Advocacy Question of the Week

Question: I know that the primary purpose of a 501(c)(4) organization cannot be to engage in partisan election activity. How does the IRS determine the primary purpose?

Answer: No clear test exists for determining when political activity becomes an organization’s primary purpose. One approach is to analyze expenditures. If annual political expenditures are relatively small compared to its overall budget, the organization’s tax-exempt status is generally safe. If political activity expenditures exceed 50 percent of total program expenditures, the primary purpose most likely is not social welfare. In order to be cautious, a 501(c)(4)’s total expenditures for political activity generally should not exceed 30 to 40 percent. The IRS may also consider other factors, in addition to expenditures, to determine whether an organization is primarily engaged in promoting social welfare or political activities, including:

• The staff and other resources (including buildings and equipment) devoted to conducting the organization’s social welfare versus political activities;
  
  
• The manner in which the activities are conducted; and
  
  
• The time of both volunteers and staff devoted to political activities.