Many 501(c)(4) social welfare organizations are set up with an inherent political purpose in mind. In a sense, pursuing activities to promote general welfare is by definition a political aim. But 501(c)(4) organizations need to walk a certain line to avoid risking their federal tax advantages.
As managers of 501(c)(4)s probably already know, the language of the statute authorizing the tax exemptions for this type of entity specifies that they must be operated “exclusively” to pursue a social welfare goal. IRS regulations take a less restrictive view, by only requiring that their activities “primarily” be oriented toward social welfare goals.
When a political candidate or party is closely aligned with the goals of a social welfare organization, it may want to engage in activities that support its political allies. Here the organization can run into two tripwires. The first is IRS limits on political activity by a 501(c)(4). The “primarily” language of IRS regulations grants 501(c)(4) organizations some leeway to conduct some political activities without risking its tax exemptions. How much an organization can safely spend, in both effort and money, varies according to the circumstances of the organization itself.
The other tripwire is federal election law. Under the Federal Election Campaign Act, or FECA. FECA limits the amounts incorporated entities, like 501(c)(4)s, can contribute to political campaigns or parties within one year. The Federal Election Commission (FEC) views certain types of coordinated communications to be de facto contributions to a campaign, even if they do not involve money exchanging hands. According to the FEC’s guidance, “coordination” is determined with an analysis of a three part test:
- The source of payment.
- The subject matter of the communication.
- The interaction between the person paying for the communication and the candidate or political party committee.
Each of these components, especially the second, or “content prong,” is subject to deeper layers of analysis. In general, the more contacts that exist between agents of the 501(c)(4) and agents of the political campaign, the more likely the FEC will be to find that coordination has occurred. If coordination has occurred such that the communication is deemed to be a contribution to the campaign, the 501(c)(4) and the campaign may face questions about whether it complied with FECA rules.
One option for 501(c)(4) organizations to shield themselves from some aspects of these issues is to form a separate political action committee, or PAC, that is subject to distinct rules regarding reporting and spending limits. Note that forming a PAC does not mean a 501(c)(4) can ignore IRS restrictions on its activities, but it may offer greater flexibility.
The Church Law Center of California has many years of experience helping churches and secular nonprofits achieve their goals. We can help your organization stay in compliance with tax and election law rules while pursuing its mission. Call us at (949) 892-1221 or use our contact page.
