There has been a lot of press concerning social welfare organizations lately, including allegations that many such organizations should not be classified as tax-exempt under Section 501(c)(4) based on their political campaign activities. In response to criticism regarding substantial delay in processing Form 1024 Applications, as well as allegations that conservative organizations were subject to additional IRS scrutiny, the IRS has instituted an optional expedited process for organizations whose Form 1024 Applications have been pending more than 120 days.
Under the optional expedited process, the IRS will approve the Form 1024 Application, thus recognizing Section 501(c)(4) status, if the organization can represent (1) that it has spent and anticipates that it will spend 60% or more of both its total expenditures and total time (employee and volunteer hours) on activities that promote social welfare and (2) that it has spent and anticipates that it will spend less than 40% of both of its total expenditures and total time (employee and volunteer hours) on political campaign activities. A copy of the letter describing the process in its entirety may be obtained by clicking the following link. http://www.irs.gov/pub/irs-tege/letter5228.pdf
I personally welcome the 60-40 expedited process; in cases where the representations cannot be made, it is reasonable that the IRS would want additional information to ensure campaign activities are not the primary activities. In cases where the repreesntations can be made, it is reasonable that the IRS should approve the application based on the representations, which are made under penalties of perjury. I also hope the IRS will consider extending the expedited process to new Form 1024 Applications.
Finally, it is important to note that the optional expedited process has not changed the law. A Section 501(c)(4) organization may engage in political campaign activities in furtherance of its purpose so long as such activities do not constitute the organization’s “primary” activities. See Rev. Rul. 81-95, 1981-1 C.B. 332. Historically, we have advised clients that campaign activities must be less than 50% of the organization’s expenditures and activities. Some practitioners also advise that campaign activities should not be the organization’s largest activity. It is always important to consider whether other laws (such as state or federal campaign finance laws) may be triggered and whether different thresholds and definitions are used under these laws. We will keep our eye out for additional developments in this area.