Tax Analysts Blog

A World Without 501(c)(4)s

Posted on May 21, 2013

Should we get rid of 501(c)(4)s? Last week, the New York Times put that question to a range of tax experts and got back (predictably) a range of reasonable answers. Most involved some sort of intermediate reform involving the political activities of "social welfare" organizations. One expert, however, took the bait and called for complete elimination of 501(c)(4). Which sounds like a good idea to me.

In his Times piece, John D. Columbo of the University of Illinois College of Law clearly identified the central problem with 501(c)(4)s: they are permitted to engage in some political campaign activity but not too much.

Policing that line is nearly impossible, as the IRS has recently demonstrated. The agency seems to have made some particularly bad decisions in trying to enforce the political restrictions facing 501(c)(4)s, and it probably deserves a good deal of its current misery.

But even were the IRS blessed with a large staff of perfectly competent and wholly unbiased employees, the agency would still face a big problem: The line separating permissible from impermissible political activity hinges not simply on the nature of that activity, but its quantity. And neither the nature nor the quantity are clearly defined by law.

As I wrote in a piece for the Washington Post this week, we are asking the IRS to do something impossible: conduct nonpolitical evaluations of political organizations and their political activities.

And we're surprised when politics intrudes on this process?

Some experts have pointed out that the law may be clearer than we give it credit for being. As written, it requires that 501(c)(4)s be operated "exclusively" for the promotion of social welfare.

But apparently, "exclusively" doesn't mean what it sounds like it means -- at least not to the IRS. "Long standing Treasury Regulations have interpreted 'exclusively' as used in section 501 (c)(4) to mean primarily," explained Steven Miller in a letter to Congress last August (at the time, Miller was the deputy commissioner for services and enforcement; he later served as acting commissioner until being fired last week).

It's possible that we might be able to avoid the current sort of scandal by simply returning to the language of the law (or interpreting it in more reasonable fashion).

But for my money (and Columbo's), I think we should just ditch 501(c)(4) entirely. Some organizations would undoubtedly get caught up in that sort of radical simplification -- garden clubs, say, or other small-scale community organizations that don't fit comfortably within prevailing definitions of what constitutes a charity. And of course, so would a lot of well-intentioned political organizations that honestly try to promote social welfare, partly but not "primarily" through their political activities.

But I, for one, could live with the loss. And abolishing 501(c)(4)s would bring much needed clarity and transparency to the political realm. And the tax law.

Read Comments (2)

M. GambleMay 21, 2013

I think what you are proposing could be a great trial for those organizations
you mention who might be caught in the abolishing of 501(c)(4)s? Well why throw
the baby out with the bath water just make org have to abide by the actual
law,"exclusively".

edmund dantesMay 21, 2013

I assume you are fine with labor unions losing their tax exempt status? If so,
I would agree that we should ditch (c)(4).

I would go much further, and eliminate all entity tax exemptions, including for
charities. The nonprofit sector has grown entirely too large, and is being
abused by the wealthy.

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