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By Kathleen M. Nilles, Esq., and Kenneth W. "Ken"
Holland & Knight LLP, Washington, DC
On January 14, House Ways and Means Committee Chairman Rep. Dave
Camp (R-Mich.) introduced legislation
that would prohibit, for a period of one year, Internal Revenue
Service guidance related to social welfare organizations formed
under §501(c)(4). Camp's bill, which currently has 24 co-sponsors,
targets proposed regulations
published by the IRS on November 29, 2013.
The proposed regulations would clarify that the promotion of
social welfare, as described in §501(c)(4), does not include
"candidate-related political activity." The proposed regulations
also would replace the current facts and circumstances test used to
determine if an organization is engaged in political campaign
activities with bright-line rules, including a list of activities
that would be considered as per se candidate-related political
activities. Such listed activities include, among others:
communications that expressly advocate for or against the
election of a clearly identified candidate,
events featuring candidates,
voter guides, and
voter registration drives.
The proposed regulations do not address how much political
activity a §501(c)(4) organization can conduct without losing its
tax exemption. However, in internal guidance from 2009, the IRS
indicated that at least 51% of a 501(c)(4) organization's
activities must be devoted to social welfare for the organization
to be considered "primarily" engaged in social welfare activities.
More recently, the IRS offered an optional expedited process to
§501(c)(4) applicants that certify they will devote at least 60% of
their spending and time to activities that promote social welfare
and less than 40% of their spending and time to political campaign
Reaction to the proposed regulations has been mixed. Some
commentators appreciate that the IRS is attempting to bring some
clarity to an area with few clear-cut rules. Others find the
proposed regulations overbroad because they would limit activities
- such as voter registration drives and candidate forums - not
normally considered political campaign activities under the facts
and circumstances approach.
In a statement, Chairman Camp said that the "proposed rules
openly target groups that are exercising their First Amendment
rights. We cannot allow these draft regulations to go into effect."
Camp also argued that it was "premature" for the IRS to publish new
guidance before the Ways and Means Committee completes its
investigation of the agency's targeting of conservative groups in
the exemption application process, which came to light in May of
last year. Camp said that the one-year prohibition would allow time
for the Committee to complete its investigation and for a thorough
public discussion, including a review of public comments related to
the proposed regulations.
The IRS generally requested comments on all aspects of the
proposed regulations and, in particular, on whether there are other
specific activities that should be included in, or excepted from,
the definition of candidate-related political activity. The
IRS will accept comments until the close of business on February
For more information, in the Tax Management Portfolios, see
Webster, 450 T.M., Tax-Exempt Organizations: Organizational
Requirements, Webster, 451 T.M., Tax-Exempt Organizations:
Operational Requirements, Webster, 613 T.M., Lobbying and
Political Expenditures, and in Tax Practice Series, see
¶6520, Other Tax-Exempt Organizations.
© 2014 Holland & Knight LLP
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