Source: https://www.bna.com/irs-look-political-n17179869834/
Timestamp: 2019-04-21 18:28:42+00:00

Document:
By Hugh K. Webster, Esq.
Lois Lerner, Internal Revenue Service Director of the Exempt Organizations Division, has announced that the IRS "will consider proposed changes" in the regulations governing eligibility for §501(c)(4) tax-exempt status, in particular with respect to political activities. According to Ms. Lerner, the Exempt Organizations Division will "work with the IRS Office of Chief Counsel and the Treasury Department's Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance." These statements are contained in a July 17 letter from Ms. Lerner to two organizations that had petitioned the IRS to revise its position regarding the permissible level of political activity by §501(c)(4) organizations.
Section 501(c)(4) organizations have long been politically active, but several such organizations have become especially visible in the 2012 Presidential election, causing some to question the appropriateness of significant political involvement under this provision of the tax code.
In reviewing this issue, another consideration for the IRS will be the relationship between §501(c)(3) and §501(c)(4) recognized by the courts in connections with challenges to the political and legislative restrictions on §501(c)(3) organizations. For example, in Regan v. Taxation With Representation,12 one basis for the Supreme Court upholding the restrictions on lobbying by a §501(c)(3) organization was the ability of such an organization to establish a §501(c)(4) subsidiary entity that could more freely advocate.13 Imposing additional limitations on §501(c)(4) organizations could impact that analysis.
No timetable has been given for the IRS to complete its examination of §501(c)(4) to determine if any changes are to be made.
For more information, in the Tax Management Portfolios, see Webster, 613 T.M., Lobbying and Political Expenditures, and in Tax Practice Series, see ¶6510, Charitable Organizations.
1 Regs. §1.501(c)(4)-1(a)(2)(i) (emphasis added).
2 See FEC v. Beaumont, 539 U.S. 146, 150 n. 1 (2003) (noting that a §501(c)(4) organization may engage in political activities "as long as it is primarily engaged in activities that promote social welfare"); Monterey Public Parking Corp. v. U.S., 481 F.2d 175, 176 (9th Cir. 1973) ("[U]nder Section 501(c)(4) `not organized for profit but operated exclusively for the promotion of social welfare' means that the taxpayer must be primarily engaged in promoting the common good and general welfare of the community… .").
3 Democrat Leadership Council v. U.S., 542 F. Supp.2d 63 (D.D.C. 2008).
5 Rev. Rul. 81-95, 1981-1 C.B. 332. See also 1995 EO CPE Text, Political Organizations and IRC 501(c)(4) ("Thus, an organization exempt under IRC 501(c)(4) may engage in political campaign activities if those activities are not the organization's primary activity.").
10 E.g., Regs. §1.6033-1(g)(1)(iii) ("An organization … is primarily supported by contributions of the general public for any accounting period if more than 50 percent of its income and receipts for such period is actually derived from voluntary contributions and gifts made by the general public…"); Regs. §53.4942(b)-1(a)(2)(ii) ("An organization will be treated as being primarily engaged directly in the operation and maintenance of the described residential facilities if at least 50% of the qualifying distributions … normally made by the organization are expended for the operation and maintenance of the facilities.").
12 461 U.S. 540 (1983).
13 461 U.S. at 544.

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