Two Republican leaders of the Ways and Means Committee have recently become concerned about nonprofit political campaign intervention activities and, on August 14, 2023, published an open letter requesting information from 501(c)(3) and 501(c)(4) organizations regarding their political activities.
From a political perspective, this is an interesting twist as Republican politicians and their supporters were better able to take advantage of the 2010 Citizens United Supreme Court holding, as compared to their Democrat peers, to use tax-exempt organizations as vehicles to encourage greater (and often dark) funding of political campaigns. The Republican Party platform during Trump’s nomination even included the goal of eliminating the prohibition against political campaign intervention by 501(c)(3) organizations. But it seems now that the Democrats have caught up and perhaps surpassed the Republicans on their use of tax-exempt organizations to support political campaigns.
From my perspective, as a tax-exempt organizations attorney, the 501(c)(3) prohibition on political campaign intervention (also referred to as the Johnson Amendment) is critically important to the nonprofit sector. As I’ve written in a previous post about this prohibition when it was threatened by the Republican Party –
[I]f the proposal to change longstanding federal tax law were enacted, charitable donations could quickly dry up: potential donors will fear that money they contribute to a charitable mission will be passed along to a partisan campaign instead. That, in turn, would create yet another dark money loophole. It would expose nonprofits to pressure from donors or board members to endorse their favored candidates, and change the expectations that exist today, that charitable nonprofits are where communities come together to solve problems, no matter who is in office or who individuals voted for.Take Action Today to Protect the Nonprofit, Religious, and Foundation Communities!
The Request for Information
The open letter included ten sets of questions for 501(c)(3) and 501(c)(4) organizations:
- Would it be helpful to 501(c)(3) and 501(c)(4) organizations for the Internal Revenue Service (IRS) to issue updated guidance on how to define “political campaign intervention” and the extent to which 501(c)(4) organizations can engage in “political campaign intervention” be helpful to 501(c)(3) and 501(c)(4) organizations? If yes, why?
- Does the IRS’s current guidance on the definition of “political campaign intervention” properly account for new forms of political advocacy? If not, what should be included in updated guidance from the IRS to account for forms of political advocacy that are currently not covered?
- Are there any tax-exempt organizations whose voter education or registration activities you suspect might have had the effect of favoring a candidate or group of candidates which would constitute prohibited participation or intervention? If yes, please describes those activities?
- Are there changes to Form 990 – which is used by tax-exempt organizations to file their tax returns– that would help clarify how contributions are being used by 501(c) organizations? Especially regarding contributions that are used to fund political activities by 501(c)(4) organizations or nonpartisan voter education activities that 501(c)(3) organizations are allowed to engage in such as voter registration activities, public forums, and publishing voter education guides?
- Should Congress consider policy changes to address money from foreign nationals –who are prohibited from contributing directly to political campaigns, candidates, and super PACs—flowing through 501(c)(3) and 501(c)(4) organizations to influence U.S. elections? If so, what specific policy changes should be considered?
- Does the IRS collect information from 501(c)(3) and 501(c)(4) organizations that would aid the Federal Election Commission (FEC) in enforcing the foreign national prohibition under the Federal Election Campaign Act of 1971 (FECA)?
- According to a U.S. Government Accountability Office (GAO) report, IRS examiners “do not review the national origin of sources of donations reported” by tax-exempt organizations on the Form 990, “and do not assess an organization’s compliance with FECA provisions during audits.”7 Given concerns over foreign influence in our elections, should IRS examiners review the national origin of sources of donations reported by a tax-exempt organization on the agency’s IRS Form 990-series?
- Are there additional disclosures by 501(c)(3) and 501(c)(4) organizations engaged in “political campaign intervention” that would help prevent illegal contributions made by foreign nationals to influence U.S. elections?
- Are you aware of organizations under Section 501(c) that are tax-exempt but have the true purpose of influencing elections in favor of one political party? If so, please provide a description of how such organizations achieve that goal.
- Are you aware of organizations under Section 501(c) that are tax-exempt but have misused donor funds for the personal benefit of organization executives or have misused donor funds outside the stated purpose of the donor? If so, please provide a description of those organizations and the relevant conduct.
Potential Need for Legislative Action
While the open letter is obviously framed in a partisan manner, it uses much of the arguments made earlier by Democrats and others seeking to preserve the 501(c)(3) prohibition against political campaign intervention:
The expansion of politics into almost all aspects of life means that activities that were previously considered nonpartisan have been made partisan—legislation and regulation have not kept up. Congress may need to consider closing growing loopholes that allow the use of tax-exempt status to influence American elections. Additionally, we are concerned about the political activities that 501(c)(3) organizations may be engaging in, the relationships between 501(c)(3) and 501(c)(4) organizations, and the role of Super PACS in this financial ecosystem. One significant concern comes from the flow of massive sums of money from foreign sources through tax-exempt organizations in the U.S., and ultimately into other organizations aiming to influence American politics and elections. These concerns require the Committee to seek information from stakeholders and the public that could help inform policymaking related to these issues.