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IRS Revokes Political Group’s Tax-Exempt Status

June 11, 2012

The Internal Revenue Service has reportedly revoked the tax-exempt status of a nonprofit organization that trained women to become Democratic candidates for political office.

The IRS decision to revoke Emerge America’s tax-exempt status under Section 527 of the Tax Code was released last month, according to Bloomberg News, and the San Francisco-based group confirmed the IRS decision. Last July, according to The New York Times, the IRS also reportedly denied tax-exempt status under Section 501(c)4 of the Tax Code to three of Emerge America’s units: Emerge Nevada, Emerge Maine and Emerge Massachusetts (see IRS Rejects Tax Exemption for Political Groups). With Section 501(c)4, tax-exempt groups do not have to disclose their donors, and a number of groups that have been raising funds for both Republican and Democratic candidates are set up as 501(c)4 organizations, such as Crossroads GPS on the Republican side and Priorities USA on the Democratic side.

Such groups need to demonstrate that they are not primarily set up to operate on behalf of a particular political party and that their main role is for social welfare.

“You are not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole,” the IRS reportedly wrote in its letter to Emerge America, according to Bloomberg.

The decision to revoke Emerge America’s tax-exempt status as a 527 organization could have implications for the 501(c)4 groups, signaling a tougher stance on the part of the IRS toward such groups, which have been raising hundreds of millions of dollars in coordination with Super PACs. The IRS has come under criticism in Congress for subjecting some Tea Party-affiliated groups that have applied for 501(c)4 status to lengthy questionnaires about their members and finances. IRS Commissioner Doug Shulman has testified to Congress that the groups do not need to apply to the IRS to operate as 501(c)4 organizations. However, the revocation of Emerge America’s 527 status shows that while groups technically may not need to apply for tax-exempt status, they are still subject to the IRS revoking that status after they begin operations, leaving them exposed to having to pay taxes on the money they have collected from their donors.

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