The IRS, 501(c)4 Groups, and the 2010 Elections

The New York Times has a good article about how 501(c)4 organizations are increasingly being utilized to influence elections by donors who appreciate that they are exempt from disclosure, but the piece is receiving criticism from some lawyers for perpetuating a popular misconception that could embolden some groups to jeopardize their 501(c) status.

In the article, the Times explains that “social welfare nonprofits” can advocate endlessly on behalf of issues relating to their primary purpose, but need to be careful about how much time and money they put into campaigning on behalf of specific candidates:

I.R.S. officials cautioned that what may seem like political activity to the average lay person might not be considered as such under the agency’s legal criteria.

“Federal tax law specifically distinguishes among activities to influence legislation through lobbying, to support or oppose a specific candidate for election and to do general advocacy to influence public opinion on issues,” said Sarah Hall Ingram, commissioner of the I.R.S. division that oversees nonprofits. As a result, rarely do advertisements by 501(c)(4) groups explicitly call for the election or defeat of candidates. Instead, they typically attack their positions on issues.

But federal tax law, some lawyers note, is not so narrow as to isolate communications that constitute “express advocacy” — i.e. calls to vote for the election or defeat of candidates or the functional equivalent thereof — as the only form of activity that might be treated as an effort to influence an election. Instead, the IRS is supposed to consider a number of “facts and circumstances” surrounding a group’s activities in determining whether it has engaged in electioneering.

For example, attacking a candidate on an issue that is not up for an imminent vote in Congress, yet the ad occurs just prior to a federal election, could quite easily suggest to the IRS an effort to influence an election. On the other hand, attacking a candidate on an issue that is up for a vote, or on a topic about which a group has a long and steady track record of advocating (even in non-electoral situations), would suggest the effort is a form of lobbying.

The Times’ article notes rightly that the IRS isn’t really properly equipped or especially eager to engage in this kind of oversight, so the distinction might be somewhat moot. But if 501(c)4 groups start interpreting their leeway to influence elections as being free to do anything short of express advocacy on behalf of candidates, they just might find themselves to be in violation of federal tax law.