January 23, 2014

Camp Seeks to Block IRS Regulations Limiting Political Activities of 501(c)(4) Organizations

Holland & Knight Eyes on Washington Blog
Kenneth W. Parsons

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 Internal Revenue Code Section 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 Section 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 Section 501(c)(4) organization can conduct without losing its tax exemption. However, in internal guidance from 2009, the IRS indicated that at least 51 percent 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 Section 501(c)(4) applicants that certify they will devote at least 60 percent of their spending and time to activities that promote social welfare and less than 40 percent of their spending and time to political campaign intervention.

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 27, 2014.

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