8/7/2019 Anonymous Political Groups May Face Rude Post Election Awakening

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Anonymous Political Groups May Face Rude Post Election

Awakening

Karl Rove and others that have set up 501c4 groups to obtain anonymous contributions for

political ads may be in for an unwelcome and highly expensive post election surprise. While taxexempt groups may fund some political ads under the Citizens United decision and new Federal

Election Commission regulations, these groups and their leaders are forgetting that they still aresubject to oversight from the Internal Revenue Service. And regardless of the outcome of these

midterm elections, President Obama will still oversee the Internal Revenue Service for at least

the next two years. Let me explain.

Many of these groups have been set up under Internal Revenue Code Section 501c4. These

groups are known as "social welfare" organizations and are formed to primarily engage in

lobbying activities. Think of groups such as the National Rifle Association or Handgun Control,or the National Right to Life Committee as longstanding examples of such groups. The IRS has

this to say about these groups:

To be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC)

section 501(c)(4), an organization must not be organized for profit and must be operated 

exclusively to promote social welfare. Seeking legislation germane to the organization's

 programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4)

social welfare organization may further its exempt purposes through lobbying as its primary

activity without jeopardizing its exempt status. 

But here's the problem:

The promotion of social welfare does not include direct or indirect participation or intervention

in political campaigns on behalf of or in opposition to any candidate for public office. However,

a section 501(c)(4) social welfare organization may engage in some political activities, so long

as that is not its primary activity. However, any expenditure it makes for political activities may

be subject to tax under section 527(f).

The groups being set up by Karl Rove and others are not permanent organizations like the ones

mentioned above, but are organizations set up to engage in political activities and shield their

donors from public scrutiny. Unfortunately, they cannot have it both ways. If they want toshield their donors from the public, then they cannot have their primary activity as intervention

in political campaigns. But if they want to engage in political campaigns, as organizations

formed under IRC 527 do, then they must publicly reveal their donors.

My guess is that these groups will eventually be forced to pay a hefty excise tax, be reclassified

as IRC 527 groups, and be forced to publicly reveal their donors. Those donors that were

promised anonymity by these leaders should consult competent legal counsel in this area soonerrather than later.

The Pullins Report is a publication of the Pullins Group LLC.