[EL] 501(c)(4)'s and "exclusively"

[Ellen Aprill]

Much has been made of the fact that section 501(c)(4) says that such
organizations must be "exclusively" for promotion of social welfare while
the 501(c)(4) regulations say that "exclusively" means "primarily."

I would like to put that regulatory move in context by noting that the
regulations under 501(c)(3) also say "exclusively" means "primarily."  That
is, this reinterpretation of "exclusively" is not unique to 501(c)(4)'s.

In part, the reinterpretation of "exclusively" is necessary because the
Internal Revenue Code recognizes and allows tax exempts to engage in
unrelated business activities.  Yes, such activities are subject to tax,
but the elaborate system of the unrelated business income tax clearly
acknowledges and accepts that these organizations need not engage
exclusively in their exempt purpose.  (The recent report on colleges and
universities from the IRS had much to say about how these groups
incorrectly reporting and calculating their unrelated business income tax,
but compliance with the UBIT rules is a separate issue.)

Further, I have questions and concerns about a rule that establishes a
bright line test for (c)(4) political campaign intervention, such as the
5-10% that Democracy 21 and the Campaign Legal Center have proposed.  Under
such a test, what happens to groups that engage in political campaign
intervention more than 10% but are not engaged primarily in such activity
as section 527 requires?   Would they simply be taxable organizations?
 (See Don Tobin, "Political Advocacy and Taxable Entities:  Are They the
Next Loophole?" 6 First Amend. Rev. 41.)  It seems to me that any change
establishing a bright line for 501(c)(4) campaign intervention requires
changes to section 527 as well so that 527 applies to all campaign
intervention the bright line amount (for all noncharitable exempt
organizations, not just (c)(4)s).

Perhaps I am missing something or others on the list have other suggestions
that, I hope, they will share.

  Ellen

------
Ellen P. Aprill
John E. Anderson Professor of Tax Law
Loyola Law School
919 Albany Street
Los Angeles, CA 90015
213-736-1157
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