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2013 Issue 16 | Download as a PDF


Treasury Department Proposes Rules to Regulate Political Activity by Nonprofits


Treasury Department Proposes Rules to Regulate Political Activity by Nonprofits

The federal government has requested comments on proposed regulations that seek to more clearly define what activities count as political activities for 501(c)(4)s and perhaps other types of tax-exempt organizations.  The effort of the agency to develop clearer rules to replace the often ambiguous “facts and circumstances” standard is welcome news.  However, the draft rules fall short by treating as political activity a sweeping set of activities, including many currently considered non-political, such as nonpartisan voter registration and get-out-the-vote (GOTV) efforts, nonpartisan voter guides, candidate debates and forums, and any mention of a candidate on an organization’s website or in its newsletter in the weeks leading up to an election.

On the Tuesday before Thanksgiving, the U.S. Department of the Treasury announced a Notice of Proposed Rulemaking (“NPRM”) with draft regulations defining what activities would be considered “candidate-related political activity” by 501(c)(4) and perhaps other tax-exempt organizations.  A 501(c)(4) organization, which under current regulations must be operated primarily to promote “social welfare” in order to remain tax-exempt, would not be permitted to count any candidate related political activity toward its primary purpose.  The NPRM also asks for comments about whether the definition should likewise define political activity for other types of tax-exempt organization, how much political activity 501(c)(4)s should be permitted to do, and other issues.

The NPRM comes in the wake of the recent Internal Revenue Service scandal which revealed, among other things, that there is confusion over what activities should be treated as political campaign intervention under the current “facts and circumstances” analysis not only among nonprofit organizations but also the IRS staff charged with enforcing the law.  Providing better guidance in this area was one of the recommendations coming out of the scandal that the IRS and Treasury promised to follow.

The NPRM seeks to provide a clear set of lines to define political activity in pursuit of its stated goal to “provide greater certainty to section 501(c)(4) organizations regarding their activities and reduce the need for fact-intensive determinations” that are necessary under the current vague “facts and circumstances” analysis.

However, the NPRM draws those lines to encompass a huge range of activities, including a number the IRS currently considers to be promoting social welfare.  Defined as “candidate-related political activity” are:
  • 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 GOTV effort;
  • Any voter guide; and
  • 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.
The NPRM proposes to apply these definitions only to 501(c)(4)s for now, but it seeks comments on whether the same or similar rules should apply to other types of tax-exempt organizations.  The NPRM suggests that the definition of political activity for 501(c)(3)s would likely have to be more narrowly drawn than the newly proposed definition of candidate-related political activity in light of the absolute ban on 501(c)(3) political activity and First Amendment concerns, so it is likely that 501(c)(3)s would have to continue to operate under the existing “facts and circumstances” test even if these proposed rules were to become final for other 501(c)s.  (Although our firm has a significant concern that in the absence of clear 501(c)(3) rules, organizations, their funders, and the IRS might look for guidance in any definition of 501(c)(4) political activity that is adopted.)

The NPRM also seeks comments on other issues related to political activity by tax-exempt organizations.  In particular, the Treasury Department seeks input on how much of a 501(c)(4)’s activity must promote “social welfare” in order for the organization to qualify for tax-exempt status.  Regulations in place since 1959 state that a 501(c)(4) must be “primarily” engaged in social welfare activity, which may mean a bare majority of activity must be social welfare work.  The actual law enacted by Congress, however, states that 501(c)(4)s must be “exclusively” engaged in social welfare activity.  The issue has been subject to fierce debate, particularly as 501(c)(4)s have become more politically active in the wake of the Supreme Court’s Citizens United decision.

After reviewing the NPRM, our firm has concluded that the proposed regulations are much too sweeping in the activities they would define as political activities.  Furthermore, we think that it would create significant confusion to have one set of definitions for political activity by 501(c)(4)s and an entirely different set for 501(c)(3)s, 501(c)(5)s, 501(c)(6)s, and other tax-exempt organizations.
We suggest that a more rational approach would be one such as the proposed definitions offered by the Bright Lines Project.  Harmon Curran attorneys have been key participants in that effort.  See our previous coverage of the Bright Lines Project and the proposal itself.

We urge all those concerned about the proposed regulations to file comments by the February 27, 2014 comment deadline.  Please contact us if you would like our firm’s assistance in drafting comments on behalf of your organization.
We will continue to monitor and report on important developments related to these proposed regulations.

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