Proposed IRS Rules on 501(c)(4) Social Welfare Groups

Proposed IRS Rules on 501(c)(4) Social Welfare Groups


Six months after the Internal Revenue Service’s inspector general revealed that the tax-collection agency had been targeting conservative organizations for added scrutiny and delaying their applications for tax-exempt status, the agency proposed new rules for handling political activity by nonprofits. Unfortunately, the proposed rules would plunge the agency deeper into the business of regulating political speech.

The agency’s proposed rules to govern the political activity of social welfare groups suffer from significant flaws. The Institute for Free Speech (IFS) questions the need for the IRS to define or regulate political speech because the Federal Election Commission already reviews groups to determine if their political activity is so extensive as to trigger FEC filings as political committees.

The Institute submitted comments to the IRS suggesting that if an entity with a social welfare purpose is a PAC under Federal Election Commission rules, it ought to be regulated as a Section 527 organization. If it is not, it should be regulated as a Section 501(c)(4) social welfare group. The IRS should focus on its tax-collecting mission and leave campaign finance rules to the FEC.

The comments submitted by IFS Chairman and former Federal Election Commission Chairman Bradley Smith and IFS Legal Director Allen Dickerson note that “This straightforward approach would harmonize the IRS’s rules with those of the Federal Election Commission, the body entrusted by Congress with ‘exclusive jurisdiction’ for civil enforcement of the nation’s campaign finance laws…. [This] approach offers real clarity without dragging the IRS further into the thicket of political regulation, a tangle from which it—and the Service’s reputation for the neutral, nonpartisan collection of revenue—may never recover.”

However, if the IRS decides to proceed with new regulations, the Institute’s comments offers an alternative based on the landmark Buckley v. Valeo ruling, a unanimous Supreme Court decision that provides an elegant solution to the complex problem of regulating political speech and association. Our proposal suggests adopting the Buckley case’s definition of political activity, which includes only direct support for candidates and political parties and express advocacy for candidates — e.g., “Vote for Jones” — as “political activity” subject to limits. We also believe groups should be permitted to spend up to half of their budget on political activities and maintain their tax exempt status as a Section 501(c)(4) social welfare group.

The Institute released a report on the overwhelming opposition to the proposed rulemaking, available here.

Notable Comments Filed with the IRS on the Future Revised Rule

Notable Comments Filed with the IRS on the Proposed Rule

Comments on Compliance with the Paperwork Reduction Act

Editorials, Columns, and Op-eds

Organization Statements and Press Releases

  • 55+ Conservative and Free Market Groups Urge Congress to Stop IRS 501(c)4 Rule in Omnibus (60 Plus Association, Able Americans, American Commitment, American Conservative Union, American Energy Alliance, American Family Association, American Target Advertising, Inc., American Values, Americans for Prosperity, Americans for Tax Reform, Campaign for Liberty, Carleson Center Welfare Reform Action Fund, Center to Protect Patient Rights, Center for Individual Freedom, Center for Worker Freedom, Center for Military Readiness, Center for Security Policy, CitizenLink, Club for Growth, CNP Action, Inc., Concerned Women for America Legislative Action Committee, The Conservative Caucus, Cost of Government Center, Council for Citizens Against Government Waste, Center for Health Policy and Inequalities Research at Duke University, Digital Liberty, Ending Spending, Faith and Freedom Coalition, Faithful Catholic Citizens, Family Business Defense Council, Family-Pac Federal, Foundation for Democracy in Iran, Free Congress Action, Freedom Action, FreedomWorks, Frontiers of Freedom, The Heartland Institute, Heritage Action, Hispanic Leadership Fund, Home School Legal Defense Association, Independent Women’s Voice, Institute for Liberty, Less Government, Let Freedom Ring,, National Tax Limitation Committee, National Taxpayers Union, Restore America’s Mission, Restore America’s Voice, Social Security Institute, Taxpayers Protection Alliance, Tea Party Nation, Tea Party Express, Tea Party Patriots,, Tradition, Family, Property, Inc., United for Missouri, The Weyrich Lunch, Young America’s Foundation, and YR Alumni Network, Inc.)
  • ACLU: ACLU Defends Nonprofit Free Speech
  • Alliance for Justice: Treasury, IRS proposal endangers citizen participation in democracy
  • Alliance for Justice: Treasury, IRS Proposal: The End of Nonpartisan Election Work By 501(c)(4)s?

Legal Memos and Legal Blog Posts

Fact Sheets and Presentations

Congressional Statements, Letters, and Legislation

The Arguments

Submitting Comments on the Proposed Regulations

Analysis of the “Bright Lines Project”


The Center for Competitive Politics is now the Institute for Free Speech.