Political organization denied social-welfare exemption for campaign activity

Plain-English summary

An organization asserted that it qualified as a social-welfare organization under section 501(c)(4) without requesting a determination letter. It was closely affiliated with a political action committee, made acknowledged political contributions, and paid a political consulting company for advertisements and other campaign-related communications. The organization argued that some commercials promoted economic growth rather than politics. The IRS found that the organization operated almost entirely through political campaign intervention and activities benefiting private partisan interests, rather than primarily promoting social welfare. It therefore denied exempt status, and the organization reported that it planned to dissolve.

Ruling snapshot

• Question: Was the organization primarily engaged in promoting social welfare despite its political contributions, advertising, and campaign-related spending?
• Outcome: denied
• Key authorities: IRC § 501(c)(4); Treas. Reg. §§ 1.501(c)(4)-1(a)(2) and 1.501(c)(3)-1(c)(3)(iii)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service April 21, 2022

Tax Exempt and Government Entities Taxpayer ID number:
Form:
Release Number: 202247012 Tax periods ended:
Release Date: 11/25/2022 Person to contact:
UIL Code: 501.04-00 Name:
ID number:
Telephone:
Fax:

CERTIFIED MAIL - RETURN RECEIPT REQUESTED

Why we are sending you this letter
This is a final determination explaining why your organization doesn’t qualify as an organization described in
Internal Revenue Code (IRC) Section 501(c)(4) for the tax periods above.

In the future, if you believe your organization qualifies for tax-exempt status and would like a determination
letter from the Internal Revenue Service, you can request a determination by filing Form 1024, Application for
Recognition of Exemption Under Section 501(a), or Form 1024-A, Application for Recognition of Exemption
Under Section 501(c)(4) of the Internal Revenue Code, (as applicable) and paying the required user fee.

Our adverse determination as to your exempt status was made for the following reasons: You have
demonstrated that you are not operating exclusively for the promotion of social welfare. The promotion of
social welfare does not include direct or indirect participation in political campaigns on behalf of or in
opposition to any candidate for public office per Treasury Reg. 1.501(c)(4)-1(a)(2)(ii).

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax
returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov.

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was

mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment

If you decide to contest this determination, you may file an action for declaratory judgment under the provisions
of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court
of Federal Claims or 3) the United States District Court for the District of Columbia.

Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for
declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on
Tax-Exempt Status. You may write to the courts at the following addresses:

United States Tax Court U.S. Court of Federal Claims U.S. District Court for the District of Columbia
400 Second Street, NW 717 Madison Place, NW 333 Constitution Ave., N.W.

Washington, DC 20217 Washington, DC 20439 Washington, DC 20001

Letter 6337 (12-2020)
Catalog Number 74808E

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use
the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to
file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676).
If you have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Keep the original letter for your records.

Sincerely,

Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury 2/2/2022
Internal Revenue Service Taxpayer ID number:
IRS Tax Exempt and Government Entities

Form:
Tax periods ended:
Person to contact:

ID number:

Telephone:
Fax:

Address:

Manager’s contact information:
Name:
ID number:

Telephone:
Response due date:
3/3/2022

CERTIFIED MAIL — Return Receipt Requested

Why you’re receiving this letter
We enclose a copy of our audit report, Form 886-A, Explanation of Items, explaining that we

propose to determine that you do not qualify for tax-exempt status as an organization described
in Internal Revenue Code (IRC) Section 501(c)(4).

If you agree

If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(4) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or

send additional information as stated in 1 and 2, above, you’ll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the
IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn’t apply now that we’ve issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
Government Entities) if you feel the issue hasn’t been addressed in published precedent
or has been treated inconsistently by the IRS.

If you’re considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal to
the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

If we don't hear from you

If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll
issue a final adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can
help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a
hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you
qualify for TAS assistance, which is always free, TAS will do everything possible to help you.
Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

For additional information

You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this letter.

Enclosures:
Form 886-A
Form 6018
Publication 892
Publication 3498

Sincerely,

Sean E. O’Reilly
Director, Exempt Organizations
Examinations

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A or exhibit
( ) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

ISSUE
Whether is primarily engaged in social welfare activities and qualifies as

exempt under section 501(c)(4)?

FACTS

(“ ” hereafter ) was formed as a nonprofit corporation in the of
in . Its founder was , a businessman and member of

the . did not request a
determination letter; it files Forms asserting status as a section is a 501(c)(4) organization.
According to tax return, is dedicated to advocating and educating the public on
issues, and to develop and advance an agenda for to promote real solutions to
move forward. is closely affiliated with a political action committee that was
formed around the same time as and is called . is president
of and was treasurer of ; serves as counsel for both entities.

During the audit period, reported receiving contributions of $ on its Form
made two major types of expenditures in . First, it made contributions in the total
amount of $ to . These contributions were marked as political on their
ledger and agrees these contributions constitute political campaign intervention.
filed reports with the showing spending to support candidates
and/or oppose candidates for Office.

Second, paid about $ to , a company that provides general
consulting and political strategy, communications strategy, direct mailing, online engagement,
television and radio production, and telephone voter contact to political campaigns.

The website provides a list of political candidates that it has helped get
elected, all of whom are candidates. In , paid about
$ to produce two advertisements, one for radio and one for television.

Below is the Transcript from the radio ad:

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A or exhibit
( ) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

The television ad produced by has essentially the same message,
mentioning times in favorable terms the legislature and urging the viewer sign a
petition on website. has not produced a copy of that petition. The video and
radio commercials promote the for the of . Both the video
and radio transcripts credit the for the growth of the through
legislation.

Below is a chart of the total expenses of $ reported by
The data comes from the “ ” file provided by
. The chart shows that receives $ , is
paid $ and all other expenses total $ agrees that the
payments to are political contributions.

The website states that “
.” After my interview, the / site was taken down.

made both video and radio commercials for .
also provided the video that they distributed to local television stations and was available on the
internet. The video was shown on the organization's social media sites.

LAW

Section 501(c)(4) provides for the exemption from federal income tax of organizations not
organized for profit but operated exclusively for the promotion of social welfare. Section
1.501(c)(4)-1(a)(2) of the Income Tax Regulations in part provides:

An organization is operated exclusively for the promotion of social welfare if it is primarily engaged
in promoting in some way the common good and general welfare of the people of the community.

An organization embraced within this section is one which is operated primarily for the purpose of
bringing about civic betterments and social improvements. * *

Private benefit:

To qualify under section 501(c)(4), an organization must be “a community movement designed to
accomplish community ends.” Erie Endowment v. United States, 316 F.2d 151, 156 (3d Cir.
1962). An organization does not qualify under section 501(c)(4) if it is operated primarily for the

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A or exhibit
( ) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

benefit of a private group such as its members, rather than for the purpose of benefitting the
community as a whole. Even if an organization can establish some benefit to the community, it still
does not meet the requirement of a section 501(c)(4) organization if it is operated primarily to
benefit a private group rather than the community as a whole.

In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), a school that trained
individuals as campaign managers was denied exemption under IRC 501(c)(3) because it
operated for the substantial nonexempt purpose of benefiting the private interests of Republican
Party entities and candidates. Although the school had a legitimate educational program, the Tax
Court held that it conducted its educational activities with the partisan objective of benefiting
Republican interests. The court noted that the school's partisan purpose distinguished its activities
from the educational organization in Rev. Rul. 76-456. The concept of impermissible private
benefit applies to section 501(c)(4) organizations as well. See Contracting Plumbers Co-op.
Restoration Corp. v. United States, 488 F.2d 684 (2d Cir. 1973).

Political campaign intervention:

Treasury Reg. 1.501(c)(4)-1(a)(2)(ii) provides that the promotion of social welfare does not include
direct or indirect participation in political campaigns on behalf of or in opposition to any candidate
for public office. Treasury Reg. 1.501(c)(3)-1(c)(3)(iii) provides that activities that constitute
participation or intervention in a political campaign on behalf or in opposition to a candidate
include, but are not limited to, publishing or distributing written or printed statements or making
oral statements on behalf of or in opposition to such candidate. In addition, the regulation says the
term "candidate for public office" means an individual who offers himself, or is proposed by others,
as a contestant for a national, State, or local elective public office.

An organization exempt under IRC 501(c)(4) may engage in some political campaign activities as
long as it is primarily engaged in activities that promote social welfare. Section 1.501(c)(4)-
1(a)(2). In the context of section 501(c)(3), courts have long held that the presence of a single
substantial non-exempt purpose will preclude exempt status regardless of the number or
importance of the exempt purposes, citing Better Business Bureau of Washington, D. C., Inc. v.
United States, 326 U.S. 279 (1945) (interpreting very similar Social Security Act statute). Courts
that have considered the issue in the context of section 501(c)(4) have adopted the same
standard, citing Better Business Bureau and holding that a single substantial non-exempt purpose
will preclude exemption under section 501(c)(4) because the organization is not primarily
operating for the promotion of social welfare. See Contracting Plumbers Co-op. Restoration Corp.
v. United States, 488 F.2d 684 (2d Cir. 1973); Commissioner v. Lake Forest, Inc., 305 F.2d 814,
818 (4th Cir. 1962); Vision Service Plan v. United States, 2005 WL 3406321 (E.D. Cal. 2005),
aff'd., 265 Fed. Appx. 650, (9th Cir. 2008), cert. denied, 555 U.S. 1097 (2009).

A determination of what constitutes “more than insubstantial” is a question of fact to be determined
under the facts and circumstances of each case. See Manning Ass'n v. Commissioner, 93 T.C.
596, 603 (1989); B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352, 357 (1978). In general, when

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A or exhibit
( ) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

considering the issue of “more than insubstantial” in the context of separate activities, the courts
have engaged in a more quantitative, rather than qualitative, analysis. In Church of Boston v.
Commissioner, 71 T.C. 102 (1978) the court found that expenditures for non-exempt purposes
that constituted 20% of total expenditures was enough to preclude exemption under section
501(c)(3). In World Family Corporation v. Commissioner, 81 T.C. 958 (1983), the court held that
10% non-exempt expenditures was insubstantial in the context of section 501(c)(3). In Bethel
Conservative Mennonite Church v. Commissioner, 80 T.C. 352 (1983), rev'd., 746 F.2d 388 (7th
Cir. 1984), the Tax Court held that expenditures for a medical aid plan comprising 22% of
expenditures were not in furtherance of exempt purposes, were not insubstantial, and that the
organization was not entitled to exemption under section 501(c)(3). (The Seventh Circuit reversed
the Tax Court, finding that the church's medical aid plan, available to all members of congregation
in good standing and their dependents, did not disqualify church for exemption.)

Taxpayer’s position

does not believe that it contributes more than % of its income to political parties.
states that the commercials from are for the good of the growth of the
and not political. agrees that the payments to were political.
They do not agree that the payments for the commercials and the campaign promoting the
were political. has notified us that they will be dissolving the
organization sometime this year.

Government’s Position

does not qualify for exemption under section 501(c)(4) because it does not engage
primarily in activities that promote social welfare. Instead, it engages almost entirely in activities
that constitute political campaign intervention and in activities that serve a private benefit to the
interests of the in . admits to having made political
contributions that account for percent of total expenditures during . Under whatever
measure one uses to determine what is insubstantial, fails the test. expenditures
on PCI were not insubstantial, and those expenditures alone preclude it from qualifying for
exemption under section 501(c)(4). And taken into account together with activities to
promote the , about % ($ /$ ) of expenditures
did not promote social welfare.

We have reviewed the advertisements and commercial made by . We have
also reviewed the radio transcripts. The radio transcripts state “

.” “

.” “

.” These advertisements
promote the private interests of the .

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number
Form 886-A or exhibit
( ) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Conclusion

You are not operated exclusively for the promotion of social welfare within the meaning of section
501(c)(4) and the regulations thereunder. We have concluded, based on all the facts and
circumstances that your activities do not further social welfare purposes because they constitute
political campaign intervention and are focused on promoting the interests of the .
Therefore, does not qualify for exempt status under IRC § 501(c)(4) of the Code for tax
year ending .

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)