New regulations issued by the IRS near the end of the Trump Administration, which we previously discussed in May of 2020, limited reporting obligations for 501(c)(4) social welfare organizations and allowed these groups to report only the amounts received from each substantial contributor in their filings, and to keep donors’ names and addresses secret except in the event of an IRS examination. The IRS is unlikely to overturn these regulations quickly in the new Biden Administration: as Senators Whitehouse and Warren discussed in their letter to Secretary Yellen, “Republican appropriations riders have tied Treasury’s and the IRS’s hands, preventing promulgation of new regulations regarding 501(c)(4) organizations.” But the new Congress has already taken the first steps to override these regulations and expand disclosure obligations through legislation. Also last Wednesday, Representative David Price introduced the Spotlight Act in the House, which would repeal the IRS’s regulations and require reporting to the IRS of certain donors to 501(c)(4) organizations. Senators Jon Tester and Ron Wyden introduced a companion bill in the Senate on the same day. Senators Whitehouse and Warren in their letter also called for passage of the more comprehensive For the People Act (H.R.1/S.1), which among other provisions would strengthen disclosure requirements for political giving, including contributions to 501(c)(4) groups.
As that legislation works its way through Congress, Senators Whitehouse and Warren have urged Secretary Yellen to implement a “more robust 501(c)(4) enforcement regime.” The Senators, both of whom are members of the Senate Finance Committee which oversees the IRS, specifically encouraged Treasury and the IRS to investigate groups who have made “open and notorious inconsistent statements” by reporting to the IRS that they do not engage in political activity while at the same time reporting to the Federal Election Commission and state election agencies that they make political expenditures. They also called for cooperation with the Department of Justice and other law enforcement agencies investigating the attack on the U.S. Capitol on January 6, 2021, to identify whether any “dark money organizations” were involved in organizing and funding the rally that preceded the attack and review the tax-exempt status of any organization that may have been involved. The latter enforcement priority has also been promoted by Senator Wyden, the new chair of the Senate Finance Committee, who has deemed it a priority of the Committee to identify “whether tax-exempt organizations were involved with planning or inciting the insurrection,” and noted that the Committee is “going to make sure the IRS moves on this promptly.”
Donors interested in contributing to a 501(c)(4) organization should be aware of these potential changes to the IRS’s enforcement efforts under the new Administration, as well as the potential for the passage of legislation changing disclosure obligations: there is no guarantee that donations to these groups will be kept confidential in perpetuity and the effective date of the Spotlight Act, if enacted, would be “the taxable year ending after the date of” its enactment. Donors should carefully vet recipient groups before donating, including identifying whether the recipient has previously reported election-related expenditures to the FEC or a state election agency, to understand the group’s political activities and the potential risks of future disclosure that may accompany a contribution to a 501(c)(4) organization that engages in political spending.