Monthly Archives: August 2013

The Real Story Behind 501(c)(4)s and 527s – Part II

by Kellye

In an update to the previous post (Part 1), Representative Chris Van Hollen of Maryland filed a lawsuit last week on August 21 against the U.S. Treasury Department.  This lawsuit would force the IRS to change its criteria for approval of organizations desiring 501(c)(4) status to what Congress had intended when it created that status and to enforce the law as written (click here for article). Specifically, an organization desiring 501(c)(4) status must be “operated exclusively for the promotion of public welfare.” Congress never intended section 501(c)(4) to be used by political groups to gain tax-exempt status.

After Congress decided to reform campaign finance in the early 1970’s with the passage of the Federal Election Campaign Act (FECA) and its amendments, Congress created section 527 of the IRS tax code to deal with political groups in 1975. This section of the code has its own set of rules in qualifying for tax-exempt status. Political committees (Republican National Committee, Democratic National Committee, and all the various Senate and House fund-raising committees), PACs and Super PACs fall into the 527 category. These groups are regulated by the Federal Election Commission (FEC) because their purpose is political. Continue reading

The Real Story Behind 501(c)(4)s and 527s — Part I

by Kellye

Due to the current IRS controversy, 501(c)(4) groups have become a topic of conversation in the media again. What exactly is a 501(c)(4) organization? How does it differ from other 501(c) organizations, in particular, a 501(c)(3) charitable organization? How does it differ from a political 527 organization?

The original intent of the tax law that Congress passed that was incorporated into section 501(c) of the IRS code over 75 years ago was to give federal tax-exempt status to non-profit organizations which weren’t political groups. In particular, the law stated that organizations desiring 501(c)(4) status had to be “operated exclusively for the promotion of public welfare.” However, in 1959 the IRS decided to loosen this requirement (without the consent of Congress) and allow 501(c)(4) groups to engage in political activity, as long as that political activity wasn’t the group’s primary purpose. Many of these 501(c)(4) groups became political in the 1960s not long after the IRS made that decision. Continue reading