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Treasury Proposes Rules That Will Impact Political Activities by Non-Profit Orgs

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Treasury Proposes Rules That Will Impact Political Activities by Non-Profit Orgs

December 6, 2013

On November 26, the Treasury Department announced proposed rules that they say will clarify the tax code's rules regarding the ability of tax-exempt organizations to spend money on elections without revealing the source of the funds. The tax code currently allows "social welfare" organizations (designated as 501(c)(4)s) to engage in certain political activities without jeopardizing their tax-exempt status. Additionally, these organizations have been shielded from certain reporting requirements, including disclosing the identity of donors. The current rules say that a group qualifies as a social welfare organization "if it is primarily engaged in promoting in some way the common good and general welfare of the the people of the community." This has been interpreted over the past fifty years to mean that an organization must spend at least 51% of their resources on social welfare efforts, or else risk losing tax-exempt status. 

Under the proposed rule, the Treasury focuses on activities engaged in rather than percentage of resources expended. The rule spells out that activities including distributing voter guides, registering people to vote, and paying to run ads that name elected officials close to election day will be considered "candidate-related political activities", and not available to be counted towards the social welfare purpose of the 501(c)(4). Typically donations made to these organizations are not deductible by the individual or business making the contribution, with some narrow exceptions. 

The announcement came just days after Senators John Thune (R-SD) and Ron Wyden (D-OR) sent a letter to the chair and ranking member of the Senate Finance Committee, urging them to protect the tax-exempt status of charitable contributions. They note in the letter that charitable giving allows organizations to provide important social services that would have to be provided by the government if those organizations were unable to. The Senators acknowledge that lawmakers are being urged to consider comprehensive tax reform, and ask that tax deductions currently allowed for charitable giving be kept in place. 

Sources: The Washington PostAssociations Now