Abby Levine

5 Questions About the Proposed Rules from the IRS

New regulations proposed by the IRS and Treasury Department this week could lead to major changes for 501(c)(4) organizations. The draft rules would re-classify much of the civic engagement work that 501(c)(4)s do during election season as “candidate-related political activity,” even when it is nonpartisan. Alliance for Justice is closely following the proceeding, and will be submitting comments with the goal of protecting nonpartisan 501(c)(4) activity from being mischaracterized as partisan.

Alliance for Justice will be submitting comments, and will providing ways for you to comment, with the goal of protecting nonpartisan—in this context, nonpartisan refers to those activities that do not support or oppose candidates for public office—501(c)(4) activity from being mischaracterized as campaign intervention.

Following is a brief analysis of how the draft rules may affect nonprofits.

1: I heard the IRS is planning to change the rules on the political activities of nonprofits. Is that true?
2: Will these rules change how much political activity our 501(c)(4) can do?
3: What types of nonprofit organizations will be affected by the proposed rules?
4: How are “political activities” defined in the proposed IRS regulations?
5: Do these rules mean that 501(c)(4) organizations will be prohibited from engaging in political activities?

1: I heard the IRS is planning to change the rules on the political activities of nonprofits. Is that true? The draft rules released by the IRS are not binding on anyone and will not affect your existing work. The IRS is soliciting comments from the public that will help them shape a final set of regulations. Until any new rules are finalized, existing rules remain in effect. While new rules could theoretically be adopted as soon as spring or summer of 2014, we think it is unlikely the IRS will have time to adopt new rules before the midterm elections in 2014. The draft rules are simply a proposal from the IRS. For more information on those, see The Connection.

2: Will these rules change how much political activity our 501(c)(4) can do? The proposed regulations do not impose any new limits on the amount of political activities 501(c)(4)s can do. They do ask for input on how primary purpose should be defined. However, as drafted, the rules may nonetheless impact the amount of election-related activities a (c)(4) can do because of the significant expansion of what the IRS would now consider to be “candidate-related political activity,” which may only be a secondary activity for a 501(c)(4).
Even nonpartisan election-related activities would be treated as political activities subject to the limits of the “primary purpose test.” The IRS has requested comments on whether it should impose a percentage-based test for what portion of a (c)(4)’s activity can be political.

3: What types of nonprofit organizations will be affected by the proposed rules? At this time, the proposed rules apply only to 501(c)(4) social welfare organizations (existing 501(c)(4)s, organizations currently applying for 501(c)(4) status, and those organizations with applications pending with the IRS). The rules would not apply to 501(c)(3) public charities, private foundations, unions, trade associations, 527 political organizations, or other 501(c) organizations. However, the IRS has requested input from the public on whether it should extend the proposed rules to other 501(c) organizations or 527 political organizations. There is also concern that even if the definitions do not officially apply to c3s, they will be perceived as doing so.

4: How are “political activities” defined in the proposed IRS regulations? The draft regulations re-characterize nonpartisan voter engagement and nonpartisan issue advocacy work for 501(c)(4)s as “candidate-related political activity,” subjecting it to the limits of the primary purpose test.

If an activity is nonpartisan under the current rules, a (c)(4) can spend an unlimited amount of resources on the activity. Under the proposed rules, the IRS presumes that all election-related activities conducted by 501(c)(4)s–whether partisan or nonpartisan– are conducted to support or oppose candidates for public office.

“Candidate-related political activity” includes:

  • Voter registration and get-out-the-vote (GOTV) work: Under the current rules, 501(c)(4)s can do unlimited voter registration and GOTV work, provided it does not tend to show support or opposition to any candidates for public office. Under the proposed rules, all voter registration and GOTV drives would be considered “candidate-related political activity.”
  • Hosting nonpartisan candidate events: Under the current rules, a 501(c)(4) could host a candidate debate or forum or host an individual for some reason unrelated to their candidacy and this activity could count as “social welfare” activity — meaning there were no limits on what the (c)(4) could spend on it. Under the proposed rules, holding an event on a (c)(4)’s premises within 30 days of a primary election or 60 days of a general election at which one or more candidates in the election appear as part of the program, whether or not the appearance was previously-scheduled, would be considered “candidate-related political activity.”Judicial and executive appointments: Under the current rules, nominees for judicial and executive appointments are not considered candidates. Work by 501(c)(4)s on the appointment or confirmation of judges is considered lobbying and, therefore, is not subject to any limits. Under the proposed regulations, judges and executive nominees would be considered candidates and, thus, this activity would instead be treated as “candidate-related political activity.”
  • Ballot measure activities: 501(c)(4)s can currently do an unlimited amount of work on ballot measures. Because all voter registration and GOTV work would be considered “candidate-related political activity” under the proposed regulations, it would appear that voter registration and GOTV work in support of the passage or defeat of policy-based ballot measures conducted by 501(c)(4)s would count as “candidate-related political activity.”
  • Transfers of funds: Under current law, a transfer to a (c)(4) is considered political only if the contribution is earmarked for political purposes or the (c)(4) does not take reasonable steps to ensure the funds are not used for political purposes. Under the proposed regulations, however, any contribution to a 501(c) that engages in any “candidate related political activity” is deemed to be “candidate related political activity”—even if the donor explicitly prohibits the use of the funds for political purposes.

5: Do these rules mean that 501(c)(4) organizations will be prohibited from engaging in political activities? No, the proposed rules will not prohibit 501(c)(4)s from supporting or opposing candidates. The proposed rules do, however, characterize significantly more activity as political, and therefore limited, for 501(c)(4)s.

6: What can I do to keep up to speed on these proposed regulations? Visit our website to find lots of user-friendly information, including:

 

Comments

The most egregious example of political groups masquerading as “social welfare organizations” are groups such as Americans For Prosperity which has raised billions of dollars for the specific purpose of influencing elections. When the Supreme Court nullified out the last vestiges of campaign finance laws, it said the mitigating factor would be full disclosure of donors. The Republican party is completely opposed to any disclosure.

Unregulated, undisclosed money in politics is destroying our democracy. While the proposed regulations would affect all 501C4’s, even those promoting causes I believe in, the usual result of trying to fine-tune proposals to avoid throwing the baby out with the bath water means we end up with nothing. I would prefer some actual campaign finance regulation, like public financing of campaigns, but since this is an absolute impossibility, I, at the very least, do not think 501C4’s should be able to avoid taxes.

Why can’t 501C4’s set up a fund-raising entity for their purely social welfare activities and a separate fund-raising entity for their activities promoting either a particular policy or candidate?

Sharon Bowman Reply

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