James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
IRS Will Revise Rules Governing Nonprofit Groups’ Political Activity
Author: James F. McDonough
Date: June 5, 2014
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The Internal Revenue Service (IRS) has announced that it will revise, without holding a public hearing, the proposed rules governing nonprofit groups’ involvement in politics. The rules, released last year, attempted to provide guidance for the political activity groups organized under section 501(c)(4) of the U.S. tax code could take without risking the loss of their tax exempt status or being required to disclose their donors. The 501(c)(4) groups have played a significant role in U.S. elections, spending more than $250 million on the 2012 election.
The tax laws provide that 501(c)(4) groups must be organized “exclusively” to promote social welfare, while the IRS regulations say social welfare must be their “primary” focus. This has led to conflicts over how to measure politics and primary purpose.
The regulations stemmed from the Tea Party controversy that occurred last summer. The IRS revealed that it exerted extra scrutiny of certain Tea Party groups seeking tax-exempt status, based on a serious of factors, including their names as well as actual conduct of political activity by other groups already qualified under (c)(4) and the description of the applicant’s activities under pending applications. As a result, the rules were created to provide guidelines for IRS employees in determining what activities were considered political involvement that would result in a group losing its tax-exempt status.
After the IRS released the new rules, it received in excess of 150,000 comments and objections to their breadth and violation of free speech rights. Many called for the IRS to start over, but the IRS’s recent announcement indicated they believe it will be more efficient to not hold public hearings until after the revised rules have been published. The IRS’s statement did not specify how extensive the revisions will be or when the new rules are expected to be released, but it has been speculated that the process will not be completed in 2014.
If you have any questions about the issues discussed above or would like to discuss other tax law matters, please contact me or a member of the award-winning Scarinci Hollenbeck Tax Practice Group. You can also find additional posts regarding the special tax concerns facing businesses on our blog, Tax, Trust, and Estate News.
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