Simone Lawson
Political campaigns are a multi-billion dollar industry, with a variety of business activities and requirements. In the US, political parties, campaign committees for candidates, and political action committees are all considered political organizations under the tax code and have specific filing requirements. These organizations are generally not allowed to coordinate with election campaigns, and their activities can include fundraising, issue advocacy, and voter mobilization. Campaigns themselves are organized efforts to influence voters and typically involve a campaign manager, consultants, pollsters, and activists or volunteers who carry out the strategy.
| Characteristics | Values |
|---|---|
| Tax requirements | Political campaigns are subject to tax under IRC Section 527 and must file Form 8872, "Political Organization Report of Contributions & Expenditures." |
| Structure and staff | Political campaigns have a coherent structure and staff, including a campaign manager, consultants, pollsters, media consultants, activists, and volunteers. |
| Activities | Campaigns inform citizens about a political candidate, influence decision-making, canvass, make phone calls, build local events, and raise funds. |
| Contributions | Contributions include money, loans, goods, and services. There are limits on individual contributions, and rules regarding joint fundraising and in-kind contributions. |
| Prohibited activities | Organizations with 501(c)(3) certification cannot intervene in political campaigns. Prohibited activities include favouring or opposing a candidate and engaging in unrelated business activities. |
| Coordination restrictions | 527 groups cannot coordinate with election campaigns. |
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What You'll Learn
Political campaigns are a multi-billion dollar industry
Political campaigns are a multi-billion-dollar industry, with a huge amount of money being spent on advertising, professional consultants, and other campaign management tools. In the United States, political campaigns are dominated by professional political consultants who use sophisticated campaign management tools. The quadrennial presidential election attracts the most attention in terms of spending, but the US also has a large number of other elected offices at the state and local levels, which contribute significantly to the overall cost of political campaigns.
In 2008, candidates for office, political parties, and independent groups spent a total of $5.3 billion on federal elections, with over $1 billion spent by the two major candidates alone. The total amount spent on the presidential race that year was $2.4 billion. This amount increased to approximately $7 billion for the 2012 federal elections. In 2016, more than $2.3 billion was raised between the Democratic and Republican National Committees. The amount of money spent on political campaigns has been increasing rapidly with each election cycle, and the 2020 election saw more than $1 billion in "dark money" spent at the federal level, with $660 million coming from "opaque political nonprofits and shell companies".
The influence of wealthy donors and the role of "super PACs" have been significant in the increasing cost of political campaigns. Super PACs allow individuals and corporations to contribute unlimited amounts of money to campaigns, which can drown out the voices of ordinary citizens. Dark money groups also prevent voters from knowing who is trying to influence them by masking the identities of their donors. In addition, relatively unpopular industries tend to provide larger contributions to compensate for the potential loss of voter support due to their association with these campaigns.
The increasing cost of political campaigns has led to concerns about the influence of special interests and the need for tighter limits on contributions. The Federal Election Commission has been criticized for its failure to enforce campaign finance laws effectively, and there have been calls for reforms to increase transparency and curb coordinated activity between candidates and super PACs.
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Political organisations are subject to tax under IRC Section 527
To be considered a political organisation under Section 527, the sole purpose of the organisation must be to influence or attempt to influence the selection, nomination, election, or appointment of any individual to a state or local public office or office in a state or local political organisation.
Most tax-exempt political organisations must file Form 8871 with the IRS to electronically notify the service of their Section 527 status. They must also have an Employer Identification Number (EIN), even if they have no employees. To obtain an EIN, Form SS-4 must be filed.
Political organisations under Section 527 are taxed on their political organisation taxable income, which is calculated by multiplying the income by the highest rate of tax specified in Section 11(b). This taxable income is defined as the excess of gross income over the deductions allowed, which are directly connected to the production of gross income.
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Types of contributions to political campaigns
Political campaigns are complex operations that require significant financial support to be successful. They are often treated as businesses or organizations for tax purposes and are subject to specific regulations and disclosure requirements. While the specific rules may vary depending on the jurisdiction, understanding the different types of contributions is crucial for compliance and transparency. Here are some common types of contributions to political campaigns:
Monetary Contributions
Individuals, organizations, and registered political committees can make direct monetary contributions to a political campaign. These contributions are typically limited by laws and regulations to prevent undue influence and ensure a fair electoral process. The entire amount spent on attending a political fundraiser or purchasing campaign merchandise is considered a monetary contribution. For example, if an individual pays $100 for a ticket to a fundraising dinner, the full $100 is counted as a contribution, even if the meal only cost the campaign $30.
In-Kind Contributions
In-kind contributions refer to non-monetary donations in the form of goods or services. For instance, if someone donates a personal computer to the campaign, the contribution is valued at the ordinary market price of the computer at the time of the donation. Similarly, if a supporter pays for goods or services on behalf of the campaign committee, this is considered an in-kind contribution. The value of such contributions counts against the contributor's limit for the current and next election, unless otherwise specified.
Joint Fundraising
Joint fundraising involves collaboration between multiple political committees or unregistered organizations to raise funds for a political campaign. This type of contribution is governed by specific rules, including the requirement to establish a separate account for joint fundraising receipts and disbursements, and to notify the public of the allocation formula for proceeds and expenses.
Loans
Loans made to a political campaign, including those from members of the candidate's family, are considered contributions up to the outstanding balance of the loan. Bank loans, however, are not considered contributions if they are made in the ordinary course of business with an assurance of repayment. Unpaid loans must not exceed the contribution limit when combined with other contributions from the same source, and they must be continuously reported as a debt until fully repaid.
Political Action Committees (PACs)
Political Action Committees are political organizations that can receive contributions and make expenditures to support specific candidates or causes. They are a common way for individuals to pool their resources and contribute to political campaigns. PACs are subject to specific regulations and disclosure requirements, and they play a significant role in influencing policy decisions.
The above-mentioned contribution types are just some of the ways funds are raised for political campaigns. It is important to note that the regulations and requirements surrounding political contributions can be complex and may vary across different jurisdictions. As such, it is essential to refer to the specific laws and guidelines in your relevant area.
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Joint fundraising by political committees
Political campaigns are subject to tax under IRC section 527 and may have filing requirements. Campaign committees for candidates for federal, state, or local office are considered political organizations.
Joint fundraising is election-related fundraising conducted by a political committee and one or more other political committees or unregistered organizations. All participants in a joint fundraising effort must:
- Create or select a federal political committee to act as the joint fundraising representative. This committee must register with the FEC using Form 1 and include the name of each participating federal candidate in its name.
- Agree to a formula for allocating proceeds and expenses.
- Sign a written agreement naming the joint fundraising representative and stating the allocation formula.
- Establish a separate account for joint fundraising receipts and disbursements.
- Notify the public of the allocation formula and certain other information when soliciting contributions.
- Screen contributions to ensure they comply with the limits and prohibitions of the Federal Election Campaign Act.
- Report allocated proceeds and expenses.
The fundraising representative must collect and forward required record-keeping information to the participating political committees. They must also keep a record of prohibited contributions received and any transfers containing prohibited funds made to participants. The fundraising representative must retain records on all disbursements made for the joint fundraiser for three years.
In general, expenses must be paid before proceeds may be transferred to the participants. The fundraising representative may make payments for fundraising expenses from gross proceeds.
Any goods or services offered free or at a reduced cost result in an in-kind contribution. The entire amount paid to attend a political fundraiser or purchase a fundraising item is considered a contribution and counts against the individual's contribution limit.
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Political campaign staff and volunteers
Political campaigns are a multi-billion dollar industry, and they are structured similarly to large businesses, with various departments and staff members. The campaign manager is the most visible leader of the campaign after the candidate, executing strategies formulated by senior strategists and consultants.
Political campaign staff are the people who formulate and implement the strategy needed to win an election. Many people have made careers out of working full-time for campaigns and groups that support them. These staff members can include consultants, pollsters, media consultants, and field departments. Consultants are individuals with expertise in a particular area who are hired for their advice and help. Pollsters are professionals who conduct pre-election polls, while media consultants advise on media and advertising strategies. The field department focuses on "on-the-ground" organizing, which includes contacting voters through canvassing, phone calls, and building local events.
In addition to paid staff, political campaigns also rely on volunteers and interns, who are often the "foot soldiers" of the campaign, loyal to the cause. Volunteers may participate in activities such as canvassing door-to-door, making phone calls on behalf of the campaign, and attending local events. They are responsible for identifying supporters, recruiting them as volunteers, and registering them to vote if they are not already registered. Volunteers are essential to the success of a political campaign, as they help to spread the campaign's message and gain support at the grassroots level.
It is important to note that political campaigns are subject to various tax and contribution regulations. In the United States, political parties, campaign committees for candidates, and political action committees are considered political organizations under the Internal Revenue Code (IRC) Section 527 and are subject to specific tax and filing requirements. These organizations must have their own Employer Identification Number (EIN) and periodically file reports with the Internal Revenue Service (IRS). There are also rules regarding contributions, where certain types of contributions, such as loans, goods, or services, are considered in-kind contributions and have specific limits and reporting requirements.
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Frequently asked questions
A political campaign is an organized effort that seeks to influence the decision-making process within a specific group. It informs citizens about a political candidate running for elected office.
A 527 organization is a type of US tax-exempt organization organized under Section 527 of the US Internal Revenue Code. It is created to influence the selection, nomination, election, appointment, or defeat of candidates for federal, state, or local public office.
Examples of 527 organizations include Swift Boat Veterans for Truth, The Media Fund, America Coming Together, and the Secretary of State Project.
Political organizations are generally subject to tax under IRC Section 527 and may have specific filing requirements. They are required to file periodic reports and obtain an Employer Identification Number (EIN).
Contributions to political campaigns are subject to limits and regulations. The entire amount paid to attend a political event or purchase fundraising items is considered a contribution. Loans, goods, and services provided to the campaign may also be considered in-kind contributions.
