Political Campaigns: Tax-Exempt Status Explained

Political campaigns and parties are subject to tax under IRC section 527 and are required to file periodic reports with the IRS. Charitable nonprofits are prohibited from engaging in political campaign activities and are not permitted to make campaign contributions to candidates for public office. While charitable donations are typically tax-deductible, donations made to political organizations or candidates are not. This includes monetary donations, in-kind contributions, and volunteer expenses.

Are political campaigns tax-exempt?

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Non-profit organisations cannot engage in political campaign activities and remain tax-exempt

Non-profit organizations must be careful not to engage in political campaign activities if they want to maintain their tax-exempt status. While charitable nonprofits are permitted to engage in nonpartisan voter registration and voter and civic engagement activities, they must not participate in, or intervene in, any political campaign on behalf of or in opposition to any candidate for public office. This includes refraining from publishing or distributing statements or providing assets as campaign contributions to candidates.

The Johnson Amendment explicitly states that charitable nonprofits may not intervene in any political campaign, and if they do, they will lose their tax-exempt status. This prohibition applies to all candidates for federal, state, and local elections. It is important to note that voter education activities, such as presenting public forums and publishing voter education guides, are permitted as long as they are conducted in a non-partisan manner.

Nonprofits play a crucial role in educating the public about issues that affect the community, and they can do so through non-partisan activities such as voter education and candidates' forums. However, they must be cautious when inviting political candidates to speak at their events, as the line between nonpartisan voter engagement and partisan political campaigning can be blurry.

While organizations with substantial political or lobbying objectives may be recognized as tax-exempt under Code Section 501(c)(4), the rules for these organizations differ from those that apply to 501(c)(3) organizations. 501(c)(4) organizations are permitted to engage in substantial lobbying, provided it is "germane" to the organization's program and other limitations are met.

Donations to political organisations or candidates are not tax-deductible

It is important to distinguish between tax-exempt organisations and tax-deductible donations. While some charitable nonprofits are tax-exempt, donations to political organisations or candidates are not tax-deductible. This includes donations to political parties, campaigns, or causes, as well as to individual candidates. It also includes in-kind contributions, such as volunteer time and expenses, and monetary donations.

The tax code is very clear about this distinction, specifically stating that no business expense deduction may be claimed for "any amount paid or incurred in connection with influencing legislation". This rule is so strict that it even prevents political candidates from deducting their own out-of-pocket expenses incurred while running for office.

Charitable nonprofits, on the other hand, are permitted to engage in nonpartisan voter registration and voter and civic engagement activities. These are not considered partisan campaign activities or lobbying. However, charitable nonprofits must not intervene in any political campaign or provide assets or contributions to a candidate for public office. If they do, they will lose their tax-exempt status.

The rules that apply to 501(c)(4) organisations are different from those that apply to 501(c)(3) organisations. 501(c)(4) organisations are permitted to engage in substantial lobbying, as long as it is "germane" to the organisation's program and meets other limitations.

Political organisations must file periodic reports with the IRS

Political organizations are subject to specific tax rules and requirements, as outlined by the Internal Revenue Service (IRS). These rules apply to political parties, campaign committees for candidates at various levels of government, and political action committees.

To maintain their tax-exempt status, these organizations must comply with IRC Section 527, which outlines the requirements for exemption. This includes engaging primarily in exempt function activities, such as directly or indirectly accepting contributions or making expenditures for an exempt function. While they may engage in non-exempt activities, these cannot be their primary focus.

The Taxpayer First Act, effective for tax years beginning after July 1, 2019, mandates electronic filing by exempt organizations. Specifically, it amended IRC Section 527(j), requiring the e-filing of Form 8872, the "Political Organization Report of Contributions & Expenditures." This form must be filed periodically and electronically, using the username and password provided by the IRS after the initial notice (Form 8871) is filed.

Failing to adhere to these requirements can result in the loss of tax-exempt status for political organizations. Charitable nonprofits, for instance, are prohibited from intervening in or contributing to any political campaign on behalf of or in opposition to a candidate for public office. If found in violation, they will lose their tax-exempt privileges.

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Political parties, campaign committees, and political action committees are all political organisations under IRC § 527

The Taxpayer First Act requires these 527 organisations to electronically file Form 8872, the "Political Organisation Report of Contributions and Expenditures". This is done through the "Political Organisation Filing and Disclosure" link, and most tax-exempt political organisations are required to file these reports periodically. To file, the organisation must have the username and password provided by the IRS after filing Form 8871, the initial notice.

Campaign committees for candidates for federal, state, or local office fall under this category of tax-exempt political organisations. Charitable nonprofits, on the other hand, are not considered political organisations under IRC § 527. Instead, they are typically classified as 501(c)(3) organisations, and they must refrain from engaging in "political campaign activity" to maintain their tax-exempt status. This restriction is known as the Johnson Amendment.

However, charitable nonprofits are permitted to engage in nonpartisan voter registration, voter education, and civic engagement activities. These activities are not considered partisan campaign interventions or lobbying. It's important for nonprofits to maintain a nonpartisan position to avoid the risks associated with partisan political involvement, which could result in losing their tax-exempt status.

Tax-exempt charitable nonprofits may not contribute to or intervene in any political campaign

Tax-exempt charitable nonprofits are prohibited from contributing to or intervening in any political campaign or partisan campaign activities. This restriction, known as the Johnson Amendment, applies to all candidates for federal, state, and local elections. It also includes any verbal or written statements made on behalf of the organization that favour or oppose a particular candidate.

Charitable nonprofits must maintain a scrupulously nonpartisan position. They are permitted to engage in nonpartisan voter registration, civic engagement activities, and voter education activities, which are not considered partisan campaign activities. These activities help educate the public about issues affecting the community and are an important role for nonprofits. However, they must be careful not to engage in substantial legislative activities or lobbying, which is defined as attempting to influence legislation.

If a charitable nonprofit is found to have engaged in partisan campaign activities, IRS regulations mandate the loss of its tax-exempt status. This includes providing assets or making monetary contributions to a candidate's campaign. The IRS can also impose excise taxes on nonprofits that engage in prohibited political activities.

To maintain their tax-exempt status, charitable nonprofits must refrain from any direct or indirect participation in political campaigns and ensure that their activities are nonpartisan and do not favour or oppose any particular candidate.

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