A nonprofit organized with the intent that it will qualify as a social welfare organization under Section 501(c)(4) of the Internal Revenue Code must comply with a number of specific requirements. Among these is the requirement that the organization be operated exclusively to promote social welfare. What does this “exclusivity” rule mean?
Despite the rule’s apparently rigid wording, in practice the IRS gives the rule some room for organizations to pursue activities without needing to continuously monitor their relationship to a social welfare purpose. IRS regulations interpreting the rule explain that “[a]n organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.” 26 C.F.R. § 1.501(c)(4)-(1)(a)(2)(i). In ordinary language, “primarily” and “exclusively” have plainly different meanings, but here the IRS has concluded that they are, for this purpose, synonymous.
One reason for this rather confusing situation is that the IRS itself doesn’t seem certain about what the term “social welfare” really means. In an internal training article cited on the agency’s website describes social welfare as “an abstruse concept that continues to defy precise definition.” In practice this means that so long as an organization’s activities are for charitable purposes and not, for example, operated for the private benefit of an individual, private group, or another organization, its work likely will qualify as having a social welfare dimension.
In a circumstance where some of an organization’s efforts are directed at subjects that might not qualify as “social welfare” under IRS rules, the key question becomes whether the organization is nonetheless “primarily” pursuing social welfare goals. The IRS might use a number of approaches to analyze this question, including:
- Expenses for social welfare purposes versus nonqualified purposes.
- Time and effort of paid staff and unpaid volunteers.
- The organization’s statements to donors and others about its mission, goals, and activities.
Many social welfare organizations can operate within IRS guidelines by making compliance a key component of their overall planning and strategy. The Church Law Center of California has a long track record of working with social welfare organizations in California to help them craft policies and plans that adhere to IRS guidelines. To learn how we can help your organization call us at (949) 689-0437 or reach out to us through our contact page.