IRS To Look At Groups’ Primary Purpose On Political Activity

New political activity rules for tax-exempt organizations proposed by the U.S. Department of the Treasury and the Internal Revenue Service have some in the sector calling the move an attack on First Amendment free speech rights.

While the rules target 501 (c)(4) organization and political lobbying and activism, they can also apply to 501(c)(3) groups.

Activities that will be counted as political activity under the proposed regulations include voter registration drives, nonpartisan voter guides and events such as debates at which candidates appear. The public will have 90 days to comment on the regulations from the time they’re published in the Federal Register.

Organizations classified as 501(c)(4) social welfare organizations are permitted to undertake political activity, so long as it does not constitute the group’s primary purpose. Nonpartisan activities such as voter registration drives currently are not counted against that threshold. The IRS uses a “facts and circumstances” determination on a case-by-case basis to decide whether a given group’s political activity is its primary purpose.

The facts and circumstances test “all very specific to an organization,” according to Viveca Novak, editorial and communications director at the Center for Responsive Politics in Washington, D.C. “It is subjective and can be ambiguous. What the IRS is trying to do is just have some bright line rules.”

According to a Treasury Department, the following constitute political activities.


  • Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
  • Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
  • Communications expenditures that must be reported to the Federal Election Commission.

Grants and Contributions

  • Any contribution that is recognized under campaign finance law as a reportable contribution.
  • Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).

Activities Closely Related to Elections or Candidates

  • Voter registration drives and “get-out-the-vote” drives.
  • Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
  • Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
  • Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

Marcus Owens, the former director of the IRS Tax Exemption Division and now a lawyer at the Washington, D.C. firm Caplin and Drysdale, said, the proposed rule “eliminates some of the tax rule ambiguities and replaces them with election law ambiguities. There’s still a lot of uncertainty. There’s just different words describing that uncertainty.”

Owens believes the regulations go too far in restricting activities that, because of their nonpartisan nature, did not count as political acts. “It means that for groups like the League of Women Voters, which publishes voters’ guides, that won’t happen in all likelihood,” he said. “What we’ll be left with is biased guides from political groups. Instead of more objective presentation, the public is going to get bombarded with partisan communications.”

Some groups agree with Owens that the proposed regulations go too far, saying that they infringe on free speech. “These proposed new regulations put the First Amendment rights of Americans at even greater risk,” Jay Sekulow, chief counsel of the American Center for Law and Justice in Washington, D.C. said via a statement. “With this move, the Obama Administration opens a new front in its war against political dissent.”

Owens points out that some of the activities that the regulations call political activity, such as get-out-the-vote drives and issue communications, are permitted for 501(c)(3) charities and foundations, which are restricted entirely from political activity. “The Treasury has created a harsher rule,” he said. “They could have mimicked the standards private foundations have to adhere to but instead went with a shotgun approach that does a disservice to the public.”

Gary Bass, executive director of the Bauman Foundation in Washington, D.C., called the proposal “extremely troubling for those who believe in democratic practices.” He worries about the implications for 501(c)(3) groups: “If nonpartisan voter registration, get-out-the-vote, etc., are political for (c)4’s, how can they not be for (c)3’s?” he asked rhetorically.

Bass, like Owens, is critical of the proposal’s ambiguity. “Once again, nonprofits don’t know what they can do,” he said. “The first principle for a rule should be to encourage democratic practice while stifling abuses. This NPRM (notice of proposed rulemaking) abandons such a principle.”

Further, he said the proposed rules will have a chilling effect on foundation funding for nonpartisan civic engagement like voter registration. “Even if there is a legal pathway, it will scare the hell out of foundation legal counsel—and encourage foundations to stay out of this area of funding.”

Other groups are more optimistic about the proposal. “The proposal is good for no other reason than it gets the ball rolling on a critical issue,” said Craig Holman, Ph.D., a government affairs lobbyist with the Washington, D.C. group Public Citizen. “It admirably attempts to offer some clarity in what nonprofit groups can and cannot do and reduces the discretion of the IRS in evaluating activities of nonprofits. Overall, it is a positive step by the Treasury Department.”

Fred Wertheimer, president of Democracy 21 in Washington, D.C., agreed. “Democracy 21 applauds the action taken today by the Treasury Department and the Internal Revenue Service to initiate a rulemaking to address the inadequate rules that have been used by the IRS to determine 501(c)4 tax-exempt status,” said Wertheimer in a statement.

This proposal does not deal with the threshold above which 501(c)(4) organizations cannot go with their political activity before losing their exempt status. The Treasury Department will release guidelines on the threshold, according to its release.