November 26, 2013

Treasury, IRS Will Issue Proposed Guidance For Tax-Exempt Social Welfare Organizations

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:

  • 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.

  • 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).

  • 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.


Democracy 21
November 26, 2013

Wertheimer Statement: “Treasury Dept/IRS Inititiate Rulemaking of 501c4s”

Treasury Department and IRS Open Door to Preventing 501(c)(4) Organizations from Being Misused to Launder Secret Contributions into Federal Elections

Key Issues Remain to be Decided in “Guidance” Proceeding

Democracy 21 applauds the action taken today by the Treasury Department and the Internal Revenue Service to initiate a rulemaking to address the inadequate rules that have been used by the IRS to determine 501(c)(4) tax-exempt status.

This is an important step forward.

However, key decisions remain that will determine whether the new rules will bring an end to the practice of using 501(c)(4) groups to serve as vehicles to improperly inject secret money into federal elections.

Enormous abuses have taken place under the current rules, which have allowed groups largely devoted to campaign activities to operate as non-profit groups in order to keep secret the donors funding their campaign activities. These abuses have resulted in hundreds of millions of dollars in secret contributions being laundered into federal elections by these groups.

To solve this problem, two sets of changes to IRS rules are required.

First, the definition of what constitutes “political intervention” must be changed from the current ineffective “facts and circumstances” test.  The initial proposal made by the Treasury Department today moves in the right direction, although Democracy 21 will carefully examine the full rulemaking proposal that the Department has yet to issue.

But secondly, the amount of political intervention that a section 501(c)(4) group is allowed to engage in must be set to comply with the statutory requirement that social welfare groups must be “exclusively” engaged in social welfare activities, not political activities.

The Treasury Department statement today provides no specific proposal on this pivotal question, although its state that the rulemaking will address this important issue as well. How this critical issue is resolved will determine whether the new rules will be effective in ending the misuse of the tax laws to hide donors financing campaign activities.

Democracy 21 will participate in the rulemaking proceeding which could solve a major campaign finance problem facing the country.

We urge the Treasury Department and IRS to seize this opportunity to end the scandalous practice of groups abusing the tax laws to hide from the American people campaign finance information to which they are entitled.

American Center for Law and Justice
November 26, 2013

ACLJ: New Proposed IRS Regulations Put Free Speech of Americans at Even Greater Risk

(Washington, DC) - The American Center for Law and Justice (ACLJ), which is representing 41 organizations in a federal lawsuit challenging the IRS, said today the new regulations proposed by the IRS aimed at tax-exempt organizations places the free speech rights of Americans at even greater risk.

“These proposed new regulations put the First Amendment rights of Americans at even greater risk,” said Jay Sekulow, Chief Counsel of the ACLJ. “This is a feeble attempt by the Obama Administration to justify its own wrong-doing with the IRS targeting of conservative and Tea Party groups. Instead of holding those responsible for the unlawful targeting scheme accountable for their actions, the Obama Administration is determined to further limit the free speech of Americans by attempting to change constitutional practices that are decades old. With this move, the Obama Administration opens a new front in its war against political dissent. We will file comments with the IRS opposing these new regulations.”

Just last month, the ACLJ expanded its federal suit, filing a second amended lawsuit in federal court in Washington, D.C. – adding additional defendants – including top IRS political appointees – an additional claim – and evidence that reveals a politically-motivated attack on conservative organizations by the IRS – a secret and illegal targeting campaign – aimed at the organizations because of their political beliefs.

The ACLJ argues that President Obama – along with Congressional Democrats – created a climate of hostility toward Tea Party and conservative groups – making it impossible for the ACLJ’s clients to exercise their First Amendment freedoms. The ACLJ contends that the hostile climate set the stage for the unprecedented illegal targeting by the IRS.

“Today's development does nothing to alter our lawsuit on behalf of 41 organizations challenging the IRS,” said Sekulow. “We continue to move forward with our legal challenge. For those clients who have been in limbo for as long as three years waiting for the IRS to act on their tax-exempt applications, this development is disturbing and unacceptable. The IRS is now attempting to change the rules to further restrict their free speech even before it acts on pending applications.”

The ACLJ represents 41 organizations in 22 states. Of the 41 groups, 22 organizations received tax-exempt status after lengthy delays, 12 are still pending, 5 withdrew applications because of frustration with the IRS process, and 2 had their files closed by the IRS after refusing to answer the unconstitutional requests for more information.

For many months now, the Obama Administration has repeatedly stated that federal investigators are conducting a probe into the IRS targeting scheme. However, to date, not one of our clients has been contacted by the FBI or any other federal investigative body.

The 81-page amended lawsuit is posted here. An Executive Summary of the amended complaint is posted here.

Led by Chief Counsel Jay Sekulow, the American Center for Law and Justice (ACLJ), focusing on constitutional law, is based in Washington, D.C.

Alliance for Justice
November 27, 2013

Treasury and IRS Proposal Endangers Citizen Participation in Democracy

Alliance for Justice President Nan Aron issued the following statement in response to proposed guidance from the Department of the Treasury and the Internal Revenue Service concerning 501(c)(4) nonprofit organizations:

In its attempt to define what kinds of activity are “political” and therefore cannot be counted toward a 501(c)(4) nonprofit organization’s social welfare purpose, Treasury and the IRS drew a very deep and troubling line in the sand. Though the new definitions attempt to clarify existing rules, they also create a danger to citizen participation in our democracy.

If implemented, there would be no such thing as a nonpartisan election activity conducted by a 501(c)(4); it would all be considered “political.” By expanding the definition of what activities are political, the rules would drastically reduce the ability of (c)(4)s to engage in nonpartisan get-out-the-vote drives, candidate questionnaires, and voter registration drives. These activities have been critical to the ability of nonprofits to influence the public policy debate on a wealth of issues.

Through our Bolder Advocacy initiative, Alliance for Justice provides technical assistance on legal rules to 501(c)(4) organizations of all sizes around the country and with a variety of missions.

The 501(c)(4) organizations we work with do not engage in political work as their ultimate goal. They see political work as a means to an end—a cleaner environment, laws that protect all Americans, greater reproductive rights. They conduct election activities like holding candidate forums and producing voter guides not to help individual candidates, but to help voters make informed decisions based on issues they care about.

These regulations will not run 501(c)(4)s out of politics. Rather, the big players will hire lawyers and accountants to help them avoid the rules.Small players can’t afford this kind of assistance. As a result, much smaller groups may well be frozen out of legitimate citizen engagement. Creating an entirely distinct political organization to promote their policy agendas – new clean water laws or “no smoking” ordinances, for example — would be too costly and burdensome.

The attention paid to the few 501(c)(4)s that may be abusing their status obscures the law-abiding and legitimate work of the 110,000 or so (c)(4)s that represent millions of members and activists across the United States – like Planned Parenthood Action Fund, Sierra Club, the Brady Campaign to Prevent Gun Violence, and other groups engaged in issue advocacy.

While the IRS and Treasury achieved their stated goal of creating clear and definitive definitions, they erred by quashing democratic participation–the heart of what so many social welfare organizations do.

We look forward to participating fully in the public comment period and representing the views of the 501(c)(4) organizations with whom we work in that process.

Please contact Media Relations Manager Richard Wexler:

Alliance for Justice is a national association of over 100 organizations, representing a broad array of groups committed to progressive values and the creation of an equitable, just, and free society. Through our justice programs, we lead the progressive community in the fight for a fair judiciary, and through our advocacy programs, we help nonprofits and foundations to realize their advocacy potential.  Learn more about Alliance for Justice at and