Tea Party Organizations and 501(c)(4)

Some of you may have noticed that there have been many news items of late regarding local Tea Party organizations and their complaints regarding the difficulty of obtaining tax-exempt status under §501(c)(4).  I have to admit, I have to roll my eyes every time I see one of these articles.  While I perhaps come to the IRS’ defense more often than not – I have to say that I think they are right on, for the following reasons:

1.        501(c)(4) organizations are also known as social welfare organizations.  Their primary activity must be to promote the common good and general welfare of a community.  Social welfare organizations can engage in political campaign activities; however it cannot be their primary activity.  Determining when the political activity becomes more than primary is a fact specific analysis.

I think that many of us (including the IRS) think political campaign when we think Tea Party.  The Tea Party has been trumpeted in the conservative political arena by the likes of Michelle Bachmann. There is a Tea Party Congressional Caucus.  I could go on – however, my point is that they have linked themselves with conservative political candidates in such a way that it is not surprising that many people question whether or not these organizations are organized primarily to engage in political activities.  I am sure that there are some Tea Party organizations that are doing things right – they are primarily social welfare organizations that advocate for issues and conduct their activities in a (relatively) nonpartisan manner.  However, I am sure that there are also organizations out there that don’t quite understand how they should avoid stepping into the realm of political campaign activities, and whose activities at minimum imply partisan positions (even if not directly coming out and saying it).

2.       The Tea Party Organizations have been created in a climate of distrust and calls for greater oversight are coming from all directions.  This is an area of much controversy this year due to the proliferation of politically active 501(c)(4)s this election year and their ability to shield donors’ names from public disclosure.  In fact, the IRS’ 2012 Exempt Organization Work Plan announced that the IRS was going to send out comprehensive questionnaires to 501(c)(4) organizations that have not filed for exemption (they are not required to file an exemption application, but instead can “self-declare”) to ensure that they have properly classified themselves and are complying with the requirements of their self-declared tax status.  Thus, it is not surprising that the IRS is looking critically at these organizations – as there is obviously already enough concern about 501(c)(4) organizations as a whole to warrant a special compliance project for this year.

3.       I think that transparency and disclosure are critical to our political system.  501(c)(4) organizations do not have to disclose their donors.  If these organizations are engaging in political campaign activities as their primary activity, then obviously they are not a social welfare organization and they should have to disclose their donors (PACs and 527s must disclose their donors, just as candidates do).  Tea Party groups that want to engage primarily in political campaign activity are not restricted from doing so by the IRS – they can be a 527 – they would just have to disclose their donors in order to do so.

In the interest of transparency and full disclosure on my part – I don’t share many (or possibly any) of the values espoused by the Tea Party Movement.  However, I would have the same critiques for any organization on the Left that was trying to operate in this manner (and would expect the IRS to scrutinize them to the same degree).  If they are not operated primarily for social welfare, they do not deserve the same benefits under the tax code to which a correctly classified §501(c)(4) organization is entitled.  I am sure that the IRS has probably overstepped its bounds in some instances with these inquiries.  However, I am sure it is difficult to tease out how these organizations are actually operated vs. how they claim to operate.

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