Taxpayer Advocate Offers New Test for 501(c)(4) Status

As the IRS continues its work to issue new rules for organizations seeking tax-exempt status as a 501(c)(4) social welfare group, a new voice has stepped up to offer some assistance.

The Taxpayer Advocate Service—an independent organization within the Internal Revenue Service that helps taxpayers resolve problems with the agency and recommends changes that could prevent future problems—spoke up on the IRS’s ongoing effort to  issues new rules that will clarify the amount of political activity 501(c)(4) organizations can participate in.

National Taxpayer Advocate Nina Olson included in her midyear report to Congress last week a recommendation for a clearer test for determining whether an organization seeking 501(c)(4) tax-exempt status is operating “primarily” for social welfare purposes.

Social welfare organizations could elect to use the same numerical test used by 501(c)(3) groups, which is based solely on their expenditures, to determine whether they have engaged in excessive lobbying activities, Olson said in her report. Under the 501(h) election, the amount of time an organization spends on an activity is not relevant except to the extent it triggers an expenditure.

“The National Taxpayer Advocate believes organizations requesting the right to receive contributions exempt from tax should be evaluated on how they expend those contributions,” the report said.

The proposed rules the IRS issued last fall on 501(c)(4) political activity do not provide a “bright line” ratio between social welfare and candidate-related political activity, the report said. And the agency’s proposed expansion of the definition of political activity to include nonpartisan activities such as voter registration drives and candidate forums is “unacceptably broad,” Olson said.

In May, the IRS announced that, given the record number of comments it received on the issue, it would revise the proposed rules before proceeding with any public hearing. Those revised rules are not expected to be released until next year.

Olson said she intends to refine her proposal for determining 501(c)(4) status and include a legislative recommendation in her yearend report to Congress.


Chris Vest, CAE

By Chris Vest, CAE

Chris Vest, CAE is vice president, corporate communications and public relations at ASAE. MORE

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