What Is ‘Primarily Political’?


The Inspector General for Tax Administration at the Treasury Department has issued a preliminary report on the IRS’ targeting of Tea Party and “patriot” groups that applied for 501(c)(4) status. You can see that report here. The report does conclude that inappropriate criteria was used, but finds no evidence that it was anything other than bureaucratic incompetence that caused it:

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.

The key problem, the report says, is that the IRS simply does not have any objective criteria established to determine when a 501(c)(4) might have a “primary activity” of being political, as opposed to being a social welfare organization.

In April 2012, the Senior Technical Advisor to the Acting Commissioner, Tax Exempt and Government Entities Division, along with a team of EO function Headquarters office employees, reviewed many of the potential political cases and determined that there appeared to be some confusion by Determinations Unit specialists and applicants on what activities are allowed by I.R.C. § 501(c)(4) organizations. We believe this could be due to the lack of specific guidance on how to determine the “primary activity” of an I.R.C. § 501(c)(4) organization. Treasury Regulations state that I.R.C. § 501(c)(4) organizations should have social welfare as their “primary activity”; however, the regulations do not define how to measure whether social welfare is an organization’s “primary activity.”

This is especially difficult to determine when the organization is just applying for a tax exemption under section 501(c)(4). Since they haven’t actually done anything yet, how can the IRS evaluate whether they are primarily political? No one knows, including the IRS. One of the recommendations in the report is — duh — that “guidance on how to measure the “primary activity” of I.R.C. § 501(c)(4) social welfare organizations” be developed. Kevin Drum nails the problem going forward:

Good luck with that! Frankly, I think it’s a mug’s game. There’s really no way to define this in any kind of rigorous way, and even if you could, how would you apply it to organizations that are merely applying for 501(c)4 status? In the wake of Citizens United, this whole section of the Internal Revenue Code is a definitional witch’s brew that admits of no sensible resolution. If we had a functioning Congress, I’d suggest that they should address this from the ground up and provide a set of guidelines that makes sense in the modern world. But I don’t suppose that’s very likely, is it?

No, it isn’t. If Congress was functional and rational, they would do away with this whole thing entirely. They would provide a new designation for all non-profits that air any commercials or take out any ads of any kind during an election and require them to disclose the source of all major contributions they receive, just like a PAC has to do. The exact same reporting requirements would apply. And this would not violate the ruling in Citizens United, which upheld such disclosure rules. Given the reality of that ruling, and the 4th Circuit’s Free Speech Now ruling, that is the best we can get at this point.

Comments

  1. unbound says

    As always, the core of the problem is the groups that are constantly trying to game the system. 501(c)(4) has just become the most current flavor of exploiting the system to produce political messaging while avoiding taxes / getting tax-free donations.

    Need to have a permanent bi-partisan committee that looks at the current exploits and makes quick recommendations for Congress to act. Of course, for that to work correctly, we need to stop voting in the representatives of the richest who are the ones doing the exploiting…

  2. says

    “They would provide a new designation for all non-profits that air any commercials or take out any ads of any kind during an election and require them to disclose the source of all major contributions they receive, just like a PAC has to do.”

    And when that happens I’m starting a Superman PAC, that will give to PACs that make ads. That way every ad will say “this ad paid for by Superman”, which will be as awesome as it will be corrosive to democracy.

  3. Alverant says

    Well if your group’s name include the words “patriot” or “tea party” then it’s a pretty big red flag that it’s primarily political and worthy of a second look.

  4. machintelligence says

    I suspect that it will end up very much like the definition for religious organization: a social welfare organization is whatever calls itself one.

  5. Pierce R. Butler says

    Congress functions very rationally, if you start with the premise that it exists to satisfy an array of powerful interests behind a wall of smoke and mirrors.

  6. steve84 says

    The Tea Party doesn’t even have “social welfare” as a *secondary* activity. It is unbelievable that they are granted tax-exempt status under 501(c)(4) at all.

    There is a already regulatory scheme for political groups that makes them tax exempt: Section 527:
    https://en.wikipedia.org/wiki/527_organization

    Of course that would require them to disclose their donors, which is the one and only reason they went for 501(c)(4) instead. It was just a way to hide all their dark money.

  7. mill says

    Well if your group’s name include the words “patriot” or “tea party” then it’s a pretty big red flag that it’s primarily political and worthy of a second look.

    I had that thought myself. As an addendum, if you’re part of a political group that loudly proclaims anti-tax values, can you really complain when the IRS takes a second look at that tax exemption form? Still blatantly illegal though. And I imagine there were more than a few groups from other points on the political spectrum that had obviously political names but weren’t targeted. Another way to do it would be to set a limit on what percentage of an applicant’s total expenditure can go towards political – as opposed to social welfare – activity. If you spend $1million on a political ad demonising one candidate and $5,000 on putting up a swingset in a park somewhere, you’re probably not legit.

    While I do sympathise with Ralph Nader on Citizens United opening the floodgates to corporate interference in democratic process, I’d say America drowned in that flood a long time ago. I guess all that can be done now is to ensure that as long as corporations are determining election outcomes that at the very least they pay taxes and their donations be declared openly. Lousy substitute for fair campaigning, but what can you do?

  8. garnetstar says

    Actually, I saw on Laurence O’Donnell that the law reads that only organizations that *exclusively* focus on social welfare are elligible. No political activity allowed.

    Apparently in 1959, without the permission of Congress, the administration issued a directive that they’d now allow organizations that were only “primarliy” about social welfare to get that tax status.

    So it seems that all they have to do is enforce existing law, and completely disallow any degree of political activity.

  9. Azkyroth Drinked the Grammar Too :) says

    Categorizing Tea Party groups under “social welfare” is like categorizing Al Qaeda under “peace activism.” This strict-balanced-neutrality-between-fire-brigades-and-fires thing is getting old.

  10. khms says

    @garnetstar:

    Actually, I saw on Laurence O’Donnell that the law reads that only organizations that *exclusively* focus on social welfare are elligible. No political activity allowed.

    Apparently in 1959, without the permission of Congress, the administration issued a directive that they’d now allow organizations that were only “primarliy” about social welfare to get that tax status.

    So it seems that all they have to do is enforce existing law, and completely disallow any degree of political activity.

    One problem with that: a social welfare organization can then no longer lobby for changes in politics that directly affect their work. For example, an organization to help orphaned children can not lobby for changes in adoption law. I don’t know about you, but to me, that looks like a problem.

    I’d design a change along these lines: first, grant 501(c)(4) status fairly freely (they just have to promise to do the right thing), but only grant it provisionally. If, when the next tax time comes around, they can’t prove they did the right thing, they lose that status both going forward and for the last tax period. Or alternatively, make it so it can only be granted afterwards in the first place. That should solve the “hasn’t done anything yet” problem.

    And second, make a rule that as soon as you do political ads or other clearly political activity, you need to report the finances of that part, and if it’s over some limit, you need to report your financial sources (donors or otherwise). Law works for any organization what so ever. (Incidentally, “any” includes churches.)

    Seems to me that’d solve both sides of the problem, pretty much permanently.

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