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Wednesday, September 28, 2011

Watchdogs Ask IRS to Investigate Tax-Exempt Status of 501(c)(4) Political Groups

The Campaign Legal Center and Democracy 21 sent this 23-page letter to the IRS today, challenging the tax-exempt status of Americans Elect, American Action Network, Crossroads GPS, and Priorities USA under § 501(c)(4):

Section 501(c)(4) organizations are required to primarily engage in the promotion of social welfare in order to obtain tax exempt status. Court decisions have established that in order to meet this requirement, § 501(c)(4) organizations cannot engage in more than an insubstantial amount of any non-social welfare activity, such as directly or indirectly participating or intervening in elections. Thus, the claim made by some political operatives and their lawyers that § 501(c)(4) organizations can spend up to 49% of their total expenditures on campaign activity and maintain their tax exempt status has no legal basis in the IRC and is contrary to court decisions regarding eligibility for tax-exempt status under § 501(c)(4). An expenditure of 49% of a group’s total spending on campaign activity is obviously far more than an insubstantial amount of non-social welfare activity.

http://taxprof.typepad.com/taxprof_blog/2011/09/watchdogs-ask.html

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