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

[Joe La Rue]

Good thoughts Ellen. Thank you for re-posting this. I apparently missed it
last week. 


Joe
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On Mon, May 20, 2013 at 10:31 AM, Ellen Aprill <ellen.aprill at lls.edu> wrote:

> Here again is what I posted on this question last week.  I would add that
> the "primarily" gloss also eliminates any possible doubts about fundraising
> efforts.  Without "primarily," some groups might wonder if fundraising for
> their exempt purpose is the same as engaging in that purpose.
>
>   Ellen
> -------
> Ellen P. Aprill
> John E. Anderson Professor of Tax Law
> Loyola Law School
> 919 Albany Street
> Los Angeles, CA 90015
> 213-736-1157
>
>
> ---------- Forwarded message ----------
> From: Ellen Aprill <ellen.aprill at lls.edu>
> Date: Wed, May 15, 2013 at 10:06 PM
> Subject: 501(c)(4)'s and "exclusively"
> To: law-election at department-lists.uci.edu
>
>
> 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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