Recent Developments

We would like to report several recent developments of note to tax-exempt organizations.

Democratic Senators Urge IRS to Investigate the Use of Section 501(c)(4) Organizations

In a letter dated February 16, 2012, seven democratic Senators wrote to IRS Commissioner Shulman and requested an investigation into the use of section 501(c)(4) "social welfare" organizations to improperly engage in campaign activity. The Senators stated:

It is contrary to the letter and the spirit of the statute for political organizations formed primarily to advocate for a political candidate or to run attack ads against other candidates to take advantage of section 501(c)(4). . . . We urge you to protect legitimate section 501(c)(4) entities by preventing non-conforming organizations that are focused on federal election activities from abusing the tax code. The letter does not specifically target any nonprofit organization for investigation. It follows a recent trend of public comments arguing that more than an insubstantial amount of political intervention may be impermissible for section 501(c)(4) organizations, although it acknowledges that current IRS guidance allows such activity so long as it is not an organization's primary activity. The IRS has not commented on the status of any current or intended investigations of section 501(c)(4) organizations with regard to their political activities, but the 2012 EO Work Plan states that issuing a compliance questionnaire to 501(c)(4), (c)(5), and (c)(6) organizations is a goal for the current fiscal year.

2012 EO Work Plan Highlights

The IRS' Exempt Organizations Division recently released its long-awaited FY 2012 Work Plan and FY 2011 Annual Report, which reports accomplishments from the past fiscal year and sets forth the Division's priorities for the fiscal year that began in October of 2011. The 2012 Work Plan describes EO's plans for several ongoing projects and highlights new areas of focus, including:

Continuing to examine organizations with international activities, particularly private foundations with revenues in excess of $500 million; Issuing a questionnaire to a cross-section of group ruling holders to gain information on how central organizations meet the requirements of Rev. Proc. 80-27 in the oversight of group members; Completing the Colleges and Universities audit project and issuing the final report; Conducting the third and final stage of the National Research Program on employment tax matters...

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