On November 29, 2013, the Internal Revenue Service released a notice of proposed rulemaking setting forth proposed regulations under section 501(c)(4) of the Internal Revenue Code (the “Code”). These proposed regulations are intended to more clearly define permissible political activities of organizations operated exclusively for the promotion of social welfare under section 501(c)(4) of the Code. The proposed regulations aim to replace the existing “facts and circumstances” test with a “bright-line rule” to determine when section 501(c)(4) organizations are engaged in political activities that are inconsistent with exemption under section 501(c)(4) of the Code. The proposed regulations would standardize the types of political activities that do not promote social welfare for organizations with, or seeking, tax-exemption under section 501(c)(4).
The current regulations provide that the “promotion of social welfare” does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. The proposed regulations would replace this rule by providing that the promotion of social welfare would not include direct or indirect “candidate-related political activity.” Generally, the proposed regulations define candidate-related political activity as certain communications, contributions, and election-related activities that do not promote social welfare under section 501(c)(4). Highlights of the changes under the proposed regulations are summarized below.
Communications. Under the proposed regulations, “candidate-related political activity” includes any communication that:
- Expressly advocates for a clearly identified candidate of a political party;
- Publicly identifies a candidate or political party within 60 days of a general election or 30 days of a primary election; or
- Requires reporting of expenditures to the Federal Election Commission.
The proposed regulations clarify that all communications – written, printed, electronic (including Internet), video, and oral – that express a view on a clearly identified candidate, whether in support of or in opposition to such candidate, constitute candidate-related political activity and, therefore, would not promote social welfare within the meaning of section 501(c)(4).
Contributions. The proposed regulations provide that “candidate-related political activity” also includes the contribution of money or anything of value to or on behalf of:
- Candidates for federal, state, or local elective office;
- Any political party, political committee, or other section 527 organization; and
- Any 501(c) tax-exempt organization that engages in candidate-related political activity unless the donor receives a written statement from the recipient declaring that it does not engage in, and will not use funds for, candidate-related political activity.
Examples of monetary contributions include gifts, grants, subscriptions, loans, advances, or deposits, whereas contributions of “anything of value” include in-kind donations and other support such as volunteer hours and free or discounted rentals of facilities or mailing lists.
Election-Related Activities. The proposed definition of candidate-related political activity also includes the following specified election-related activities:
- Conducting voter registration or “get-out-the-vote” drives;
- Distributing any material prepared by or on behalf of a candidate or section 527 political organization;
- Preparing or distributing voter guides that refer to one or more clearly identified candidates or, in the case of general elections, to one or more political parties; and
- Hosting or conducting an event within 30 days of a primary election or 60 days of a general election at which one or more candidates in such election appear as part of the program, whether or not such appearance was previously scheduled.
The IRS and Treasury Department have acknowledged that the proposed regulations, while clearer, may be more restrictive regarding advocacy during an election period than the current fact-intensive approach. Nevertheless, the IRS and Treasury Department believe that adopting rules with clearer boundaries and distinctions will provide greater certainty and clarity to section 501(c)(4) organizations regarding permissible political activities and reduce the need to conduct fact-intensive inquiries with varying results.
The IRS and Treasury Department invite comments on the proposed changes and other aspects of the tax-exempt qualification requirements, including what proportion of a 501(c)(4) organization’s activities must promote social welfare, and whether similar standards should be adopted regarding 501(c)(5) and 501(c)(6) organizations to standardize the class of political activities that do not further the tax-exempt purposes. Written or electric comments must be received by February 27, 2014.
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