Scandal draws questions about IRS role in enforcing Obamacare
Social Welfare Organizations
To be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare. The earnings of a section 501(c)(4) organization may not inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any managers agreeing to the transaction. See Introduction to IRC 4958 for more information about this excise tax. For a more detailed discussion of the exemption requirements for section 501(c)(4) organizations, see IRC 501(c)(4) Organizations. For more information about applying for exemption, see Application for Recognition of Exemption.
To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). For example, an organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community and, therefore, does not qualify as a section 501(c)(4) organization. Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, because its activities benefit the member-tenants and not all tenants in the community, while an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. An organization is not operated primarily for the promotion of social welfare if its primary activity is operating a social club for the benefit, pleasure or recreation of its members, or is carrying on a business with the general public in a manner similar to organizations operated for profit link].
Seeking legislation germane to the organization's programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4) social welfare organization may further its exempt purposes through lobbying as its primary activity without jeopardizing its exempt status. An organization that has lost its section 501(c)(3) status due to substantial attempts to influence legislation may not thereafter qualify as a section 501(c)(4) organization. In addition, a section 501(c)(4) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities or pay a proxy tax. For more information, see Lobbying Issues .The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f). For further information regarding political and lobbying activities of section 501(c) organizations, see Election Year Issues, Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5), and (c)(6) Organizations, and Revenue Ruling 2004-6.Additional information
WASHINGTON — The blossoming IRS scandal over the targeting of conservative groups is provoking new scrutiny and terse questions about the agency’s role in shaping and implementing the controversial new national health care law, with the biggest changes set to begin next year.
The IRS role in Obamacare hadn’t been particularly controversial until May 10, when it was revealed that an IRS office targeted conservative groups for extra scrutiny when they applied for tax-exempt status as social welfare organizations.
- – Impose fines on employers with 50 workers or more that do not offer health care coverage for full-time employees, or meet other criteria.
- – Provide refundable tax credits for companies with fewer than 25 workers that do provide health care coverage.
- – Provide help for lower-income taxpayers who purchase health insurance from a newly created state-run exchange.
- – Develop criteria for taxing qualified individuals who don’t purchase health insurance as required.
- – Levy a 3.8 percent Medicare contribution tax on unearned income for wealthier seniors, starting in 2013.
- With more than 48 million Americans without health coverage, the health care law is designed to move them into the pool of self-purchased health care coverage. The IRS next year will begin giving a subsidy through tax credits or levying tax penalties on individuals and employers, both carrot and stick. It’ll offer tax credits for some individuals and smaller employers and tax penalties for non-compliance. Adding to the complexity, it’s first year, in 2014, will be based not on the prior year’s income but rather on income earned in 2014, with an adjustment to subsidies or penalties in 2015.