[EL] IRS denial of 501(c)(4) status show broad definition of political activity

[Beckel, Michael]

For any interested parties: the organization in question here was the pro-Blanche Lincoln group "Arkansans for Common Sense."

In 2010, it spent $1,287,624, according to its annual Form 990 tax return. It reported spending $637,817 as political campaign activity on Schedule C of its 990 (and the same about as "independent expenditures" to the FEC). That amounted to 49.53 percent of its spending in 2010.

Folks may also find interesting that the agency's initial rejection letter to Arkansans for Common Sense was dated May 7, 2013 - just three days before IRS official Lois Lerner acknowledged the targeting of applications from political advocacy groups for 501(c)(4) status.

Full story here:
www.publicintegrity.org/2014/06/19/14974/irs-says-liberal-group-too-political-social-welfare-status<http://www.publicintegrity.org/2014/06/19/14974/irs-says-liberal-group-too-political-social-welfare-status>

Regards,
Michael Beckel
Center for Public Integrity

From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of John Pomeranz
Sent: Thursday, June 19, 2014 11:18 AM
To: law-election at UCI.edu
Subject: [EL] IRS denial of 501(c)(4) status show broad definition of political activity

The IRS recently released this (redacted) letter denying an organization's requested tax exemption<http://www.irs.gov/pub/irs-wd/201424028.pdf> under section 501(c)(4) of the Internal Revenue Code.  The agency found that the organization's political efforts were too great a portion of its overall work for the organization to be considered "primarily" engaged in "social welfare activities," which the IRS defines as not including political activities.

This ruling does a very good job of demonstrating that the current IRS standard for what constitutes political activity is substantially broader than the scope of political activity that is subject to campaign finance law limits under the First Amendment.  Even communications that don't include express advocacy for or against a candidate may be deemed political under the IRS standard.  For example, an organization that highlights its disagreement with a candidate's position on a policy issue could be found to have attempted to intervene in the election.  Unfortunately, there are not any clear rules for what is and isn't political activity for tax purposes.  Instead, the IRS evaluates each instance based on a review of "all the relevant facts and circumstances."

The longstanding problems with this vague standard were demonstrated in a powerful way with the revelations that emerged from the IRS scandal that erupted last spring and continue today.  The current attempt to write rules defining political activities<http://www.regulations.gov/>, at least for 501(c)(4)s and maybe other tax-exempt organizations, is a response to confusion both among nonprofits and within the IRS itself about when an organization is engaged in politicking.  Treasury and the IRS have promised to revisit the first draft of those rules - widely criticized in the more the 160,000 comments received - and to come out with a new draft for comment in early 2015.  I and others are urging the agency to adopt something like the Bright Lines Project<http://www.citizen.org/documents/May%208%20Explanation%20with%20Exhibit.pdf> proposal that we've worked on, which seeks to provide needed clarity while recognizing that a broader definition of political activity is appropriate in the context of determining which organizations qualify for tax-law subsidies.  Others (many on this list) are urging a narrower definition.  (CCP<http://www.regulations.gov/contentStreamer?objectId=0900006481595225&disposition=attachment&contentType=pdf>, for example, just to spare Steve or Brad or Barnaby from having to dig up the link.)

In the meantime, anyone confused about the current IRS standard would do well to read the denial letter above.  (And a hat tip to Paul Streckfus and his Exempt Organizations Tax Journal for flagging the denial for me.)


John Pomeranz
Harmon, Curran, Spielberg & Eisenberg, LLP
1726 M Street, NW, Suite 600
Washington, DC  20036
office: 202.328.3500
fax: 202.328.6918
e: jpomeranz at harmoncurran.com<mailto:jpomeranz at harmoncurran.com>


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