In an interview with the Center for Public Integrity, IRS Commissioner John Koskinen confirmed that the proposed regulations regarding the political campaign activities of Section 501(c)(4) social welfare organizations will be revised in light of the substantial – and primarily negative – public comments received by the IRS.
The proposed regulations were published by the IRS and the U.S. Department of Treasury on November 29, 2013, and would have significantly altered the landscape for Section 501(c)(4) social welfare organizations and the types of activities treated as promoting social welfare. They generated widespread criticism and an IRS record of over 150,000 comments during the rulemaking comment period.
Commissioner Koskinen indicated that he expects a new draft of the regulations to be issued by early 2015, and that the new draft will address some of the critical issues left open in the soon-to-be-scrapped proposed regulations.
Section 501(c)(4) Organizations: Current Law
Section 501(c)(4) social welfare organizations must be operated primarily for the promotion of social welfare, which does not include "direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office." There is currently no clear test for deciding whether a particular activity constitutes political campaign intervention and this determination requires an analysis of all relevant facts and circumstances. Moreover, current law does not address how much political activity will jeopardize an organization's continued qualification under Section 501(c)(4).
Proposed Regulations: Controversial Changes and Requests for Comment
The proposed regulations sought to establish clearer lines for defining political campaign activity by a Section 501(c)(4) organization and proposed replacing the current facts and circumstances analysis with a bright-line test focused on whether an activity constituted "candidate-related political activity". This concept was broadly defined (too broadly for many), and would have swept up activities not currently considered to be political campaign intervention, such as non-partisan voter registrations and candidate forums.
The proposed regulations also drew widespread criticism for their failure to address the questions of how much candidate-related political activity a Section 501(c)(4) organization should be able to engage in and on how to measure such activity (e.g., through expenditures, staff time, etc.).
Comments were sought on these critical questions, as well as whether similar rules to those proposed for 501(c)(4) organizations should apply to other types of 501(c) organizations.
Commissioner Koskinen Gives a Preview of What's Next
In his interview, Commissioner Koskinen told the Center that there are three core questions that needed to be addressed: "what should be the definition [of political activity], to whom should it apply and how much [. . .] can you do before you jeopardize your exemption?" Commissioner Koskinen said that the new draft of the regulations will "differ from the first draft because it will deal with all three questions." (With respect to the universe of other Section 501(c) organizations that might be covered by the new draft regulations, Commissioner Koskinen specifically mentioned labor unions and trade associations.)
Commissioner Koskinen's comments have been met with a mix of strong criticism and cautious praise. Given the tenor (and duration) of the debate and controversy surrounding IRS regulation of Section 501(c)(4) organizations and their political activities, the outcome of this ongoing regulation project is unclear. But Commissioner Koskinen's comments have given us the best indicator yet of what might come next. We will keep you posted.
Relevant Links
The November 29, 2013, proposed regulations are available on the IRS website at: http://www.irs.gov/irb/2013-52_IRB/ar18.html.
The May 22, 2013, IRS news release is posted on the IRS website at: http://www.irs.gov/uac/Newsroom/IRS-Update-on-the-Proposed-New-Regulation-on-501(c)(4)-Organizations.
The Center for Public Integrity's article on its interview with Commissioner Koskinen is available at http://www.publicintegrity.org/2014/06/18/14960/irs-chief-promises-stricter-rules-dark-money-nonprofit-groups.
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