The scuttlebutt over the IRS’s double-standards concerning political nonprofits associated with the Tea Party and those associated with other center-right causes is likely well known to our readers. What underlies the conflict has less to do with politics, though, and much more to do with semantics. If the case forces the issue of tax reform upon our politicians, then perhaps that outcome is for the best (both parties agree to the need for reforms, though reformed in which directions remains terribly contentious). But as reforms are discussed − perhaps even implemented − nonprofits should stay aware of where new lines might be drawn.
Back in 2010, we noted the fact that the IRS was cleaning up its registries, and many nonprofits should check their status as the registries were reviewed. A similar culling of nonprofits, especially those engaged in some political activity, might be in the works now that the public is becoming aware of distinctions between 501(c)3s and (c)4s. Here is an excellent primer from MSNBC:
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Going forward, the word ‘primarily’ will likely be jettisoned for a scale of activities allowed (or not). And that process will not be simple or quick in a city that prided itself a decade or so ago on what the definition of ‘is’ is.
What both political parties agree on − at this point − is that the wording of the distinctions between 510(c)3s and (c)4s is inadequate (the distinctions were first drawn up in 1958!), and that there has been oversight-creep at the IRS for some time. This passage is from Nonprofit Quarterly’s report on Congressional hearings a week ago:
The ability of the IRS to misinterpret, misapply, and thorough bollix up the 501(c)(4) review and approval process, as revealed by the hearing, is clearly a reflection of what the IG (Inspector General) called the agency’s “gross mismanagement.” The political use of (c)(4)s has long been a growing problem, regardless of the erroneous 1958 regulation that redefined the word “exclusively.” A competent agency would have addressed this, or raised the issue to Congressional oversight bodies, or done something. But the Committee’s questioning of Shulman and Miller revealed a bureaucratic passivity that is beyond mystifying.
Difficult to see how most nonprofits (and most nonprofits engage in no real political activity whatsoever) will run into difficulty as these statutes get redefined. But those that lobby legislators or push specific political issues could get pulled into the fracas. For example, Lee Fang of the left-leaning site The Nation posts some damaging statistics on five right-of-center organizations that claim (c)4 status but behave rather more like political SuperPACs than nonprofits.
Whatever political sympathies you and your nonprofit have, you would do well to keep an eye on how Congress and the IRS will remap the legal terrain of nonprofit and political-action group legal status. If you have had any experience of challenges to your organization’s status, we’d love for you to share your experiences with us in the comments below!
