[EL] Rudimentary 501(c)(4) question "primary"

[Tobin, Donald]

Sorry to reply so late.   The primary language made sense when the regulation was promulgated in 1959.  See TD 6391 (special thanks to Ellen Aprill on the tax listserve for her work on this).  The IRS just needed to basket organizations and needed a place for an organization that was primarily social welfare but not exclusively.  Absent the regulation, how would it be regulated? It is not a (c)(3) charity.  It is not a political organization because its primary purpose is not intervention in a political campaign.  Why would we want to allow tax exempt status for a 527 political organization but not a social welfare organization that engaged in some politics?  The “primary” language just made sense.

In 2000, when Congress added disclosure to section 527, organizations had an incentive to recharacterize activity and claim social welfare status.  It is only then that “primary” became important.

Still, what should happen to a social welfare organization that has 90% of its activity being social welfare and 10% clear campaign intervention?  Use of “primary” solves this problem.



Donald
From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of Joseph E. Sandler
Sent: Monday, May 20, 2013 5:07 PM
To: Trevor Potter
Cc: law-election at UCI.EDU
Subject: Re: [EL] Rudimentary 501(c)(4) question

Yes-- under section 527(f) if a 501(c)(4) spends any money on what would be exempt function activity for a 527, the highest corporate tax rate is imposed. BUT it's imposed on the LESSER of the amount spent on political activity or the c4's net investment income.  Since most c4's earn only a minimal amount of investment income, that's the amount on which the tax is imposed in almost all cases, making the actual tax payable only a nominal amount.


From: Trevor Potter [mailto:tpotter at capdale.com]
Sent: Monday, May 20, 2013 4:18 PM
To: Joseph E. Sandler
Cc: Marty Lederman; law-election at UCI.EDU<mailto:law-election at UCI.EDU>
Subject: Re: [EL] Rudimentary 501(c)(4) question

Joe

Did you mean to say that 501 c 4 organizations engaged in political activity are taxed on that political activity? Or am I misreading?

Trevor Potter

Sent from my iPad

On May 20, 2013, at 1:29 PM, "Joseph E. Sandler" <sandler at sandlerreiff.com<mailto:sandler at sandlerreiff.com>> wrote:
Marty--
In 1975 Congress enacted section 527 including section 527(f) which specifically contemplates that 501(c) organizations may engage in SOME "527 exempt" activity, i.e., political activity, since they are taxed on the amount expended on such activity.   So it was perfectly reasonable for the IRS in its regulations and in its rulings to determine that it would not be inconsistent with Congressional intent fo find  no absolute prohibition against a c-4 engaging in political activity.  The  problem is that the IRS has failed to define by regulation or ruling how much is too much-- clearly one of its fundamental  obligations as the agency charged with interpreting and enforcing the law.
Joe

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] On Behalf Of Marty Lederman
Sent: Monday, May 20, 2013 1:13 PM
To: law-election at UCI.EDU<mailto:law-election at UCI.EDU>
Subject: [EL] Rudimentary 501(c)(4) question

I probably should know this -- so apologies in advance if there's a well-known answer -- but I've never really thought about it, and it's an obvious question in light of recent events:

When did the IRS decide that “[a]n organization is operated exclusively for the promotion of social welfare [the statutory standard] if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community”?  26 CFR 1.501(c)(4)-1(a)(2)(i)

And why?  Since Congress chose the adverb "exclusively," how and whey did the agency and everyone else settle on "primarily"?
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