New IRS Rules Proposed for 501(c)(4) Organizations – Definition of Political Activities

January 2, 2014

Activities that have long been defined as “nonpolitical” when conducted by 501(c)(4) social welfare organizations may soon be reclassified by the IRS as “candidate-related political activities,” potentially limiting those organizations’ activities, especially during an election season.

The intent of the Notice of Proposed Rulemaking and the related draft regulations, published November 29, is to eliminate some of the ambiguity currently associated with the current definition of political activities, which relies heavily on “facts and circumstances” standards.

However, while providing a more objective definition, the draft regulations would automatically reclassify a number of traditionally allowable activities, such as voter registration, get-out-the-vote events, and nonpartisan candidate debates and forums, as now candidate-related political activity, subject to the limits imposed for political activities.

As a result of the Treasury Notice, we have seen many analyses, done by law firms, lobbying consultants and industry news services, summarizing the proposed changes. One of those, authored by John Pomeranz of Harmon, Curran, Spielberg + Eisenberg, a law firm serving the nonprofit industry, outlined the list of activities which would, under the proposed rule, be considered “candidate-related political activities,” including:

• Any communication expressing a view on the selection, nomination, election or appointment of a clearly identified candidate or of candidates of a particular political party (including candidates for non-elective public office, such as nominees to head federal agencies or to serve on federal courts);

• Any “public communication” (including TV or radio communication, print or online newsletter, mass mailing, phone bank, website or social media, or any paid advertisement) referring to a clearly identified candidate within 30 days before a primary or 60 days before a general election, or referring to a political party within 60 days before a general election;

• Any communication for which expenditures are reported to the Federal Election Commission, including independent expenditures and electioneering communications;

• Contribution to a candidate for elective office, any political organization exempt under section 527 of the tax code (PACs, political parties, etc.), or any 501(c) organization that engages in candidate-related political activity (unless such a 501(c) organization certifies in writing that it doesn’t engage in candidate-related political activity and that the contribution will not be used for such activity);

• Any voter registration or get-out-the-vote effort;

• Any voter guide; and

• Any event held within 30 days before a primary election or 60 days before a general election at which one or more candidates in such election appear as part of the program.

Further, current law, as outlined in the existing regulations, requires that a 501(c)(4) social welfare organization have social welfare activities as its primary activity. This has led to a current interpretation that political activities can, therefore, be as much as 49% of an entity’s activities (as long as the remaining 51% of activities are related social welfare activities). In an attempt by Treasury to address several issues at once, the Notice requests comments on:

• The draft regulation defining candidate-related political activity;   

• Whether there should be a different regulatory definition as to the limit of allowable political activities by (c)(4) organizations; and   

• Whether these proposed regulations should also apply to non-(c)(4) entities.

The public comment period is open until February 27, 2014. While a smaller organization may not have the resources to directly submit comments, there may be opportunities to sign on to comments being submitted by an entity’s legal counsel or by trade associations or other affiliated networks.