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Wednesday, February 16, 2011

501(c)(3) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws

Erika K. Lunder
Legislative Attorney

L. Paige Whitaker
Legislative Attorney

During the recent election season, the political activities of § 501(c)(3) organizations were in the news, with allegations made that some groups engaged in impermissible activities. These groups are absolutely prohibited from participating in campaign activity under the Internal Revenue Code (IRC). On the other hand, they are permitted to engage in nonpartisan political activities (e.g., distributing voter guides and conducting get-out-the-vote drives) that do not support or oppose a candidate. Determining whether an activity violates the IRC prohibition depends on the facts and circumstances of each case, and the line between impermissible and permissible activities can sometimes be difficult to discern.

Due to the IRC prohibition, § 501(c)(3) organizations generally are not permitted to engage in the types of activities regulated by the Federal Election Campaign Act (FECA). However, the activities regulated under the IRC and FECA are not necessarily identical. An organization must comply with any applicable FECA provisions if engaging in activities regulated by FECA (e.g., making an issue advocacy communication under the IRC that constitutes an electioneering communication under FECA).

A 2010 Supreme Court case, Citizens United v. FEC, has received considerable attention for invalidating several long-standing prohibitions in FECA on corporate and labor union campaign treasury spending. This case does not appear to significantly impact the political activities of § 501(c)(3) organizations because they remain subject to the prohibition on such activity under the IRC. Similarly, while numerous bills were introduced in the 111
th Congress in response to Citizens United, it appears most would have only minimally impacted the activities of § 501(c)(3) organizations since they are already generally prohibited from engaging in the activities regulated under the bills. The primary legislative response in the 111th Congress to Citizens United, the DISCLOSE ACT (H.R. 5175, as passed by the House, and S. 3628) would have expressly exempted § 501(c)(3) organizations from the legislation’s disclosure and disclaimer provisions.

This report examines the restrictions imposed on campaign activity by § 501(c)(3) organizations under the tax and campaign finance laws. For a discussion limited to the ability of churches and other houses of worship to engage in campaign activity, see CRS Report RL34447, Churches and Campaign Activity: Analysis Under Tax and Campaign Finance Laws, by Erika K. Lunder and L. Paige Whitaker.

Date of Report: January 27, 2011
Number of Pages: 12
Order Number: R40141
Price: $29.95

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