[EL] why seek c4 recognition?

Tue May 14 15:16:17 PDT 2013

Thanks to everyone who responded to my question. I did a quick check, and it seems that California requires a 501(c)(4) to obtain approval to be exempt from Calif taxes. From the instructions for Calif form FTB 3500:

All corporations and unincorporated associations,
even if organized on a nonprofit basis, are subject
to California corporation franchise tax or income
tax until the Franchise Tax Board (FTB) grants
tax-exempt status to the organization.

https://www.ftb.ca.gov/forms/misc/3500bk.pdf.

If I understand Calif law correctly, a letter from the IRS will suffice; otherwise the 501(c)(4) has to provide information that persuades the state franchise tax board to grant the exemption. This could be a reason for a 501(c)(4) to seek recognition from the IRS.

The Calif exemption would include exemption from the minimum $800 per year tax for the privilege of having a corporation or LLC in California. I think the $800 minimum tax applies to non-Calif LLCs and corporations, as well, if they are qualified to do business in California. The taxes could add up if a 501(c)(4) was active in multiple states, each of which might have a similar tax.

Mark

Mark S. Scarberry
Professor of Law
Pepperdine Univ. School of Law

From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of Mark Schmitt
Sent: Tuesday, May 14, 2013 2:43 PM
To: John Pomeranz
Cc: law-election at uci.edu
Subject: Re: [EL] why seek c4 recognition?

I guess this raises a further question then (a real question, I promise): If groups don't need to file a 1024, or wait for IRS approval before operating as (c)(4)'s, then what was the harm done to them by the delay in the IRS approval of their (unnecessary) 1024s?

I understand that there may have been harm done by some of the questions asked by the IRS, which do seem unnecessary and in some cases more appropriate to (c)3s. I'm just asking about the harm caused by the delay itself.

Mark Schmitt
Senior Fellow, The Roosevelt Institute<http://www.rooseveltinstitute.org/>
202/246-2350
gchat or Skype: schmitt.mark
twitter: mschmitt9

On Tue, May 14, 2013 at 5:37 PM, John Pomeranz <jpomeranz at harmoncurran.com<mailto:jpomeranz at harmoncurran.com>> wrote:
There is no per se requirement that 501(c)(4)s "register" with anyone (unless you count getting a federal EIN "registration," which I don't).  Assuming that they are organized and operated in accord with the requirements of section 501(c)(4), they're exempt from federal income tax.

501(c)(4)s are required to file an annual Form 990 federal "information return" (due by the 15th of the fifth month after the close of each fiscal year, but extensions are available and often used).

Those that engage in certain types of political activity (e.g. independent communications expressly advocating the election or defeat of candidates) are likely to have to report those expenditures to federal or state election authorities and may have to report certain donors as well (e.g. donors who gave to support such communications).

Some jurisdictions are still trying to require groups that engage in independent expenditures or other specific types of political advocacy to register as political committees.  Those are the jurisdictions that haven't had their laws challenged in federal court in the wake of Citizens United and related cases.

John Pomeranz
Harmon, Curran, Spielberg & Eisenberg, LLP
1726 M Street, NW, Suite 600
Washington, DC  20036
office: 202.328.3500<tel:202.328.3500>
mobile: 703.597.7663<tel:703.597.7663>
fax: 202.328.6918<tel:202.328.6918>
e: jpomeranz at harmoncurran.com<mailto:jpomeranz at harmoncurran.com>

-----Original Message-----
From: law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu> [mailto:law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu>] On Behalf Of Frank Askin
Sent: Tuesday, May 14, 2013 5:08 PM
To: Mark Schmitt; Bill Maurer; law-election at uci.edu<mailto:law-election at uci.edu>
Subject: Re: [EL] why seek c4 recognition?

Maybe a naive question. Don't groups that raise money for political advocacy have to register either with the IRS or the FEC?  If they do neither, don;'t they have to pay taxes on the money they bring in?
FRANK

Prof. Frank Askin
Distinguished Professor of Law       and Director
Constitutional Litigation Clinic
Rutgers Law School/Newark
(973) 353-5687<tel:%28973%29%20353-5687>>>> Mark Schmitt <schmitt.mark at gmail.com<mailto:schmitt.mark at gmail.com>> 5/14/2013 4:59 PM >>> I take it you are saying that lawyers like Cleta Mitchell, who say they represent several dozen of these organizations, only got involved later?

That may well be -- it would be interesting to learn more.

I'm not sure that "looked at the Code" is really what most amateur organizations do, but they may operate by word-of-mouth about what they need to do. I know that I've encountered any number of c(3) groups that are convinced that they need to launch a c(4) in order to do any lobbying at all, which is a huge and expensive misconception.

Mark Schmitt
Senior Fellow, The Roosevelt Institute
<http://www.rooseveltinstitute.org/>
202/246-2350<tel:202%2F246-2350>
gchat or Skype: schmitt.mark
twitter: mschmitt9

On Tue, May 14, 2013 at 3:55 PM, Bill Maurer <wmaurer at ij.org<mailto:wmaurer at ij.org>> wrote:

>  You're assuming that many Tea Party groups have advisors at all.
In my
> experience, they are small, dedicated political amateurs who don't
realize
> the breadth and scope of regulations governing both nonprofit status
and
> what is necessary to participate in political and ideological
discussions
> in this country.  They likely sought (c)(4) status because they
looked at
> the Code and that designation seemed to fit them best.****
>
> ** **
>
> Bill****
>
> ** **
>
> *From:* law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu> [mailto:
> law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu>] *On Behalf Of *Mark
Schmitt
> *Sent:* Tuesday, May 14, 2013 12:43 PM
> *To:* law-election at uci.edu<mailto:law-election at uci.edu>
> *Subject:* Re: [EL] why seek c4 recognition?****
>
> ** **
>
> ** **
>
> ** **
>
> I'm curious, then: Does anyone know why so many local Tea Party
groups did
> decide to file 1024's? I recall that long before last Friday, a
number of
> lawyers on this list, esp. Mr. Zall, had said that they discourage
(c)4
> clients from filing. Were the Tea Party groups just poorly advised?
Was
> Cleta Mitchell's advice on whether groups should file different from
other
> lawyers?****
>
>
> ****
>
> Mark Schmitt
> Senior Fellow, The Roosevelt
Institute<http://www.rooseveltinstitute.org/>
> 202/246-2350<tel:202%2F246-2350>
> gchat or Skype: schmitt.mark
> twitter: mschmitt9 ****
>
> ** **
>
> On Tue, May 14, 2013 at 3:19 PM, <JBoppjr at aol.com<mailto:JBoppjr at aol.com>> wrote:****
>
> Beth is absolutely right, IMHO.  Jim Bopp****
>
>  ****
>
> In a message dated 5/14/2013 12:04:43 P.M. Eastern Daylight Time,
> bkingsley at harmoncurran.com<mailto:bkingsley at harmoncurran.com> writes:****
>
> For some groups the question is why seek recognition, not why not.
>
> The form takes time and energy to complete. If you don't know the
lingo
> you risk saying something that raises a red flag and triggers
further
> scrutiny, so you'll spend time and energy responding to further IRS
> inquiries. To avoid that you can hire a lawyer and spend thousands on
legal
> fees. Plus it costs $850 just to file the application, for all but
the very
> smallest groups.
>
> And what are the benefits? If the IRS ever happens to audit your
group,
> you can rely on the determination to avoid retroactive revocation,
provided
> there have been no material changes in operations. If you're pretty
> confident where you fit in the tax code, that benefit is pretty slim,
and
> it can be easier just to start operating.
>
> Many groups do file a 1024, and of course my experience tends to be
with
> those who decide to do so, since they've probably come to me for
help.
> There are some ancillary benefits -- being able to provide assurances
to
> funders and other supporters that you're operating within the law, or
in
> some cases eligibility for local tax exemption. But for many the
plusses
> are not worth the hassles.
>
> Beth
>
> Elizabeth Kingsley
> Harmon, Curran, Spielberg & Eisenberg, LLP
> 1726 M St., NW
> Suite 600
> Washington, DC 20036
> 202-328-3500<tel:202-328-3500>
> www.harmoncurran.com<http://www.harmoncurran.com>
>
>
>
>
> -----Original Message-----
> From: law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu> [mailto:
> law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu>] On Behalf Of Rick
Hasen
> Sent: Tuesday, May 14, 2013 11:50 AM
> To: law-election at UCI.edu<mailto:law-election at UCI.edu>
> Subject: [EL] why seek c4 recognition?
>
> Over on Twitter the NYT's Nick Confessore is tweeting about the
question
> why only some groups seek c4 recognition status. Apparently the
> Democratic-oriented Priorities USA has not.
>
> Can someone shed some light on the reasons why a group would not
seek
> such recognition from the IRS and what the risks are?
>
> Thanks!
>
> Rick
>
> --
> Rick Hasen
> Chancellor's Professor of Law and Political Science UC Irvine School
> of Law
> 401 E. Peltason Dr., Suite 1000
> Irvine, CA 92697-8000
> 949.824.3072<tel:949.824.3072> - office
> 949.824.0495<tel:949.824.0495> - fax
> rhasen at law.uci.edu<mailto:rhasen at law.uci.edu>
> http://law.uci.edu/faculty/page1_r_hasen.html
> http://electionlawblog.org
>
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