The IRS announced its intention on Tuesday to amend the regulations governing social welfare organizations, a topic that has recently created an enormous amount of political controversy, especially during the recent scandal over how the IRS was mishandling applications from groups that had “tea party” and other terms in their names.
To qualify under Sec. 501(c)(4), under the statute, a social welfare organization must be “operated exclusively for the promotion of social welfare.” The IRS, however, has applied a rule that requires organizations to operate “primarily for the promotion of social welfare.” And the method to determine which organizations qualified—a facts and circumstances test—was not clear. During the hearings looking into the scandal, members of Congress questioned why the regulations say “primarily” when the statutory language says “exclusively.”
The new proposed rules, which at the time of this writing had not yet been posted in the Federal Register, would provide that the promotion of social welfare does not include “candidate-related political activity,” a term that the IRS defined by looking at existing definitions in federal and state campaign finance laws. Candidate-related political activity would be defined to include communications, grants and contributions, and activities closely related to elections or candidates.
Communications would include:
- Communications that expressly advocate for a political candidate or party that is clearly identified;
- Communications made within 60 days of a general election or 30 days of a primary that clearly identify a political candidate or party; and
- Expenditures for communications that are required to be reported to the Federal Election Commission.
Grants and contributions would include:
- Any contribution recognized as a reportable contribution under campaign finance law; and
- Grants to Sec. 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (however, a grantor can rely on a grantee’s written certification that it does not engage in and will not use the money for candidate-related political activity).
Activities closely related to elections or candidates would include:
- Holding voter registration and get-out-the-vote drives;
- Distributing any material prepared by or on behalf of a candidate or by a Sec. 527 political organization;
- Preparing or distributing voter guides that refer to candidates (or, in a general election, to political parties); and
- Holding an event within 60 days of a general election (or 30 days of a primary election) at which a candidate appears as part of the program.
The IRS will also address the issue of which proportion of a social welfare organization’s activities must promote social welfare (i.e., “exclusively” vs. “primarily” or another standard). Because of the importance of this issue, the IRS is requesting comments before it releases any proposals. It is also asking for comments on whether similar rules should be applied to other tax-exempt organizations besides Sec. 501(c)(4) organizations.
Sally P. Schreiber (
) is a JofA senior editor.