Monday, June 24, 2013

IRS Issues (c)(4) Report with Safe Harbor for Expedited Review

The IRS has issued its report on the (c)(4) "targeting" issue, available here.  The report concludes that while there were "significant management and judgment failures," there is no evidence of intentional wrongdoing.  The report indicates that senior IRS staff responsible for the determinations process have been replaced, and that the IRS will take a number of steps to insure similar situations do not recur.

Perhaps the most interesting part of the report is Appendix E, which provides an expedited review process for (c)(4) organizations whose applications for exempt status have been pending for more than 120 days. This process establishes a safe harbor presumption that the organization is engaged "primarily" in promoting social welfare if the organization certifies under penalties of perjury two items:  The Appendix further defines relevant concepts as follows:

1. During each past tax year of the organization, during the current tax year, and during each future tax year in which the organization intends to rely on a determination letter issued under the optional expedited process, the organization has spent and anticipates that it will spend 60% or more of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on activities that promote the social welfare (within the meaning of Section 501(c)(4) and the regulations thereunder).

2. During each past tax year of the organization, during the current tax year, and during each future tax year in which the organization intends to rely on a determination letter issued under the optional expedited process, the organization has spent and anticipates that it will spend less than 40% of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate for public office (within the meaning of the regulations under Section 501(c)(4)).

The Appendix further defines relevant concepts as follows:

For purposes of these representations, activities that promote the social welfare do not include any expenditure incurred or time spent by the organization on--

  • Any activity that benefits select individuals or organizations rather than the community as a whole;
  • Direct or indirect participation or intervention in any political campaign on behalf of (or in oppositionto) any candidate for public office;
  • Operating a social club for the benefit, pleasure, or recreation of the organization’s members; and
  • Carrying on a business with the general public in a manner similar to organizations operated for profit.

For purposes of these representations, direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate for public office (“candidate”) includes any expenditure incurred or time spent by the organization on:

  • Any written (printed or electronic) or oral statement supporting (or opposing) the election or nomination of a candidate;
  • Financial or other support provided to (or the solicitation of such support on behalf of) any candidate, political party, political committee, or Section 527 organization;
  • Conducting a voter registration drive that selects potential voters to assist on the basis of their preference for a particular candidate or party;
  • Conducting a “get-out-the-vote” drive that selects potential voters to assist on the basis of their preference for a particular candidate or (in the case of general elections) a particular party;
  • Distributing material prepared by a candidate, political party, political committee, or Section 527 organization; and
  • Preparing and distributing a voter guide that rates favorably or unfavorably one or more candidates.

In addition, solely for purposes of determining an organization’s eligibility under this optional expedited process, direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate includes any expenditure incurred or time spent by the organization on:

  • Any public communication within 60 days prior to a general election or 30 days prior to a primary election that identifies a candidate in the election. For this purpose, “public communication” means a communication by means of any broadcast, cable, or satellite communication; newspaper, magazine, or other periodical (excluding any periodical distributed only to the organization’s dues paying members); outdoor advertising facility, mass mailing, or telephone bank to the general public; and communications placed for a fee on another person’s Internet website;
  • Conducting an event at which only one candidate is, or candidates of only one party are, invited to speak; and
  • Any grant to an organization described in Section 501(c) if the recipient of the grant engages in political campaign intervention.

Given my earlier post on the Bright Lines project, I find it particularly interesting that the IRS has defined the relevant standard by reference to BOTH expenditures AND employee/volunteer time. Hmmm . . . .

JDC

(Hat tip to Evelyn Brody)

 

http://lawprofessors.typepad.com/nonprofit/2013/06/irs-issues-c4-report-with-safe-harbor-for-expedited-review.html

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