This focus on developing clear rules is partly in response to the controversy surrounding the IRS’s handling of applications for Section 501(c)(4) status by Tea Party organizations.
The proposed regulations will not become effective unless and until they are issued in final form.
The current Treasury Regulations, which have not been amended since 1959, provide that a Section 501(c)(4) organization must be “primarily” engaged in promoting the common good and general welfare of the community. They go on to state that engaging in political campaign activity does not promote social welfare. As a result, a Section 501(c)(4) organization may not be “primarily” engaged in political campaign activity.
The existing law presents two difficult issues:
- What constitutes political campaign activity?
- How much political campaign activity may an organization engage in before it is “primarily” engaged in political campaign activity, and does not qualify under Section 501(c)(4)?
The IRS has historically applied a “facts and circumstances” analysis to answer the first question. While flexible and sensitive to the salient facts of any given situation, the “facts and circumstances” approach by its very nature makes the outcome uncertain. The answer to the second question has been a subject of controversy for decades.
The proposed regulations provide a more definitive answer to the first question. They do not address the second question. Instead, the IRS and Treasury are seeking input from the public, as discussed below.
Proposed regulations: Defining “campaign-related political activity”
The proposed regulations define “campaign-related political activity” as:
- “Public communications” that express any view with respect to a candidate for public office or candidates of a specific party;
- “Public communications” that identify a candidate for office (or, in a general election, candidates of a specific party) within 60 days of a general election or 30 days of a primary election;
- Communications reportable to the FEC under federal election law;
- Contributions, whether of funds or in-kind, to political campaigns, Section 527 organizations, or other tax-exempt organizations that engage in candidate-related political activity;
- Voter registration or get-out-the-vote (GOTV) drives;
- Distribution of materials prepared by or on behalf of a candidate or by a Section 527 organization;
- Preparation or distribution of “voter guides” that refer to clearly identified candidates (or political parties, in a general election); and
- Hosting or conducting an event at which one or more candidates appear as part of the program, within 30 days of a primary election or 60 days of a general election.
The breadth of this list is quite sweeping. It includes activities that may be excluded under the current law’s “facts and circumstances” approach if properly handled, such as non-partisan voter registration and GOTV drives, voter guides and candidate forums.
The proposed regulations define “candidate” to include any individual who proposes himself or herself, or is identified by another, for selection, nomination, election, or appointment to any public office or office in a political organization, or to be a presidential or vice-presidential elector. The definition includes a broader range of offices than the definition that applies under current law to Section 501(c)(3) organizations, which includes only elected offices.
“Public communication” is defined very broadly to include any communication by broadcast, cable, satellite, World Wide Web, newspaper, magazine or other periodical, paid advertising, or that otherwise reaches or is intended to reach more than 500 persons.
Application to other exempt organizations
As drafted, the proposed regulations would not apply to Section 501(c)(3) organizations or any type of exempt organization other than Section 501(c)(4) organizations. Section 501(c)(3) charitable organizations are absolutely prohibited from engaging in political campaign activity, and the IRS and Treasury acknowledge that “a more nuanced consideration of the totality of facts and circumstances” may be more appropriate in the Section 501(c)(3) context. The IRS and Treasury are seeking comments on the extent to which the proposed regulations should apply to other categories of exempt organizations, however, such as Section 501(c)(6) business leagues.
How much is too much?
The proposed regulations do not address the second key question for politically active Section 501(c)(4) organizations, i.e., how much political campaign activity an organization may engage in and still qualify under Section 501(c)(4). The preamble to the proposed regulations indicates that the IRS and Treasury are considering whether the standard under the current regulations that a Section 501(c)(4) organization must be “primarily” engaged in social welfare activities should be retained, and, if so, whether it should be defined with more precision. The IRS and Treasury have requested comments on what proportion of an organization’s activities must promote social welfare in order for it to qualify under Section 501(c)(4), and how those activities should be measured.
Comments on this issue and on the proposed regulations generally must be submitted by Feb. 27, 2014.