• Werfel Releases 30-Day Report, Introducing Fast-Track Self-Certification Option for Section 501(c)(4) Organizations Caught in the Backlog
  • July 4, 2013
  • Law Firm: Caplin Drysdale Chartered - Washington Office
  • On June 24, 2013, the Internal Revenue Service issued a report titled "Charting a Path Forward at the IRS: Initial Assessment and Plan of Action."  The report offers IRS Principal Deputy Commissioner Danny Werfel's initial assessment of the events described in the Treasury Inspector General for Tax Administration's report, released May 14, regarding the IRS EO Determinations function's use of "inappropriate criteria" in screening and processing some applications for tax-exempt status.

    The report discusses the steps that Mr. Werfel and his leadership team have taken during the past month to examine and address the alleged mismanagement of some applications, and outlines an action plan for further investigation and corrective actions. Their findings and action steps are presented in three sections: (i) Accountability, (ii) Fixing the Problems with the Review of Applications for Tax Exempt Status, and (iii) Broad Review of IRS Operations and Challenges.

    The highlight of the report is the introduction of an optional "self-certification" process that will effectively grant some applicant organizations a fast-track to a favorable section 501(c)(4) determination letter.  The IRS plans to mail about 80 letters offering an expedited path to organizations with 501(c)(4) applications pending for more than 120 days as of May 28, 2013, that indicate the organization may be involved in political campaign intervention or issue advocacy.

    An eligible organization that elects this "safe-harbor" option will receive an approved determination letter granting section 501(c)(4) status within two weeks if it certifies that: (i) the organization devotes 60 percent or more of both spending and time on activities that promote social welfare as defined by section 501(c)(4), and (ii) political campaign intervention involves 40 percent or less of both spending and time. These thresholds apply for past, current and future years of operation.

    Notably, in defining campaign intervention for purposes of determining eligibility for the safe harbor, the IRS goes beyond the tax law rulings on the issue (Rev. Ruls. 2004-6 and 2007-41, both of which are appended to the IRS template letter to organizations) to include communications that are defined, in part, based on a Federal Election Commission standard.