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

[Mark Schmitt]

After watching two days of hearings, I wish at least one member of the 
House or Senate was as well-informed as this list is on this issue. In 
between the grandstanding and talking over the answers to questions, I 
heard at least a dozen legislators declare, as if it were a Eureka 
moment, that the statute said "exclusive" and someone must have snuck in 
and changed the regulation to "primary." To his credit, I think Darrell 
Issa came closest to an actual understanding of the situation.

------ Original Message ------
From: "Tobin, Donald" <tobin.46 at osu.edu>
To:
Cc: "law-election at UCI.EDU" <law-election at uci.edu>
Sent: 5/21/2013 7:17:49 PM
Subject: Re: [EL] Rudimentary 501(c)(4) question "primary"
>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
>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> 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] On Behalf Of 
>>Marty Lederman
>>Sent: Monday, May 20, 2013 1:13 PM
>>To: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 operatedexclusively 
>>for the promotion of socialwelfare [the statutory standard] if it is 
>>primarilyengaged 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"?
>>
>>_______________________________________________
>>Law-election mailing list
>>Law-election at department-lists.uci.edu
>>http://department-lists.uci.edu/mailman/listinfo/law-election
>>
>
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