Congress, Not The IRS, Is Responsible For The Section 501(c)(4) "Exclusively"/"Primarily" Definition

The Center for Public Integrity (borrowing from an earlier piece by Ellen Aprill) explains:

A federal law passed in 1913 created [Section 501(c)(4)] as a “catch all” for nonprofit groups that weren’t necessarily educational or charitable but provided a public service and operated “exclusively for the promotion of social welfare.”

Thank a macaroni factory run by the nonprofit New York University Law School for their evolution.

Responding to business complaints about the arrangement, Congress in 1950 passed a law levying taxes on nonprofits’ “unrelated business income.” If nonprofits — 501(c)(3)s like hospitals, charities and universities and 501(c)(4)s — could run a side business, it meant they weren’t operating “exclusively” for their exempt purpose.

The U.S. Department of the Treasury, the IRS’ parent agency, ultimately issued new regulations interpreting “exclusively” as “primarily.” In other words, social welfare nonprofits could engage in other kinds of activities so long as they operated primarily for the common good.