Understanding the new IRS rules for fast-tracking nonprofit status

Late last month, we linked to an article from the Chronicle of Philanthropy about new IRS rules that would fast track advocacy groups for nonprofit status. What does that mean for our region’s nonprofits? We asked the Nonprofit Roundtable’s Diana Leon-Taylor to shed some light on the new rules. As she explains, things won’t be different for most nonprofits.


By Diana Leon-Taylor
President and CEO, The Nonprofit Roundtable of Greater Washington

The new IRS provision that fast-tracks 501(c)(4) approval in two weeks comes with a few stipulations. One is that the organization’s application must have been pending for more than 120 days as of May 28th, 2013. Another is that organizations must “self-certify” to allocating no more than 40% of their time and spending to partisan activities and at least 60% to social welfare. This safe harbor measure (called Path 2) is therefore only applicable to a narrow group of organizations, and will not affect future applicants. However, the clear directives could be helpful to set some guidelines for future applicants, as well as to IRS employees for the review process. It is important to note that the new stipulation does not apply at all to 501(c)(3)s, which account for the vast majority of tax-exempt organizations in the Greater Washington region.

It appears that this action is attempting to solve a major problem that is of the IRS’ doing. According to the tax code, 501(c)(4)s are supposed to be operated “exclusively” for social welfare activities. IRS regulations, on the other hand, changed that to “primarily engaged,” hence the confusion about what constitutes the appropriate level of partisan versus social welfare activities. This report marks the first time, as far as I know, that the IRS has come out publicly with a clear line in the sand (60/40 split). I only hope that IRS will continue to monitor all approved 501(c)(4)s to ensure compliance with this new criteria.