Thursday, June 21, 2012

More on 501(c)(4)s - Disclosure, Private Benefit and Political Activities

Disclosure.  The Daily Tax Report discusses a June 18 letter written by eleven Republican Senators questing the IRS's continuing practice of requesting donor information from organizations seeking a 501(c)(4) tax exemption.  The letter requests that Commissioner Shulman provide more answers to questions regarding the IRS's statutory authority for, as well as its process in, requesting such information.  The letter points out the asserted inconsistency between such IRS requests and the Form 1024, which does not specifically ask for the names and addresses of potential financing sources.  The signatories assert that Congress has provided for statutory protections of donors' privacy and that the IRS practice is circumventing that protection.  This letter follows up on a March 14 letter to the IRS on requests for information sent to 501(c)(4) exemption applicants.

Private Benefit.  In PLR_201224034, the IRS revoked the exemption of a 501(c)(4) organization, determining that its primary purpose was to advance the private interests of its founder, a "political figure" who was a candidate for elected office in 2004 and 2010.  The organization asserted that it was a citizen's advocacy group focused on solving some of the state's critical problems.  In reviewing the organization's blog posts, the IRS found that most centered on current or pending legislation, as well as the agendas of elected political officials.  Of 17 blog posts reviewed, five criticized the founder's former opponent in a race for elected office, occurring both before and after the election.  Furthermore, the blog page on the organization's website contained links to the founder's campaign website.  Most of the organization's funding came from the founder's donations.   The IRS found that the organization's purpose was to primarily benefit the founder and founder's political "agenda and platforms."  This was further supported by the fact that the founder is the only board member and officer.  Consequently, no community input, oversight, or independence from the founder is present.  The IRS further concluded that the organization had "not established that your primary activity is not to engage in direct or indirect political intervention."  According to the Daily Tax Report, some commentators, such as Marcus Owens at Caplin & Drysdale, find that conclusion to be out of the norm, as Owens stated:  "It suggests that the test for exempt status isn't just that the applicant describe how its activities come within (c)(4), but that it must affirmatively establish what it is not, namely, a political organization."  The PLR did note, however, that a 501(c)(4) organization may engage in political activities, provided it is not "primarily engaged" in politics.

Political Activity Spending.  The Nonprofit Quarterly discusses a report revealing that in the 2010 election, 501(c)(4) organizations outspent super PACs by a three to two margin ($95 million to $65 million).  Ninety percent of the (c)(4)s did not reveal their donors' identity, consistent with the lack of a requirement for them to do so.  The two centers that issued the report (Center for Responsive Politics and the Center for Public Integrity) noted that the vast majority of (c)(4) spending came from conservatively-aligned groups.

Another Politically-Motivated (c)(4)?  The Nonprofit Quarterly reports that former Senator Rick Santorum is forming a new 501(c)(4) organization, Patriot Voices.  The purpose of this organization is reportedly “to mobilize 1 million conservatives around the country to promote faith, family, freedom and opportunity.”  Once again, the primary motivation of forming the 501(c)(4), despite Santorum already having a PAC, is to avoid the donor disclosure rules associated with PACs.  The Nonprofit Quarterly article states that Santorum confirmed that the new (c)(4) will work with his PAC, the Red White and Blue Fund.  As the article further explains, these two organizations can be interdependent, with the (c)(4) accepting privacy-protected donations and then turning around and making contributions to the PAC.


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