The IRS recently issued proposed regulations that aim to more clearly define what 501(c)(4) organizations can permissibly do with respect to political activity. This development follows a firestorm of controversy earlier this year involving scrutiny of certain 501(c)(4) organizations, but in reality the uncertainty around political activity has troubled nonprofits for some time. The new proposed regulations move in the direction of black-and-white clarity (and away from facts-and-circumstances determinations), but in the process of doing so snag some nonpartisan activity that traditionally would be viewed as educational rather than political.

As brief background, 501(c)(4) organizations must be organized primarily for the promotion of social welfare. Unlike  501(c)(3) organizations, they can engage in some partisan political activity without placing their exemption at risk. However, in the past few years 501(c)(4)s have been the subject of much attention over whether they are engaging in too much political activity to be consistent with their exemption—and all without having to disclose their donors.

Already there has been an outcry of concern about the regulations, mainly with the IRS decision to lump nonpartisan activity in with more traditionally partisan political activity in the name of clarity. One article points out that the new rules may just shift activity from 501(c)(4)s to other exempt organizations like trade associations, and also notes that 501(c)(3) organizations will likely be reluctant to fund work like nonpartisan voter education or get-out-the-vote efforts that they may have funded in the past if it is defined as political activity. Perversely, the regulations could have the result of shifting some non-partisan activity from a 501(c)(4) to a 501(c)(3) affiliate.

Here are the key points from the proposed regulations:

Clear distinction from 501(c)(3) activity. The proposed regulations define and use the term “candidate-related political activity,” instead of “participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” The latter language is similar to that used in the 501(c)(3) context, and here the IRS is making clear that these regulations and concepts of political activity are limited to 501(c)(4)s. However, the IRS does request comments on whether similar treatment is warranted for other 501(c) organizations (like 501(c)(6) trade associations)—and whether 501(c)(3)s would benefit from a similar overhaul with more clear lines.

Bright lines that are more expansive. In addition to including within the definition of “candidate-related political activity” activities that were considered per se political activity in the past (e.g., contributions to a campaign or express advocacy communications), the proposed regulations also capture certain activities that may not have been considered political under the current facts-and-circumstances regime if done in a non-partisan manner:

• Conducting a voter registration or “get-out-the-vote” drive;
• Preparing a voter guide that refers to clearly identified candidates;
• Hosting an event (e.g., a debate) within 30  days of a primary election or 60 days of general election at which one or more candidates appear as part of the program; and
• Any public communication within 30  days of a primary election or 60 days of general election that refers to clearly identified candidates.

The IRS notes that analysis is highly fact-specific currently, and requests comments on whether any such activities should be excepted from the definition.

No change yet on “primarily” standard. Currently, a 501(c)(4) organization needs to operate primarily for the promotion of social welfare, which is similar to the requirement that 501(c)(3) organizations operate primarily for charitable purposes. However, unlike in the 501(c)(3) realm, there is not a regulation that states that an organization will not be regarded as exempt if more than an insubstantial part of its activities is not in furtherance of its exempt purpose. As such, some have interpreted this to mean that a 501(c)(4) organization’s political activities can go as high as 49 percent. The regulations request comments on whether the primarily standard should be retained, whether it should be defined with more precision (i.e., similar to how the new expedited review process for 501(c)(4)s limits such activity to 40 percent or less), or revised to mirror the standard under the 501(c)(3) regulations.

These proposed regulations are a first bite at the apple, and it is possible that changes are in store. Comments can be submitted until February 27, 2014.