Social Welfare Organizations

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IRS 501c4
Key Concerns for 501c3 organizations about the IRS proposed regulations for 501c4 social welfare organizations.

The Treasury Department and Internal Revenue Service issued proposed regulations November 29 that would restrict the types of political activities that 501(c)(4) social welfare organizations could engage in without running the risk of losing their tax-exempt status, but stopped short of providing a clear percentage or “bright line” for determining how much political activity would be considered too much. The rules do not explicitly ban 501(c)(4)s from political activity and do not address the problem of donors contributing heavily to political activities without public disclosure. Treasury and the IRS re encouraging comment from nonprofits and the public in an effort to promote discourse, comments on the proposed regulations are due Feb 27, 2014.

Among the major changes proposed, the guidance creates a new term, “candidate-related political activity,” laws to distinguish what activities will not be considered related to promoting social welfare. The changes would treat almost all lobbying communications from 501(c)(4)s as “candidate-related political activity” during the 60-day period before a general election (30-days before a primary or special election) when a candidate is named. These rules would also apply to a broader array of offices beyond elective offices to also include activities in support or opposition of the appointment or confirmation of executive branch officials and judicial nominees. Also falling under the definition would be partisan and nonpartisan activities such as voter registration drives, get-out-the-vote efforts, candidate forums, and voter guides.

Key Concerns for 501(c)(3)s: While the proposed rules currently only apply to 501(c)(4) social welfare nonprofits, some hold possible implications for or could be expanded to affect 501(c)(3) charitable nonprofits:

  • Voter Engagement: The new definition conflates nonpartisan voter-engagement activities with partisan political activities. Categorizing voter engagement activities, such as nonpartisan voter registration, encouraging people to go to the polls, and voter guides as political activities could push 501(c)(4)s over the permitted levels of political activity thereby threatening their exempt status. It could also discourage 501(c)(3)s  from promoting any measure of voter engagement for fear of noncompliance. Interestingly, the League of Women’s Voters has come out in support of the proposed regulations, at least as an initial draft that will be revised during the regulatory process.
  • Lobbying vs. Politics: In addition to retaining current restrictions on election-related activities (e.g., prohibition on direct contributions to candidates), the proposed definition of “candidate-related political activity” would include running ads that name candidates shortly before elections. This activity is typically considered lobbying activity for charitable nonprofits. The concern is that such a definition could ultimately be applied to 501(c)(3) organizations once the proposed rules are finalized.
  • Following the Money: The proposed rules would require 501(c)(4)s to count donations to 501(c)(3)s and others as political activities unless the grantee signs a statement saying they do not engage in “candidate-related political activities,” nor will they use the money for such activity. An unclear but potential impact here is that charities that support nonpartisan voter engagement activities may not be able to sign such a statement, and thus the money would likely dry up.

The Bright Lines Project is an effort started by a group of tax attorneys and now run out of Public Citizen that seeks to create clear rules for which activities of nonprofits are “political” and which are “not political.” Under the current rules, organizations are uncertain where the line of too much political activity lies, and fear losing tax exemption by inadvertently crossing it. The project aims to set clear rules so nonprofit organizations can comfortably engage in these activities.  UPDATE: The Bright Lines Project issued a news release last week that summarizes its views on the proposed regulations from Treasury and the IRS.