The American Bar Association (ABA) sent a letter May 25 to the IRS calling for two regulatory changes that would protect social welfare organizations exempt under 501(c)(4) of the tax code from losing exempt status if they are involved in election related activity. The task force wrote, "Without regulatory action now to clarify the standards for Section 501(c)(4) groups on the issues of political activity and gift tax, the constitutional defects of overbreadth and vagueness in a case of speech protected by the First Amendment, are likely to result in years of protracted litigation, uncertainty, and wide variations in tax compliance practices, giving the edge to the risk-tolerant over the risk-averse in the political arena." The report says the current uncertainty in the law, which only says 501(c)(4)s cannot make election activity their primary purpose, has been made worse by the effects of the Bipartisan Campaign Reform Act of 2002 (BCRA) and recent efforts to expand regulation of independent political committees that work on federal elections. These groups "face two huge uncertainties," the report said. First, there is no clear standard defining how much election activity is enough to make it a group‰€ªs primary purpose. The task force recommended that a safe harbor be established, allowing 501(c)(4) groups to spend up to 40 percent of their funds for election-related activities. The second uncertainty is whether gift tax rules apply to 501(c)(4)s. Gift taxes can be imposed on more than half of all contributions over $10,000 to 501(c)(4)s, but political committees exempt under Section 527 do not have to pay gift taxes. The task force said the law is unclear on application of the tax to 501(c)(4)s. They encouraged the IRS to announce it will not impose the tax on these groups.