Changes to Rules Concerning Politically-Active Nonprofits
On November 26, the Obama Administration announced a proposed rule that may have an effect on certain politically-active entities qualifying as a “social welfare” organization under Section 501(c)(4) of the Internal Revenue Code (IRC). This rule would add more clarity to what activities qualify as activities pursuant to social welfare and which activities fall outside of such definition. Such action would force nonprofits to review their activities with more scrutiny, and actions such as producing voter guides or holding voter registration drives may no longer be feasible if the organization wishes to maintain its 501(c)(4) status.
Should this proposed change be initiated, it could have a large effect on the amount of donations going to these politically active organizations, as they would lose their tax-exemption status. While 501(c)(4) entities are required to make “social welfare” their primary purpose under the current IRC, the necessarily broad term “social welfare” can have different meanings to different individuals – and some may see politics fit into that category. While politics will certainly play a role in the outcome of this initiative, this is one action that could have lasting effects to nonprofits’ missions and policies moving forward.