The IRS recently revoked the §501(c)(4) status of a state-wide affiliate of Emerge America, an organization based in California whose purpose is to identify and train women for leadership in the Democratic Party. Emerge America requires its affiliates to select a class of trainees who intend to seek public office and are registered Democrats. The organization then conducts a training program on subjects such as: campaigns and elections, fundraising, public speaking, networking, media skills, and other topics related to running for public office. Does this mean that other partisan-leaning organizations should beware?
Organizations exempt under §501(c)(4) are also known as social welfare organizations. They are required to operate exclusively for the promotion of social welfare – which means that they must be primarily engaged in promoting the common good and welfare of the people of a community. Implicit in this is also the requirement that the organization not serve private interests. The IRS determined that the Emerge America affiliate did not primarily promote social welfare because it primarily benefitted private individuals and interests (in this case, a political party). Educational activities that are undertaken for partisan purposes are considered to serve private interests, rather than the general welfare and common good.
Some commentators think that this could be a sign that the IRS is gearing up to target other political 501(c)(4) organizations with a partisan bent (see this Bloomberg Article). While I hope that turns out to be true – I am skeptical. As a young attorney, I hate to second-guess those that I look up to as being in the top of the field (Marc Owen – cited in Bloomberg article, above) – but I don’t buy it.
First, this situation is very similar to the 1989 case of American Campaign Academy v. Commissioner. In that case, the Tax Court upheld the refusal by the IRS to grant §501(c)(3) status to a Republican-leaning campaign school (the fact that American Campaign Academy was applying under §501(c)(3) is not relevant in the eyes of the IRS, as they state that the private benefit standard established in the case applies equally to both sections). The organization was found to operate for a private interest (that of the Republican party, its organizations and candidates). Unlike Emerge America, American Campaign Academy did not require its applicants to formally declare allegiance to a party —- but other factors pointed to its political leanings. There are obvious factual differences between Emerge and American Campaign Academy, however I think that the IRS was simply addressing the fact that there is fairly analogous precedent for the argument that Emerge America should never have been granted exemption under §501(c)(4).
Second, many of the organizations out there that are doing significant political work can easily work around the claim that they are partisan by focusing on issues (even if those issues do communicate a significant partisan leaning). Thus, they would not be subject to the same private benefit issues as Emerge America.
Third, the IRS’ recent track record on enforcing restrictions around political activities has not been good. There has been very little audit activity by the IRS in this arena – as far as us attorneys can tell. (John Pomeranz, who I worked for at Harmon Curran in DC – has made a practice of asking at ABA meetings whether anyone has a client under audit – and nobody ever admits to it).
I hope that I am wrong – that this means that the tide is turning with the IRS. Particularly because it would require greater disclosure by organizations like Emerge that are currently exempt under §501(c)(4). If they have their exemption revoked, they will instead have to register as 527 political organizations with the IRS. However, I don’t think that the IRS has shown any inclination in recent years to address the problem.