On Tuesday, November 26, the Internal Revenue Service and the Treasury Department released proposed new guidance that would affect Section 501(c)(4) organizations - those that are required to have social welfare as a primary purpose. Under the existing rules, such organizations are permitted to engage in an unlimited amount of lobbying and some lesser amount of political activity and are not required to disclose their donor lists, thus permitting wealthy donors to anonymously spend money to influence political campaigns.

Currently, a "facts and circumstances" test is applied to determine whether an organization engages in political activities that fall outside of social welfare. The guidance explicitly defines certain political activities as "candidate-related political activities" and thus outside the category of social welfare.

Under the proposed guidelines, "candidate-related political activity" includes the following:

  1. Communications
  • Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
  • Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
  • Communications expenditures that must be reported to the Federal Election Commission.
  1. Grants and Contributions
  • Any contribution that is recognized under campaign finance law as a reportable contribution.
  • Grants to Section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).
  1. Activities Closely Related to Elections or Candidates
  • Voter registration drives and "get out the vote" drives.
  • Distribution of any material prepared by or on behalf of a candidate or by a Section 527 political organization.
  • Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
  • Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

Although the proposed guidance does not go so far as to attempt to define how much political activity an organization may engage in without endangering its tax-exempt status, comments are requested as to this issue.

This is the strongest effort to date to curb the political activities of such social welfare organizations, issued in response to the need for more definitive guidance in light of the recent scandal at the IRS whereby officials targeted certain exemption applications for social welfare groups. However, the proposed rules are first subject to a 90-day period for public comments, followed by hearings, additional review and an implementation period, which makes it unlikely that final regulations will be issued any time soon.