Elections always seem around the corner, and as of the time of this writing, we are approaching the midterm elections, both in New Jersey and around the country. Campaign financing and activity continue to be a hot and complex topic, and our firm’s election law attorneys are often asked about the role different organizations can play in a state or federal election. Depending on the entity, this role can vary greatly. For example, an entity that has been granted 26 U.S.C (“IRC”) § 501(c)(3) status by the Internal Revenue Service is unable to play the same role that a Super PAC (independent-expenditure only political action committee) does. Conversely, a non-connected political action committee is allowed to do different things than a corporate or labor separate segregated fund.
Let’s start by looking at a 501(c)(4) social welfare organization and examining the type of questions that we face. A 501(c)(4) organization is a tax-exempt organization not organized for profit but operated exclusively for the promotion of social welfare. Local associations of employees, lobbying organizations, and homeowners associations may qualify as a 501(c)(4).
As a threshold matter, the following does not constitute legal advice, and should not be relied upon for same. We strongly recommend that you and/or your organization consult with an attorney before engaging in political activity related to a 501(c)(4) social welfare organization.
1. Can a 501(c)(4) organization endorse a candidate for public office?
Yes, under certain circumstances. A 501(c)(4) may also publish or distribute printed statements or make oral statements on behalf of, or in opposition to, a candidate for public office. However, a 501(c)(4) may only engage in these activities if such activities are not the organization’s primary purpose or activity.
2. What constitutes the “Primary Purpose” of a 501(c)(4) organization?
Neither the Internal Revenue Service nor the Federal Election Commission have enunciated a bright line rule for determining the primary purpose of a 501(c)(4) entity, and as a result, they look at a variety of factors. Most frequently, the IRS will look at the annual expenditures of an organization and compare political expenditures to the overall budget in determining tax-exempt status. It is strongly encouraged that a 501(c)(4) spend 40 percent or less of its budget on political activities, as a 60/40 ratio is widely considered to be an effective safe harbor. The IRS will also consider the amount of time spent by volunteers and staff on political activities.
3. What constitutes a “Political Activity” by a 501(c)(4) organization?
Generally speaking, “political activities” involve influencing the selection, nomination, or appointment of any individual to any federal, state, or local public office, or office in a political organization. This does not include conduct by individuals acting in their personal capacity, but rather the organization itself or individuals acting through or on behalf ofthe 501(c)(4). Some examples include: (1) candidate endorsements; (2) publishing or distributing printed statements on behalf of, or in opposition to, a candidate for public office; and (3) organizing volunteers for campaign purposes.
However, voter education, voter registration, candidate questionnaires, debates, issue education, get-out-the-vote programs, as well as workshops or seminars that encourage participation in government and politics, do not constitute “political activity” if they are conducted in a nonpartisan manner.
4. Can a 501(c)(4) financially contribute to a political campaign?
Organizations such as a 501(c)(4) may financially contribute to a political campaign in the form of an independent expenditure. Commonly known as an IE, this involves spending money for the explicit purpose of advocating for the election of or defeat of a specific candidate, that is aimed at the general public. Some examples include television or radio advertisements, mailers, and robo-calls.
5. Can a 501(c)(4) coordinate its IE with a political campaign?
It is critical that a 501(c)(4)’s independent expenditure remain wholly independent of the campaign itself. In other words, a 501(c)(4) that is conducting an IE cannot discuss, either directly or indirectly, or coordinate strategy or actions, its efforts with the campaign. There is no limit to the amount of money that can be spent on an IE, but all such expenditures must be reported to the FEC. It is strongly advised that you retain legal counsel before attempting to conduct an IE.
For more information, please contact Scott D. Salmon at firstname.lastname@example.org.
— Scott D. Salmon, Esq.
This written advice by Jardim, Meisner & Susser, P.C. should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)