Treasury Dep’t Proposes Overhaul of 501(c)(4) Dark Money Guidance


November 26, 2013; Politico

A draft proposal released by the Treasury Department yesterday would target the political spending of so-called social welfare organizations that receive 501(c)(4) tax exemptions. Treasury is taking aim at whether these groups do too much political activity and too little social welfare programming. Although it has been reported in the press as an Obama administration crackdown, at this stage it is only a proposed statement of guidance around which the IRS (which is part of Treasury) is soliciting reactions and feedback.

According to a Treasury Department press release, the proposed guidance defines “candidate-related political activity” and would lead to regulations clarifying the distinction between political activity and social welfare activity. Described by Assistant Secretary for Tax Policy Mark J. Mazur as “clear-cut definitions of political activity by tax-exempt social welfare organizations,” the definitions of candidate-related political activity as listed in the press release are as follows:

1. Communications

  • Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
  • Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
  • Communications expenditures that must be reported to the Federal Election Commission.

2. Grants and Contributions

  • Any contribution that is recognized under campaign finance law as a reportable contribution.
  • Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).

3. Activities Closely Related to Elections or Candidates

  • Voter registration drives and “get-out-the-vote” drives.
  • Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
  • Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
  • Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

These definitions would presumably replace the “facts and circumstances” tests currently used by the Service to figure out whether a group is engaged in political campaign activities.

Various observers have raised questions and concerns. Lisa Gilbert, director of Public Citizen’s CongressWatch program, has been pushing for clarity on 501(c)(4) political activities for some time, but suggested in response to this announcement that the IRS address not only the candidate-related activities of 501(c)(4) social welfare organizations, but 501(c)(6) business leagues and chambers of commerce. While Gilbert’s statement is logical and should be pursued, one might imagine that the IRS is still reeling from its bumble-headed treatment of the 501(c)(4) applications of various Tea Party-related groups and is simply highly focused on what might constitute social welfare.

Or perhaps by virtue of the draft guidance, the White House is acknowledging the huge growth of 501(c)(4)s, or at least their expenditures, in the U.S. political system, as shown in this chart published by the Wall Street Journal:




Conservative attorney Dan Backer blasted the proposed guidance as “an astonishing—and from this feckless, hyperpartisan administration, unsurprising—effort to curtail the free speech of Americans who come together to better their community.” Another conservative group was equally as critical: “The established political parties, both Republicans and Democrats, are trying to squelch any challenge to their role,” said Adam Brandon, executive vice president of Tea Party group FreedomWorks. “They’re going to try to legislate that challenge away.”

We’re guessing that because the release was scheduled only two days before the Thanksgiving holiday, the commentary on the pending dark money in the press coverage of the announcement has been pretty sparse. Expect a much hotter dialogue around the notion of what constitutes candidate-related political activity after the pundits return from their Thanksgiving dinners.—Rick Cohen



  • Michael Wyland

    The WSJ chart, based on Center for Responsive Politics statistics, may underrepresent the funds spent by labor unions in elections. Union self-reporting to the US Department of Labor shows political expenditures almost four times those reported by unions to the Federal Election Commission. The discrepancy is due to different definitions of political expenditure used by the two federal agencies.

    For more, see the following Wall Street Journal article from July, 2012: