In a floor statement yesterday, Senator Carl Levin, Chairman of the Permanent Subcommittee on Investigations for the Committee on Homeland Security and Government Affairs, blasted the IRS for allowing 501(c)(4) organizations to “exploit” the tax code and spend millions on political campaign activity.  In connection with his statement, the Senator released four letters between Senator Levin and the IRS.  In the final letter, the IRS revealed that it has “more than 70 ongoing examinations of section 501(c)(4) organizations,” although in the past six months it has not sought to revoke the exemptions of any 501(c)(4) organizations.

The revelation that the IRS is actively conducting more than 70 audits of 501(c)(4)s is something of a surprise to many in the exempt-organizations bar.  Just last week, at an ABA joint meeting of the Section of Taxation and Section of Real Property, Trust & Estate Law, an informal straw poll was taken among exempt-organization lawyers active in the tax and election law space as to whether anyone was assisting clients with audits of 501(c)(4) organizations—nearly no one raised their hands.  Perhaps the bulk of the audits do not implicate significant political campaign activities by the (c)(4)s, notwithstanding the apparent suggestion in the IRS letters to the contrary.

The balance of the correspondence reflects Senator Levin’s view that 501(c)(4) organizations must operate “exclusively” for the promotion of social welfare and cannot conduct any political campaign activity.  In 1959, the Treasury Department issued regulations interpreting section 501(c)(4) to mean that organizations can qualify as social welfare organizations and conduct political campaign activity as long as the latter is not their “primary” activity.  Senator Levin argues that “new abuses require a review of an IRS regulation.”