In a letter from the IRS Exempt Organization Director Lois Lerner to concerned organizations, it was announced that consideration is being given to revising the rules relating to political activities by 501(c)(4) organizations. Ms. Lerner noted that these rules are over 50 years old and that many political advocacy groups are calling on the IRS to make changes.
The IRS has an informal position that 501(c)(4)s may expend up to 49 percent of their annual expenditures on political activities without jeopardizing their tax-exempt status. Many assert that these organizations, in fact, spend substantially more than this, which is in part due to a disagreement of what constitutes political advertising versus issue advertising. Some groups claim that the maximum allowable percentage should be more in the range of 10 to 15 percent.
The use of 501(c)(4)s for political activities has exploded in recent years. One primary advantage is that donors to these organizations do not have to be disclosed to the public, whereas disclosure is required for donors to traditional political action committees. Many 501(c)(3) organizations have related 501(c)(4)s that maintain political action committees and conduct other advocacy activities that the 501(c)(3) may not be able to do directly.
It is certain that new rules will not be issued prior to this year’s presidential election. However, this is an item that exempt organizations should keep an eye on. Even without new rules, the IRS may take quick action regarding 501(c)(4)s that they believe are abusing the current rules.