ChatGPT Explains Social Welfare Organizations, Earns a B+

ChatGPT earned a B+ on its social welfare question.  Now its bummed and wants to talk to the Dean about my unfair grading decision. If that doesn’t work its going to the Provost, it said.

Seth, my research assistant is mere weeks from graduation, so let’s just say he has lost some of his customary 1L motivation.  He’s from a small town called Alamogordo, not far from Las Cruces, where my brother drank lots of T’killa and tracked satellites and NASA space ships across the southwest sky (not at the same time, mind you).  My father used to go away for weeks at a time to test fire Nike Hercules missiles at White Sands nearby.  Seth is an exceedingly intelligent kid.  One of those students who, I could tell, thought it a monumental waste of intellectual energy to read cases, at least in his third year. He still did pretty well in my Business Organizations class and when he thought it worth his while he would peer across the top of his laptop from the very last row where he sat and say something provocative.  Sometimes even causing me to back peddle from some editorial rhetoric I was relaying during a dragging afternoon class.  One day I just let him have the class as he explained how cryptocurrency gets and increases its value.  All I can tell you is that some computer geeks do some math resulting in an “algorithm.”  Day 1 buyers buy, other people start noticing and that is how crypto generates value.  “And where does crypto get its Day 1 value, Mr. Seth” I said with menacing superiority, like on Paper Chase.  “Its not backed by an Nike missiles, or gold.”  He tactfully pointed out that we had long since abandoned the gold standard and wars were obsolete, notwithstanding Putin.  And something about money by fiat.  “The Italian car maker, you mean?” I thought to myself.  I wasn’t in full retreat just yet, I was just “advancing to the rear” keeping silent in face of a potentially superior classroom force on this particular hill.  But I think I understand.  Governments and people can issue currency, and so long as the citizenry keep the faith and understand the time value of money, the currency establishes and increases its Day 1 value.  If I can somehow get more and more people to believe that, the Day 1 value will explode and people will give me real money in exchange for fake money.

The Tax Stuff  

The harder thing to understand is how much political activity a 501(c)(4) can engage in.  Seth is keen on computers so I gave him what is likely his last research assignment as a student.  Ask ChatGPT how much political activity a social welfare can engage in without losing its tax exempt status.  Here is what ChatGPT said:

P: Can a social welfare organization exempt from tax under IRC 501(c)(4) spend most of its money on political campaigns?

A: “Under IRC Section 501(c)(4), social welfare organizations are recognized as tax-exempt entities, as long as they operate exclusively for the promotion of social welfare purposes. However, they are allowed to engage in some political activities and lobbying, as long as these activities do not become their primary activity. The IRS does not provide a specific percentage or dollar limit on how much a 501(c)(4) organization can spend on political campaigns. However, the IRS does use a “facts and circumstances” test to determine if a social welfare organization’s political activity is excessive and if it should lose its tax-exempt status. In general, if a social welfare organization’s primary activity becomes political campaigns, it may lose its tax-exempt status. Therefore, while social welfare organizations are allowed to engage in political campaigns, it’s essential to balance their political activity with other social welfare activities to avoid being deemed excessively political by the IRS.”

This in less than 10 minutes but no citations.  I guess a computer that knows everything doesn’t have to provide citations.  Asking it to do so would be like questioning its intellect or showing a lack of faith.  You puny insolent human!  But I still didn’t quite understand so I told Seth to input a follow-up:  

P: “What is “social welfare” for purposes of IRC 501(c)(4)? “

A: “For the purposes of IRC 501(c)(4), social welfare is defined as promoting the common good and general welfare of the community. This can include a broad range of activities, such as charitable, educational, scientific, or literary purposes, as well as promoting social and civic benefits.

Examples of social welfare activities may include community development, the promotion of civic engagement, the advancement of education, and the provision of healthcare services. Social welfare organizations are not limited to these activities, but they must be aimed at promoting the common good and general welfare of the community, rather than benefiting a particular group or individual.  Social welfare organizations are allowed to engage in some political activities and lobbying, but their primary purpose must be the promotion of social welfare. Political activities must be related to the organization’s social welfare purpose and cannot constitute the organization’s primary activity.

It’s worth noting that the definition of social welfare under IRC 501(c)(4) is somewhat vague and subject to interpretation. As a result, the IRS has used a “facts and circumstances” test to determine whether an organization qualifies for tax-exempt status under this section. The test considers factors such as the organization’s activities, expenditures, and the extent to which they promote social welfare.”

This in less than five minutes because he must have been sitting in class surfing the net and noticed my email.  One last question:

P: “What is the difference between a social welfare organization under IRC 501(c)(4) and a charity under IRC 501(c)(3)?”

A: “The main difference between a social welfare organization under IRC 501(c)(4) and a charity under IRC 501(c)(3) is the purpose of the organization. IRC 501(c)(3) organizations are defined as charitable organizations that operate for the benefit of the public, with purposes such as religious, educational, scientific, or literary. These organizations must be organized and operated exclusively for charitable purposes, and they cannot engage in political campaigns or lobbying activities.

On the other hand, IRC 501(c)(4) organizations are defined as social welfare organizations that operate to promote the common good and general welfare of the community. While these organizations may engage in some political activities and lobbying, their primary purpose must be promoting social welfare. Another significant difference between the two types of organizations is the tax treatment of donations made to them. Donations made to IRC 501(c)(3) organizations are tax-deductible for the donor, while donations made to IRC 501(c)(4) organizations are not tax-deductible. In summary, the main differences between social welfare organizations under IRC 501(c)(4) and charities under IRC 501(c)(3) are the purpose of the organization and the tax treatment of donations made to them. While both types of organizations can be tax-exempt, they have different requirements and limitations on their activities.”

If I asked ChatGPT the authority for the erroneous assertion that a 501(c)(3) “cannot engage in . . . lobbying activities,” I bet smoke will start spewing from its artificial orifices.  

darryll jones