Election spending by 501(c)(4) "social welfare" organizations not required to disclose their donors mushroomed from a few million in 2006 to over $250 million in 2012.On Thanksgiving eve, the IRS and Treasury department released a long awaited proposal to define and restrict the political activity of 501(c)(4) organizations. What are they proposing? Is it needed? How might this affect nonpartisan election activity of the vast majority of nonprofits who are 501(c)(3) charities - social service agencies, churches, civic groups and the like?
What are 501(c)(4) organizations?
501(c)(4)s are granted tax exempt status as nonprofit organizations operated for the promotion of social welfare that are "primarily" engaged in activities that advance the common good and general welfare of the people of the community "for the purpose of bringing about civic betterments and social improvements." It can include advocacy and lobbying related to the organization's exempt purpose. Unlike 501(c)(3) charities, contributions to 501(c)(4)s are not tax deductible. In the past (c)(4)s have been allowed to conduct a limited though not defined amount of political/election activity.
What's the IRS proposing?
See this IRS-Treasury press release for an outline of new rules to restrict partisan election activities aimed at electing or defeating candidates by 501(c)(4)s. They include common definitions of political activity like election intervention within 60 days of the election all the way to proposed restrictions on the ability of 501(c)(4)s to do even nonpartisan get out the vote or voter registration drives. The purpose is to create clear definitions on prohibited political activity to determine who can qualify for and maintain exempt status as a (c)(4) social welfare organization.
Is it needed?
Yes. Specific guidelines and clear definitions of political activity are long overdue to ensure 501(c)(4)s are actually set up primarily to promote social welfare and civic good, not election intervention. Recently, political operatives and millionaires have taken advantage of rules that allow 501(c)(4)s to hide the names of donors to vastly expand spending by 501(c)(4)s who spend almost all their money to support and oppose candidates. It makes a mockery of the "social welfare" purpose of (c)(4)s and undermines democracy.
What about proposed restrictions on 501(c)(4)s doing nonpartisan GOTV, voter registration, or even candidate forums?
It's just a proposal. Nonprofit VOTE and many others would defend the right of any entity to conduct nonpartisan political activity as a constitutional right and bedrock to encouraging participation in our democracy. While welcoming the new rules to protect and restore (c)(4)s to their original civic purpose, there's been a strong outcry by the Bright Lines Project, Bolder Advocacy and others in the field to this part of their proposal.
When might new rules go into effect?
There will be a lengthy period of public comment. New rules won't be issued until after the 2014 election.
How does it affect 501(c)(3) nonprofits and charities?
It doesn't. The proposal is only for 501(c)(4)s. However, the debate over rules for 501(c)(4)s could unfortunately make some charities less likely to engage – such as helping people participate in elections, doing voter education, or connecting with candidates on issues on a nonpartisan basis. We would urge the opposite. Our nonpartisan approach and voice is needed more than ever.
To learn more, see these resources:
- Tax Prof Blog: Treasury, IRS Announce 'Crackdown' on Political Campaigning by Crossroads GPS, Other 501(c)(4) Groups
- Bolder Advocacy: Q and A on Proposed IRS Rules for 501(c)(4)s
- Bright Lines Project
- OSU Moritz College of Law: FAQs on 501(c)(4) Social Welfare Organizations
