IRS: CLC & Democracy 21 Call on IRS to Establish Bright-Line Standard for 501(c)(4) Tax-Exempt Status

Date

In a letter sent today to the Internal Revenue Service (IRS), the Campaign Legal Center and Democracy 21 called on the agency to promptly initiate a rulemaking proceeding to revise and clarify its regulations that spell out how much candidate campaign activity 501(c)(4) “social welfare” organizations can engage in under the Internal Revenue Code.

The privileged tax status has been widely embraced by special interest and political operatives to fund large scale political advertising campaigns on behalf of candidates.  The IRS has taken no public action to date as the number of, and spending by, these organizations continues to multiply.

On July 27, 2010, the Campaign Legal Center and Democracy 21 submitted a “Petition for Rulemaking on Campaign Activities by Section 501(c)(4) Groups” to the IRS, challenging the existing eligibility requirements for 501(c)(4) tax-exempt status.

“The inaction of the IRS is only serving to inspire further abuses of the tax code as 501(c)(4)s are misused by special interests and individuals seeking to buy influence in Congress and the White House without revealing their identities to the public,” said J. Gerald Hebert, Executive Director of the Campaign Legal Center.  “The IRS needs to establish a bright-line standard on eligibility for this privileged tax status or the already flagrant abuses will become even more widespread and the damage to our democracy will be made infinitely worse.”

“Organizations are ripping off the tax laws to hide from the American people the wealthy individuals and corporations financing their campaign activities,” said Democracy 21 President Fred Wertheimer.  “Yet as far as anyone knows, the IRS has failed to stop this.  We again call on the IRS to replace its ineffectual regulations and restore the integrity of the tax laws.  The IRS should adopt a new bright line standard, in accord with court decisions, to establish that groups spending more than an ‘insubstantial amount’ on campaign activities are not eligible for 501(c)(4) tax status.”

The letter cited additional egregious examples of abuses of 501(c)(4) tax status by groups running candidate ads across the country.  It also brought to the attention of the IRS comments made by an association of legitimate 501(c)(4) organizations that the widespread misuse of the tax-status was undermining both the credibility and the fundraising of groups for which the tax status was intended.

To read the full letter, click here.