[EL] IRS Rules concerning 501cs
John Pomeranz
jpomeranz at harmoncurran.com
Tue Nov 26 12:58:07 PST 2013
Based only on the press release (still waiting to see the full proposal), I've got a few thoughts:
I'm really pleased that Treasury recognizes the need to clarify what is and isn't political campaign intervention. The lack of clear rules in this area has been a problem for years. It has left nonprofits confused and uncertain. And, as we've learned in the course of the ongoing IRS scandal, even IRS staff are confused and eager for guidance.
That said, this draft proposal appears to have some really significant problems:
* It appear to define political intervention only for 501(c)(4)s. That leaves 501(c)(3)s still confused as to what activities are or are not permissible. And it may encourage political operatives simply to shift their operations from 501(c)(4)s to other 501(c) organizations. (We've already seen reports of a Koch brothers-funded 501(c)(6) organization called Freedom Partners for example.)
* It appears to treat some activities as political activity that clearly should not be. In particular, purely nonpartisan voter registration and get-out-the-vote activities would be treated as political campaign intervention. The proposal would also appear to treat candidate debates as political campaign intervention ("an event within 60 days of a general election at which a candidate appears as part of the program"). Hopefully the full proposal (or revisions to the proposal made after comments) will address these problems.
This proposal appears to be largely drawn from the definition of political campaign intervention in the expedited ruling process the IRS offered to 501(c)(4)s whose applications had been delayed by the problems in the IRS rulings process. (Explanation of the expedited process here<http://www.irs.gov/Charities-&-Non-Profits/New-Review-Process-and-Expedited-Self-Certification-Option> and the letter with the definition here<http://www.irs.gov/pub/irs-tege/letter5228.pdf>.) As a result, it's no surprise that the new proposal is overbroad in what it characterizes as political campaign intervention. The expedited process was designed to speed up review for 501(c)(4)s that were clearly not engaged in excessive political campaign intervention. It was never supposed to be a ceiling for permissible activity.
As many of you know, I and others on this list have been part of a group of attorneys that has worked for years to craft a clear definition of political intervention, the Bright Lines Project<http://www.citizen.org/documents/Bright-Lines-Proposal-%28May%202013%29.pdf>. Some elements of proposal are mirrored in this proposal from Treasury, but I think that our proposal does a better job in drawing a clear, fair, and workable line.
The good news is that this is only a first proposal from Treasury. I (and my colleagues on the Bright Lines Project) look forward to working with Treasury and the IRS to improve this proposal in the months to come. I'm confident that we can get to a good result in the end. (You may recall that the first draft of regulations implementing the 501(h) limits on 501(c)(3) lobbying were abysmal, but the final regulations Treasury produced after input from the public are among the best in the entire federal tax law.)
John Pomeranz
Harmon, Curran, Spielberg & Eisenberg, LLP
1726 M Street, NW, Suite 600
Washington, DC 20036
office: 202.328.3500
mobile: 703.597.7663
fax: 202.328.6918
e: jpomeranz at harmoncurran.com
From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of Byron Tau
Sent: Tuesday, November 26, 2013 1:19 PM
To: law-election at uci.edu
Subject: [EL] IRS Rules concerning 501cs
Here's the press release. If anyone has thoughts, I am writing for politico.
--
Byron Tau
Lobbying and influence reporter || POLITICO
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Begin forwarded message:
From: "U.S. Department of the Treasury" <subscriptions at subscriptions.treas.gov<mailto:subscriptions at subscriptions.treas.gov>>
Date: November 26, 2013 at 1:02:27 PM EST
To: <btau at politico.com<mailto:btau at politico.com>>
Subject: TREASURY, IRS WILL ISSUE PROPOSED GUIDANCE FOR TAX-EXEMPT SOCIAL WELFARE ORGANIZATIONS
Reply-To: <subscriptions at subscriptions.treas.gov<mailto:subscriptions at subscriptions.treas.gov>>
[Treasury Building]
U.S. Treasury Department
Office of Public Affairs
FOR IMMEDIATE RELEASE: November 26, 2013
CONTACT: Victoria Esser, Treasury Public Affairs (202) 622-2960
TREASURY, IRS WILL ISSUE PROPOSED GUIDANCE FOR TAX-EXEMPT SOCIAL WELFARE ORGANIZATIONS
Initial Proposed Guidance Clarifies Qualification Requirements and Seeks Public Input
WASHINGTON - The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today will issue initial guidance regarding qualification requirements for tax-exemption as a social welfare organization under section 501(c)(4) of the Internal Revenue Code. This proposed guidance defines the term "candidate-related political activity," and would amend current regulations by indicating that the promotion of social welfare does not include this type of activity. The proposed guidance also seeks initial comments on other aspects of the qualification requirements, including what proportion of a 501(c)(4) organization's activities must promote social welfare.
The initial guidance is expected to be posted on the Federal Register later today.
There are a number of steps in the regulatory process that must be taken before any final guidance can be issued. Given the significant public interest in these and related issues, Treasury and the IRS expect to receive a large number of comments. Treasury and the IRS are committed to carefully and comprehensively considering all of the comments received before issuing additional proposed guidance or final rules.
"This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations," said Treasury Assistant Secretary for Tax Policy Mark J. Mazur. "We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently."
"This is part of ongoing efforts within the IRS that are improving our work in the tax-exempt area," said IRS Acting Commissioner Danny Werfel. "Once final, this proposed guidance will continue moving us forward and provide clarity for this important segment of exempt organizations."
Organizations may apply for tax-exempt status under section 501(c)(4) of the tax code if they operate to promote social welfare. The IRS currently applies a "facts and circumstances" test to determine whether an organization is engaged in political campaign activities that do not promote social welfare. Today's proposed guidance would reduce the need to conduct fact-intensive inquiries by replacing this test with more definitive rules.
In defining the new term, "candidate-related political activity," Treasury and the IRS drew upon existing definitions of political activity under federal and state campaign finance laws, other IRS provisions, as well as suggestions made in unsolicited public comments.
Under the proposed guidelines, candidate-related political activity includes:
1. Communications
* Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
* Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
* Communications expenditures that must be reported to the Federal Election Commission.
2. Grants and Contributions
* Any contribution that is recognized under campaign finance law as a reportable contribution.
* Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).
3. Activities Closely Related to Elections or Candidates
* Voter registration drives and "get-out-the-vote" drives.
* Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
* Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
* Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.
These proposed rules reduce the need to conduct fact-intensive inquiries, including inquiries into whether activities or communications are neutral and unbiased.
Treasury and the IRS are planning to issue additional guidance that will address other issues relating to the standards for tax exemption under section 501(c)(4). In particular, there has been considerable public focus regarding the proportion of a section 501(c)(4) organization's activities that must promote social welfare. Due to the importance of this aspect of the regulation, the proposed guidance requests initial comments on this issue. The proposed guidance also seeks comments regarding whether standards similar to those proposed today should be adopted to define the political activities that do not further the tax-exempt purposes of other tax-exempt organizations and to promote consistent definitions across the tax-exempt sector.
###
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