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Will tax-exempt advocacy organizations face challenges?

For many nonprofit and community organizations, tax-exempt status is very important. Without this designation, they would not be able to provide services. The unfortunately reality is that federal government officials can challenge this status if they feel organizations have stepped outside the confines of tax law.

One particular type of tax exemption is beginning to receive media attention, which means that the Internal Revenue Service might begin to increase scrutiny. According to reports, 501(c)(4) organizations are designed to promote social welfare. However, some individuals claim that these groups are proliferating for political purposes.

Organizations that openly support political candidates aren't allowed to maintain tax-exempt status. National Public Radio notes that 501(c)(4) organizations can advocate for action on certain issues, which can enter the realm of politics. Still, these organizations can only dedicate half of their resources for this purpose. However, that line between advocacy and political activity can be very unclear at times.

Because the definition of political activity might not be clear and the IRS could begin to take aggressive action, a number of well-meaning organizations could face challenges. This is the kind of tax controversy that could cause an organization to halt operations entirely.

Certainly, this is not intended to be a political statement. Organizations of any nature could be unfairly targeted in a tax dispute. As such, organizations may need to take action and defend their tax-exempt status.

Social welfare organizations may wish to take note of any changes in IRS policies or actions. Any movement in this regard could prove to be very consequential.

Source: Minnesota Public Radio News, "Secret Persuasion: How Big Campaign Donors Stay Anonymous," Peter Overby, Nov. 6, 2013

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