End Citizens United to IRS: No Labels Violates Tax Law

End Citizens United (ECU) recently filed several complaints against No Labels that highlight the limits of what a 501(c)(4) organization can do in the promotion of aligned political parties.  ECU’s complaint, in part, alleges No Labels enjoyed the benefits of being a (c)(4) — most notably protecting the identities of its donors from public disclosure — but was exceeding the limits of how much it could legally support the No Labels Party, particularly in its attempts to secure ballot access for its candidates in various states.

Under IRS rules, a 501(c)(4) organization must primarily promote social welfare, engaging in activities that benefit the community at large that do not support or oppose candidates or political parties. Tax law does not strictly define how much “primary” activity is, but past enforcement has led most attorneys to conclude it’s at least 50% of an organization’s total work. Partisan political work must be a secondary activity — at least less than 50% of a 501(c)(4)’s total efforts. The IRS has considered clarifying this matter as recently as 2013, but it suspended the effort after asking for public comments.

ECU’s IRS complaint against No Labels alleges its support of the No Labels Party exceeds the amount it’s legally allowed, making partisan political work its primary purpose. The activity alleged includes efforts to secure ballot access for the party in various states and the development of a political platform.

Why does this matter?

501(c)(4)s are not obligated to disclose their donors, unlike PACs and political parties. This allows No Labels’ supporters to remain anonymous in support of its efforts. However, the cloak of anonymity only works if No Labels is legitimately acting as a 501(c)(4) and limiting its partisan support to a secondary activity. End Citizens United alleges No Labels is not acting like a 501(c)(4) and should not enjoy the benefits of one.

The IRS complaint underscores the balance all 501(c)(4) organizations must maintain. While they are allowed to engage in some political activities, these cannot exceed their primary mission of promoting social welfare. 

The ball is now in the IRS’s court. If No Labels can demonstrate that its primary purpose includes nonpartisan activity, including lobbying, education and other activities that don’t support or oppose candidates, then the IRS would properly reject the complaint. However, if it determines No Labels primarily supports parties or candidates in its activities, the IRS could impose corrective actions or even threaten to end the organization’s tax-exempt status.