Tuesday, September 25, 2012

IRS Examines, CRS Reports, and 501(c)(4)s Spend

ImagesLast week Senator Carl Levin (D-MI) released an exchange of correspondence with the IRS in which he called for the IRS to enforce the limitations on political activity by section 501(c)(4) social welfare organizations.  In that exchange, the IRS revealed that it currently "has more than 70 ongoing examinations of section 501(c)(4) organizations," although not all of those exams necessarily relate to possible excessive political activity.  It also stated that "[t]here are currently more than 1,600 organizations in the determination process seeking recognition as a section 501(c)(4) organization," including some for which their level of political activity is an issue.  More Coverage:  Bloomberg BNA ("IRS to Look at Political Activity of Section 501(c)(4) Organizations").

ImagesThe Congressional Research Service has also been busy, releasing reports on "501(c)(4)s and the Gift Tax: Legal Analysis" (Hat tip: Election Law Blog) and "Political Ads: Issue Advocacy or Campaign Activity Under the Tax Code".  In the first report CRS states that "it appears the stronger argument is that contributions to 501(c)(4) groups are statutorily subject to the gift tax" but then concludes that in light of a history of IRS non-enforcement and the 2011 IRS decision to close all examinations on this issue, "it appears that, for now at least, the gift tax will not be enforced on donations to 501(c)(4) groups."  In the second report CRS reviews the existing guidance on political ads with respect to tax-exempt organizations, concluding (as those who have studied this area have long known) that "the line between issue advocacy and campaign activity can be difficult to discern."

ImagesFinally, the political spending by 501(c)(4)s, as well as by 501(c)(5) labor organizations and 501(c)(6) business organizations continues apace.  According to the Center for Responsive Politics, based on only on express advocacy and electioneering communications such groups have already reported spending spent close to $100 million with six weeks still to go until the election.  These figures do not include spending that does not fall within these election-law based categories but still could be viewed for federal tax purposes as political activity.  While spending by candidates and superPACs dwarf this amount, it remains to be seen whether 501(c) political spending could be the difference in close races this fall.



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