Order Code RL33377
CRS Report for Congress
Received through the CRS Web
Tax-Exempt Organizations: Political Activity
Restrictions and Disclosure Requirements
April 20, 2006
Erika Lunder
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

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Tax-Exempt Organizations: Political Activity
Restrictions and Disclosure Requirements
Summary
Recently, significant attention has been paid to the political activities of tax-
exempt organizations. In particular, the activities of IRC § 501(c)(3) charitable
organizations, § 501(c)(4) social welfare organizations, § 501(c)(5) labor unions, §
501(c)(6) trade associations, and § 527 political organizations have been scrutinized.
This report discusses the limitations that the Internal Revenue Code places on
political activity, including lobbying and campaign intervention, by tax-exempt
organizations. It focuses on the above organizations, but also discusses the
restrictions on the other types of tax-exempt organizations. The report ends with a
summary of the information that tax-exempt organizations must report to the Internal
Revenue Service about their political activities and whether the information must be
made publicly available.

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Contents
Political Activity by IRC § 501(c)(3) Organizations . . . . . . . . . . . . . . . . . . . . . . . 2
Organizational Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary of the Definition’s Restrictions on Political Activity . . . . . . 2
Legislative History of the Political Activity Restrictions . . . . . . . . . . . 3
Lobbying by IRC § 501(c)(3) Organizations . . . . . . . . . . . . . . . . . . . . . . . . . 4
What is Lobbying? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
What is “No Substantial Part”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Regan v. Taxation With Representation of Washington . . . . . . . . . . . . 7
Political Campaign Activity by IRC § 501(c)(3) Organizations . . . . . . . . . . 8
Voter Guides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Conducting Public Forums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Inviting Candidates to Speak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Voter Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Issue Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selling Mailing Lists and Other Business Activities . . . . . . . . . . . . . . 11
Website Links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Activities of the Organization’s Leaders and Members . . . . . . . . . . . . 12
Tax on Expenditures for Political Campaign Activity . . . . . . . . . . . . . 12
Tax Under IRC § 527(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Political Activity by IRC §§ 501(c)(4), (c)(5), and (c)(6) Organizations . . . . . . 13
Organizational Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
IRC § 501(c)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
IRC § 501(c)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
IRC § 501(c)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Lobbying by IRC §§ 501(c)(4), (c)(5), and (c)(6) Organizations . . . . . . . . 14
Dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Lobbying Disclosure Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Political Campaign Activity by IRC §§ 501(c)(4), (c)(5),
and (c)(6) Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Under IRC § 527(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Political Activity by IRC § 527 Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Organizational Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legislative History of IRC § 527 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Treatment of IRC § 527 Organizations . . . . . . . . . . . . . . . . . . . . . . . . . 17
Nonexempt Function Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Political Activity by Other Types of Tax-Exempt Organizations . . . . . . . . . . . . 18
Tax Under IRC § 527(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
IRC § 527 Exempt Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
What are IRC § 527 Exempt Functions? . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exceptions for Certain Expenditures Made by IRC § 501(c)
Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Related Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Reporting and Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Initial Application or Notification of Tax-Exempt Status . . . . . . . . . . . . . . 24
Application for Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Notification of 527 Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Annual Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Information Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Excise Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Disclosure of Expenditures and Contributions
. . . . . . . . . . . . . . . . . . . . . 26

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Tax-Exempt Organizations: Political Activity
Restrictions and Disclosure Requirements
There are more than thirty types of organizations that qualify for exemption
from the federal income tax. Each type is described in a particular section or
subsection of the Internal Revenue Code (IRC). The organizational definition in that
section or subsection determines the extent to which the organization may participate
in political activity, including lobbying and campaign intervention.
The majority of tax-exempt organizations are described in:
! IRC § 501(c)(3), which describes public charities and private
foundations;
! IRC § 501(c)(4), which describes social welfare organizations;
! IRC § 501(c)(5), which describes labor unions;
! IRC § 501(c)(6), which describes trade associations; and
! IRC § 527, which describes political organizations.
These organizations receive the most attention with respect to their political
activities. In general, the basic parameters of these organizations’ ability to
participate in political activity is understood from the IRC, Treasury regulations, and
IRS guidance. With respect to the other types of tax-exempt organizations, the IRC
restrictions on their political activities are less clear and there is almost no IRS
guidance to help clarify the situation. The lack of guidance is not unexpected
because it does not appear that these other organizations participate in a significant
amount of political activity.
This report discusses the IRC limitations on political activity by IRC § 501(c)(3)
organizations, §§ 501(c)(4), (c)(5) and (c)(6) organizations, § 527 organizations, and
the other types of tax-exempt organizations. It ends with a summary of the IRC
reporting and disclosure requirements.
Although this report discusses the political activity limitations in the IRC, it is
important to realize that organizations must abide by any applicable election laws.
For example, since campaign finance laws ban corporations from making any
contribution or expenditure in connection with federal elections, an incorporated
tax-exempt organization is generally prohibited from doing so.1 For more
1 Under 11 CFR § 114.10, qualifying incorporated IRC § 501(c)(4) organizations may make
“independent expenditures” (expenditures that expressly advocate for a candidate but are
made without the candidate’s cooperation) and “electioneering communications” (broadcast,
cable, or satellite advertisements that refer to a clearly-identified federal candidate within
sixty days of a general election or thirty days of a primary election and, if a House or Senate
election, are targeted to the relevant electorate). Among other things, the organization must
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information on campaign finance laws, see CRS Report RS21571, Campaign
Finance and Prohibiting Contributions by Tax-Exempt Corporations: FEC v.
Beaumont, by L. Paige Whitaker; and CRS Issue Brief IB87020, Campaign Finance,
by Joseph E. Cantor.
Political Activity by IRC § 501(c)(3) Organizations
Organizational Definition
The organizations described in IRC § 501(c)(3) are commonly referred to as
charitable organizations. The section describes these organizations as:
organized and operated exclusively for religious, charitable, scientific, testing
for public safety, literary, or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its activities
involve the provision of athletic facilities or equipment), or for the prevention of
cruelty to children or animals, no part of the net earnings of which inures to the
benefit of any private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection (h)), and which
does not participate in, or intervene in (including the publishing or distributing
of statements), any political campaign on behalf of (or in opposition to) any
candidate for public office.2
There are two types of IRC § 501(c)(3) organizations: public charities and
private foundations. Public charities receive contributions from a variety of sources
whereas private foundations receive contributions from limited sources. Due to fear
of abuse, private foundations are subject to stricter regulation than public charities.
This includes additional restrictions on their political activities, as discussed below.
Examples of public charities include the Red Cross, churches, schools, hospitals, Boy
Scouts, Girl Scouts, animal shelters, and Little League. Examples of private
foundations include the John D. and Catherine T. MacArthur Foundation, the Ford
Foundation, and the Mars Foundation.
Summary of the Definition’s Restrictions on Political Activity. The
organizational definition in IRC § 501(c)(3) restricts the ability of these organizations
1 (...continued)
have the promotion of political ideas as its sole express purpose. This exception reflects the
Supreme Court’s decision in Federal Election Commission v. Mass. Citizens for Life, Inc.,
479 U.S. 238 (1986), in which the Court held that limits on election-related independent
spending by certain incorporated advocacy groups were unconstitutional because the
government had failed to show a compelling reason for infringing on the groups’ free speech
rights. The Court stated that while the government may have a compelling corruption-
related interest in restricting the independent spending of incorporated businesses, it had not
shown that a similar interest existed for treating incorporated nonprofit organizations
differently than other nonprofit organizations. Id. at 263-64.
2 IRC § 501(h) provides a test for measuring the amount of lobbying done by an
organization. It is discussed below.

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to participate in political activity in two ways: (1) they may only conduct an
insubstantial amount of lobbying and (2) they may not intervene in political
campaigns. Organizations that violate either restriction may lose their tax-exempt
status and the eligibility to receive deductible contributions. Additionally, the
organization may, either in addition or as an alternative to the loss of tax-exempt
status, be required to pay an excise tax on its political or lobbying expenditures, be
enjoined from making further expenditures, and receive a termination assessment of
all taxes owed. The lobbying restriction and political campaign prohibition are
discussed in detail below.
Legislative History of the Political Activity Restrictions. The lobbying
limitation was enacted in 1934 and the political campaign prohibition was enacted
in 1954. The legislative history of both provisions is sparse.
In 1919, the Treasury Department took the position that organizations “formed
to disseminate controversial or partisan propaganda” were not “educational” for
purposes of qualifying for tax-exempt status under the precursors to IRC § 501(c)(3).3
One consequence of this rule was that contributions to these organizations were not
deductible. Several lawsuits were brought that challenged this treatment, but no clear
standard emerged from the court decisions — some courts denied the deduction if the
organization advocated for any type of change, whereas others looked at factors such
as how controversial the advocacy was or if the organization’s actions were intended
to influence legislation.4 In what is generally recognized as the seminal case, Slee v.
Commissioner,5 the U.S. Court of Appeals for the Second Circuit used another
rationale. In that decision, the court held that contributions to an organization were
not deductible because it did not appear that the lobbying was limited to causes that
furthered the organization’s charitable purpose.6
With this background, Congress enacted the lobbying limitation as part of the
Revenue Act of 1934. There is very little legislative history for the provision, but it
appears that Congress was concerned with organizations that lobby also being able
to receive tax-deductible contributions.7 While discussing the provision on the
Senate floor, one Member complained about the deductibility of donations that were
made for “selfish” reasons and specifically mentioned an organization with which he
3 Treas. Reg. 45, Art. 517 (1919).
4 For a discussion of the Treasury position and these cases, see William J. Lehrfeld, The
Taxation of Ideology, 19 CATH. U. L. REV. 50 (1969); Tommy F. Thompson, The
Availability of the Federal Educational Tax Exemption for Propaganda Organizations, 18
U.C. DAVIS L. REV. 487 (1985); Laura B. Chisholm, Exempt Organizations Advocacy:
Matching the Rules to the Rationales, 63 IND. L.J. 201 (1988); Miriam Galston, Lobbying
and the Public Interest: Rethinking the Internal Revenue Code’s Treatment of Legislative
Activities, 71 TEX. L. REV. 1269 (1993); Oliver A. Houck, On The Limits of Charity:
Lobbying, Litigation, and Electoral Politics by Charitable Organizations under the Internal
Revenue Code and Related Laws, 69 BROOK. L. REV. 1 (2003).
5 42 F.2d 184 (2nd Cir. 1930).
6 See id. at 185.
7 See 78 CONG. REC. 5,959 (1934) (statement by Sen. Harrison).

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was apparently having problems.8 Although this Member apparently believed the
provision was too broad in that it applied to organizations without “selfish motives,”9
other Members argued that all contributions to organizations that lobby should be
nondeductible because of the difficulty in trying to distinguish between organizations
that deserve the benefit and those that do not.10 It has also been suggested that
Congress enacted the provision in order to codify the Slee decision.11 Although this
may be true, it should be noted that the Slee test and the lobbying provision are not
identical. This is because the focus of the test under Slee is whether the lobbying
furthers the organization’s tax-exempt purpose, whereas the focus of the lobbying
provision is whether the lobbying is a substantial part of the organization’s activities.
The 1934 Act had also included a provision that would have restricted the
ability of charities to participate in partisan politics. However, that limitation was
removed in conference, apparently because of concerns it was too broad.12
The political campaign prohibition was enacted as part of the Internal Revenue
Code of 1954. The provision was added by Senator Lyndon Johnson as a floor
amendment. Upon introducing the amendment, Senator Johnson analogized it to the
lobbying limitation; however, he mischaracterized the lobbying limitation by saying
that organizations that lobbied were denied tax-exempt status, as opposed to only
those organizations that substantially lobbied.13 The legislative history contains no
further discussion of the prohibition, including whether Senator Johnson’s overly-
broad description of the lobbying provision and inaccurate analogy were noticed.
Although Senator Johnson’s motives behind the provision are not clear from the
legislative history, it has been suggested that he proposed it either as a way to get
back at an organization that had supported an opponent or because he wished to offer
an alternative to another Senator’s proposal that would have denied tax-exempt status
to organizations making grants to organizations or individuals that were deemed to
be subversive.14
Lobbying by IRC § 501(c)(3) Organizations
The organizational definition in IRC § 501(c)(3) states that “no substantial part”
of an organization’s activities may be “carrying on propaganda, or otherwise
attempting, to influence legislation” (i.e., lobbying).
8 78 CONG. REC. 5,861 (1934) (statement by Sen. Reed).
9 Id.
10 See 78 CONG. REC. 5,861 and 5,959 (1934) (statements by Sens. Harrison and La Follette).
11 See e.g., Gen. Couns. Mem. 34289 (May 3, 1970). General Counsel Memoranda contain
legal interpretations of the IRC by the IRS. They have no precedential value. They are
available through such services as Lexis and Westlaw.
12 See 78 CONG. REC. 7,831 (1934) (statement by Rep. Hill).
13 See 100 CONG. REC. 9,604 (1954).
14 See Judith E. Kindell and John Francis Reilly, Election Year Issues, IRS 2002 EO CPE
TEXT, 448-51 (2002).

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What is Lobbying? Lobbying includes activities that attempt to influence
legislation by (1) contacting, or urging the public to contact, legislators about
proposing, supporting, or opposing legislation and (2) advocating for or against
legislation.15 Thus, it includes direct lobbying (contacting governmental officials)
and grassroots lobbying (appeals to the electorate or general public). “Legislation”
includes action by any legislative body and by the public through such things as
referenda and initiatives.16 “Action” includes the introduction, amendment,
enactment, defeat, or repeal of such things as acts, bills, and resolutions.17 It also
appears to include Senate confirmation of judicial and executive branch
nominations.18 An organization’s advocacy activities may be lobbying even if
legislation is not actually pending.19 Furthermore, an organization may be treated as
lobbying if it does such things as make a contribution or lend money on favorable
terms to an entity that lobbies.
Lobbying generally does not include providing testimony in response to an
official request by a legislative body.20 It also does not include contacting executive,
judicial, and administrative bodies on matters other than legislation.21 Additional
examples of activities that may not be lobbying include conducting and publishing
nonpartisan analysis, study, or research; discussing broad social issues, so long as
specific legislation is not discussed; and contacting legislative bodies about
legislation that relates to the organization’s existence or status.22
What is “No Substantial Part”? In order to determine whether lobbying
is a substantial part of an organization’s activities, the organization may elect under
IRC § 501(h) to measure its lobbying expenditures against objective, numerical
standards.23 If the election is not made, the organization is subject to the “no
substantial part” test, which has no bright-line standards. Most organizations do not
make the election.
IRC § 501(h) election. Organizations that make the IRC § 501(h) election
measure their lobbying activities against the limits in IRC § 4911. Some IRC §
15 See Treas. Reg. § 1.501(c)(3)-1(c)(3)(ii).
16 See id.
17 See Gen. Couns. Mem. 39694 (Jan. 22, 1988); IRC § 4911(e)(3).
18 See IRS Notice 88-76, 1988-2 C.B. 392; Gen. Couns. Mem. 39694 (Jan. 22, 1988).
19 See e.g., Christian Echoes Nat’l Ministry Inc. v. United States, 470 F.2d 849, 855 (10th
Cir. 1972).
20 See Rev. Rul. 70-449, 1970-2 C.B. 111.
21 See Treas. Reg. § 1.501(c)(3)-1(c)(3)(ii).
22 See Rev. Rul. 64-195, 1964-2 C.B. 138; Gen. Couns. Mem. 36127 (Jan. 2, 1975); IRC §
4945(e); Treas. Reg. § 53.4945-2(d).
23 IRC § 501(h) was enacted as part of the Tax Reform Act of 1976, P.L. 94-455.

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501(c)(3) organizations, including churches and private foundations, are not allowed
to make the election.24
The IRC § 501(h) election has two effects. First, it imposes an excise tax on
organizations whose lobbying expenditures exceed the limits in IRC § 4911. IRC §
4911 sets limits for total lobbying expenditures and for grass roots expenditures. In
order not to be taxed for excessive lobbying, an organization may not spend more
than 20% of its first $500,000 of expenditures on lobbying, nor more than 15% of its
second $500,000 of expenditures, nor more than 10% of its third $500,000 of
expenditures, nor more than 5% of its remaining expenditures, and no more than $1
million on lobbying in the year. In order not to be taxed for excessive grass roots
lobbying, the organization may not spend more than 5% of its first $500,000 of
expenditures on grass roots lobbying, nor more than 3.75% of its second $500,000
of expenditures, nor more than 2.5% of its third $500,000 of expenditures, nor more
than 1.25% of its remaining expenditures, and no more than $250,000 on grass roots
lobbying in the year. If an organization’s lobbying expenditures exceed these limits,
IRC § 4911 imposes an excise tax equal to 25% of the excess.
Second, the IRC § 501(h) election provides a safe harbor so that organizations
that do not exceed that amount will not lose their IRC § 501(c)(3) status due to
substantial lobbying. Specifically, an organization will not lose its exempt status so
long as its lobbying expenditures do not exceed 150% of the IRC § 4911 limitations
over a four year period. Thus, depending on its activities in prior years, an
organization could conduct lobbying in the current year that is significant enough to
be subject to tax, but not lose its tax-exempt status.
Non-Electing Organizations. For organizations that do not make the IRC §
501(h) election and those that cannot (e.g., private foundations and churches), the
determination as to whether they have conducted more than an insubstantial amount
of lobbying is dependent on the facts and circumstances of each case. Case law
suggests that “no substantial part” is between 5% and 20% of the organization’s
expenditures.25 However, there is no bright-line test and the percentage of
expenditures spent on lobbying is not determinative.26 Rather, the determination is
made by examining the lobbying in the broad context of the organization’s purpose
and activities, which requires looking at such things as how important lobbying is to
24 Some churches lobbied not to be eligible for the election because they were concerned
that their inclusion would be interpreted as congressional approval of Christian Echoes
Nat’l Ministry, Inc. v. United States, 470 F.2d 849 (10th Cir. 1972), in which the U.S. Court
of Appeals for the Tenth Circuit held that the lobbying limitation did not violate a church’s
rights under the First Amendment. The legislative history of the election provision
explicitly states that its enactment does not indicate congressional approval or disapproval
of the Christian Echoes decision. See Joint Committee on Taxation, General Explanation
of the Tax Reform Act of 1976, JCS-33-76, at 416 (1976).
25 See Seasongood v. Comm’r, 227 F.2d 907, 912 (6th Cir. 1955); Haswell v. United States,
500 F.2d 1133, 1146-47 (Ct. Cl. 1974).
26 See Christian Echoes Nat’l Ministry, Inc. v. United States, 470 F.2d 849, 855 (10th Cir.
1972); Haswell, 205 Ct. Cl. at 1142; Krohn v. United States, 246 F. Supp. 341, 347-48 (D.
Colo. 1965); Gen. Couns. Mem. 36148 (Jan. 28, 1975).

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the organization’s purpose, the amount of time devoted to lobbying as compared with
other activities, and the extent to which the organization is continuously involved in
lobbying.27
Unlike electing organizations, non-electing public charities are only subject to
an excise tax on their lobbying expenditures if they lose their exempt status because
of substantial lobbying.28 The tax equals 5% of the organization’s lobbying
expenditures, and the same tax may also be imposed on the organization’s manager.
Some organizations, including churches, are not subject to the tax.
Private foundations, on the other hand, must generally pay an excise tax on any
lobbying expenditures they make.29 Thus, although private foundations may conduct
an insubstantial amount of lobbying, there is a disincentive for them to do so. The
tax equals 10% of the expenditures. Note that unlike the case with electing public
charities, any amount spent by the private foundation on lobbying is subject to tax.
Additionally, a foundation manager who agrees to the expenditure may individually
be subject to a tax equal to 2.5% of the expenditure, limited to $5,000. If the
foundation fails to timely correct the expenditure, it is subject to an additional tax
equal to 100% of the expenditure and the manager may be subject to an additional
tax equal to 50% of the expenditure, limited to $10,000.
Regan v. Taxation With Representation of Washington. In 1983, the
Supreme Court ruled in Regan v. Taxation With Representation of Washington that
the lobbying limitation is constitutional.30 In that case, the IRS denied the application
of Taxation With Representation of Washington (TWR) for IRC § 501(c)(3) status
because a substantial amount of the group’s activities would be lobbying. TWR
argued that the lobbying limitation violated its right to freedom of speech under the
First Amendment. The group also argued that it was being denied equal protection
under the Fifth Amendment because IRC § 501(c)(19) veterans’ organizations were
allowed to lobby substantially and still qualify for tax-exempt status and to receive
tax-deductible contributions.
The Supreme Court rejected both claims. With respect to the First Amendment,
the Court found that Congress had not prevented TWR from speaking, but had
simply chosen not to subsidize it by means of the tax exemption and tax-deductible
contributions.31 The court also noted that TWR could qualify for exemption under
IRC § 501(c)(4) and receive deductible contributions for its non-lobbying activities
27 See Christian Echoes, 470 F.2d at 855-86; Haswell, 205 Ct. Cl. at 1145; Krohn, 246 F.
Supp. at 348-49.
28 IRC § 4912. This section was enacted as part of the Omnibus Budget Reconciliation Act
of 1987 (P.L. 100-203).
29 IRC § 4945. This section was enacted as part of the Tax Reform Act of 1969 (P.L. 91-
172).
30 461 U.S. 540 (1983).
31 See id. at 545-46.

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by setting up a separate IRC § 501(c)(3) organization.32 With respect to the Fifth
Amendment, the Court stated that the test to determine whether the classification was
constitutionally permissible was whether it bore a rational relationship to a legitimate
governmental purpose.33 Noting that legislatures have broad discretion when it
comes to making classifications for tax purposes, the Court found that it was not
irrational for Congress to decide not to extend the taxpayer-funded benefit of
unlimited lobbying to charities because of concerns they may lobby for their
members’ benefit.34 The Court also stated that distinguishing charities from veterans
organizations was permissible because the United States “has a longstanding policy
of compensating veterans for their past contributions by providing them with
numerous advantages.”35
Political Campaign Activity by
IRC § 501(c)(3) Organizations
The organizational definition in IRC § 501(c)(3) prohibits these organizations
from “participating in, or intervening in (including the publishing or distributing of
statements), any political campaign on behalf of (or in opposition to) any candidate
for public office.” The IRC does not further elaborate on the prohibition. Treasury
regulations define candidate as “an individual who offers himself, or is proposed by
others, as a contestant for an elective public office, whether such office be national,
State, or local.”36 As to what types of activities are prohibited, the regulations add
little besides specifying that they include “the publication or distribution of written
or printed statements or the making of oral statements on behalf of or in opposition
to such a candidate.”37
Thus, the statute and regulations do not offer much insight as to what activities
are prohibited. Clearly, IRC § 501(c)(3) organizations may not do such things as
make statements that endorse or oppose a candidate, publish or distribute campaign
literature, or make any type of contribution, monetary or otherwise, to a political
campaign. On the other hand, IRC § 501(c)(3) organizations are allowed to conduct
activities that are not related to elections, such as issue advocacy, lobbying for or
against legislation, and supporting or opposing the appointment of individuals to
nonelective offices.
Additionally, IRC § 501(c)(3) organizations are allowed to conduct certain
election-related activities so long as the activities are non-partisan and do not indicate
a preference for any candidate. Whether such an activity is campaign intervention
depends on the facts and circumstances of each case. The following examples show
some of the ways in which an activity might be biased. As will be seen, some biases
32 See id. at 544.
33 See id. at 547.
34 See id. at 547 and 550.
35 Id. at 550-51.
36 Treas. Reg. § 1.501(c)(3)-1(c)(3)(iii).
37 Id.

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can be subtle and it is not necessary that the organization expressly mention a
candidate by name.
Voter Guides. IRC § 501(c)(3) organizations may create and/or distribute
voter guides and similar materials that do not indicate a preference towards any
candidate. The guide must be unbiased in form, content, and distribution. There are
numerous ways in which a guide may show a bias, and the determination will depend
on the specific facts and circumstances of each case. For example, a guide could
display a bias by not including all candidates on an equal basis. Another way a guide
could be biased is by rating candidates, such as evaluating candidates and supporting
a slate of the best-qualified candidates, even if the criteria are nonpartisan (e.g., based
on professional qualifications).38 A voter guide could also indicate a bias by
comparing the organization’s position on issues with those of the candidates.39 A
more subtle way in which a guide may show bias is by only covering issues that are
important to the organization, as opposed to covering a range of issues of interest to
the general public.40
Some guides consist of candidate responses to questions provided by the
organization. Factors that tend to show these guides are candidate-neutral include:
! the questions and descriptions of the issues are clear and unbiased,
! the questions provided to the candidates are identical to those
included in the guide,
! the candidates’ answers have not been edited,
! the guide puts the questions and appropriate answers in close
proximity to each other,
! the candidates are given a reasonable amount of time to respond to
the questions, and
! if the candidates are given limited choices for an answer to a
question (e.g., yes/no, support/oppose), they are given a reasonable
opportunity to explain their positions.41
It is important to realize that the above two paragraphs are just examples of how
a guide could be biased. The determination of whether a guide is a campaign
intervention depends on the facts and circumstances of that case. Thus, it is possible
that a guide that is neutral according to the above paragraphs could still be treated as
campaign intervention because it indicates a preference for a candidate in some other
way. On the other hand, a guide is not necessarily biased just because it has or lacks
a characteristic from the above examples. Other factors that may be important in a
specific factual situation include the timing of the guide’s distribution and to whom
it is distributed. For example, the IRS ruled that an IRC § 501(c)(3) organization
could include in the edition of its monthly newsletter after the close of each Congress
a compilation of the Members’ voting records on issues important to the organization
38 See Rev. Rul. 67-71, 1967-1 C.B. 125.
39 See IRS FS-2006-17 (Feb. 2006).
40 See Rev. Rul. 78-248, 1978-1 C.B. 154.
41 See IRS FS-2006-17 (Feb. 2006); Rev. Rul. 78-248, 1978-1 C.B. 154.

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CRS-10
and the organization’s position on those issues.42 The newsletter was sent to the
usual small number of subscribers and not targeted to areas where elections are
occurring. In this specific situation, the IRS stated that the publication was
permissible because it was not timed to an election or broadly distributed.
Conducting Public Forums. IRC § 501(c)(3) organizations may conduct
unbiased and nonpartisan public forums where candidates speak or debate. The
factors that tend to show a public forum is unbiased and nonpartisan include:
! all legally qualified candidates are invited,
! the questions are prepared and presented by a nonpartisan
independent panel,
! the topics and questions cover a broad range of issues,
! all candidates receive an equal opportunity to present their views,
! the moderator does not comment on the questions or imply approval
or disapproval of the candidates, and
! the moderator explicitly states that the views expressed are not those
of the organization and that the organization does not support or
oppose any candidate.43
The presence of all the above factors does not necessarily mean that the forum is
permissible, and the absence of some does not necessarily mean that the forum is
impermissible. Whether an organization is found to have participated in political
campaign activity will depend on the facts and circumstances of that case.
Inviting Candidates to Speak. An IRC § 501(c)(3) organization may invite
a candidate to speak at its functions without it being prohibited campaign activity.
The organization must provide an equal opportunity to speak at similar events to the
other candidates, the organization must make clear that it is not supporting or
opposing the candidate, and no fund-raising may occur.44 IRC § 501(c)(3)
organizations may also invite candidates to speak in their non-candidate capacity.45
The individual may only speak in his or her non-candidate capacity and no reference
to the election may be made.
Voter Registration. IRC § 501(c)(3) organizations may conduct nonpartisan
voter registration and get-out-the-vote drives. Again, the activities may not indicate
a preference for any candidate or party. Factors that may indicate these activities are
neutral include:
! candidates are named or depicted on an equal basis,
! no political party is named except for purposes of identifying the
party affiliation of each candidate,
42 See Rev. Rul. 80-282, 1980-2 C.B. 178.
43 See Rev. Rul. 86-95, 1986-2 C.B. 73.
44 See IRS FS-2006-17 (Feb. 2006).
45 See id.

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CRS-11
! the activity is limited to urging acts such as voting and registering
and to describing the hours and places of registration and voting, and
! all registration and get-out-the-vote drive services are made
available without regard to the voter’s political preference.46
Issue Advocacy. IRC § 501(c)(3) organizations may take positions on policy
and legislative issues, although, as discussed above, there are restrictions on the
amount of lobbying an organization may do. Because there is no rule that political
campaign activity only occurs when an organization expressly advocates for or
against a candidate, the line between issue advocacy and political campaign activity
can be difficult to discern. Key factors that indicate an issue advocacy
communication is not political campaign intervention include:

! the communication does not identify any candidates for a given
public office,
! the communication does not express approval or disapproval for any
candidate’s positions and/or actions,
! the communication is not delivered close in time to an election,
! the communication does not refer to voting or an election,
! the issue addressed in the communication has not been raised as an
issue distinguishing the candidates,
! the communication is part of an ongoing series by the organization
on the same issue and the series is not timed to an election, and
! the communication’s timing and identification of the candidate are
related to a non-electoral event (e.g., a scheduled vote on specific
legislation by an officeholder who also happens to be a candidate for
public office).47

Once again, whether a specific communication violates the political campaign
prohibition depends on the facts and circumstances of that case. Thus, a
communication that has all of the above factors could still be treated as campaign
intervention if it shows bias in some other way.
Selling Mailing Lists and Other Business Activities. Under certain
circumstances, IRC § 501(c)(3) organizations may sell or rent goods, services, and
facilities to political campaigns. This includes selling and renting mailing lists and
accepting paid political advertising. Factors that indicate the activity is not biased
towards any candidate or party include:
! the selling or renting activity is an ongoing business activity of the
organization;
! the goods, services, and facilities are also available to the general
public;
! the fees charged are the organization’s customary and usual rates;
and
46 See 2002 EO CPE TEXT, supra note 14, at 379.
47 See IRS FS-2006-17 (Feb. 2006); 2002 EO CPE TEXT, supra note 14, at 376-77.

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! the goods, services, or facilities are available to all the candidates on
an equal basis.48
Website Links. An IRC § 501(c)(3) organization could engage in political
campaign activity by linking its website to another website that has content showing
a preference for a candidate. It does not matter that the organization cannot control
the other site’s content. Whether the linking is political campaign intervention will
depend on the facts and circumstances of each case. The factors that the IRS will
look at include the context of the link on the organization’s website, whether all
candidates are presented, whether the linking serves the organization’s exempt
purpose, and the directness between the organization’s website and the page at the
other site with the biased material.49
Activities of the Organization’s Leaders and Members. Members,
managers, leaders, and directors of IRC § 501(c)(3) organizations may participate in
political campaign activity in their private capacity. The organization can not support
the activity in any way.50 For example, these individuals may not express political
views in the organization’s publications or at its functions, and the organization may
not pay expenses incurred by the individual in making the political statement.
Individuals may be identified as being associated with an organization, but there
should be no indication that their views represent the organization.
Tax on Expenditures for Political Campaign Activity. Under IRC §
4955, an IRC § 501(c)(3) organization that makes an expenditure on political
campaign activity may be subject to an excise tax.51 If the expenditure is small and
the violation is unintentional, the tax may be imposed as an alternative to the
organization losing its tax-exempt status.52 The tax equals 10% of the expenditure,
and a tax equal to 2.5% of the expenditure, limited to $5,000, may also be imposed
on the organization’s manager. If the expenditure is not corrected (i.e., recovered and
safeguards established to prevent future expenditures) in a timely manner, then the
organization is subject to an additional tax equal to 100% of the expenditure, and the
manager may be subject to an additional tax equal to 50% of the expenditure, limited
to $10,000.
A similar tax is imposed on private foundations under IRC § 4945. If a tax is
assessed on a private foundation under IRC § 4955, then no tax may be assessed
under IRC § 4945.
48 See IRS FS-2006-17 (Feb. 2006); 2002 EO CPE TEXT, supra note 14, at 383-84.
49 See IRS FS-2006-17 (Feb. 2006).
50 See IRS FS-2006-17 (Feb. 2006); 2002 EO CPE Text, supra note 14, at 363-65; Gen.
Couns Mem. 34523 (June 11, 1971); Gen. Couns. Mem. 39414 (Sept. 25, 1985).
51 This section was enacted as part of the Omnibus Budget Reconciliation Act of 1987 (P.L.
100-203).
52 See H.R. Rep. No. 100-391, at 1623-24 (1987).

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Tax Under IRC § 527(f)
All IRC § 501(c) organizations are subject to tax if they make an expenditure
for an IRC § 527 exempt function. An IRC § 527 exempt function is influencing the
selection, nomination, election, or appointment of an individual to a federal, state, or
local public office, to an office in a political organization, or as a presidential or
vice-presidential elector. This issue is discussed further in the “IRC § 527 Exempt
Functions” section, below.
Political Activity by IRC §§ 501(c)(4),
(c)(5), and (c)(6) Organizations
Organizational Definitions
IRC § 501(c)(4). The organizations described in IRC § 501(c)(4) are
commonly referred to as social welfare organizations. The section describes these
organizations as:
[c]ivic leagues or organizations not organized for profit but operated exclusively
for the promotion of social welfare, or local associations of employees, the
membership of which is limited to the employees of a designated person or
persons in a particular municipality, and the net earnings of which are devoted
exclusively to charitable, educational, or recreational purposes. [This paragraph]
shall not apply to an entity unless no part of the net earnings of such entity inures
to the benefit of any private shareholder or individual.
Treasury regulations clarify that “[a]n organization is operated exclusively for the
promotion of social welfare if it is primarily engaged in promoting in some way the
common good and general welfare of the people of the community.”53 Examples of
IRC § 501(c)(4) organizations include the National Rifle Association and the Sierra
Club. 54
IRC § 501(c)(5). IRC § 501(c)(5) organizations are described as “labor,
agricultural, or horticultural organizations.” Most of these organizations are labor
unions.
53 Treas. Reg. § 1.501(c)(4)-1(a)(2).
54 The purposes described in sections IRC §§ 501(c)(3) and (c)(4) overlap, so that an
organization may be able to qualify under either section. An IRC § 501(c)(3) organization
is eligible to receive tax-deductible contributions, while an IRC § 501(c)(4) organization is
not, but an IRC § 501(c)(3) organization is more limited in the amount and types of political
activity it may do. Thus, an organization that could qualify under either section will
generally choose based on which is more important: receiving tax-deductible contributions
or participating in political activity. With the exception of churches and related
organizations, an organization that loses its IRC § 501(c)(3) status because of political
campaign activity or substantial lobbying may not then seek recognition as an IRC §
501(c)(4) organization. IRC § 504.

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IRC § 501(c)(6). The organizations described in IRC § 501(c)(6) are generally
thought of as trade associations. The section describes these organizations as:
[b]usiness leagues, chambers of commerce, real estate boards, boards of trade,
or professional football leagues . . . not organized for profit and no part of the net
earnings of which inures to the benefit of any private shareholder or individual.
Examples of IRC § 501(c)(6) organizations include the Chamber of Commerce,
Jaycees, American Bar Association, American Medical Association, and National
Association of Manufacturers.
Lobbying by IRC §§ 501(c)(4), (c)(5),
and (c)(6) Organizations
The organizational definitions in IRC §§ 501(c)(4), (c)(5), and (c)(6) do not
contain any explicit limitations on lobbying. The organizations described in these
three sections may participate in an unrestricted amount of lobbying so long as the
lobbying is related to the organization’s exempt purpose. In fact, organizations
whose sole activity is lobbying may be recognized under these sections so long as
they serve the appropriate tax-exempt purpose.55 For example, a business association
whose only activity is lobbying for and against legislation according to its members’
interests may qualify for IRC § 501(c)(6) status.56
Dues. Dues to labor unions and trade associations are potentially deductible
under IRC § 162. However, if an organization conducts lobbying activities, IRC §
162(e) disallows a deduction for the portion of dues that represents lobbying
expenditures. In general, the organization must either notify its members of the
amount that is nondeductible or pay a tax on its lobbying expenditures.57
Lobbying Disclosure Act. Section 18 of the Lobbying Disclosure Act of
1995 (P.L. 104-65) prohibits organizations described in IRC § 501(c)(4) from
receiving federal grants, loans, or other awards if they engage in lobbying activities,
even if they conduct the lobbying with their own funds. As originally passed, section
18 also applied to IRC § 501(c)(4) organizations that received government contracts,
but the section was amended by P.L. 104-99 to delete that restriction. The Lobbying
Disclosure Act imposes registration and disclosure requirements on any organizations
that have paid lobbyists whose lobbying activities exceed certain time and monetary
limits. For more information, see CRS Report 96-809A, Lobbying Regulations on
Non-Profit Organizations, by Jack H. Maskell.
55 See Rev. Rul. 61-177, 1961-1 C.B. 117; Rev. Rul. 71-530, 1971-2 C.B. 237.
56 See Rev. Rul. 61-177, 1961-1 C.B. 117.
57 See IRC § 6033(e).

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Political Campaign Activity by IRC §§ 501(c)(4),
(c)(5), and (c)(6) Organizations

The organizational definitions in IRC §§ 501(c)(4), (c)(5), and (c)(6) do not
contain any explicit restrictions on political campaign activity. These organizations
may engage in political campaign activity so long as it is consistent with the
organization’s exempt purpose. However, unlike the case with lobbying, the
organizational definitions contain an implicit restriction on the amount of political
campaign activity these organizations may do. Specifically, participating in political
campaign activity cannot be the organization’s primary activity.58
Tax Under IRC § 527(f)
All IRC § 501(c) organizations are subject to tax if they make an expenditure
for an IRC § 527 exempt function. An IRC § 527 exempt function is influencing the
selection, nomination, election, or appointment of an individual to a federal, state, or
local public office, to an office in a political organization, or as a presidential or
vice-presidential elector. This issue is discussed further in the “IRC § 527 Exempt
Functions” section, below.
Political Activity by IRC § 527 Organizations
Organizational Definition
The organizations described in IRC § 527 are political organizations or funds
organized and operated primarily for accepting contributions and/or making
expenditures for an exempt function. IRC § 527 defines an exempt function as:
influencing or attempting to influence the selection, nomination, election, or
appointment of any individual to any Federal, State, or local public office or
office in a political organization, or the election of Presidential or
Vice-Presidential electors, whether or not such individual or electors are
selected, nominated, elected, or appointed.
IRC § 527 encompasses every kind of political committee, including a candidate
committee, a political party, and a political action committee set up by a union, a
corporation or a group of politically interested citizens. In recent years, the term
“527 organization” has been used to describe certain groups that intend to influence
federal elections in ways that may be outside the scope of federal election law;
however, the tax definition of the term is not limited to such organizations.
Legislative History of IRC § 527. Prior to 1975, the IRC was silent as to
the tax treatment of organizations whose primary purpose is influencing elections.
The IRS did not generally require these organizations to file tax returns, apparently
58 See Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii); Gen. Couns. Mem. 34233 (Dec. 30, 1969).

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because the IRS treated contributions to political organizations as nontaxable gifts.59
By the early 1970s, it became apparent that these organizations had sources of
income besides contributions, such as investment income and gain from the sale of
donated appreciated property. In 1973, the IRS announced it would begin requiring
political committees and parties with investment and other types of income to file tax
returns and pay tax.60
Congress responded in 1975 by enacting IRC § 527,61 which generally grants
tax-exempt status to political organizations, as discussed below. The 1975 version
of the section is similar to the version that currently exists, with the exception of the
reporting requirements added in 2000. Prior to the 2000 amendments, IRC § 527
organizations only had contact with the IRS if they were required to file a tax return
because they had taxable income. The lack of reporting requirements may have been
because political organizations were generally thought to be candidate funds and
political parties and committees (i.e, the same types of entities that, when involved
in federal elections, are regulated by the Federal Election Campaign Act of 1971
(FECA) and required to report to the Federal Election Commission (FEC)).

By 2000, as an increasing number of groups known as “stealth PACs” spent
money on elections, it became clear that not all IRC § 527 political organizations
were being regulated under FECA. Stealth PACs were organizations designed to
qualify as political organizations under IRC § 527 without having to report under
FECA to the FEC. It appears the reason these organizations began growing in
number during the late 1990s was because the fact that organizations could qualify
under IRC § 527 without reporting to the FEC was largely unnoticed until 1996,
which was when the IRS began issuing guidance on the types of activities that qualify
as IRC § 527 exempt functions.62
In response to the issue of stealth PACs, Congress amended IRC § 527 in 2000
to generally require that most organizations that do not report to the FEC report to the
IRS and that the information be available to the public.63 In 2002, Congress made
changes to some of these provisions in order to, among other things, remove
duplicative reporting requirements.64
59 See IRS Notice of Opportunity to Submit Written Comments and to Request Public
Hearing with respect to the Tax Treatment of Contributions of Appreciated Property to
Committees of Political Parties, 37 F.R. 22427-28 (Oct. 19, 1972).
60 IRS Announcement 73-84, 1973-33 I.R.B. 18.
61 P.L. 93-625.
62 See Priv. Ltr. Rul. 9652026 (Oct. 1, 1996); Priv. Ltr. Rul. 9725036 (Mar. 24, 1997); Priv.
Ltr. Rul. 9808037 (Nov. 21, 1997); Priv. Ltr. Rul. 199925051 (Mar. 29, 1999).
63 P.L. 106-230.
64 P.L. 107-276.

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Tax Treatment of IRC § 527 Organizations
IRC § 527 organizations are not subject to tax on their “exempt function
income.” This income is the amounts received from certain sources that are then
segregated to be used for an exempt function. These sources are:
! contributions of money or other property;
! membership dues, fees, or assessments;
! proceeds, which are not received in the ordinary course of business,
from political fund-raising and entertainment events or from the sale
of campaign materials; and
! proceeds from conducting a bingo game.
IRC § 527 organizations are subject to tax on income from any other sources and on
the income from the listed sources if the funds are not properly segregated or used
for an exempt function. The tax rate is generally the highest corporate income tax
rate, but the income of the principal campaign committee of a congressional
candidate is taxed using the graduated corporate tax rate schedule (this is not true for
campaign committees of candidates for state or local office). What types of activities
are “exempt functions” is discussed in the “IRC § 527 Exempt Functions” section,
below.
Nonexempt Function Activities
IRC § 527 organizations may engage in nonexempt function activities so long
as these are not an organization’s primary activities. Thus, these organizations may
do such things as sponsor nonpartisan education workshops, pay an incumbent’s
office expenses, lobby, carry on social activities unrelated to its exempt function, and
provide services to other entities.65 However, as mentioned above, IRC § 527
organizations are only exempt from tax to the extent their nontaxable income is
segregated to be used for an exempt function.66 If an organization spends more than
an insubstantial amount on a nonexempt function, the organization will be subject
to tax on the amount in the segregated fund.67 There is no definition of
“insubstantial,” although the IRS has indicated that the determination is made using
principles similar to those used in determining whether a non-electing public charity
65 See Treas. Reg. § 1.527-2(a)(3); Gen. Couns. Mem. 39178 (March 6, 1984).
66 An exempt function under IRC § 527 is the
influencing or attempting to influence the selection, nomination, election, or
appointment of any individual to any Federal, State, or local public office or
office in a political organization, or the election of Presidential or
Vice-Presidential electors, whether or not such individual or electors are
selected, nominated, elected, or appointed.
67 See Treas. Reg. § 1.527-2(b)(1). Expenditures for an illegal activity or that benefit the
organization may be taxable to the organization, regardless of whether they are substantial.
See Treas. Reg. § 1.527-5(a).

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CRS-18
has violated the lobbying limitation (discussed above).68 Thus, although these
organizations may conduct nonexempt function activities, the activities may increase
their tax liability.
Political Activity by Other Types of
Tax-Exempt Organizations
While the majority of tax-exempt organizations fall into one of the types
discussed above, the IRC describes numerous other types of organizations. The
limitations the IRC places on the ability of these organizations to participate in
political activity is less clear than it is for IRC §§ 501(c)(3), 501(c)(4), 501(c)(5),
501(c)(6), and 527 organizations. Furthermore, for most of these other organizations,
there is no IRS guidance on the topic. This may be because the need for guidance has
not arisen due to the fact that there are not as many of these organizations and they
do not appear to participate in political activities to the same extent as IRC §§
501(c)(3), 501(c)(4), 501(c)(5), 501(c)(6), and 527 organizations.
These other types of organizations fall into three categories: (1) those that
appear to be prohibited from participating in most, if not all, types of political
activity; (2) those that may participate in political activity but are limited in the
amount they may spend; and (3) those that appear to be treated like IRC §§ 501(c)(4),
(c)(5), and (c)(6) organizations.
The first category includes the tax-exempt organizations that are trusts whose
funds must be dedicated to their exempt purpose. These organizations are:
! IRC § 501(c)(17) supplemental unemployment benefit trusts,
! IRC § 501(c)(18) pre-June 25, 1959, employee funded pension
trusts,
! IRC § 501(c)(21) black lung benefit trusts,
! IRC § 501(c)(22) multi-employer pension plan trusts,
! IRC § 501(c)(24) ERISA trusts for certain terminated plans, and
! IRC § 501(c)(28) National Railroad Retirement Investment Trust.
Due to the restriction on what these organizations may use their funds for, it appears
these organizations are generally unable to participate in political activities. It has
been suggested that these organizations may lobby for limited purposes, such as on
legislation that affects their existence or status.69
The first category also appears to include the organizations that the IRS has
indicated, in unofficial guidance, may not participate in political activities “because
the subparagraph in which they are described limits them to an exclusive purpose (for
example, IRC 501(c)(2) title holding companies, IRC 501(c)(20) group legal services
68 See 2002 EO CPE TEXT, supra note 14, at 411.
69 See Webster & Abegg, 613-3rd T.M., Lobbying and Political Expenditures, at A-89.

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CRS-19
plans).”70 It could be argued that this rationale is suspect because IRC § 501(c)(3)
requires those organizations be organized and operated “exclusively” for an exempt
purpose, but the IRS has interpreted the term to mean “primarily” in this context,71
and they may participate in some types of political activity. Nonetheless, this
rationale could preclude the following organizations from being able to participate
in political activity:
! IRC § 501(c)(2) title-holding corporations,
! IRC § 501(c)(20) group legal service plans,72
! IRC § 501(c)(25) multi-parent real property title-holding companies,
! IRC § 501(c)(26) state-sponsored organizations providing health
coverage to high risk individuals, and
! IRC § 501(c)(27) state-sponsored workers’ compensation
reinsurance organizations.
Additionally, this rationale could prohibit IRC § 501(c)(10) domestic fraternal
societies from participating in political activities because their net earnings must be
devoted exclusively to religious, charitable, scientific, literary, educational, and
fraternal purposes. To the extent that any of these organizations are precluded from
participating in political activities, there could still be exceptions for such things as
lobbying for legislation that affects the organization’s existence or status.73
The second category — organizations that may participate in political activities,
but are limited in how much they could spend — includes IRC § 528 homeowners’
associations. IRC § 528 requires that at least 90% of the organization’s expenditures
be for “the acquisition, construction, management, maintenance, and care of
association property, and in the case of a time share association, for activities
provided to or on behalf of members of the association.”
The third category consists of the organizations that appear to be treated in the
same manner as IRC §§ 501(c)(4), (c)(5), and (c)(6) organizations. It appears that
they are not limited by the tax laws with respect to their ability to participate in
lobbying and political campaign activity so long as such activity is consistent with
the organization’s tax-exempt purpose. These organizations are:
! IRC § 501(c)(1) corporations organized by act of Congress;
! IRC § 501(c)(7) social and recreational clubs;74
! IRC § 501(c)(8) fraternal benefit societies and associations;75
! IRC § 501(c)(9) VEBAs (Voluntary employees’ beneficiary
associations providing the payment of certain employee benefits);
70 2002 EO CPE TEXT, supra note 14, at 434.
71 See Treas. Reg. § 1.501(c)(3)-1(c)(1).
72 IRC § 501(c)(20) expired in 1992.
73 See Webster & Abegg, 613-3rd T.M., Lobbying and Political Expenditures, at A-89.
74 See Rev. Rul. 68-266, 1968-1 C.B. 270.
75 See Priv. Ltr. Rul. 8342100 (July 20, 1983); Priv. Ltr. Rul. 8852037 (Oct. 4, 1988)

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CRS-20
! IRC § 501(c)(11) teachers’ retirement fund associations;
! IRC § 501(c)(12) benevolent life insurance associations, mutual
ditch or irrigation companies, mutual or cooperative telephone,
electric, and water companies;
! IRC § 501(c)(13) cemetery companies;
! IRC § 501(c)(14) credit unions;
! IRC § 501(c)(15) small mutual insurance companies;
! IRC § 501(c)(16) cooperatives to finance crop operations;
! IRC § 501(c)(19) veterans’ groups;76
! IRC § 501(c)(23) veterans’ organization established before 1880;
! IRC § 501(d) religious and apostolic organizations with common or
communal treasury;
! IRC § 521 farmers’ cooperatives; and
! IRC § 526 shipowners’ protection and indemnity associations.
Tax Under IRC § 527(f)
All IRC § 501(c) organizations are subject to tax if they make an expenditure
for an IRC § 527 exempt function. An IRC § 527 exempt function is the influencing
the selection, nomination, election, or appointment of an individual to a federal, state,
or local public office, to an office in a political organization, or as a presidential or
vice-presidential elector. This issue is discussed further in the “IRC § 527 Exempt
Functions” section, below.
IRC § 527 Exempt Functions
Determining whether an activity is an IRC § 527 exempt function is important
for IRC § 527 political organizations and IRC § 501(c) organizations. As discussed
above, IRC § 527 organizations must primarily engage in IRC § 527 exempt function
activities and are subject to tax on income not used for these activities.
IRC § 501(c) organizations, on the other hand, are subject to tax if they make
an expenditure for an IRC § 527 exempt function.77 The organization is taxed at the
highest corporate rate on the lesser of the organization’s net investment income or
its total amount of exempt function expenditures. The tax applies if the organization
makes the expenditure directly or through another organization (e.g,. through an IRC
§ 527 political organization). However, IRC § 501(c) organizations may set up a
separate segregated fund under IRC § 527(f)(3). Assuming the fund is set up and
administered properly, it will be treated as an IRC § 527 political organization and
the IRC § 501(c) organization will not be subject to tax. However, as discussed
below in the “Related Organizations” section, an IRC § 501(c) organization may not
76 See Regan v. Taxation with Representation of Washington, 461 U.S. 540, 546 (1983);
Priv. Ltr. Rul. 7904064 (Oct. 25, 1978).
77 IRC § 527(f).

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set up a separate segregated fund to accomplish activities the organization may not
do.78
IRC § 527 defines an exempt function as
influencing or attempting to influence the selection, nomination, election, or
appointment of any individual to any Federal, State, or local public office or
office in a political organization, or the election of Presidential or
Vice-Presidential electors, whether or not such individual or electors are
selected, nominated, elected, or appointed.
“Public office” may include federal judgeships.79
What are IRC § 527 Exempt Functions?
Whether an activity is an IRC § 527 exempt function depends on the facts and
circumstances of each case. IRC § 527 exempt functions include making
expenditures for activities directly and indirectly related to supporting an exempt
function. Direct expenses include campaign expenditures for such things as travel
and meals, voice and speech lessons, attending testimonial dinners, election-night
parties, and reasonable cash awards to campaign workers.80 Indirect expenses are for
activities that are necessary to support the organization, including the costs of
solicitations, overhead, record keeping, and constructing and operating the
organization’s headquarters.81 Exempt function expenditures also include
expenditures for activities engaged in between election cycles, such as fund-raising
and administrative activities, if directly related to the next election.82 Another
example is amounts spent to hold seminars and conferences that are intended to
generate support for candidates that share political philosophies with the
organization.83
Examples of expenditures that are not for an IRC § 527 exempt function include
those to purchase periodicals to keep an incumbent informed on national and local
issues expenses incurred by an incumbent’s staff in connection with work on
legislative issues, and excess campaign funds transferred to the office holder’s office
expense account.84 Additionally, expenditures for the candidate’s personal use are
not for an exempt function.85
78 See Treas. Reg. § 1.527-6(g).
79 See Announcement 88-114, 1988-37 I.R.B. 26; Gen. Couns. Mem. 39694 (Jan. 22, 1988).
80 See Treas. Reg. § 1.527-2(c)(1) and (5); Rev. Rul. 87-119, 1987-2 C.B. 151; 2002 EO
CPE Text, supra note 14, at 398-99.
81 See Treas Reg. § 1.527-2(c)(2); Gen. Couns. Mem. 39178 (Mar. 6, 1984).
82 See Treas. Reg. § 1.527-2(c)(1).
83 See Treas. Reg. § 1.527-2(c)(5)(viii).
84 See Treas. Reg. §§ 1.527-2(c) and 1.527-5(c); Rev. Rul. 87-119, 1987-2 C.B. 151.
85 See Treas. Reg. § 1.527-5.

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Expenditures for an issue advocacy communication may be exempt function
expenditures if the communication crosses the line from being issue advocacy to
attempting to influence an election or other selection process. The determination
depends on the facts and circumstances of each case. Factors that tend to show an
expenditure for an issue advocacy communication is actually for an IRC § 527
exempt function include:
! the communication identifies a candidate for public office,
! the communication identifies the candidate’s position on the subject
of the communication,
! the candidate’s position has been raised (either by the
communication or in other public communications) to distinguish
him or her from other candidates,
! the communication is timed to coincide with an electoral campaign,
! the communication is targeted at voters in a particular election, and
! the communication is not part of an ongoing series of substantially
similar advocacy communications by the organization on the same
issue.86
Factors that tend to show such an expenditure is not for an IRC § 527 exempt
function include:
! the absence of one or more of the above factors,
! the communication identifies specific legislation or an event outside
the organization’s control that the organization hopes to influence,
! the communication’s timing coincides with a specific event outside
the organization’s control that it hopes to influence,
! the candidate is identified solely as a government official who is in
a position to act on the issue in connection with a specific event
(e.g., will vote on the legislation), and
! the candidate is identified solely in a list of the legislation’s key
sponsors.87
Finally, illegal activities are not exempt function activities.88 Thus, the making
of expenditures in violation of election laws is not an exempt function activity.
Exceptions for Certain Expenditures Made
by IRC § 501(c) Organizations
In general, an IRC § 527 exempt function means the same thing with respect to
IRC § 527 organizations and IRC § 501(c) organizations. There are, however,
several exceptions. Treasury regulations specify that there are several instances
where an exempt function expenditure made by an IRC § 501(c) organization will not
86 See Rev. Rul. 2004-6, 2004-1 C.B. 328.
87 See id.
88 See Treas. Reg. § 1.527-2(c)(4).

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be subject to tax.89 These expenditures include those related to requested
appearances before a legislative body and those for nonpartisan activities.
Furthermore, the regulations state that two types of expenditures are taxable only to
the extent provided in the regulations: indirect expenses and certain expenditures that
may be made by unions and trade associations under FECA.90 Although the
regulations state that these indirect and FECA-allowed expenses are taxable only to
the extent provided in the regulations, the Treasury Department has not yet
promulgated regulations that state what that extent is. Until the regulations address
the matter, it appears these expenses are not for an exempt function.91
Related Organizations
It is not uncommon to see related tax-exempt organizations. For example, an
IRC § 501(c)(3) organization may be paired with an IRC § 501(c)(4) social welfare
organization or an IRC § 501(c)(6) trade association. It is not unusual for a trade
association, such as the American Bar Association or the American Medical
Association, to have a similarly named charitable foundation that conducts charitable
activities. It is also common to see a group with a need to lobby as well as conduct
charitable activities set up both an IRC § 501(c)(4) organization and an IRC §
501(c)(3) organization. The organizations must be legally separate entities, and their
activities and funds must be kept separate.
Additionally, as discussed above, the IRC encourages IRC § 501(c)
organizations to set up a separate segregated fund under IRC § 527 in order to avoid
the tax on IRC § 527 exempt function expenditures. Incorporated tax-exempt
organizations and IRC § 501(c)(5) labor unions also have another reason to establish
a separate segregated fund — as mentioned above, federal election laws generally
ban these entities from making contributions and expenditures in connection with
federal elections. Any IRC § 501(c) organization that is prohibited from participating
in political activities by the IRC may not use an IRC § 527 organization to get around
the prohibition.92 For example, an IRC § 501(c)(3) organization may not establish
a separated segregated fund to conduct election-related activities because that would
be an indirect way for the IRC § 501(c)(3) organization to participate in political
campaign activity.
There are, however, several ways that an IRC § 501(c)(3) organization may be
connected to an IRC § 527 organization. For example, individuals involved in the
89 See Treas. Reg. § 1.527-6.
90 Although FECA generally prohibits unions and corporations from making election-related
expenditures, FECA does allow these organizations to make expenditures for internal
communications with members, stockholders, and their families that support candidates;
conducting nonpartisan registration and get-out-the-vote campaigns aimed at their members,
stockholders, and their families; and the establishment, administration, and solicitation of
contributions to separate segregated funds. See 2 USC § 441b(b)(2)(C).
91 See 2002 EO CPE Text, supra note 14, at 437.
92 See Treas. Reg. § 1.527-6(g).

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IRC § 501(c)(3) organization, such as its directors or managers, could establish an
IRC § 527 organization separate from the IRC § 501(c)(3) organization. Another
possibility is if the IRC § 501(c)(3) organization was established by or related to an
organization that has also established an IRC § 527 organization. In any of these
situations, it is imperative that the IRC § 501(c)(3) organization be separately
organized from the other organizations. This means that all contributions collected
by the IRC § 501(c)(3) organization must be kept separate from other funds.
Additionally, if the IRC § 501(c)(3) organization and other organizations share
offices or staff, the expenses must be allocated between the two organizations and
adequate records must be kept. In such a situation, the IRC § 501(c)(3) organization
must be careful not to make a contribution to the IRC § 527 organization by, for
example, paying expenses that should be allocated to it or providing unreimbursed
services or supplies to it.
Reporting and Disclosure Requirements
With the exception of IRC § 527 organizations, the Internal Revenue Code
generally does not require tax-exempt organizations to report detailed information
about their political activities. Nonetheless, some types of information reported by
IRC § 501(c) organizations may give an idea about the extent of the organization’s
political activities (e.g., the total amount it spends on these activities). These
reporting and disclosure requirements are summarized below.
It is important to note that tax-exempt organizations are subject to campaign
finance laws and therefore may be required to report information to the FEC. Many
IRC § 527 organizations must report to the FEC as political committees.
Additionally, organizations that make “electioneering communications” must file a
report with the FEC. Electioneering communications are broadcast, cable, or satellite
advertisements that refer to a clearly identified federal candidate within sixty days of
a general election or thirty days of a primary election and, if a House or Senate
election, are targeted to the relevant electorate.93
Initial Application or Notification of Tax-Exempt Status
Application for Tax-Exempt Status. Organizations usually must apply to
the IRS for tax-exempt status. Exceptions include IRC § 527 organizations (see
below), churches, and small organizations. Organizations that must apply will have
to show on the application (Form 1023 or 1024) that they meet the requirements in
the appropriate IRC section. The application must include such things as organizing
documents (e.g., articles of incorporation or association), financial statements or
93 See 2 USC § 434(f)(3)(A)(i). The FEC had initially carved out an exception for IRC §
501(c)(3) organizations in its regulation interpreting “electioneering communication,”
presumably on the theory that these communications were already prohibited under the IRC.
The regulation was invalidated as being inconsistent with the Bipartisan Campaign Finance
Reform Act of 2002 (P.L. 107-155). See Shays v. Federal Election Commission, 337 F.
Supp. 2d 28 (D.D.C. 2004). When the FEC re-promulgated the regulation, the exception for
IRC § 501(c)(3) organizations was not included. 11 CFR § 100.29

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budget proposals, and a detailed description of the organization’s operations. If an
organization plans to lobby or conduct political campaign activity, this information
may be included in the organizing documents or explanation of its operations.
If the organizations is granted exempt status, the organization and the IRS
generally must make the application and supporting documents available to the
public.94 The organization is subject to a penalty of $20 per day if it fails to do so.95
Notification of 527 Status. IRC § 527 organizations must notify the IRS of
their existence by electronically filing Form 8871 within 24 hours of formation.96
The requirement does not apply to an organization that anticipates having gross
receipts of less than $25,000 for any year, is a state or local candidate’s political
committee or a state or local committee of a political party, or is required to report
to the FEC as a political committee. The information provided on Form 8871
includes the organization’s name, address, and purpose; names and addresses of
certain employees and directors; and name of and relationship to any related entities.
The organization and the IRS must make Form 8871 publically available, with
the organization being subject to a penalty of $20 per day for failing to do so.97
Additionally, the IRS must post electronically submitted forms in an on-line database
within 48 hours of their filing.
Annual Returns
Information Return. Tax-exempt organizations must generally file an annual
information return with the IRS using the Form 990 series.98 Exceptions exist for
such organizations as churches and those with less than $5,000 in annual gross
receipts. Additionally, an IRC § 527 organization is not required to file Form 990 if
it has less than $25,000 in annual gross receipts ($100,000 if a qualified state or local
political organization), is a state or local committee of a political party or a political
committee of a state or local candidate, is required to report to the FEC as a political
committee, is a caucus or association of state or local officials, is an authorized
committee under FECA § 301(6) of a candidate for federal office, is a national
committee under FECA § 301(14) of a political party, or is a congressional campaign
committee of a political party committee.
Form 990 includes such information as the organization’s revenue sources and
functional expenses. For purposes of this report, several items are noteworthy. IRC
§ 501(c)(3) organizations must report their aggregate political expenditures and any
excise taxes imposed during the year on their lobbying and political expenditures.
They must also report their aggregate lobbying expenditures on Schedule A. Certain
94 See IRC § 6104(a) and (d).
95 See IRC § 6652(c)(1)(D).
96 See IRC § 527(i).
97 See IRC §§ 527(k), 6104(a) and (d), and 6652(c)(1)(D).
98 See IRC § 6033.

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IRC §§ 501(c)(4), (c)(5), and (c)(6) organizations must report the costs of their
lobbying and political activities. Additionally, all organizations must report the
names and addresses of significant donors, which are generally defined as individuals
who contributed at least $5,000 during the year, on the form’s Schedule B.
The organization and the IRS must make publically available the organization’s
Form 990 for the last three years.99 The organization is subject to a penalty of $20
per day per return (limited to $10,000) for failing to do so.100 However, whether the
information on Schedule B is publically available will depend on the type of
organization.101 Only private foundations and IRC § 527 organizations must disclose
all of Schedule B. For other organizations, any identifying information of the
contributors will not be publically disclosed.
Excise Tax Returns. Organizations that owe the penalty and excise taxes
mentioned in this report must file an excise tax return (e.g., Form 4720 or Form
1120-POL). The return includes such information as the aggregate totals of the
taxable expenditures and taxes owed and the names of managers who approved the
activities.
Neither the organization nor the IRS is required to make any tax return available
to the public.
Disclosure of Expenditures and Contributions
IRC § 527 organizations that accept a contribution or make an expenditure for
an exempt function must periodically file a disclosure report, Form 8872, with the
IRS.102 There is no comparable requirement for the other tax-exempt organizations.
The IRC § 527 organization may file on a (1) quarterly basis in a year with a
regularly scheduled election and semi-annually in any other year or (2) monthly basis.
There are additional requirements for pre-general election, post-general election, and
year-end reports. A periodic report must include (1) the name, address, occupation,
and employer of any contributor who makes a contribution during the reporting
period and has given at least $200 during the year, along with the amount and date
of the contribution, and (2) the amount, date, and purpose of each expenditure made
to a person during the reporting period if that person has received at least $500 during
the year, along with the person’s name, address, occupation, and employer. The
failure to file a timely or accurate Form 8872 is subject to a penalty equal to the
highest corporate tax rate multiplied by the amount of contributions and/or
expenditures to which the failure relates.
The disclosure requirements do not apply to an IRC § 527 organization that
anticipates having gross receipts of less than $25,000 for any year, is a political
99 See IRC § 6104(b) and (d).
100 See IRC § 6652(c)(1)(C).
101 See IRC § 6104(b) and (d).
102 See IRC § 527(j).

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committee of a state or local candidate, is a state or local committee of a political
party, is required to report to the FEC as a political committee, or is a qualified state
or local political organization. The requirements also do not apply to any
expenditure that is an independent expenditure (i.e., an expenditure that expressly
advocates for a candidate but is made without the candidate’s cooperation).
The IRS and the IRC § 527 organization must make the forms available to the
public.103 The organization is subject to a penalty of $20 per day, which is limited
to $10,000 per return.104 Additionally, the IRS must post electronically submitted
forms in an online database within 48 hours of their filing.

103 See IRC §§ 527(k) and 6104(d).
104 See IRC § 6652(c)(1)(C).

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