Explainer: 501(c)(4)s and Political Activity
We still don’t know the full story behind last week’s revelation that the IRS targeted tea party and other nonprofit groups by scrutinizing their political activity in the course of assessing their applications for 501(c)(4) nonprofit status. Every year, Alliance for Justice and our affiliated 501(c)(4) AFJAC provide guidance to hundreds of 501(c)(4)s, giving them information about the legal rules governing advocacy. We have a significant array of resources explaining the legal framework for these nonprofit groups (see below).
As an organization that works to encourage and strengthen nonprofit advocacy, we’ll be monitoring this important story as it unfolds and will provide resources and information to tax-exempt organizations, the media, public officials, and interested individuals.
To help inform your understanding of this emerging story and the deeper issues that underlie it, here is a brief overview of the legal guidelines for 501(c)(4) organizations that are at the heart of the controversy.
What the Law Says 501(c)(4)s May Do
A 501(c)(4) social welfare organization generally pays no taxes on its income, but may not offer its donors a tax deduction. Social welfare organizations may conduct unlimited lobbying and may engage in partisan political campaign work, but only as a secondary activity.
If an organization’s primary purpose or activity is partisan political activity, the organization does not qualify as a 501(c)(4). Partisan activity is defined as anything that tends to show support or opposition to a candidate or group of candidates.
What Is the “Primary Purpose”of an Organization?
No clear test exists for determining when political activity becomes an organization’s primary purpose. One common approach is to analyze expenditures. If annual political expenditures are relatively small compared to the organization’s overall budget, its tax-exempt status is generally safe. If political activity expenditures exceed 50 percent of total program expenditures, however, social welfare most likely cannot be deemed the primary purpose.
In order to be cautious, a 501(c)(4) should generally ensure that its expenditures for political activity do not exceed 30 to 40 percent of its total budget. The IRS may also consider other factors, in addition to expenditures, to determine whether an organization is primarily engaged in promoting social welfare or political activities, including:
- the staff and other resources (including buildings and equipment) devoted to conducting the organization’s social welfare versus political activities;
- the manner in which the activities are conducted; and
- the amount of time spent by both volunteers and staff on political activities.
What Is “Political Activity”?
Any activity is considered political if it is conducted to influence the election, selection, nomination, or appointment of any individual to a federal, state, or local public office; to an office in a political organization; or as a delegate or elector for President or Vice President.
Such activities include:
- endorsements of a candidate;
- publication or distribution of statements in favor of or in opposition to a candidate;
- direct financial contributions or other support to a candidate, political party, or PAC (other than a ballot measure committee);
- in-kind contributions to a candidate, political party, or PAC (other than a ballot measure PAC) including, but not limited to:
- mailing, membership, or donor lists or other resources for fundraising;
- provision of facilities or office space;
- staff time;
- polling results;
- organizing volunteers for the campaign;
- opposition research;
- comparative ratings of candidates;
- publicizing names of political candidates who support or oppose the organization’s position on public issues;
- membership communications expressly advocating the election or defeat of a candidate; and
- payment of the administrative and fundraising costs of a political organization.
Election-Related Activities That Are Non-Political
There are election-related activities that are not considered political activities under the IRC. These activities may be conducted freely without affecting a 501(c)(4)’s tax-exempt status if they relate to its primary purpose. Such activities include:
- Voter education and engagement activity– including candidate questionnaires and debates, issue education projects, get-out-the-vote programs, and voter registration, as long as they are conducted in a nonpartisan manner (that is, if they do not support or oppose candidates or political parties).
- Also permissible for 501(c)(4)s are activities such as workshops, publications, and seminars to encourage greater participation in government and politics or better campaign practices, as long as they do not support or oppose a candidate or political party.
- Lobbying and Political Activities by 501(c)(4)s – This chapter from our popular resource,The Connection: Strategies for Creating and Operating 501(c)(3)s, 501(c)(4)s, and Political Organizations, discusses the rules governing lobbying and political activities conducted by 501(c)(4)s. It includes a section that describes the rules on 501(c)(4) participation in federal elections after Citizens United v. FEC.
- Alliance for Justice Action Committee: Lobbying and Electoral Resources for 501(c)(4)s