The Section 527 Obstacle to Meaningful Section 501(c)(4) Regulation

41 Pages Posted: 4 Aug 2014 Last revised: 8 Sep 2015

Date Written: September 2, 2015


As is well known, on May 10, 2013, at a session of the American Bar Association Tax Section meeting in Washington, D.C., Lois Lerner, at the time the director of the Exempt Organization Division of the Internal Revenue Service (IRS or Service), apologized for IRS mishandling of applications by Tea Party groups for exemption as social welfare groups under section 501(c)(4) of the Internal Revenue Code. A few days later, the Department of the Treasury (Treasury) Inspector General released a report (TIGTA Report) concluding that the “IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention.”

On November 29, 2013, the Treasury and the Service issued a Notice of Proposed Rulemaking containing proposed Treas. Reg. § 1.501(c)(4)-1 (the “2013 Proposed Regulation”) regarding the activities of organizations exempt under section 501(c)(4). The 2013 Proposed Regulation, however, did not offer any guidance on how to measure “primary activity” for section 501(c)(4) organizations. Instead, the 2013 Proposed Regulation offered only a definition of a new category, “candidate related-political activity,” although it also asked for comment on a dozen issues.

The 2013 Proposed Regulation prompted a record number of comments on a proposed tax regulation – just under 170,000. On May 22, 2014, the IRS announced that it and the Treasury Department would be making changes to the 2013 Proposed Regulation in light of the comments received. Speaking to a House committee on July 23, 2015, IRS Commissioner Koskinen confirmed that revised regulations would not be issued prior to the 2016 election. This paper argues that, despite their best efforts, the Treasury and IRS will be unable to propose a regulation that will satisfy critics either on the left or on the right because of a structural issue -- the existence and operation of section 527 of the Internal Revenue Code, the provision defining, regulating, and taxing political organizations. In my view, regulation of political campaign intervention by section 501(c)(4) and other section 501(c) organizations cannot function well without establishing meaningful limits, and I believe that section 527 hamstrings the IRS in setting limits for such activity by section 501(c) organizations.

In order to permit better and more consistent regulation of political campaign intervention, this paper proposes a number of changes to section 527, including moving responsibility for disclosure to the Federal Election Commission [FEC]. It further suggests that section 527(f) be eliminated and that all organizations, including section 501(c) organizations, be permitted to engage in political campaign intervention only through separate section 527 organizations to which contributions must be made directly. With such changes, political campaign intervention would be prohibited for all section 501(c) organizations. Given the fate of the DISCLOSE Act, which in general would require disclosure of donors who make contributions that could be used for political campaign intervention by nonprofit organizations, I do not have any expectation that such changes would be enacted any time soon. I argue, however, that such changes are needed to permit coherent regulation of political campaign intervention by section 501(c) organizations.

Suggested Citation

Aprill, Ellen P., The Section 527 Obstacle to Meaningful Section 501(c)(4) Regulation (September 2, 2015). Pittsburgh Tax Review, Forthcoming, Loyola Law School, Los Angeles Legal Studies Research Paper No. 2015-29, APSA 2014 Annual Meeting Paper, Available at SSRN:

Ellen P. Aprill (Contact Author)

Loyola Law School Los Angeles ( email )

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Los Angeles, CA 90015-1211
United States
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