Most of what you've read online about IRS problems is wrong, or at least misleading. I'm Darrin Mish. I practice tax law in Tampa and I've been doing this for 32 years. Here's what's actually true.
IRS Director of the Exempt Organizations Division, Lois Lerner said in a letter dated July 17 that the IRS is willing to review organizations under Section 501 (c) (4) of the tax code insofar as their political activities are concerned. In stating the IRS will “consider proposed changes” to regulations that govern the tax-exempt status of 501 (c) (4) organizations, Lerner also added that the Exempt Organizations Division will “work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.” This statement came in response to two 501 (c) (4) organizations’ petition to the IRS to review the permissible level of political involvement for such organizations.
This being the year Presidential elections will be held, some tax-exempt organizations have become particularly active politically prompting some quarters to question their involvement in consideration of Section 501 (c) (4). Section 501(c)(4) of the tax code allows “social welfare” groups, that is, “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare … and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes” exemption from paying taxes. But although the tax code says these groups are to be “exclusively” promoting social welfare but the IRS regulations define “exclusively” promoting social welfare like this – “An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements.”
What further complicates the issue is that organizations under Sect 501 (c) (4) do not have any explicit prohibition on political activities (unlike their counterparts in Sect 501 (c) (3)). Although the IRS regulations clearly state such organizations are not allowed to participate in political campaigns directly or indirectly, but any form of lawful political activity will not affect such organizations’ status under Sect 501 (c)(4) as long as their primary focus remains social welfare.
One major factor to consider is what constitutes “primary” activity under Sect 501 (c)(4). Although the tax code itself does not specify it, traditionally it has come to mean 50% or more of an organization’s activities. But the IRS has preferred to assess according to facts and circumstances of the organization.
No time frame has been set for the IRS to complete its review of Sect 501 (c)(4) and make changes, if any.
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