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Judicial Watch • IRS Pages from May 2015 5440-5449

IRS Pages from May 2015 5440-5449

IRS Pages from May 2015 5440-5449

Page 1: IRS Pages from May 2015 5440-5449

Category:Obtained Document

Number of Pages:10

Date Created:July 22, 2015

Date Uploaded to the Library:July 22, 2015

Tags:5440, 5449, Engage, Shulman, activity, finance, advocacy, campaign, Revenue, political, Chairman, organizations, Department of the Treasury, PAGES, 2015, senate, Exempt, September, committee, Washington, IRS

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September 28, zoia
The Honorable Douglas Shulman
Comrnissioncr 3.,
internal Revenue Service ...a- ~~- Rm. Constitution Avenue, NW.
Washington. 20224 SE? 1919
Via Electronic Transmission
Dear Commissioner Shulman:
The Senate Finance Committee hasjurtsdiction over revenue matters. and the
Committee responsible for conducting oversight ofthe administration the federal tax
system. including matters involving tax-exempt organiutions, The Committee has
focused extensively over the past decade whether tax exempt groups have been used
for lohhying other nancial political gain.
The central question examined the Committee has been whether certain
charitable social welfare organizations quality for the tax-exempt status provided
under the lntemal Revenue Code.
Recent media reports various 50] (c)(4) organizations engaged political
activity have raised serious questions about whether such organizations are operating
compliance with the internal Revenue Code.
The law requires that political campaign activity 50l(c)(4), (c)(5) (c)(6)
entity must not the primary purpose the organization.
ifit determined the primary purpose the 501(c)(4), (exit) and (c)(6)
organization political campaign activity the tax exemption for that nonpro can
Even political campaign activity not the primary purpose ofa SOI (c)(-6).
(c)(S). and (c)(6) organization, must notify its members ofthc portion ofducs paid due political activity pay proxy tax under Section 6033(e).
IRS JW-220-005470
Also. Lax-exempt organizations and their donors must not engage private
inurement excess bene transactions. These mles prevent private individuals
groups from using tax-exempt organizations benefit their private interests profit
from the tax-exempt organization activities. September New York Times article entitled Hidden Under Tax empt
Cloak, Private Dollars Flow described the act the organiz ion Ame for
Job Security. Alaska Public omce Commission investigation revealed that MS,
organized entity promote social welfare under 50! (c)(6), fought development
Alaska the behe local nancier who paid for most the referendum
campaign. The Commission report said that Americans for Job Security has other
purpose other than cover money trails all over the country. The article also noted that
membership dues and assessments plunged zero before rising 2.2 million for
the presidential race. September Time Magazine article examined the act Washington
DC. based 50l(c)(4) groups planning $300 million spending blitz the ZOI
elections. The article describes group transforming itself into nonpro under
501 (c)(4) the tax code, ensuring that they would not have publically disclose any
information about its donors.
These media reports raise basic question: the tax code being used eliminate
transparency the funding our elections elections that are the constitutional bedrock our democracy? They also raise concerns about whether the tax bene nonpro
are being used advance private interests.
With hundreds millions dollars being spent election contests tax-
exempt entities. time take fresh look current practices how the comport
with the lntemal Revenue Codes rules for nonprofits. request that you and your agency sun najor 50l (c}(4). (c)(5) and (c)(6)
organizations involved political campaign activity examine whether they are
operated for the organization intended tax exempt purpose and ensure that political
campaign activity not the organizatiotfs primary activity. Speci cally you should
examine these political act reach primary purpose level the standard imposed the federal tax code and they not. whether the organization complying with
the notice proxy tax requirements Section 6033(e). also request that you your
agency survey major l(c)(4), (e)(5), and (c)(6) organizations detenninc whether they
are acting conduits for major donors advancing their own private interests regarding
legislation political campaigns, are providing major donors with excess bene ts.
Possible violation oftax laws should identi you conduct this study.
Please report back the Finance Committee soon possible with your
ndings and recommended actions regarding this matter.
Based your repon plan ask tha Cnmrniltee open its own investigation
and/or lake appmprialc legislative aclion.
Max Baucus
t,, WASFHNGTON, 20224
February 17. 2011
The Honorable Max Baucus
Chairman, Committee Finance
United States Senate
Washington, 20510
Dear Mr. Chairman: responding your letter about political campaign activities organizations
claiming tax exempt under sections 501(c)(4), (5) and (6) the Internal Revenue
Code (the Code), You wrote that such activities may inconsistent with the tax
exempt status these organizations. You asked survey major 501(c)(4). (5) and
(6) organizations involved political campaign activity examine whether they are
operated for the organizations intended tax exempt purpose and ensure that political
campaign activity not the organizations primary activity. meet the requirements for tax exemption, section 501(c)(4), (5) (6) organization
must engage primarily activities that further its exempt purpose. you
acknowledge your letter, under the law, section 501(c)(4), (5) and (6) organizations
may engage political campaign intervention. long the intervention, along with
any other non oxempt activity, not their primary activity. They also may conduct
unlimited issue advocacy and lobbying, long those activities are germane their
exempt purposes. dotennirre the primary activities organization. including
determining whether political campaign activity primary activity organization. must wait until the organization les its annual information return review the
organizations activities fort entire year, wall the facts and circumstances
surrounding those activities. only after review all the relevant information, including
all expenditures and volunteer time, can determine whether the organization
meeting the requirements for exemption, and whether any tax due. This makes
dii cuit for assess during the tax year whether organization claiming
exempt under 501 (c)(-1), (5) (6) complying with the applicable limits political
campaign activity. Also. many organizations permisslbly extend their due date for tiling
their annual information returns which inrxeases the delay between any improper
activity that organization ducted and our receipt the information needed
assess the organizations compliance with the iogai requirements. face additional challenge the initial formation these organizations. The fact
that these types organizations have legal requirement file application with seek deisrrninatiun that they are exempt within section 5U1(a) results many such
organizations essen ally seit declaring exemption without our determination
IRS-JW-220-O0 473
exempt status. This means not have opportunity review the stated
purposes and activities such organization before flies one more Forms 990. share your concern that tax-exempt organizations all types comply with the
applicable laws governing political campaign activities and not use them ior improper
purposes. took maior step 2003 enhance the reporting tax exempt
organizations other than charities (including those described section 501(c)(4), (5),
(6)), requiring them provide specific information the annual Form 990 about
their political campaign activities. Requiring this iniormaiion makes the organizations
political campaign activities more transparent and the general public. use
this information determining political campaign activity organizations primary
purpose and whether any tax may due. the work plan the Exempt Organizations Division, announced that beginning
FY201 are increasing our locus section 501(c)(4), (5) and (6) organizations.
With the additional information available the new Form 990. will look issues
relating political activity, lnurernent, and the extent compliance with the
requirements tor tax exemption organizations that self-identify themselves under
these sections. appreciate your request conduct survey these types
organizations, but given the timing inlormation challenges discussed above, feel
that this not likely provide with the necessary compliance information, our
view, focusing our efforts the annual information returns that receive from these
organizations most appropriate. ensure that tax-exempt organizations follow the tax laws, are committed
balanced program overseeing wide range tax-exempt organizations. including
those exempt under the sub-sections cited your letter. Additional information the
relevant law the enclosure.
Thank you for your attention this area the law. appreciate your continuing
support our efforts administer the tax laws that apply tax-exempt organizations,
and welcome the opportunity meet with you and your shaft discuss these
Please call (202) 622~951 Floyd Williams, Director Legislative Affairs.
(202) 6224725, you need additional Information would like schedule meeting.
Tes Tax~Exemt Oranizations
Charitable organizations described section 501(c)(3) must organized and operated further charitable, religious, educational, etc. purposes. such, they must
operated for the public rather than private bene and their net earnings may not inure the benefit any private shareholder individual. Section 501(c)(3) organizations
are eligible receive tax deductibe charitable contributions under section 170.
treated tax exempt section 501(c)(3) organization, most charitable organizations
(other than churches) must notify the IRS ling Form 1023, Application for
Recognition Tax-Exempt Status.
The exempt purpose section 501(c)(4) social welfare organizations prorviote
social welfare promoting the common good and general welfare people the
community. For section 501(c)(5) labor, agricultural, and horticultural organizations, the
exempt purpose the betterment conditions those engaged their pursuits, the
improvement the grade their products, the development higher degree ciency their respective occupations. The section 501(c)(5) business league exempt purpose promote the common business interest its members and not
conduct regular trade business for pro The net earnings these organizations
may not inure the bene any private shareholder individual (for section
501(c)(4) and (6) organizations) member (for section 501(c)(5) organizations).
The exempt purpose section 527 political organizations attempting influence the
election, selection, nomination, appointment any individual federal, state,
local public office, office political party the Presidential and Vioe~vPresidential
electors. These include candidate committees, party committees, and political action
committees (PACS). Certain section political organizations are automatically tax
exempt: FEC political committees, ate and local candidate committees, state and local
party committees, and small organizations that never receive more than $25,000
gross receipts during any taxable year. All other section 527 political organizations
must electronically Form 6871 tax exempt, including state PACs that receive
more than $25,000 any taxable year. they not file Form 8871, they are taxable
section 527 organizations and subject tax all their (including
contributions) the highest corporate rate, They are not eligible receive
tax~deductibe charitable contributions under section 170.
Tes Advocac
The internal Revenue Code distinguishes between different types advocacy that
tax exempt organizations may engage in, particularly lobbying activity and political
campaign activity.
Lobbying activity the attempt uence legislation. For these purposes, legislation
includes action acts, bills, resolutions, similar items the Congress, any state
legislature. any local council, similar governing body, the public
referendum, initiative, constitutional amendment, similar procedure.
Political campaign activity the attempt uence the election candidates public ce. This includes any activities that favor oppose one more candidates for
public ce, such candidate endorsements, contributions political campaign
funds, public statements position (verbal written) made behalf
organization favor of, opposition to, any candidate for public ce.
General advocacy includes activity attempting uence the public issues
concern the organization, attempting uence actions the executive branch
government issuance regulations, and activities intended encourage
people part pate the electoral process manner that does not favor oppose
any particular candidates.
The IRS bases its determination whether activity constitutes lobbying political
campaign activity all the relevant facts and circumstances. Consequently,
communication made shortly before election that identi candidate and takes
position may not constitute political campaign activity certain circumstances. See
Rev. Rul. 2004-6 for examples the facts and circumstances considered making
such determination.
Advocac xemt Oranizations the chart below illustrates, the different types tax-exempt organizations discussed
above have different rules the types advocacy they may conduct consistent with
their tax exempt status. Engaging each type advocacy through some form
tax-exempt organization possible, but not all types tax-exempt organizations can
engage each type advocacy.
Receive Tax Deductible
Charitable Contributions
Engage Legislative
Engage Candidate Election
Engage Public Advocacy
Not Related Legislation
Election Candidates statute, section 501(c)(3) charitable organizations may not engage lobbying
activity substantial activity and are absolutely prohibited from engaging political
campaign activity. They may engage other advocacy activities, including
encouraging people participate the electoral process manner that does not
IRS-JW-220-O0 476
support oppose any candidates for public office, without jeopardizing their tax~exempt
status. addition the possibility loss tax exempt status they engage
political campaign activity too much lobbying activity, the expenditures for such
activities may subject excise tax under section 4955 for political campaign
activity section 4911 section 4912 for lobbying activity. section 501(c)(3)
organization that loses its tax-exempt status due too much lobbying political
campaign activity may not treated section 501(c)(4) organization. the opposite end the spectrum are section 527 political organizations. their
exempt purpose engage political campaign activity, they are unlimited the
amount they may do. However, they are limited the amount lobbying and other
advocacy they may conduct. Section 527 political organizations that expend more than insubstantial amount from any fund for non-political campaign activity will subject tax all the income (including contributions) that fund.
The organizations described sections 501(c)(4), 501(c)(5), and 501(c)(6) are treated
similarly the treatment their advocacy activities. Activities that further the
respective exempt purposes these three types tax-exempt organizations not only
include general advocacy activities related their exempt purpose, but can also include
lobbying activity related their exempt purpose. Thus, for example, ballot measure
committee may qualify section 501(c)(4), (5), (6) organization. Political
campaign activity does not further their respective exempt purposes they are limited the amount political campaign activity they may engage without jeopardizing
their tax exempt status that activity, along with all other non-exempt purpose activity,
must less than primary.
While section 501(c)(4), (5), and (6) organizations may engage limited amount
political campaign activity without jeopardizing their tax exempt status, they are subject tax under section 5276) the lesser their net investment income the amount
expended for their political campaign activity. determining whether activity
subject tax under section 527(f), all the relevant facts and circumstances are
Additionally, section 501(c)(4), (5), and (6) organizations may subject the notice
and proxy tax requirements section 6033(e). Under section i62(e), the organization
cannot generally take deduction expenses for lobbying and political campaign
activity ordinary and necessary business expense. Although some instances,
dues similar amounts paid section 501(c)(4). (5), and (6) organizations may
deductible ordinary and necessary business expense, they are not deductible
the extent the organization uses dues similar amounts for attempting uence
legislation candidate elections. Unless substantially all the organizations
members not deduct their dues similar amounts business expense, the
section 501(c)(4), (5), and (6) organization must either (1) notify its members the
portion the clues used for lobbying political campaign activity (2) pay proxy tax that amount. Rev. Proc. 98-19 provides tests for determining whether substantially
all organization members not deduct dues business expenses. making
the calculation, the organization does not include any expenses that were subject tax
under section 527(l), includes only those expenditures for political campaign
activity that exceed the organizations net investment income.
The IRS has recognized the need for guidance this area and issued
Rev. Rul. 200443, which provides examples illustrating facts and circumstances
considered determining whether section 501(c)(4), (5), and (6) organizations are
subject tax under section 527(f).
Tax Exemt Oranization Reortin and Disclosure__B uiremergs
Most tax exempt organizations must file annual information return with the IRS.
Section 501(c)(3) charitable organizations that are churches government
instrumentalities have requirement file the annual information return. Also,
section 527 political organizations that are automatically tax-exempt and were not
required file Form 8871 have requirement file the annual information return.
Depending the amount the organizations annual gross receipts and net assets,
the annual information return the Form 990, the Form 990-EZ, the Form 990-N.
Section 527 political organizations are not required file Form 990-N. These forms are
publicly available. However, other than for section 527 political organizations, the IRS
not permitted statute, and the organizations have requirement, disclose the
names and addresses contributors. Therefore, the publicly available information
generally does not include Schedule Over the last several years, the IRS has
imaged Form 990 series returns DVD and made them available the
public. Recipients this information then make these returns available the internet anyone. The forms are due the day the fifth month following the end the
organizations taxable year (May for calendar year organizations), but organizations
may request extensions six months (so many dar year organizations
not until November the year after the taxable year being reported).
Organizations ling Form 990 Form 990-EZ must report whether they had any
expenditures for political campaign activity and, so, how much they expended.
Section 501 (c)(3) charitable organizations must also report their lobbying activities,
any. Section 501(c)(4), (5), and (6) organizations that have not established that their
members cannot deduct substantially all their dues business expense must
report their lobbying and political campaign activity, unless consists solely in-
house lobbying that was less than $2,000. This information now collected
Schedule Form 990 Form 990 EZ. discussed above. section 527 political organizations must Form 8871
tax-exempt, unless they are automatically tax-exempt because they are FEC political
committee, state local candidate committee, state local party committee, small
organization that never receives more than $25,000 gross receipts for any taxable
year. Organizations these forms electronically, and they are publicly available the
lRS web site. Section 527 political organizations that have led Form 8871 must also
periodically report information their contributions and expenditures using Form 8872
unless they meet the requirements quali state local political organization.
These forms are also publicly available the lRS web site. only those section 527
political organizations that led Form 8871 must Form 8872. section 527 political
organization that not exempt because has not filed Form 8871 not required
Form 8872. Thus, organization that did not qualify section 501(c)(4)
organization because its primary activity was political campaign activity and therefore
was organization described section 527 would have requirement disclose
contributor information unless and until led Form 8871,
Section 527 political organizations report their taxable income Form 112D. POL4
Under section 6103. this form not publi disclosable. While the taxable income
tax exempt section 527 political organization onsists primarily investment income,
the taxable income those section organizations that are not exempt because they
have not led Form 8871 includes all income, including contributions. However, those
organizations have requirement disclose any information other than the aggregate
amount those contributions Form 1120 POL.
Section 501(c)(4). (5), and (6) organizations use Form 1120-POL report any tax due
under section 5270 those organizations pay the proxy tax under section 6033(e),
they report Form 990 While the Forms 990-T that section 501(c)(3) charitable
organizations file are required publicly disclosed, those that section 501(c)(4). (5),
and (6) organizations are not.