Proposed Guidance to Clarify Allowable Political Activities of 501(c)(4)s

On November 26, 2013, the U.S. Department of the Treasury and the Internal Revenue Service issued initial guidance in regards to proposed qualification requirements for organizations exempt under Section 501(c)(4) of the Internal Revenue Code. The proposed regulations seek to replace the existing "facts and circumstances" test with more definitive "bright-line" rules to determine if an organization is engaged in political campaign activities that do not promote social welfare. The proposed guidance would define the term "candidate-related political activity" and would clarify that the promotion of social welfare does not include this type of activity.

Under the proposed guidelines, "candidate-related political activity" would include certain communications, grants and contributions, and activities closely related to elections and candidates.

Communications would include those activities that:

• Expressly advocate for a clearly identified political candidate of a political party;
• Clearly identify a candidate or political party and are made within 60 days of a general election or 30 days of a primary election; or
• Require expenditure reporting to the Federal Election Commission.

Grants and contributions would include:

• Any contribution that is recognized under campaign finance law as a reportable contribution (e.g., contributions to candidates for federal, state, or local elective office) or
• Any grant to a Section 527 political organization or a similar tax-exempt organization that conducts candidate-related political activities.

Activities closely related to elections or candidates would include:

• Organizing voter registration activities and "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 particular candidates (or to a political party in a general election); and
• Hosting an event where a candidate makes an appearance as part of the program within 60 days of a general election or 30 days before a primary election.

As currently drafted, the proposed regulations offer a stricter standard for what is permissible conduct for a social welfare organization. The U.S. Department of the Treasury is currently accepting comments on the proposed regulations. Comments must be submitted by February 27, 2014.

By Mike West, CPA, JD, Senior Manager mwest@legacycpas.com and Nathan Lipton, CPA, Staff Accountant nlipton@legacycpas.com