Close on the heels of a revocation we noted in a recent post comes yet another IRS ruling revoking 501(c)(4) status of a politically-active organization. In Private Letter Ruling 201224034, the IRS concluded that the organization was primarily benefiting the personal political and policy interests of the organization’s founder.
The ruling does not directly address the growing controversy surrounding (c)(4) political activity this election season—that is, whether the organization engaged in too much political activity to qualify for (c)(4) status. Under current law, a 501(c)(4) social welfare organization may engage in campaign activity without jeopardizing its tax-exempt status, provided that this is not its “primary” activity. In this latest ruling, the IRS went only so far as to intimate that perhaps the organization’s primary activity was to engage in political campaign intervention, noting that the organization had failed to show that its primary activity was not political.
The crux of the ruling was instead that the organization served primarily as a platform for advancing the policy and political interests of the organization’s founder and sole officer and director, who previously ran for and held public office. On the facts, the IRS’s conclusion is fairly unremarkable. More interesting is the IRS’s reliance on private benefit—a doctrine borrowed from the law governing 501(c)(3) organizations—to deny once again exempt-status in the (c)(4) context.
If these recent rulings are any indication, the IRS appears to be aggressively pursuing extension of the private benefit doctrine to 501(c)(4) organizations, which could portend trouble for politically-active (c)(4)s. With the private benefit doctrine in the IRS’s arsenal, it may be irrelevant how much of an organization’s activities are devoted to political campaign intervention. Instead, the IRS could deny (c)(4) exempt status if the facts and circumstances suggest that the organization primarily serves to benefit a particular candidate or political party.