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Friday, July 27, 2012

Secrecy of 501(c)(4) Donors May End

The cloak of secrecy over social welfare organizations may end.

The Internal Revenue Service has just issued a regulation requiring disclosure of all donors giving $1,000 or more to an organization, exempt under Section 501(c)(4), which engages in electioneering.  Notably, the disclosure will now be required, regardless of whether the donor intended to give to the entity for any electioneering purpose.  As 501(c)(4) organizations must have a primary purpose of "social welfare," such as an educational or civic affairs purpose which may not be electioneering at all, this may deter some donors from giving to the organizations if the organizations do anything which the donors would not want to be associated with.  

In essence, this regulatory change will mean that organizations and donors can avoid disclosure only by avoiding all electioneering activity.  This narrows the difference between a 501(c)(4) organization and a 501(c)(3) organization.

A District of Columbia district court case prompting the regulatory change will be appealed.  The regulation requiring the new disclosure will be in place pending the appeal.

Eric Dixon is a New York attorney, also admitted to practice in New Jersey, and represents businesses, political and nonprofit entities on legal and strategic matters.


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