One Reason To Apply For Tax-Exempt Status: Anonymity
Revelations that the Internal Revenue Service targeted some conservative groups seeking tax-exempt status for extra scrutiny have put a spotlight on a part of the tax code increasingly popular with political groups: section 501(c)(4).
But what's the benefit for organizations to get approved for 501(c)(4) status?
The Mississippi Tea Party, a volunteer organization, first applied for tax-exempt status in 2010. Julia Hodges, a spokeswoman for the group, says its biggest activity is keeping track of the Mississippi Legislature's actions.
Hodges says that members usually pass the hat to raise funds. But the group decided to apply to the IRS for tax-exempt status in case it did attract donors, to keep their names private.
"That was the main gist — we wanted to protect those and keep them out of the way," Hodges says.
Two years after the Mississippi Tea Party first applied, after much back and forth, the group still hadn't received an approval from the IRS, and so it gave up. Hodges says the group just got tired of the time it took to answer the many questions the IRS posed.
"After a while, it's just like, 'Why are they nitpicking on us?' That's what we felt like — just little things, they wanted to know all these answers and you felt like you were being nitpicked," she says.
The 501(c)(4) status the Mississippi Tea Party and the other groups flagged by the IRS were seeking was created for so-called social welfare groups. That designation does allow for some political activity. The status is not to be confused with 501(c)(3) charities, says David Sands, a CPA with the New York firm Buchbinder Tunick.
"Basically, any contributions you do give to the charity would be entitled to a tax deduction on an individual's personal return," Sands says about 501(c)(3) organizations. "A contribution to a 501(c)(4) organization is not tax deductible by an individual."
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