As discussed in last month’s
issue, the IRS is seeking comments from the public on the methodologies
to use in determining how much political activity an exempt social
welfare organization (an IRC § 501(c)(4) entity) can engage in, and in
quantifying various program activities. Now comes the agency, denying
recognition of this category of exemption to an organization, the
primary activity of which is the promotion and advocacy of open debate
on contemporary federal and state public policy issues, based on the
extent of revenue expended for political purposes (Priv. Ltr. Rul.
The organization stated that
one of its primary activities will be the undertaking of projects
concerning a particular issue. It estimated that this activity will
account for about 49 percent of its time. It advised the IRS that
another 49 percent of its time will be devoted to “public education
through mass media communication,” such as by means of its website. The
remaining 2 percent of the time is spent on fundraising.
We know that measurement of
program activity of an exempt organization in terms of time expended is
obviously one way of measuring program activity. What we do not know,
and this ruling does not explain, is how this organization went about
measuring the activity on this basis and what the IRS expects from an
organization in proving the time expenditure percentage.
In this organization’s first
year, it expended approximately 60 percent of its revenue on the
production and distribution of a flier that encouraged defeat of a
candidate for public office. The timing of this communication coincided
with the electoral campaign. As the IRS noted, the production and
distribution of this flier “constituted direct political campaign
intervention in opposition of a candidate for public office.”
The IRS also observed that
the organization’s website is devoted to raising money for political
advertisements to help elect individuals to Congress who share its
values. In its second year of operation, the organization spent over 82
percent of its revenue on efforts to coordinate its activities
concerning its website. This, too, was held to be political campaign
intervention. Again, there is no mention of the methodology used in
computing these percentages. But, also again, it is obvious that the
expenditure of funds is a way to measure the scope of programs.
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