Brennan Center Statement on C(4) Clarification

December 2, 2013

The Brennan Center applauds the Internal Revenue Service proposal released on November 29 to clarify the permissible activities of IRC Section 501 c(4) “social welfare” organizations. During the 2012 election cycle, some contributors to political campaigns exploited ambiguities in the tax code to gather and spend large donations anonymously, without having to comply with campaign finance laws that limit the size of contributions and require disclosure of donors to political committees. The IRS proposal is a significant first step toward eliminating this loophole by clarifying the rules and defining a category of activities that are deemed “Campaign-related political activity.” The IRS has asked for comments from the public on many aspects of the proposal, including whether and to what extent social welfare organizations should be allowed to engage in campaign-related political activity.  

The current rules governing c(4) social welfare organizations have not been updated since the 1950's, and loopholes allow donors to easily skirt the rules. Recent elections have seen rising interest in utilizing c(4) social welfare organization as vehicles to gather and spend hundreds of millions of dollars to influence elections without being subject to campaign finance laws that require transparency. Contributors to c(4) organizations can include entities prohibited from contributing directly to a candidate, such as corporations and foreign entities, or individuals who have reached the legal maximum on direct contributions but want to provide additional support to a candidate. Under current law, c(4) organizations are not required to disclose the identities of their contributors.    

Our preliminary review of the proposed rules leaves us cautiously optimistic that they are an important first step towards eliminating the exploitation of social welfare organizations to influence elections. The IRS must take care not to stifle the activities of civic groups, however. There are many legitimate c(4) organizations that advocate for changes in public policy and in the course of this important work may engage in activities that the current proposal would deem “campaign-related political activity. We believe that new rules should not unduly restrict these activities. Social welfare organizations that do want to engage in campaign-related political activity will likely be able to establish a separate legal structure, such as a 527 organization, to engage in political activities in accord with campaign finance laws.  

The Brennan Center will be participating in the public comment process, and we look forward to working with our allies to educate the public about how the proposal will affect legitimate social welfare organizations, and to weigh in on the issues on which the IRS has requested guidance. 

501c(4): provides that an organization is tax exempt as a social welfare organization if it is “primarily engaged” in promoting the common good and general welfare of the people of the community. 

  • The IRS and Treasury have asked for comments on “what proportion of an organization’s activities must promote social welfare for an organization to qualify under section 501 c(4) and whether additional limits should be imposed on any or all activities that do not further social welfare.” The Summary that accompanies the proposal implies that Treasury and the IRS are considering whether to limit all c(4) activities that do not further social welfare. 
  • The proposal would create a new defined term – “candidate-related political activity” – in order to distinguish these c(4) rules from the body of guidance that prohibits “political activity” by c(3) organizations.  
  • The definition of “candidate-related political activity” will draw key concepts from federal election campaign laws but modified to take into account that c(4) organizations may be involved in state and local elections.

“Candidate” is defined in a manner consistent with 527, and includes an officeholder subject to a recall election.

“Campaign-related political activity” (CRPA) includes:

  • Contributions and express communications advocating election or defeat of a candidate.
  • Selection, nomination, appointment of individuals to executive branch offices.
  • All express advocacy that is reportable to the FEC as an independent expenditure is CRPA.
  • Communications close to an election is CRPA.  Any public communication within 60 days of a general election or 30 days before a primary and clearly identifies a candidate is CRPA.  Draws upon federal rules under 527 but includes state and local elective office.  Even volunteer and low cost activities will be considered CRPA, not just expenditures.
  • Information identifying a candidate on a website would be CRPA.
  • Eliminates the need for IRS to determine whether a communication is “neutral” or “biased” towards a candidate, applies whether or not the intent is to influence an election or part of a “series.”
  • The “close in time” rules do NOT apply to public communications identifying a candidate for state or federal appointments within any period of time before their scheduled confirmation or appointment.
  • Election related activities such as voter registration and get-out-the-vote, voter guides, now are CRPA unless they are conducted in a non-partisan and unbiased manner, a fact-intensive analysis.  IRS is seeking comments on this section. 

CRPA is not “social welfare” and those activities will be subject to the proxy tax – the lesser of the entire cost of the CRPA or the organization’s net investment income.