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501(c)(4), Section 527, 501(c)(6), labor unions, business leagues, primary purpose, issue advocacy, political intervention


The Internal Revenue Service is not usually thought of as the agency charged with enforcing the nation’s campaign finance laws. It has found itself, however, at the center of a firestorm over both its involvement and its ineptitude in enforcing certain rules that regulate the campaign activities of tax-exempt organizations. For historical, legal, and practical reasons, the Internal Revenue Code regulates the political activity of tax-exempt groups, in some instances providing for disclosure of campaign donors and expenditures, and in other instances limiting the amount of political activity engaged in by tax-exempt organizations. As campaigns become more sophisticated and complicated, pressure is placed on the rules regulating the political activity of tax-exempt organizations. The current structure regulating the political activity of tax-exempt organizations is unworkable, and the recent crisis resulting from the IRS’s use of partisan criteria to determine what applications for exempt status should come under further inquiry highlights the breakdown in the current regulatory regime.

Just as it is wrong for the IRS to use partisan criteria in an unbalanced way to examine the applications of social welfare organizations, so too is it wrong for the IRS to refuse to enforce provisions in the Code regulating tax-exempt entities. To the extent that tax-exempt organizations are abusing their tax exempt status or are circumventing congressional intent with regard to the disclosure of campaign contributions, lax enforcement by the IRS also impacts our confidence in the agency. Unfortunately, under enforcement or over enforcement may have a partisan bias if groups engaging in one type of activity or another are dominated by one ideology.

In order to restore confidence in the fair and equitable treatment of groups engaged in political activity, Congress must take a broad approach that reforms the statutory framework for regulating tax-exempt organizations, fixes a broken enforcement process, and provides for greater transparency for actions taken by the IRS. This article explores the first step in the reform process, namely reform of the statutory framework regulating tax-exempt organizations involved in political campaign activity. Part II of this article outlines the current regulatory environment facing tax-exempt entities that wish to engage in political activities. Part III discusses the current crisis, including the IRS’s actions and the abusive activities of tax-exempt organizations that caused many academics and politicians to call for better enforcement of the rules regarding political campaign intervention and tax-exempt entities. Part IV suggests reforms in the legal and regulatory rules governing tax-exempt entities.

Publication Citation

16 Florida Tax Review 429 (2014)


Tax Law

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