The IRS has issued a report that hopefully represents a strong step forward in improving accountability and procedures at the agency, which has been hammered for how it has handled review of applications for tax-exempt status.
An interesting inclusion in the report (see Appendix E) is a safe harbor for expedited review for certain 501(c)(4) organizations whose applications have been pending for 120 days or more, and are willing to certify that they have and will continue to adhere to certain activity thresholds. Specifically, to qualify, an organization must certify the following for all tax years (past, present or future) during which it intends to rely on the determination letter issued by the expedited process:
Social Welfare Test. It has spent or will spend 60 percent or more of both its total time and total expenditures on activities that promote social welfare, which does not include:
- activity that benefits select individuals or organizations (rather than the community as a whole;
- political campaign activity;
- operating a social club for members; or
- carrying a business similar to those operated for profit.
Political Activity Test. It has spent or will spend 40 percent or less of both its total time and total expenditures on indirect or direct intervention in any political campaign on behalf of or in opposition to an candidate for public office, which includes:
- making statements for or against candidates;
- conducting voter registration drives or get-out-the-vote drives that focus on a preference for a particular candidate or party;
- providing financial support to any candidate, party, political committee or Section 527 organization;
- distributing material prepared by a candidate, party, political committee or Section 527 organization; and
- producing and distributing a voter guide that rates candidates.
Solely for purposes of eligibility under the expedited review process (as opposed to analyzing permissible political activity more generally), the following activities are included in the definition of director or indirection campaign intervention and will count toward the allowable political activity threshold:
- A public communication within 60 days before a general election or 30 days before a primary election that identifies a candidate in the election;
- Conducting an event at which only one candidate is, or candidates of only one party are, invited to speak; and
- Any grant to a 501(c) organization if the grantee engages in political campaign intervention.
While the IRS report also includes changes and efforts that aim to improve the determination process overall, the expedited process for 501(c)(4)s indicates that the focus of IRS attention for the near future will continue to be on cleaning up the political mess exposed last month. That’s good news for 501(c)(4)s, but unfortunately could mean further delays for many 501(c)(3)s that have been waiting more than a year for a determination (or more than three times the 120-day threshold included in the expedited review process).
We’ll continue to follow and update you on developments and changes at the IRS with respect to accountability and processing of applications.