Recently Charlie Spies the former election law counsel for the RNC and now leader of Clark Hill’s national political law practice set forth the IRS’s new guidance for tax-exempt advocacy groups.
The following is some of what he advises:
In general, 501(c)(4) organizations are legally permitted to engage in unlimited public issue advocacy, and legislative advocacy and lobbying, if these activities are related to the group's exempt purpose.
However, the law limits a 501(c)(4)'s ability to engage in political activity on behalf of, or in opposition, to candidates for public office, as political activities are not permissible as an organization's "primary purpose."
The exact percentage of permissible political activity, interpreted by many to be less than 50 percent of the organization's total activity, remained a key legal question.
In their report, the IRS establishes a new voluntary fast-tracked process for organizations that have had pending applications for more than 120 days as of May 28, 2013.
The process allows such organizations to qualify under Section 501(c)(4) through self-certification, provided that they operate within specific thresholds of social welfare and political activities.
This is the first time the IRS has provided such specific, percentage-based safe harbors for 501(c)(4) organizations.
The new IRS proposal promises approval of tax-exempt status within two weeks for those applicants that have been pending for more than 120 days and are able to certify that they have and will spend less than 40 percent of their annual expenditures and total staff time on political activities, thus devoting 60 percent or more of their spending and time on activities that promote social welfare.
In contrast to court decisions which have varied in their evaluation of the percentage of activity necessary to maintain an organization's primary purpose, this new guidance by the IRS, for the first time, establishes an administrative 60/40 threshold for determining whether an organization is primarily engaged in social welfare activity.
The new guidance stems from recent scandals where the IRS Exempt Organizations Division subjected a number of politically active organizations applying for 501(c)(4) tax-exempt status to additional, detailed scrutiny during the application process. This, coupled with the IRS receiving 3,357 applications for 501(c)(4) status last year, resulted in a backlog of current applications.
The IRS investigates case-by-case each advocacy group using a variety of facts and circumstances to determine whether the organization is engaging in political activity.
Reportedly, some advocacy groups have been awaiting their determination for nearly three years. In response, the leadership at the IRS proposed this "Streamlined Approval Process for the Priority Backlog."
For any group contemplating application for 501 (c)(4) status it is important to recognize that the new guidance issued by the IRS does not alter current statutory language requiring that a 501(c)(4) has as its "primary purpose" social welfare activities.
It remains to be seen whether the IRS will offer additional guidance on what percentage of a 501(c)(4)'s activities may be political for those organizations whose applications have not been pending for more than 120 days and cannot seek expedited processing, as well as whether this administrative threshold is challenged in federal court.
This recent guidance does, however, provide insight into how the IRS currently interprets and implements the law's "primary purpose" language. It also gives the IRS an opportunity to unwind the backlog of applications for organizations that have been awaiting their determination.
Advocacy organizations that have had their applications for exemption pending before the IRS for more than 120 days should seek experienced political law counsel to assist them in applying for expedited processing.
The IRS in attempting to right a wrong should be under strict scrutiny and oversight by Congress, the Justice Department and third-party watchdogs to insure that these “new” rules are not honored in the breach.
So much of the determination of whether a 501 (c)(4) is valid is still up to fact, practice and opinion by IRS officials. And therein still lies the potential for further abuses.
If anything, perhaps the IRS scandal proves that it is time for legislative reforms for not-for-profit advocacy and campaign finance reforms.
One thing is for sure, reforms if any, need to be taken by Congress and not by a federal agency like the IRS.
Bradley A. Blakeman served as deputy assistant to President George W. Bush from 2001-04. He is currently a professor of Politics and Public Policy at Georgetown University and a frequent contributor to Fox News Opinion. Read more reports from Bradley Blakeman — Click Here Now.
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