Letters to the editor - Tuesday (5-21-2013)
Defining ‘social welfare’ groups can be a tricky business
The lead item on the Sunday talk shows was the IRS treatment of so-called 501(c)(4) organizations. This is a previously obscure part of the code, dealing with neighborhood groups, alumni groups and so forth. Let’s begin with some facts.
Section 501 deals with organizations which don’t have to pay any taxes. Specifically, sub-section (4) reads:
“(A) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.
“(B) Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.”
Underline the term “social welfare”; that’s where the problem comes from, the border between social welfare and political advocacy.
IRS Regulation 1.501(c)(4)-1(a)(2)(i) defines it thusly:
“[A]n organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the community.”
Does that clear things up? Two diametrically opposed political organizations, Crossroads GPS and MoveOn.org are both covered by this definition. Do both fit your definition of social welfare?
The Citizens United case opened the floodgates of applications to the Cincinnati office of the IRS where these applications are processed. The group handling these previously innocuous applications was (apparently) overwhelmed. These and many other smaller groups all claimed they were promoting “social welfare.”
Now Cincinnati was expected to evaluate organizations which clearly were outside the previous definitions. They had to turn the regulation into specific criteria as to whether the applicant dealt in social welfare or political advocacy.
There lie the real problems: How do you differentiate between true social welfare and political advocacy, and do you want political groups to be tax exempt?
— John P. Burke