OVERVIEW OF PRESENT-LAW RULES

AND DESCRIPTION OF CERTAIN PROPOSALS

RELATING TO DISCLOSURE OF INFORMATION

BY TAX-EXEMPT ORGANIZATIONS

WITH RESPECT TO POLITICAL ACTIVITIES

Scheduled for a Hearing

before the

Subcommittee on Oversight

of the

House Committee on Ways and Means

Prepared by the

Staff of the

Joint Committee on Taxation

JCX-59-00

June 19, 2000
-iCONTENTS

(Contents page numbers don’t necessarily correspond with PDF text. Please excuse the inconvenience)

Page

INTRODUCTION ....................................................... 1

I. EXECUTIVE SUMMARY .......................................... 2

II. OVERVIEW OF PRESENT-LAW FEDERAL TAX RULES GOVERNING

POLITICAL AND LOBBYING ACTIVITIES OF TAX-EXEMPT

ORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

A. Present-Law Restrictions on Political and Lobbying Activities by TaxExempt Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B. Present-Law Rules Relating to Section 527 Political Organizations . . . . . . 44

C. Limitations on Charitable Contributions Deductions for Lobbying . . . . . . 52

III. PRESENT-LAW DISCLOSURE RULES RELATING TO POLITICAL

AND LOBBYING ACTIVITIES OF TAX-EXEMPT ORGANIZATIONS . . 53

A. Overview of Present-Law Filing Requirements and Disclosure Rules for

Tax-Exempt Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

1. Overview of present-law filing requirements for tax-exempt

organizations and section 527 organizations . . . . . . . . . . . . . . . . . . . . . 53

2. Overview of present-law disclosure rules for tax-exempt

organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

3. Section 6104: disclosure of applications for recognition of tax

exemption and annual information returns . . . . . . . . . . . . . . . . . . . . . . 57

4. Section 6110: disclosure of written determinations . . . . . . . . . . . . . . . . 61

5. Penalties related to tax-exempt organization disclosure requirements . 64

6. Other Federal tax law disclosure rules applicable to tax-exempt

organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

B. Disclosure of Lobbying Expenses and Political Activities by Tax-Exempt

Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

1. Disclosure of lobbying expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

2. Disclosure of political activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Page

-iiIV. OVERVIEW OF DISCLOSURE REQUIRED UNDER FEDERAL

ELECTION LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

V. DATA RELATING TO TAX-EXEMPT ORGANIZATIONS . . . . . . . . . . . . . 75

A. Tax-Exempt Organization Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

B. Annual Filing Requirements for Tax-Exempt Organizations . . . . . . . . . . . 77

VI. DESCRIPTION OF CERTAIN PROPOSALS TO INCREASE DISCLOSURE

OF POLITICAL ACTIVITIES BY TAX-EXEMPT ORGANIZATIONS . . . 81

A. H.R. 4168 (the “Underground Campaign Disclosure Act of 2000"),

Introduced by Mr. Doggett and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

B. H.R. 3688 (the “Campaign Integrity Act of 2000"), Introduced by Mr.

Moore and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
1

 This document may be cited as follows: Joint Committee on Taxation, Overview of

Present-Law Rules and Description of Certain Proposals Relating to Disclosure of Information by

Tax-Exempt Organizations With Respect to Political and Lobbying Activities (JCX-59-00), June

19, 2000.

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INTRODUCTION

The Subcommittee on Oversight of the House Committee on Ways and Means has

scheduled a hearing for Tuesday, June 20, 2000, on proposals for enhanced public disclosure

relating to political activities of tax-exempt organizations.

This document,1

 prepared by the staff of the Joint Committee on Taxation, contains an

overview of the present-law rules relating to political and lobbying activities of tax-exempt

organizations, a description of the present-law disclosure rules applicable to such organizations

(including a brief overview of the rules under the Federal Elections Campaign Act of 1971), and

descriptions of certain proposals.
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I. EXECUTIVE SUMMARY

Overview

Present-law section 501(c) provides for twenty-seven different categories of nonprofit

organizations that generally are exempt from Federal income tax. Different rules apply to

lobbying and political campaign activities of such tax-exempt organizations depending upon the

category of section 501(c) under which the organization is described.

Code section 501(c)(3) provides tax-exempt status to certain nonprofit entities organized

and operated exclusively for charitable, religious, educational, or certain other purposes. 

Organizations described in section 501(c)(3), which generally are referred to as “charities,” are

classified either as public charities or private foundations. In addition to the tax-exempt status

provided to the organization, charitable contributions to such organizations are tax deductible to

the donor for Federal income, estate, and gift tax purposes.

Among the other types of organizations described in section 501(c) are (1) social welfare

organizations (sec. 501(c)(4)), (2) labor organizations (sec. 501(c)(5)), and (3) trade associations or

civic leagues (sec. 501(c)(6)). These entities and other tax-exempt organizations that are not

described in section 501(c)(3) (i.e., non-charities) generally are not eligible to receive contributions

that are deductible as charitable contributions to the donor for Federal income, estate, or gift tax

purposes, but may be deductible under section 162 as a business expense.

Section 527 provides a limited tax-exempt status to "political organizations," meaning a

party, committee, association, fund, account, or other organization (whether or not incorporated)

organized and operated primarily for the purpose of directly or indirectly accepting contributions

or making expenditures (or both) for an "exempt function." These organizations are generally

exempt from Federal income tax on contributions they receive, but are subject to tax on their

investment income and certain other income. Donors are exempt from gift tax on their

contributions to such organizations. For purposes of section 527, the term "exempt function"

means: "the function of influencing or attempting to influence the selection, nomination, election

or appointment of any individual to any Federal, State, or local public office or office in political

organization, or the election of Presidential or Vice-Presidential electors, whether or not such

individual or electors are selected, nominated, elected, or appointed." Thus, by definition, the

purpose of a section 527 organization is to accept contributions or make expenditures for

political campaign (and similar) activities.

Overview of present-law Federal tax rules governing political and lobbying activities of

tax-exempt organizations

The Federal tax rules applicable to political campaign and lobbying activities of taxexempt organizations depend on the nature of the organization and the nature and extent of the

activities. There is no bright-line test for determining whether particular activities are political

campaign activities, lobbying activities, or some other activities (e.g., educational activity.)
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Section 501(c)(3) organizations

Section 501(c)(3) organizations are not entitled to tax-exempt status if they participate in,

or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public

office. In theory, no amount of political campaign activity is permitted by such organizations. In

addition, each political expenditure by a section 501(c)(3) organization is subject to penalty

excise taxes of up to 100 percent of the amount of the expenditure.

Section 501(c)(3) organizations are not entitled to tax-exempt status if any substantial

part of their activities is carrying on propaganda, or otherwise attempting, to influence legislation

(commonly referred to as lobbying). Public charities may engage in some lobbying activities,

provided that such activities are not substantial. In contrast, private foundations are subject to

the restriction that lobbying activities -- even if an insubstantial part of their activities -- may

result in the foundation being subject to penalty excise taxes, unless certain exceptions apply.

There is no statutory definition of lobbying under present law. However, Treasury

regulations provide that an organization is not entitled to tax-exempt status under section

501(c)(3) due to its lobbying activities if a substantial portion of its activities are: (1) contacting,

or urging the public to contact, members of a legislative body for the purpose of proposing,

supporting, or opposing legislation; or (2) advocating the adoption or rejection of legislation. 

Thus, attempts to influence legislation under section 501(c)(3) include directly contacting

members of a legislative body (and their staffs) to propose, support, or oppose legislation (socalled “direct lobbying”), and urging the public to contact legislative bodies, or otherwise

attempting to influence public opinion, with respect to legislation (so-called “grass roots

lobbying”). Certain types of activities are specifically excepted from the definition of lobbying

under present law. These activities include: (1) making available the results of nonpartisan

analysis, study, or research; (2) providing technical advice or assistance to a government body or

committee in response to a written request; (3) self-defense direct lobbying; (4) communications

between the organization and its bona fide members with respect to legislation or proposed

legislation of direct interest to the organization or such members (other than communications that

involve a call to action by members of the organization); and (5) any communication with a

government official or employee other than a communication that would constitute the

influencing of legislation or the principal purpose of which is to influence legislation.

Because a section 501(c)(3) organization may engage in unlimited educational activities,

the distinction between political activities, lobbying activities, and permissible educational

activities becomes important. However, there is no bright-line test under present law for

determining when activities are political campaign intervention, lobbying, or educational. 

Whether an organization is participating or intervening, directly or indirectly, in a political

campaign depends upon all of the facts and circumstances of each case. Issues often arise with

respect to dissemination of so-called voter education materials, such as voter education guides

and other materials disseminated to the public.

For example, in one ruling, the IRS concluded that a voter guide that (1) contained voting
2

 Rev. Rul. 78-248, 1978-1 C.B. 154.

3

 Rev. Rul. 80-282, 1980-2 C.B. 178.

-4-

records of all Members of Congress on “major legislative issues involving a wide range of

subjects,” (2) did not imply approval or disapproval of any Members or their records, and (3) was

compiled annually and made available to the public was a permissible activity for a section

501(c)(3) organization.2

 On the other hand, the IRS concluded in the ruling that an organization

primarily concerned with land conservation issues that presented incumbents’ voting records

only on issues of importance to the organization and widely distributed the guide among the

electorate during an election campaign was engaged in prohibited political campaign intervention

even though the guide contained no express statements in support of or in opposition to any

candidate. Thus, the IRS looked at both the format and the content of the guides to determine

whether they were educational or constituted impermissible political campaign intervention.

In another ruling, the IRS stated that, even in circumstances in which the format and

content of a voter guide were not neutral (i.e., the facts were similar to the voter guide by an

organization interested in land conservation issues in the example above), the timing and nature

of the distribution of the guide indicated that it was not intended to be impermissible political

campaign intervention.3

 In this case, the timing of the distribution was not geared to any Federal

election and did not target distribution to any particular areas where elections were occurring. 

Instead, the voting record compilation were to be compiled in the organization’s newsletter and

distributed only to regular subscribers who numbered only a few thousand nationally.

Other organizations described in section 501(c)

Tax-exempt organizations other than those described in section 501(c)(3) generally are

permitted to engage in political campaign activities. For many of these organizations, political

activities are inconsistent with the purpose for which the organization was established; thus, most

such organizations do not engage in any significant political activities. However, for those

organizations (such as a social welfare organization described in section 501(c)(4), a labor

organization described in section 501(c)(5), or a business league or trade association described in

section 501(c)(6)) that may engage in significant political campaign activities, such activities

cannot be the primary activities of such an organization.

Even though a non-501(c)(3) tax-exempt organization that engages in political campaign

activities will generally retain its tax-exempt status so long as such activities are not the primary

means of accomplishing its purposes, such activities nonetheless will result in the organization

being subject to tax under section 527(f) on the lesser of the amount of its investment income or

the amount expended on political activities. However, a non-501(c)(3) organization may

establish a separate segregated fund, which may be treated as a separate organization under

section 527(f)(3), so that the expenditures and investment income of the fund will not be

attributed to the sponsoring organization.
4

 Expenses incurred in conducting an “exempt function” activity under section 527 may be

either directly or indirectly related to such activity, including expenses related to activities engaged

in between elections to support the next political campaign and fundraising activities. See Treas.

Reg. sec. 1.527-2(c). As one example, Treasury regulations provide that expenses for voice and

speech lessons to improve a candidate’s skills are for an “exempt function” (Treas. Reg. sec.

1.527-2(c)(5)(iii)). See also Rev. Rul. 79-13, 1979-1 C.B. 208 (expenses for voter research and

public opinion polls are “exempt function” expenses under sec. 527, provided that there is a nexus

with an election). An “exempt function” also generally includes an activity which is in furtherance

of the process of terminating a political organization’s existence. See Treas. Reg. sec. 1.527-

2(c)(3).

5

 See Treas. Reg. sec. 1.527-3(d); Rev. Rul. 80-103, 1980-1 C.B. 120 (income of political

organization from sale of art reproductions was not exempt function income for purposes of sec.

527).

6

 See Treas. Reg. sec. 1.527-4(c). In computing taxable income, a political organization is

allowed a specific deduction of $100 under section 527(c)(2)(A).

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Non-section 501(c)(3) tax-exempt organizations are not subject to any specific provision

that restricts their lobbying activities. In general, the only limit imposed by the Internal Revenue

Code is that the lobbying activities must be germane to the accomplishment of the organization’s

exempt purposes. For some organizations, such as social welfare organizations or business

leagues, lobbying may be the organization’s primary, or even sole, activity. It is not uncommon

for organizations such as social welfare organizations, labor organizations, and business leagues

to conduct substantial lobbying as their primary activity. However, because the line between

lobbying activities and political activities is not always clear, some self-described lobbying

activities (i.e., attempts to influence the selection of an individuals to a non-elective public

office) potentially could lead the IRS to treat these as political activities taxable under section

527(f).

Section 527 organizations

Section 527 exempts from taxation certain "exempt function income" (i.e., contributions,

dues, proceeds from political fundraisers or the sale of campaign materials, and proceeds from

bingo games) but only to the extent such income is segregated for use only for an "exempt

function" of a political organization. Thus, no entity-level income tax is imposed on

contributions (and certain other “exempt function” income) received by a political organization

which are used for electioneering or other “exempt function” activities (as defined in section

527).4 However, a political organization’s investment income and any other non-exempt

function income (e.g., income from events that are not political in nature),5 minus expenses

directly connected with the production of such income,6

 is subject to tax at the highest corporate

income tax rate (currently 35 percent).

In a series of recent private letter rulings (“PLRs”), the IRS has recognized the “political
7

 In PLR 9808037 (Nov. 21, 1997), the IRS stated: “It follows that any activities

constituting prohibited political intervention by a section 501(c)(3) organization are activities that

must be less than the primary activities of a section 501(c)(4) organization, which are, in turn,

activities that are exempt functions for a section 527 organization.” See also PLR 1999-25051

(March 29, 1999).

8

 Section 501(c)(9) voluntary employees’ beneficiary associations and section 501(c)(17)

employee supplemental unemployment compensation benefits trusts are required to apply to the

IRS for recognition of tax-exempt status. Sec. 505(c).

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organization” status under section 527 of organizations that are specifically prohibited (either by

their charter or by a resolution adopted by their board of directors) from expressly advocating the

election or defeat of any particular candidate. In these private letter rulings, the organizations

represented that their primary activity would be conducting voter education efforts and grass

roots lobbying (commonly referred to as “issue advocacy”), the content, timing, and geographic

targeting of which was intended to influence recipients to favor the organization’s view when

voting for candidates. The IRS ruled that, because such biased voter education activities

constituted political campaign intervention under long-standing interpretations of section

501(c)(3), such activities were, in turn, “exempt function” activities under section 527.7

 The

organizations themselves sought section 527 status, apparently to clarify that their donors would

be immune from Federal gift tax liability, while simultaneously preserving the organization’s

ability to assert (for non-tax purposes) that their implied approval or disapproval of candidates

was beyond the reach of the Federal election laws. This ruling again illustrates the difficulty in

categorizing the nature of these activities.

Overview of present-law filing and disclosure requirements for tax-exempt organizations

and section 527 organizations

Recognition of tax-exempt status

Under present law, section 501(c)(3) organizations generally are required to notify the

IRS of their tax-exempt status by filing an application for recognition of tax-exempt status.

Most non-section 501(c)(3) organizations are not subject to the Code’s mandatory notice

requirements and, therefore, are not required to notify the IRS that they are seeking recognition

of their tax-exempt status.8

 Such organizations may voluntarily file exemption applications in

order to establish their qualifications for tax exemption with the IRS.

Section 527 organizations are subject to no notification requirement when they are

formed and there is no separate application for recognition of status as a section 527

organization. However, an organization wishing to receive confirmation of its status as a section

527 organization may request a written determination from the IRS in the form of a private letter

ruling.
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Annual filing requirements

Tax-exempt organizations generally are required to file an annual information return with

the IRS. An organization that has not received a determination of its tax-exempt status, but that

claims tax-exempt status under section 501(a), is subject to the same annual reporting

requirements and exceptions as organizations that have received a tax-exemption determination.

Most tax-exempt organizations are required to file annually Form 990 (Return of

Organization Exempt From Income Tax). Section 501(c)(3) organizations that are classified as

public charities must file Form 990 and an additional form, Schedule A, which requests

information specific to section 501(c)(3) organizations. A non-section 501(c)(3) organization

also is required to file Form 1120-POL (U.S. Income Tax Return for Certain Political

Organizations) if the organization’s political expenditures and net investment income both

exceed $100 for the year. If a non-section 501(c)(3) organization establishes and maintains a

section 527(f)(3) separate segregated fund, the fund is required to file Form 1120-POL.

Public charities described in section 501(c)(3) are required to disclose their lobbying

expenditures on Schedule A of Form 990 and to maintain records that will enable them to

calculate and report these expenditures. Non-section 501(c)(3) organizations are required to

provide annual information disclosure to members (sometimes referred to as “flow-through

information disclosure”) estimating the portion of members’ dues allocable to political campaign

activities, as well as any lobbying activities. Disclosure is not required for an organization that:

(1) incurs only a de minimis amount (i.e., $2,000 or less) of in-house political campaign and

lobbying expenditures during the taxable year, (2) elects to pay a 35-percent proxy tax on its

political campaign and lobbying expenditures incurred during the taxable year, or (3) establishes

that substantially all of its dues monies are paid by members not entitled to deduct such dues in

computing their taxable income.

Section 501(c) organizations are required to disclose on their annual returns (Form 990)

for each year the total amount of direct or indirect political expenditures made by the

organization during the year. In addition, the annual return requires section 501(c) organizations

to disclosure whether the organization filed a Form 1120-POL for the year, which is required if

the organization’s political expenditures and net investment income both exceed $100 for the

year. If a non-section 501(c)(3) organization establishes and maintains a section 527(f)(3)

separate segregated fund, the fund is required to file Form 1120-POL.

Section 527 political organizations are not required to file Form 990 annually. If the

section 527 political organization has taxable income, it is required annually to file Form 1120-

POL; similarly, if the political organization does not have taxable income, the Form 1120-POL is

not required to be filed.

Because it is an income tax return, the Form 1120-POL requires information related to the

amount of income and expenses of the filing organization (or separate segregated fund) for the

year. Thus, the Form 1120-POL does not contain information relating to contributors to the
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organization or the specific activities of the organization (or fund).

Disclosure requirements

Under present law, section 501(c) organizations are required to make a copy of their 

application for recognition of tax-exempt status (and certain related documents) and their annual

information return (Form 990 or Form 990-PF) available for inspection by any individual during

regular business hours at the organization’s principal office or any regional or district office that

has three or more employees. Organizations are not required to disclose an application for tax

exemption filed by the organization unless the IRS responded favorably to the application. The

required disclosure does not include Form 990-T, Exempt Organization Business Income Tax

Return, or Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. In

addition, tax-exempt organizations are not required to disclose the names of donors. Annual

information returns must be made available for a three-year period beginning with the due date

for the return (including any extension of time for filing).

The Form 1120-POL filed by a section 527 organization is not publicly disclosable under

present law.

Overview of disclosure requirements under Federal election law

In general

The Federal Election Contributions Act (“FECA”) was enacted to regulate

communications made in connection with Federal elections by imposing restrictions on eligible

contributors, dollar contribution limits for individual contributors, and reporting and disclosure

requirements. The courts have generally held that only communications that contain express

words advocating the election or defeat of a political candidate (so-called “express advocacy”)

are subject to the requirements of FECA. Communications that fall outside of the FECA

definition of “express advocacy” are commonly referred to as “issue advocacy.” Historically,

most communications by tax-exempt organizations and section 527 organizations were subject to

the FECA disclosure requirements because they constituted express advocacy.

Under the FECA, individuals are permitted to contribute up to $1,000 to a candidate per

election and up to $20,000 per year in contributions to the federal accounts of a national party

committee. In addition to these specific limits, individuals have an aggregate annual Federal

contribution limit of $25,000. Separate contribution limits also apply to multi-candidate political

action committees (“PACs”), other political committees, and party committees.

Reporting requirements

The FECA requires each treasurer of a political committee to sign and file reports of

receipts and disbursements.
9

 2 U.S.C.S. 434(b).

-9-

During any calendar year in which there is a regularly scheduled election or nomination

for election, a political committee that is the principal campaign committee of a congressional

candidate is required to file a pre-election report, a post-election report, and additional quarterly

reports. In any other calendar year, a congressional candidate’s committee is required to file

semi-annual reports.

During any calendar year in which a general election is held, the principal campaign

committee of a presidential candidate generally is required to file monthly reports if the

committee receives contributions aggregating $100,000 or more or makes expenditures

aggregating $100,000 or more, or anticipates receiving such contributions or making such

expenditures. If a presidential candidate’s principal campaign committee is not required to file

monthly reports due to the level of actual or anticipated contributions and expenditures, the

committee generally must file the same pre-election, post-election, and quarterly reports required

for congressional candidates. In a calendar year in which a general election is not held, a

presidential candidate’s committee is required to file either monthly reports or quarterly reports. 

Political committees other than authorized committees of a congressional or presidential

candidate are required to file either monthly reports or pre-election, post-election, and quarterly

reports.

The items that each report must disclose include the following:

(1) The total amount of all receipts and the total amount of all receipts in each of several

categories, including contributions, transfers, and loans from committees, individuals, the

candidate, and political party committees.

(2) The identification of contributors, transferors, and recipients of disbursements of

more than $200.

(3) The total amount of all disbursements in excess of $200, and all disbursements in

several categories, including expenditures made to meet candidate or committee operating

expenses, transfers to other committees authorized by the same candidate, and loans and

repayment of loans.

(4) The amount and nature of outstanding debts and obligations owed by or to such

political committee; and where such debts and obligations are settled for less than their

reported amount or value, a statement as to the circumstances and conditions under which

such debts or obligations were extinguished and the consideration therefor.9

In addition to reports by political committees, the FECA requires every person other than

a political committee who makes independent expenditures in an aggregate amount or value in
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excess of $250 during a calendar year to file a statement that contains (1) the identity of the

contributor, the date and the amount of all contributions received by such person, (2) the identity

of the recipient of the independent expenditure, the date, amount, and purpose of the expenditure,

and an indication of whether the independent expenditure is in support of, or in opposition to, the

candidate involved, (3) a certification whether or not such independent expenditure is made in

cooperation, consultation, or concert with, or at the request or suggestion of, any candidate or any

authorized committee or agent of such candidate, and (4) the identification of each person who

made a contribution in excess of $200 to the person filing such statement which was made for the

purpose of furthering an independent expenditure. Any independent expenditure aggregating

$1,000 or more made after the 20th day, but more than 24 hours before any election must be

reported within 24 hours after such independent expenditure is made. The statement concerning

such an expenditure must contain the identity of the recipient of the independent expenditure, the

date, amount, and purpose of the expenditure, and an indication of whether the independent

expenditure is in support of, or in opposition to, the candidate involved. FECA requires the FEC

to prepare indices that set forth, on a candidate-by-candidate basis, all independent expenditures

separately made by or for each candidate and to periodically publishing such indices on a timely

pre-election basis.
10 These “tax-exempt organizations” generally are exempt from Federal income tax on

income derived from activities substantially related to their exempt purposes and on their

investment income. However, such organizations generally are subject to tax on any income

derived from business activities that are regularly carried on and not substantially related to their

exempt purposes. Secs. 511-514.

11 Sec. 509(a). Private foundations are defined under section 509(a) as all organizations

described in section 501(c)(3) other than the organizations granted public charity status by reason

of (1) being a specific type of organization (i.e., churches, educational institutions, hospitals and

certain other medical organizations, certain organizations providing assistance to colleges and

universities, or a governmental unit); (2) receiving a substantial part of its support from

governmental units or direct or indirect contributions from the general public; or (3) providing

support to another section 501(c)(3) entity that is not a private foundation. In contrast to public

charities, private foundations generally are funded from one or a limited number of sources (an

individual, family, or corporation) and are subject to a number of restrictions not applicable to

public charities. In general, more generous charitable contribution deduction rules apply under

section 170 to gifts made to public charities than the rules that apply to gifts made to private

foundations. 

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II. OVERVIEW OF PRESENT-LAW FEDERAL TAX RULES

GOVERNING POLITICAL AND LOBBYING ACTIVITIES

OF TAX-EXEMPT ORGANIZATIONS

A. Present-law Restrictions on Political and Lobbying Activities

by Section 501(c) Organizations

In general

Present-law section 501(c) provides for twenty-seven different categories of nonprofit

organizations which generally are exempt from Federal income tax.10 Different rules apply to 

lobbying and political campaign activities of such tax-exempt organizations depending upon the

category of section 501(c) under which the organization is described. The restrictions on an

organization’s lobbying and political campaign activities generally become more stringent as the

Federal tax benefits potentially available to the organization or to the organization’s donors

increase.

Section 501(c)(3) provides tax-exempt status to certain nonprofit entities organized and

operated exclusively for charitable, religious, educational, or certain other purposes, provided

that no part of the net earnings of the organization inure to the benefit of any private shareholder

or individual. Organizations described in section 501(c)(3), which generally are referred to as

“charities,” are classified as either public charities or private foundations.11 In addition to the

tax-exempt status conferred on organizations described in section 501(c)(3), charitable

contributions to such organizations are tax-deductible to the donor for Federal income, estate,
12 See secs. 145, 170, 2055(a)(2), 2106(a)(2)(A)(ii), and 2522(a)(2). Organizations

described in section 501(c)(3) generally are eligible for reduced postal rates and--depending on the

applicable State and local laws--may also be eligible for State and local income, property, and sales

tax benefits. See generally Bruce R. Hopkins, The Law of Tax-Exempt Organizations, 41-48 (7th

ed. 1998).

13 Secs. 170(c)(3), 170(c)(4), 2055(a)(3), 2055(a)(4), 2106(a)(2)(A)(iii), 2522(a)(3), and

2522(a)(4).

14 See, Slee v. Commissioner, 42 F.2d 184, 185 (2d Cir. 1930) (referring to lobbying by

charitable organization as “political agitation”).

15 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(iii) defines an organization that intervenes in any

political campaign for or against a candidate for public office as an “action organization” not

entitled to section 501(c)(3) status. Treasury regulations use the term “action organization” to

describe organizations that intervene in political campaigns and organizations that engage in

substantial lobbying activities. 

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and gift tax purposes.12 In addition, section 501(c)(3) organizations also are eligible for certain

tax-exempt financing benefits.

Among the other types of organizations described in section 501(c) are (1) social welfare

organizations (sec. 501(c)(4)), (2) labor organizations (sec. 501(c)(5)), and (3) trade associations or

civic leagues (sec. 501(c)(6)). These entities and other tax-exempt organizations that are not

described in section 501(c)(3) (i.e., non-charities) generally are not eligible to receive contributions

that are deductible as charitable contributions to the donor for Federal income, estate, or gift tax

purposes, but may receive contributions that are deductible under section 162 as a business

expense.13

The present-law Federal tax rules governing the lobbying and political activities of taxexempt organizations are described below. In general, although many advocacy activities are

often viewed broadly as “political” in the sense that advocacy may be politically motivated or

have political implications,14 the rules described below distinguish lobbying with respect to

legislation from political campaign intervention. Moreover, as discussed below, there is no

single definition of lobbying under the Internal Revenue Code, nor is there a uniform definition

of political campaign intervention. 

Political campaign activities

Section 501(c)(3) organizations

Prohibition of political campaign intervention.--Section 501(c)(3) expressly provides that

tax-exempt organizations described in that section may not participate in, or intervene in, any

political campaign on behalf of (or in opposition to) any candidate for public office.15 This
16 See, Association of the Bar of the City of New York v. Commissioner, 858 F.2d 876, 881

(2d Cir. 1988). In practice, however, the IRS may exercise its discretion by not seeking the

sanction of revocation of the organization’s tax-exempt status in cases in which the violation was

unintentional, involved only a small amount, and the organization subsequently corrected the

violation and adopted procedures to prevent future improper political campaign activities. See

Judith E. Kindell & John F. Reilly, Election Year Issues, in Continuing Professional Education

Exempt Organizations Technical Instruction Program for 1993 416-19 (1992) (hereinafter 1993

IRS CPE Text). CPE Texts are prepared regularly by the Exempt Organizations Division of the

IRS. They are a nonprecedential source of guidance, but are illustrative of the Service’s reasoning

on various issues. See also PLR 9609007 (Dec. 6, 1995) (the IRS imposed the sec. 4955 penalty

for improper political campaign intervention but did not revoke the organization’s tax-exempt

status).

17 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(iii).

18 See Notice 88-76, 1988-2 C.B. 392; GCM 39694 (Feb. 3, 1988) (concluding that sec.

501(c)(3) organizations may attempt to influence the Senate's confirmation vote on a nominee for a

Federal judgeship, because a Federal judge is not ordinarily considered the holder of an elective

public office). With respect to the factors the IRS considers to determine whether an office or

position is a “public office” for purposes of section 501(c)(3), see 1993 IRS CPE Text, supra, at

404-07; and GCM 39811 (Feb. 9, 1990) (concluding that precinct committeemen were candidates

for public office).

19 See, Association of the Bar of the City of New York, 858 F.2d at 880 (individual need not

be a party nominee, nor run an organized campaign, to be a candidate for sec. 501(c)(3) purposes).

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statutory prohibition is absolute and applies to both types of section 501(c)(3) organizations--that

is, public charities and private foundations. In theory, no amount of political campaign activity is

consistent with an organization retaining tax-exempt status under section 501(c)(3).16

Candidates for public office.--Treasury regulations define the phrase "candidate for public

office" as meaning “an individual who offers himself, or is proposed by others, as a contestant

for an elective public office, whether such office be national, State, or local.”17 Thus, the section

501(c)(3) prohibition of political campaign intervention applies to elections at the Federal, State,

and local level. Attempts to influence appointments of persons to nonelective public offices do

not constitute prohibited political campaign intervention for purposes of section 501(c)(3).18

There is no bright-line test for determining the precise moment when an individual

becomes a candidate for purposes of the section 501(c)(3) political campaign prohibition.19 Once

an individual formally declares his candidacy for a particular office, his status as a candidate is

clear. An individual who has not yet formally announced an intention to seek public office may,

under some circumstances, be considered a candidate, although the fact that an individual is a
20 See PLR 9130008 (April 16, 1991) (ruling that, although an individual was not an

officially announced candidate, he was a candidate for sec. 501(c)(3) purposes when his campaign

committee published his record and referred to his “prospective candidacy”). See also 1993 IRS

CPE Text, supra, at 407-08 (“The determination of when an individual has taken sufficient steps

prior to announcing an intention to seek election, so that he or she may be considered to have

offered himself or herself as a contestant for the office, is based on the facts and circumstances. . . .

[S]ome action must be taken to make one a candidate, but the action need not be taken by the

candidate or require his consent”); Fulani v. League of Women Voters Education Fund, 882 F.2d

621, 630 (2d Cir. 1989) (holding that an independent, third-party candidate “was neither a

candidate nor a participant in either of the [Democratic or Republican] primary contests” and, thus,

could be excluded from the televised primary debates without violating sec. 501(c)(3)).

21 See 1993 IRS CPE Text, supra, at 408.

22 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(iii).

23 Id. See Branch Ministries, Inc. v. Rossotti, 40 F. Supp. 2d 15 (D.D.C. 1999) (holding

that an organization engaged in prohibited political campaign intervention when it placed a

newspaper advertisement that was critical of the moral character of a candidate four days before an

election, and the advertisement indicated that it was sponsored by the organization and solicited

contributions); TAM 199907021 (May 20, 1998) (concluding that particular communications that

were critical of Congress but did not refer to specific candidates by name were not prohibited

political campaign activities, while broadcasts that identified a person as a candidate and criticized

that candidate by name within months of a primary election constituted improper political

campaign intervention, despite educational content). 

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prominent political figure does not automatically make him a candidate.20 The IRS takes the

view that even if an individual is otherwise not a contestant for an elective public office, by

supporting the individual for an elective public office, the 501(c)(3) organization itself can cause

him or her to become a candidate “proposed by others” for purposes of the political campaign

prohibition.21

Participation or intervention in a political campaign.--Section 501(c)(3) expressly

provides that prohibited participation or intervention in a political campaign includes the

publishing or distributing of statements on behalf of, or in opposition to, a candidate for public

office. In addition, Treasury regulations provide that prohibited political campaign activity

includes, but is not limited to, the making of oral statements on behalf of or in opposition to a

candidate.22 Organizations described in section 501(c)(3) are prohibited from "directly or

indirectly" participating in political campaigns.23

Clear examples of prohibited political campaign intervention would include making or

soliciting campaign contributions, providing publicity or volunteer assistance, and paying
24 See IRS announcement IR-92-57 (1992). The IRS recently ruled in TAM 9812001

(August 21, 1996) that the section 501(c)(3) political campaign prohibition was violated when an

organization made a loan to a related, non-exempt entity that conducted charitable and political

campaign activity. The section 501(c)(3) organization did not take any steps to ensure that the

related entity did not use the funds for political purposes, so that, under section 527(f), the loan was

a contribution to a political organization, regardless of the rate of interest charged on the loan. In

addition, the IRS takes the position that prohibited political campaign intervention may, depending

on the facts and circumstances, arise when an organization engages in a business transaction with a

candidate, such as the rental of mailing lists or the acceptance of paid political advertising. In such

cases, not only must the fee charged for the good or service provided by the charity be set at a fair

market rate, but the IRS will consider whether the charity has a “track record” of making available

the same goods or services on the same terms to other candidates and noncandidates. See 1993 IRS

CPE Text, supra, at 432-434.

25 See Rev. Rul. 78-248, 1978-1 C.B. 154; 1993 IRS CPE Text, supra, at 410-413. The

IRS does not use Federal election law “express advocacy” standard; instead, the fundamental test is

whether support for or opposition to a candidate is indicated by a particular label used as a stand-in

for a candidate. With respect to the issue of whether all facts and circumstances demonstrate

implied endorsement of (or opposition to) candidates, the IRS has ruled that “jargon and catch

phrases” contained in organization’s fundraising letters demonstrated evidence of bias and

constituted improper political campaign intervention, even if, as the organization contended,

contributions received in response to the letters were used only to finance nonpartisan, educational

activities (PLR 9609007 (Dec. 6, 1995)). Similarly, in TAM 9117001 (Sept. 5, 1990), the IRS

ruled that, although a candidate’s name did not appear in materials distributed by an organization,

its messages “represent a clarion call” for conservatives to act in next election, and the “cumulative

effect” of this activity together with other political involvement evidenced an overall agenda to

intervene in political campaigns. In contrast, in TAM 8936002 (May 24, 1989), the IRS found that

a program to “use the spotlight” of the 1984 election to educate citizens about peace and arms

control issues, including distribution of TV and radio ads that stressed liberal views and were run

coincident to the presidential campaign debates, represented a “clarion call to act in November. . . 

and specifically, [to] vote for a change,” indicated a preference for one candidate. Nevertheless,

because the ads arguably could be viewed as “nonpartisan,” the IRS “reluctantly” concluded that

the education program did not constitute political campaign intervention.

For a discussion of the relevance of intent in determining whether an organization has

engaged in political campaign intervention for purposes of section 501(c)(3), see Frances R. Hill,

The Role of Intent in Distinguishing Between Education and Politics, 9 J. Tax’n Exempt Orgs. 9

(1997); Jeffrey L. Yablon & Edward D. Coleman, Intent is Not Relevant in Distinguishing Between

Education and Politics, 9 J. Tax’n Exempt Orgs. 156 (1998); Gregory L. Colvin, Can a Section

501(c)(3) Organization Have a Political Purpose?, 10 J. Tax’n Exempt Orgs. 40 (1998). 

-15-

expenses of a political campaign.24 In situations where there is no explicit endorsement of, or

direct provision of financial or other support to, a candidate for elective public office, prohibited

political campaign intervention may be implicit, as determined by a consideration of all relevant

facts and circumstances.25
26 See 1993 IRS CPE Text, supra, at 435-36 (explaining that the use of organization’s

resources or facilities is indicative that actions of individual are attributable to the organization; in

some cases, organization may implicitly ratify actions taken by an affiliated individual); Bruce R.

Hopkins, Charity, Advocacy, and the Law 400-01 (1992).

27 See, e.g., Rev. Rul. 72-513, 1972-2 C.B. 246 (ruling that a student newspaper’s political

views were not attributable to the university); Rev. Rul. 72-512, 1972-2 C.B. 246 (ruling that a

requirement that students enrolled in a political science course participate in a political campaign of

their choice does not constitute prohibited political campaign activity by the university). See also

GCM 34631 (Oct. 4, 1971); Internal Revenue Service, Publication 1828: Tax Guide for Churches

and Other Religious Organizations at 10 (Announcement 94-112, 1994-42 I.R.B. 20) (employees

of organization may express personal political views but generally not in organization publications

or at official organization functions); TAM 9635003 (April 19, 1996) (concluding that an

organization engaged in prohibited political campaign activity by providing a platform for forum

participants to endorse candidates of their choice and by publishing the participants’ opinions, even

though the organization claimed that it did not endorse any candidate).

28 See Regan v. Taxation With Representation of Washington, 461 U.S. 540, 545 (1983);

FCC v. League of Women Voters of California, 468 U.S. 364, 399-401 (1984); 1993 IRS CPE

Text, supra, at 437-40. In 1987, Congress enacted section 6033(b)(9), which requires charities to

disclose on their annual information returns (Form 990) information about direct and indirect

transactions or relationships between a charity and other tax-exempt organizations (e.g., certain

lobbing organizations) or political organizations described in section 527. The objective of this

provision is to prevent the diversion of funds from a charitable organization’s exempt purposes or

misallocation of revenues or expenses between organizations. See H.R. Rep. No. 100-391, pt. 2, at

1616 (1987).

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The political campaign prohibition of section 501(c)(3) applies to activities conducted by

or on behalf of charitable organizations. When an individual affiliated with a charity engages in

political campaign activities (e.g., the individual makes a speech endorsing a particular

candidate), the question arises whether the political campaign intervention should be attributed to

the charity.26 In this regard, an examination of all the facts and circumstances is necessary to

determine whether the individual is acting solely in his or her private capacity (even though the

individual’s official title with the charity may be used for identification purposes) or whether the

individual’s political campaign activity should be imputed to the charity (generally by using

principles of agency).27 Similar questions of attribution arise in cases where a section 501(c)(3)

charity is affiliated with a section 501(c)(4) lobbying organization. In such cases, the

independence of the organizations generally will be respected where, despite overlapping

governing boards, the entities are separately incorporated, the records and finances show legally

distinct entities, and there are reimbursements meeting fair-market-value standards for any shared

facilities or services.28 Moreover, directors of a charity may, in their individual/private

capacities, establish a PAC (referred to as a “non-connected PAC”), so long as they do not use

the charity’s resources; but the charity itself may not establish a PAC to conduct or fund political
29 See Treas. Reg. sec. 1.527-6(g). See also Commentary on IRS 1993 Exempt

Organizations Continuing Professional Educational Education Technical Instruction Program

Article on “Election Year Issues,” prepared by individual members of the Subcommittee on

Political and Lobbying Activities and Organizations of the Committee on Exempt Organizations of

the Section of Taxation, American Bar Association (Feb. 21, 1995) in 11 Exempt Org. Tax Review

854, 864-65 (1995) (hereinafter 1995 ABA Comments) (requesting clarification from IRS as to

when individuals affiliated with a charity are acting solely in their individual/private capacities in

establishing a PAC).

30 See Fulani v. League of Women Voters Education Fund, 882 F.2d 621 (2d Cir. 1989)

(holding that an organization with stated goals to foster voter education and participation in the

electoral process, and which sponsored nationally televised primary debates among candidates of

the two major political parties, is entitled to sec. 501(c)(3) status). See also Rev. Rul. 86-95,

1986-2 C.B. 73 (conducting a public forum for debate between candidates does not constitute

political campaign intervention if the format and issues are selected on a nonpartisan basis); Rev.

Rul. 74-574, 1974-2 C.B. 160 (noncommercial broadcast station did not violate sec. 501(c)(3) by

providing free air time to all legally qualified candidates on an equal basis); TAM 9635003 (April

19, 1996) (where inviting all legally qualified candidates to a candidate debate is impractical,

charity may adopt reasonable, objective criteria for determining which candidates to invite to a

debate conducted in a neutral, nonpartisan manner).

31 See Rev. Rul. 78-248, 1978-1 C.B. 154 (charity may disseminate voting records or

candidate questionnaires under certain fact patterns).

32 See Rev. Rul. 78-248; Rev. Rul. 76-456, 1976-2 C.B. 151 (organization that asked

candidates to sign a code of fair campaign practices, and released named of candidates who

signed or refused to sign, was intervening in political campaigns).

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campaign activities.29

Not all election-related activities are prohibited activities for organizations described in

section 501(c)(3). For instance, voter education activities generally do not constitute

"participation or intervention" in a political campaign on behalf of or in opposition to a candidate

and are, therefore, permissible activities under section 501(c)(3), provided that the activities are

nonpartisan in nature.30 Publishing a compilation of voting records or responses to candidate

questionnaires generally does not constitute prohibited political campaign activity when a wide

range of issues are addressed and the published results do not suggest a bias for or against any

candidate.31 However, an alleged neutral effort to educate voters may evidence a bias and, thus,

constitute prohibited political campaign intervention. Under some circumstances, dissemination

of otherwise educational materials may be viewed as improper political campaign intervention,

such as when an organization widely distributes (during an election campaign) a compilation of

voting records of candidates only on a narrow range of issues.32 Under other circumstances, a

charity may (consistent with sec. 501(c)(3) status) publish a newsletter containing voting records

of incumbents on selected issues of interest to the organization, provided that the newsletter is
33 See Rev. Rul. 80-282, 1980-2 C.B. 178. The IRS takes the view (and some

practitioners agree) that activities may be both educational and political campaign intervention. 

See 1993 IRS CPE Text, supra, at 414-15; 1995 ABA Comments at 14. See also TAM 8936002

(May 24, 1989) (“Educating the public is not inherently inconsistent with the activity of

impermissibly intervening in a political campaign.”). More recently, organizations themselves

have argued, in seeking recognition from the IRS of their tax-exempt status under section 527, that

materials they distributed were educational, yet also constituted political campaign intervention

because such materials were intended to influence readers to consider the organization’s views

when voting. See PLR 9808037 (Nov. 21, 1997).

In addition, even if an activity initially meets the test of being “educational” and does not

constitute prohibited political campaign intervention, the activity may be conducted in a manner

that results in substantial private benefits inconsistent with the organization’s tax-exempt status

under section 501(c)(3). See Treas. Reg. sec. 1.501(c)(3)-1(d)(1)(ii); Better Business Bureau v.

United States, 326 U.S. 279 (1945) (observing that regardless of the number or importance of truly

educational purposes, the organization was not operated exclusively for educational purposes due

to its objective of pursuing an ethical and profitable business community); American Campaign

Academy v. Commissioner, 92 T.C. 1053 (1989) (holding that a training school for campaign staff

workers was not entitled to sec. 501(c)(3) status due to the private benefit conferred upon the

Republican party).

34 See 1993 IRS CPE Text, supra at 430-432.

35 See Treas. Reg. sec. 1.527-6(b)(5); TAM 9117001 (Sept. 5, 1990) (“[I]t is not a section

501(c)(3) purpose to only register and educate voters to vote for favored candidate or party”). 

-18-

distributed to the organization’s normal readership (rather than being distributed to the general

public or to any particular congressional district), is not timed to coincide with any particular

election, and no comment is made on an individual’s qualifications for public office.33

Depending on the facts and circumstances involved, candidates may be invited to speak at

an event of an organization described in section 501(c)(3) without violating the rule against

political campaign intervention. If a candidate is invited to speak in his or her capacity as a

candidate, then other candidates also must be invited to speak and there should be no indication

of support for, or opposition to, any candidate by the organization. If a candidate is invited to

speak in his or her individual capacity other than as a candidate (e.g., the candidate formerly held

public office or is an expert in a public policy field), then equal access to all other candidates

need not be provided. However, in such cases, the IRS position is that the organization must

ensure that the candidate speaks only in his or her individual capacity other than as a candidate,

that no mention is made of the individual’s candidacy at the event, and that no campaign activity

occurs in connection with the event.34

Voter registration and "get-out-the-vote" drives are permissible activities for public 

charities, provided that the voter registration or "get-out-the-vote" drives are nonpartisan and not

specifically identified by the organization with any candidate or political party.35 However, voter
Under some circumstances, voter participation efforts undertaken by charities may be targeted to

certain politically disadvantaged (or other) groups, even if it is likely that members of the targeted

group will vote disproportionately for candidates of a certain party. See PLR 9223050 (March 10,

1992) (targeting of voter participation efforts to homeless persons); PLR 8822056 (March 4, 1998)

(targeting of efforts to minority, low-income, and immigrant groups).

36 See Association of the Bar of the City of New York v. Commissioner, 858 F.2d 876 (2d

Cir. 1988) (rating of judicial candidates against general standards of competence was prohibited

activity); Rev. Rul. 67-71, 1967-1 C.B. 125 (rating of school board candidates was prohibited

activity, even if process was objective and intended to inform public about candidates). 

37 See TAM 9635003 (April 19, 1996) (ruling that forums were composed of participants

selected through a scientific method to reflect the democratic characteristics of a community, but

publication of the participants’ ratings of the candidates was improper political campaign

intervention). The IRS further concluded in TAM 9635003 that section 501(c)(3) was not violated

the year that the organization conducting the forums published a final report that merely listed

questions posed to the candidates and their responses but did not include the opinions of forum

participants with respect to rating (or qualifications of) the candidates.

38 Treas. Reg. sec. 1.501(c)(3)-1(c)(3).

39 See Hopkins, Charity, Advocacy, and the Law, supra, at 399.

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registration drives conducted by private foundations may be subject to penalty excise taxes unless

specific statutory criteria are satisfied under section 4945(f) (discussed further below).

If a charity endorses, rates, or evaluates the qualifications of candidates for elective public

office, then the political campaign intervention rule of section 501(c)(3) has been violated, even

if the endorsements or ratings are allegedly based on neutral assessments of the candidates’

professional, intellectual, or ethical qualifications, rather than partisan grounds.36 Moreover, the

IRS has concluded that, even if a charity itself and its employees do not formally endorse any

candidate, prohibited political campaign activity occurs if the charity provides a platform for

others to endorse candidates by conducting candidate forums and publishing ratings of (or

opinions about) candidates proffered by potential voters who attend the forums.37

Attempts to influence the outcome of voting by the public on referendums, initiatives, or

constitutional amendments are not prohibited political campaign activities for public charities,

but are considered "lobbying" activities and, thus, are subject to the limitation that such activities

not be "substantial"38 (see discussion below of lobbying rules). Similarly, efforts to influence the

issues addressed in the platform of a political party have been viewed as a lobbying effort and not

prohibited political campaign intervention.39 However, such expenditures made by private

foundations to influence referendums or party platforms (even if not substantial) potentially may

be subject to penalty excise taxes under section 4945 (as discussed below).
40 Section 4945 imposes an excise tax penalty on private foundations equal to 10 percent of

the amount of their taxable expenditures. Any foundation manager who, without reasonable cause,

agrees to make an expenditure knowing that it is a taxable expenditure is subject to a penalty equal

to 2.5 percent of the amount of the expenditure (not exceeding $5,000 per expenditure). 

Furthermore, if the taxable expenditure is not "corrected" (i.e., recovered to the extent possible

within a specified time period and additional safeguards established to prevent future taxable

expenditures), then an additional (so-called “second-tier”) tax is imposed on the foundation equal

to 100 percent of the amount of the expenditure, and an additional tax is imposed on any

foundation manager who refuses to agree to correction equal to 50 percent of the amount of the

expenditure (not exceeding $10,000 per expenditure). The IRS is not to assess, or is to abate or

refund, any initial (so-called "first-tier") excise tax on political expenditures if the foundation or

manager establishes to the satisfaction of the IRS that (1) the political expenditure was not willful

and flagrant, and (2) the political expenditure was corrected within a specified time period. Sec.

4962.

41 Secs. 4945(d)(2) and 4945(f). In addition, under section 507(a)(2), willful repeated

violations (or a willful and flagrant violation) of the private foundation rules giving rise to penalty

excise taxes can lead to termination of private foundation status, and the organization can be

required to pay the Federal Government a termination tax equal to the lesser of (1) the value (with

interest) of all tax benefits received (by the organization or certain substantial contributors thereto)

by reason of the organization’s former status under section 501(c)(3), or (2) the net value of the

foundation’s assets. This penalty may be abated to the extent that the organization contributes its

assets to one or more existing section 501(c)(3) public charities, or if certain corrective action is

initiated under State law to insure that the assets of the foundation are preserved for charitable

purposes. Sec. 507(g).

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Penalty excise taxes

Private foundations are subject to revocation of their tax-exempt status under section

501(c)(3) if they engage in prohibited political campaign activity. Moreover, private foundations

(and their managers) are subject to penalty excise taxes under section 4945 if the foundation

makes a "taxable expenditure."40 For this purpose, "taxable expenditures" include any amount

paid to influence the outcome of a specific public election or to carry on (directly or indirectly)

voter registration drives, unless the activities are nonpartisan, are not confined to one specific

election period, are carried on in five or more States, and certain other conditions are satisfied.41

Prior to the Omnibus Budget Reconciliation Act of 1987 (“1987 Act”), the only

enforcement tool available to the IRS in cases where a public charity engaged in prohibited

political campaign intervention was revocation of the organization’s tax-exempt status under

section 501(c)(3). This sanction, however, was often viewed as an ineffective remedy, because

revocation could be too severe in some cases, or irrelevant in other cases because the

organization had ceased operations after its resources were improperly depleted. Consequently,

the 1987 Act extended to public charities the two-tiered penalty excise structure applicable to

private foundations. Under section 4955, if any charitable organization described in section
42 As under the section 4945 penalty regime, a 2.5 percent penalty excise tax may be

imposed under section 4955(a)(2) on organization managers who knowingly agree to make

improper political expenditures (not exceeding $5,000 per expenditure). The IRS is not to assess,

or is to abate or refund, any initial (so-called "first tier") excise tax on political expenditures if the

organization or manager establishes to the satisfaction of the IRS that (1) the political expenditure

was not willful and flagrant, and (2) the political expenditure was corrected within a specified time

period. Sec. 4962.

43 In cases where the political expenditure is not corrected within a specified time period,

section 4955(b) provides that the organization is subject to a so-called “second tier” excise tax

penalty equal to 100 percent of the amount of the political expenditure. Managers who refuse to

agree to correction are subject to an excise tax penalty equal to 50 percent of the amount of such

expenditure (not exceeding $10,000 per expenditure).

44 See H.R. Conf. Rep. No. 100-495, at 1020 (1987). To prevent imposition of multiple

excise tax penalties on the same political campaign expenditure, section 4955(e) provides that if a

tax is imposed under section 4955, then no penalty tax may be imposed under section 4945, which

otherwise applies to taxable expenditures made by private foundations, or section 4958, which

provides for intermediate sanctions in cases where public charities engage in certain excess benefit

transactions with insiders.

45 T.D. 8628, 60 Fed. Reg. 233 (1995) (containing final regulations regarding sec. 4955). 

See also 1993 IRS CPE Text, supra, at 416-419; TAM 9635003 (April 19, 1996) (publication of

candidate ratings from citizen caucuses resulted in imposition of sec. 4955 taxes but not revocation

of tax-exempt status).

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501(c)(3), including a public charity, makes a political expenditure, the organization is subject to

an excise tax equal to 10 percent of the amount of the expenditure.42 Additional penalty taxes

may be imposed if the violation is not corrected within a specified time period.43

The penalty excise tax under section 4955 may be imposed in addition to the sanction of

revocation of the organization's tax-exempt status (and eligibility to receive tax-deductible

contributions) by reason of its political campaign activities.44 Consistent with section 501(c)(3),

section 4955 does not permit a de minimis amount of political campaign intervention. However,

the Treasury Department indicated when it issued final regulations regarding section 4955 that

“there may be individual cases where, based on the facts and circumstances such as the nature of

the political intervention and the measures that have been taken by the organization to prevent a

recurrence, the IRS may exercise its discretion to impose a tax under section 4955 but not to seek

revocation of the organization’s tax-exempt status.”45

For purposes of section 4955, the term "political expenditure" is defined (by tracking the

sec. 501(c)(3) language) as any expense incurred by a charity in participating or intervening in a

political campaign for or against a candidate for public office. In addition, in the case of an

organization claiming section 501(c)(3) status but which, in fact, was formed (or which is
46 See Treas. Reg. sec. 53.4955-1(c)(2)(ii) (stating that the determination of whether the

primary purpose of an organization is promoting the candidacy of an individual is made on the

basis of all facts and circumstances).

47 See Treas. Reg. sec. 53.4955-1(c)(2)(iii).

48 However, a charity that engages in political campaign activities and, consequently, loses

its tax-exempt status for a taxable year generally may apply for restoration of its section 501(c)(3)

status for a subsequent taxable year, during which it will continue to be subject to the political

campaign prohibition and other rules of section 501(c)(3).

49 However, some tax-exempt organizations (such as section 501(c)(2) title-holding

companies) appear to be precluded from political campaign activities because the subparagraph in

which they are described limits them to an exclusive purpose that does not include advocacy

activities. See 1993 IRS CPE Text at 478. 

50 See Treas. Reg. sec. 1.501(c)(4)-1(a)(2)(ii) (“[P]romotion of social welfare does not

include direct or indirect participation in political campaigns on behalf of or in opposition to any

-22-

effectively controlled and availed of) primarily for purposes of promoting the candidacy or

potential candidacy of an individual for public office, section 4955(d)(2) enumerates certain

expenditures--such as expenses for travel by such individual, for conducting surveys or preparing

materials for use by the individual, or for advertising or fundraising--as being included in the

term "political expenditure."46 Expenditures for voter registration, voter turnout, or voter

education constitute “political expenditures” subject to the section 4955 excise tax only if the

expenditures violate the prohibition on political campaign activity provided in section

501(c)(3).47

 The 1987 Act also included other provisions to enhance the IRS’ ability to enforce the

prohibition against political campaign expenditures, including section 6852 (which authorizes the

IRS to make an immediate determination and assessment of taxes in cases where there have been

flagrant political campaign expenditures by a charity), section 7409 (which provides that the IRS

may seek an injunction from a Federal district court in such cases to prevent future improper

expenditures), and section 504(a)(2)(B) (which provides that an organization--other than a

church--that ceases to qualify for tax-exempt status under sec. 501(c)(3) by reason of its political

campaign activities cannot at any time thereafter qualify as a tax-exempt social welfare

organization under sec. 501(c)(4)).48

 

Other 501(c) organizations

In general.--Tax-exempt organizations other than those described in section 501(c)(3)

generally are permitted to engage in political campaign activities.49 However, political campaign

activities cannot be the primary activities of an organization described in section 501(c), such as

a social welfare organization described in section 501(c)(4).50 Instead, organizations that
candidate for public office”); Rev. Rul. 81-95 1981-1 C.B. 332. See also 1993 IRS CPE Text,

supra, at 479. 

51 See discussion of sec. 527 below. The purpose of section 527(f) is to prevent

organizations from using their otherwise tax-free investment income to fund political campaign

activities.

52 Treas. Reg. sec. 1.527-6(b)(1)(I) allows a noncharity to incur certain overhead and

administrative expenses (i.e., “indirect expenses”) with respect to a PAC without the noncharity

being subject to tax under section 527(f) with respect to such expenses.

53 The purpose of this rule is to prevent taxpayers from avoiding section 162(e) (which

disallows trade or business expense deductions for political campaign and lobbying expenditures)

by paying otherwise deductible dues to a trade association or other tax-exempt entity which, in

turn, makes political campaign or lobbying expenditures on behalf of its dues-paying members. 

Accordingly, section 162(e)(3) specifically provides that no trade or business expense deduction is

allowed for the portion of dues paid to a tax-exempt organization which the organization notifies

the taxpayer under section 6033(e) is allocable to political campaign or lobbying expenditures

made by the organization.

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primarily conduct or fund political campaign activities are eligible for a limited tax-exempt status

under section 527 (discussed below).

Even though a 501(c) organization (other than a charity described in section 501(c)(3))

that engages in political campaign activities will generally retain its tax-exempt status so long as

such activities are not the primary means of accomplishing its purposes, such activities

nonetheless will result in the organization being subject to tax under section 527(f) on the lesser

amount of its investment income or the amount expended on political activities.51 However, a

non-charity may establish a separate segregated fund, which may be treated as a separate

organization under section 527(f)(3), such that the expenditures and investment income of the

fund will not be attributed to the sponsoring organization.52

Associations that receive tax-deductible dues.--As a result of the Omnibus Budget

Reconciliation Act of 1993 (“1993 Act”), tax-exempt trade associations and certain other taxexempt organizations (but not charities described in section 501(c)(3)) generally are required to

provide annual information disclosure to members (sometimes referred to as "flow-through

information disclosure") estimating the portion of their dues allocable to political campaign

activities, as well as any lobbying activities as defined under section 162(e)(1).53 However, such

disclosure is not required for an organization that (1) incurs only a de minimis amount (i.e.,

$2,000 or less) of in-house political campaign and lobbying expenditures during the taxable year;

(2) elects to pay a 35-percent proxy tax on its political campaign and lobbying expenditures

incurred during the taxable year rather than provide flow-through information disclosure to its

members; or (3) establishes pursuant to Treasury Department rules that substantially all of its

dues monies are paid by members not entitled to deduct such dues in computing their taxable
54 Such Treasury Department rules are contained in Rev. Proc. 98-19, 1998-7 I.R.B. 30,

which exempts from the section 6033(e) flow-through information disclosure requirements all taxexempt organizations other than: (1) social welfare organizations described in section 501(c)(4)

that are not veterans organizations; (2) agricultural and horticultural organizations (but not labor

unions) described in section 501(c)(5); and (3) business leagues and trade associations described in

section 501(c)(6). In addition, an organization falling within one of these three categories of taxexempt entities that generally are subject to the section 6033(e) requirements is nonetheless entitled

to an exemption under Rev. Proc. 98-19 if: (1) more than 90 percent of all annual dues (or similar

amounts) are received from persons who each pay annual dues of $75 or less (provided that the

organization is not described in section 501(c)(6)); (2) more than 90 percent of all annual dues are

received from charities, governmental entities, or tax-exempt organizations which themselves are

exempt from the section 6033(e) rules; or (3) the organization maintains records (and notifies the

IRS) that 90 percent or more of the annual dues paid to the organization are not deductible to its

members, without regard to any political campaign or lobbying expenditures made by the

organization.

55 See generally Hopkins, Charity, Advocacy, and the Law, supra, 130-235.

56 See Haswell v. United States, 500 F.2d 1133, 1142 (Ct. Cl. 1974) (“The applicability of

the influencing legislation clause is not affected by the selfish and unselfish motives and interests

of the organization, and it applies to all organizations whether they represent private interests or the

interests of the public.”); Judith E. Kindell & John F. Reilly, Lobbying Issues, in Continuing

Professional Education Exempt Organizations Technical Instruction Program for FY 1997 272

(hereinafter 1997 IRS CPE Text) (finding no distinction between “good” and “bad” legislation).

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income (sec. 6033(e)).54

Lobbying

Section 501(c)(3) organizations

In general.--The Internal Revenue Code rules governing lobbying by charitable

organizations described in section 501(c)(3) can be viewed as creating three separate regimes. 

There is a separate set of rules for private foundations under section 4945. In addition, with

respect to public charities, the Code differentiates between public charities that affirmatively

elect to be subject to special rules under sections 501(h) and 4911 (commonly referred to as

“electing public charities”) and all other public charities that do not make this election

(commonly referred to as “non-electing public charities”).55 In general, the operation of the

lobbying restrictions does not depend on whether the lobbying activities of a charity are intended

to further its charitable purposes (with an exception for so-called “self-defense direct lobbying,”

described below).56 However, whether or not public policy discussions (even if technically not

lobbying) are intended to benefit a large segment of the population or a charitable class, as

opposed to the private interests of a limited group of individuals, may be relevant to the

determination whether the activity satisfies the section 501(c)(3) requirement that the
57 See American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989) (because the

operational test under sec. 501(c)(3) “examines the actual purpose for the organization’s activities

and not the nature of the activities or the organization’s statement of purpose,” the court looked

beyond the four corners of the organization’s charter to discover “the actual objects motivating the

organization” and found that political campaign school had a partisan purpose and the secondary

benefit to the Republican entities and candidates was more than incidental); Fund for the Study of

Econ. Growth and Tax Reform v. IRS, 997 F. Supp. 15 (D.D.C. 1998) (taking into account “overt

partisan statements” of creators of the organization and finding that the organization did not qualify

for sec. 501(c)(3) status because it supported a “one-sided political agenda” and, thus, engaged in

substantial non-exempt activities), aff’d on other grounds, 161 F.3d 755 (D.C. Cir. 1998). See also

Better Business Bureau v. United States, 326 U.S. 279 (1945) (holding that regardless of the

number of activities that educated business persons and the general public, organization was not

entitled to tax-exempt status as “educational” entity because its “activities are largely animated by a

commercial purpose” and “are directed fundamentally to ends other than that of education”);

Callaway Family Association, Inc. v. Commissioner, 71 T.C. 340 (1978) (organization found to

have engaged in substantial nonexempt activities serving private interests by conducting

genealogical research focusing on the Callaway family and by urging family members to join by

asserting that the organization was “for you, about you”).

58 See Regan v. Taxation With Representation of Washington, 461 U.S. 540 (1983) (holding

that restrictions on lobbying activities of charitable organizations are constitutionally valid).

59 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(ii) provides: “An organization will not fail to meet

the operational test merely because it advocates, as an insubstantial part of its activities, the

adoption or rejection of legislation.”

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organization be “operated exclusively” for charitable or other exempt purposes or, instead,

whether the organization serves substantial non-exempt purposes inconsistent with section

501(c)(3) status. (This issue is commonly referred to as the “private benefit” test.)57

Limitation on lobbying activities

Section 501(c)(3) expressly provides that an organization is not entitled to tax-exempt

status under that section unless “no substantial part of the activities of [the organization] is

carrying on propaganda, or otherwise attempting, to influence legislation” (commonly referred to

as "lobbying").58 Thus, public charities may engage in some lobbying activities, provided that

such activities are not substantial, without losing their tax-exempt status and generally without

being subject to tax.59 In contrast, private foundations are subject to the restriction that lobbying

activities--even if insubstantial so as not to jeopardize the foundation’s tax-exempt status--may

result in the foundation being subject to penalty excise taxes, unless one of the statutory

exceptions contained in section 4945(e) (such as for nonpartisan analysis or self-defense

lobbying) apply.

Definition of "lobbying" and "action" organizations
60 As discussed infra, there is a statutory definition of “influencing legislation” under

section 4911(d) for public charities that make an election under section 501(h) to have their

lobbying efforts judged against a sliding-scale, numeric standard.

61 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(ii).

62 See 1997 IRS CPE Text, supra, at 273.

63 Treas. Reg. sec. 1.501(c)(3)-1(c)(3)(ii). The IRS has stated that the section 501(c)(3)

prohibition on substantial lobbying activities applies to attempts to influence legislation of a

foreign country. See Rev. Rul. 73-440, 1973-2 C.B. 177; 1997 IRS CPE Text, supra, at 272.

64 See Notice 88-76, 1988-2 C.B. 392. Actions taken by a legislative body with respect to

confirmation of a nominee for a public office (e.g., Federal judges) are included within the term

“legislation” for section 501(c)(3) purposes, and also may be "exempt function" activities for

purposes of the section 527(f) tax. See Announcement 88-114, 1988-37 I.R.B. 26 (Sept. 12, 1988),

1993 IRS CPE Text, supra, at 448 n.8 (stating that IRS has made no final determination on the sec.

527 issue), and the discussion below of sec. 527(f)).

65 See Rev. Rul. 67-293, 1967-2 C.B. 185; 1997 IRS CPE Text, supra, at 277.

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There is no statutory definition under section 501(c)(3) of “propaganda, or otherwise

attempting, to influence legislation.”60 However, Treasury regulations provide that an

organization is an "action" organization not entitled to tax-exempt status under section 501(c)(3)

due to its lobbying activities if a substantial part of the organization’s activities is (1) contacting,

or urging the public to contact, members of a legislative body for the purpose of proposing,

supporting, or opposing legislation; or (2) advocating the adoption or rejection of legislation.61

Thus, attempts to influence legislation under section 501(c)(3) include directly contacting

members of a legislative body (and their staffs) to propose, support, or oppose legislation (socalled “direct lobbying”), and also include urging the public to contact legislative bodies, or

otherwise attempting to influence public opinion, with respect to legislation (so-called “grass

roots lobbying”). Except as specifically provided for in Treasury regulations (described below),

the IRS takes the position that whether a particular communication constitutes an attempt to

influence legislation generally is determined on the basis of the facts and circumstances

surrounding the communication in question.62

For purposes of section 501(c)(3), the term "legislation" includes action by the Congress,

by any State legislature, by any local council or similar governing body, or by the public in a

referendum, initiative, constitutional amendment, or similar procedure.63 “Action” by the

Congress or by a State legislature or local council refers to introduction, amendment, enactment,

defeat, or repeal of Acts, bills, resolutions, or similar items.64 Contacting executive branch

officials generally is not considered lobbying for purposes of section 501(c)(3), unless the charity

requests that the executive branch official support or oppose legislation to be considered by a

legislative body.65 Legislation need not actually be formally introduced if a specific legislative
66 See Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 1175 (10th Cir.

1972) (urging public to contact legislators to support prayer in school and oppose foreign aid

constituted attempts to influence legislation).

67 See Rev. Rul. 66-256, 1966-2 C.B. 210 (discussion of controversial social and political

issues does not disqualify an organization from obtaining tax exemption under sec. 501(c)(3)). A

parallel rule for private foundations also exempts from the definition of “lobbying” discussions of

broad social, economic, and similar problems, even if the problems are of a type with which the

government would be expected to deal ultimately. See Treas. Reg. sec. 53.4945-2(d)(4). 

Moreover, as discussed below, regulations promulgated under section 4911 provide a similar

exception for discussions of broad social and policy issues by public charities making the section

501(h) election, with special rules for certain mass media advertising. See Treas. Reg. secs.

56.4911-2(c)(2) and 56.4911-2(b)(5). Likewise, regulations promulgated under section 162

provide that expenditures for institutional or “good will” advertising--including advertising which

keeps the taxpayer’s name before the public and which presents views on economic, financial,

social, or other subjects of a general nature--generally are deductible as trade or business expenses

rather than being viewed as attempts to influence legislation, provided that such expenditures are

related to patronage the taxpayer might reasonably expect in the future. Treas. Reg. sec. 1.162-

20(a)(2).

68 See, e.g., Nationalist Movement v. Commissioner, 102 T.C. 558 (1994) (holding that the

publication of materials advocating social and political change was not “educational” activity under

sec. 501(c)(3) because presentation of viewpoints was unsupported by facts, made substantial use

of inflammatory and disparaging terms, and expressed conclusions based on emotions rather than

objective evaluation), aff’d 37 F.3d 216 (5th Cir. 1994); Rev. Proc. 86-43, 1986-2 C.B. 729 (which

describes the so-called “methodology test” for judging whether advocacy of a particular viewpoint

is considered “educational” under sec. 501(c)(3)). See also National Alliance v. United States, 710

F.2d 868 (D.C. Cir. 1983) (upholding the denial of tax-exempt status to an organization that

published a newsletter promoting racial hatred and violence against minority groups, because the

newsletter “cannot reasonably be considered intellectual exposition” and, thus, there was no

possibility that it could be found to be “educational within any reasonable interpretation of the

term”); Big Mama Rag, Inc. v. United States, 631 F.2d 1030 (D.C. Cir. 1980) (holding that the

Treasury regulation that defined “educational” activity as requiring a “full and fair exposition” was

unconstitutionally vague and susceptible to discriminatory enforcement). But see National

Endowment for the Arts v. Finley, 524 U.S. 569 (1998) (holding that the void-for-vagueness

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proposal is being advocated.66

Discussions of broad social or public policy issues (without advocating a specific

legislative proposal) generally do not constitute attempts to influence legislation for purposes of

section 501(c)(3).67 However, even if a public discussion of broad social or policy issues does

not constitute an attempt to influence legislation for purposes of section 501(c)(3), there is still a

separate issue of whether the discussion is educational (or furthers some other charitable

purpose).68 Thus, if an organization conducts substantial public discussions or disseminates
doctrine is not a limitation when government is selecting which types of speech to subsidize). 

69 See Fund for the Study of Econ. Growth and Tax Reform v. IRS, 997 F. Supp. 15

(D.D.C. 1998) (finding that two-part test for “action” organization was satisfied because

organization conceded that the only way of achieving its policies was through legislative reform,

and because press reports and other evidence indicated that the organization “actively engaged in

advocacy and furthering a particular political agenda”), aff’d on other grounds, 161 F.3d 755 (D.C.

Cir. 1998); Rev. Rul. 62-71, 1962-1 C.B. 85 (research and publications of organization, considered

alone, may be educational, but sec. 501(c)(3) status was not available because the organization was

primarily involved not only in teaching but in advocating the adoption of a doctrine that could be

effective only by enactment of legislation); Roberts Dairy Co. v. Commissioner, 195 F.2d 948 (8th

Cir. 1952); 1997 IRS CPE Text, supra, at 276.

70 See, e.g., Rev. Rul. 64-195, 1964-2 C.B. 138 (organization conducted nonpartisan

analysis of a proposed constitutional amendment and disseminated materials to the public, but

did not advocate approval or disapproval of the amendment); Rev. Rul. 70-79, 1970-1 C.B. 127

(some of the policies formulated by the organization could be carried out only through

legislation, but the organization was entitled to sec. 501(c)(3) status due to the educational nature

of its activities and because it did not make any specific legislative recommendations. See also

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materials concerning broad social or policy issues in a manner that does not further an

educational or other exempt purpose, then such activity could jeopardize the organization’s taxexempt status under section 501(c)(3), not because the organization has engaged in substantial

lobbying, but rather because it has engaged in substantial activities that do not further an exempt

purpose.

Despite this general rule for discussions of broad social issues, Treasury Regulation

section 1.501(c)(3)-1(c)(3)(iv) provides for a separate, distinct test under which an organization

is treated as an “action organization”--and, thus, not entitled to section 501(c)(3) status--if it has

the following two characteristics: (1) its main or primary objective or objectives (as distinguished

from its incidental or secondary objectives) may be attained only by legislation or a defeat of

proposed legislation; and (2) it advocates, or campaigns for, the attainment of such main or

primary objective or objectives as distinguished from engaging in nonpartisan analysis, study, or

research and making the results thereof available to the public. In determining whether an

organization has such characteristics, all the surrounding facts and circumstances, including the

articles and all activities of the organization, are to be considered. In essence, the “action”

organization test of Treasury Regulation section 1.501(c)(3)-1(c)(3)(iv) allows substantial

lobbying to be found due to the nature of the organization and its aims.69

Exceptions for non-electing public charities.--Even when a communication refers to a

specific legislative proposal (or the organization’s primary objective may be attained only by

passage or defeat of legislation), the dissemination of nonpartisan analysis or research with

respect to a legislative proposal (or the organization’s primary objective), without advocating

legislative action, is not considered lobbying for purposes of section 501(c)(3).70 Likewise,
1997 IRS CPE Text, supra, at 274. As discussed below, a slightly different rule may apply to the

nonpartisan analysis exceptions under sections 4911 and 4945, where nonpartisan analysis of a

legislative proposal is permitted in order to advocate a particular position or viewpoint, without

being treated as lobbying, provided that the communication does not “directly encourage” the

recipient to take action within the meaning of Treas. Reg. sec. 56.4911-2(b)(2)(iii)(A)-(C). It

remains unclear how the nonpartisan analysis exception for non-electing public charities compares

to the nonpartisan analysis exception under sections 4911 and 4945. See Hopkins, Charity,

Advocacy, and the Law, supra, at 168 (explaining that it is inadvisable to borrow to heavily from

the sec. 4911 rules for nonpartisan analysis when judging activities of non-electing public

charities); Miriam Galston, Lobbying and the Public Interest: Rethinking the Internal Revenue

Code’s Treatment of Legislative Activities, 71 Tex. L. Rev. 1269, 1344-45 n.263 (1993) (noting

that the more generous nonpartisan analysis exception of secs. 4911 and 4945 may eventually be

applied to non-electing public charities).

71 See, e.g., Rev. Rul. 70-449, 1970-2 C.B. 112 (ruling that providing expert testimony to a

Congressional committee at the committee’s request is not lobbying).

72 Although there is no precedential ruling from the IRS with respect to self-defense

lobbying by a non-electing public charity seeking to protect the organization’s own existence or

powers under the law, the IRS recognized the self-defense exception in GCM 34289 (May 8, 1970)

prior to the enactment of section 501(h). See 1997 IRS CPE Text, supra, at 277 n.20; see also

Galston, supra, at 1284 n.40. For the counterpart “self-defense” exceptions for public charities

making the 501(h) election, see sec. 4911(d)(2)(C) and Treas. Reg. sec. 56-4911-2(c); for the

counterpart “self-defense” exception for private foundations, see sec. 4945(e) and Treas. Reg. sec.

53-4945-2(d).

73 See PLR 9507020 (Nov. 17, 1994); 1997 IRS CPE Text, supra, at 277-78.

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responding to a governmental request for testimony is not treated as a lobbying activity.71 In

addition, advocacy by a charity with respect to legislation that could affect the powers or

existence of the organization itself (so-called “self-defense lobbying”) generally is considered to

be exempt from the section 501(c)(3) lobbying restriction.72

Attribution.--Similar to questions that arise with respect to the political campaign

prohibition under section 501(c)(3) (discussed previously), when an individual affiliated with a

charity makes a lobbying communication, the question arises whether the lobbying should be

viewed as an activity of the individual acting in his or her private capacity or whether the activity

should be attributed to the charity. In general, resolution of this issue depends on whether the

lobbying activities are within the scope of the individual’s authority to act as an agent for the

organization (or, if not, whether the organization implicitly ratified the individual’s acts).73 The

lobbying activities of a section 501(c)(4) organization will not be attributed to an affiliated

charity, so long as the entities are separately incorporated, the records show legally distinct
74 See 1997 IRS CPE Text, supra, at 337.

75 See, e.g., Haswell v. United States, 500 F.2d 1133 (Ct Cl. 1974); (holding that an

organization’s lobbying activities were substantial when roughly 16-20 percent of its expenditures

were for lobbying and the organization’s lobbying activities were in other respects an important

part of its mission); Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849 (10th

Cir. 1972); (rejecting a percentage test in favor of weighing an organization’s lobbying activities in

light of the organization’s overall purposes and activities); a Seasongood v. Commissioner, 227

F.2d 907 (6th Cir. 1955) (deciding that lobbying that accounted for less than 5 percent of an

organization’s activities is not substantial). See also 1997 IRS CPE Text, supra, at 279-80;

Galston, supra, at 1279-80.

76 Public charities eligible to make the section 501(h) election include educational

institutions, hospitals, and organizations receiving a certain proportion of support from the general

public, but not churches and certain church-related entities. Secs. 501(h)(4)-(5). Churches were

made ineligible for the section 501(h) election at their own request. See General Explanation of

the Tax Reform Act of 1976, supra, at 415.

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entities, and there are fair-market-value reimbursements for any shared facilities or services.74

However, because the lobbying restriction is not absolute under section 501(c)(3), a charity may

provide some support to lobbying efforts undertaken by another entity, provided that the

provision of such support (along with any lobbying activities directly conducted by the charity)

does not violate the “substantial part” test (or, sec. 501(h) expenditure limits, if elected by the

charity).

Determination of substantiality.--In addition to the definitional question of whether a

communication constitutes “lobbying” for purposes of section 501(c)(3), there is a second issue

of whether the level of an organization’s lobbying activities is “substantial.” Except for public

charities that make the section 501(h) election (as discussed below), there is no bright-line,

mechanical rule for determining whether lobbying activities are substantial relative to the

organization’s other activities. Rather, the particular facts and circumstances surrounding all

activities of the organization (including volunteer time) must be examined. In particular, an

arithmetical percentage test (e.g., looking at the percentage of the budget, or employee’s time,

spent on lobbying) while relevant, has been held not determinative.75 When Congress enacted

section 501(h), it was specifically provided in section 501(h)(7) that the determination of whether

the lobbying of a non-electing charity is “substantial” is not affected by the numeric tests

provided for by sections 501(h) and 4911 (described below).

Lobbying rules for electing public charities

Section 501(h) election.--Certain public charities may elect under section 501(h) to have

the amount of permitted lobbying expenditures measured under the statutory, arithmetical tests

set forth in sections 501(h) and section 4911.76 The arithmetical tests provide an alternative to

the imprecise, facts-and-circumstances test of substantiality that otherwise applies to section
77 For this purpose, “exempt purpose expenditures” are defined as expenditures to

accomplish the organization’s exempt purposes, including properly allocable salary payments,

overhead, an allowance for depreciation on a straight-line basis, and all lobbying expenditures, but

not including fundraising costs and certain capital expenditures. Sec. 4911(e)(1); Treas. Reg. sec.

56.4911-4.

78 Sec. 4911(c)(2).

79 Sec. 4911(c)(4). In contrast to the arithmetical test for organizations making the section

501(h) election, the substantial part test for non-electing organizations does not focus solely on

expenditures made by the organization and it makes no distinction between direct and grass roots

lobbying. See 1997 IRS CPE Text, supra, at 301; Galston, supra, at 1280 (1993) (discussing

advantages and disadvantages of sec. 501(h) election for organizations that engage in more grass

roots lobbying than direct lobbying or that rely on volunteers for their lobbying).

80 See Treas. Reg. sec. 56.4911-7.

81 Sec. 4911(a).

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501(c)(3) organizations. For a public charity making the section 501(h) election, the allowable

amount of lobbying expenditures that can be made for any tax year is determined under a slidingscale formula. Specifically, the allowable amount of all lobbying (i.e., direct and grass roots

lobbying combined) is limited to the sum of (1) 20 percent of the first $500,000 of the

organization's exempt purpose expenditures77 for the year, (2) 15 percent of the next $500,000 of

such expenditures, (3) 10 percent of the third $500,000 of such expenditures, and (4) 5 percent of

any additional such expenditures. In no event, however, can the allowable amount of lobbying

for an organization making the section 501(h) election exceed $1 million for any year.78 Grass

roots lobbying is subject to a separate limitation, equal to 25 percent of the overall permissible

lobbying amount.79 In order to prevent organizations from avoiding the dollar limitations of

section 501(h) by dividing themselves into technically separate but related entities, section

4911(f) treats certain affiliated organizations under common control as one organization for

purpose of applying the section 501(h) arithmetical tests.80

If the lobbying expenditures (for either all lobbying or grass roots lobbying in particular)

of an organization making the section 501(h) election exceed the allowable amounts under

section 4911, then an excise tax penalty is imposed on the organization equal to 25 percent of the

excess lobbying expenditures.81 Imposition of this excise tax penalty under section 4911 may, in

some cases, effectively operate as an intermediate sanction short of revocation of the

organization’s tax-exempt status. However, if the electing organization’s lobbying expenditures

(for either all lobbying and grass roots lobbying in particular) normally are more than 150 percent

of the allowable amounts, then not only will the organization be subject to the excise tax
82 Secs. 501(h)(1) and 501(h)(2)(B). The determination of whether an organization's

lobbying expenditures normally exceed 150 percent of the allowable amounts generally is made by

comparing the sum of the organization's lobbying expenditures for the determination year and the

three preceding years to the sum of the allowable lobbying amounts for those years. Treas. Reg.

sec. 1.501(h)-3(b).

83 "Legislation" includes action by legislative bodies but does not include action by

"executive, judicial, or administrative bodies." Treas. Reg. sec. 56.4911-2(d)(3). The term

"administrative bodies" includes school boards, housing authorities, sewer and water districts,

zoning boards, and other similar Federal, State, or local special purpose bodies, whether elective or

appointive. Treas. Reg. sec. 56.4911-2(d)(4).

84 Lobbying with respect to a referendum or ballot initiative subject to a vote by the general

public (unless it comes within the nonpartisan analysis exception) is considered “direct lobbying,”

based on the rationale that, in this context, members of the general public are functioning as

legislators. See Treas. Reg. sec. 56.4911-2(b)(1)(iii).

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penalties under section 4911, but the organization will lose its tax-exempt status.82

Definition of lobbying under section 4911.--For purposes of the section 501(h)

arithmetical test, lobbying expenditures are defined as “expenditures for the purpose of

influencing legislation (as defined in section 4911(d)).” Section 4911(d)(1), in turn, defines the

term “influencing legislation” as --

(A) any attempt to influence any legislation83 through an attempt to affect

the opinions of the general public or any segment thereof [i.e., “grass

roots lobbying communications”], and

(B) any attempt to influence any legislation through communication with

any member or employee of a legislative body, or with any government

official or employee who may participate in the formulation of the

legislation [i.e., “direct lobbying communications”].84

However, section 4911(d) specifically excludes from the definition of "influencing

legislation" the following activities:

(A) making available the results of nonpartisan analysis, study, or

research;

(B) providing of technical advice or assistance (where such advice would

otherwise constitute the influencing of legislation) to a governmental

body or to a committee or other subdivision thereof in response to a

written request by such body or subdivision, as the case may be;
85 “Specific legislation” may be identified by its formal name, by a widely used term in

connection with the legislation, or even by its content or effect. See 1997 IRS CPE Text, supra, at

296-97.

86 Treas. Reg. sec. 56.4911-2(b)(1)(ii). The Treasury regulations do not specifically define

the term “reflects a view.” Instead, the regulations contain examples that are somewhat

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(C) appearances before, or communications to, any legislative body with

respect to a possible decision of such body which might affect the

existence of the organization, its powers and duties, tax-exempt status, or

the deduction of contributions to the organization [i.e., “self-defense

direct lobbying”]; 

(D) communications between the organization and its bona fide members

with respect to legislation or proposed legislation of direct interest to the

organization and such members, other than communications [which (1)

directly encourage members to contact a legislative body in an attempt to

influence legislation, or (2) directly encourage members to urge persons

other than members to attempt to affect the opinions of the general public

or to contact a legislative body in an attempt to influence legislation];

and

(E) any communication with a government official or employee, other

than --

(i) a communication with a member or employee of

a legislative body (where such communication

would otherwise constitute the influencing of

legislation), or

(ii) a communication the principal purpose of which

is to influence legislation.

With respect to communications with legislators and government officials, Treasury

regulations provide a two-part test for determining if such a communication by an organization

making the section 501(h) election constitutes a “direct lobbying communication.” Under this

two-part test, a communication with a legislator or employee of a legislative body, or with any

government official or employee who may participate in the formulation of legislation (provided

that the principal purpose of the communication is to influence legislation), will be treated as a

“direct lobbying communication” under section 4911 only if the communication both (1) refers

to “specific legislation” (meaning legislation that has already been introduced in a legislative

body or a specific legislative proposal that the organization either supports or opposes85), and (2)

reflects a view on such legislation.86
conclusory. One example refers to a “position letter” sent to Congress “to gain support” for

specific legislation and explains that this constitutes a “direct lobbying communication.” Another

example while another example refers to a paper discussing a State’s environmental problems but

which “does not reflect a view.” See Treas. Reg. sec. 56.4911-2(b)(4)(I) ex. (1), (3).

87 Treas. Reg. sec. 56.4911-2(b)(2)(ii).

88 Treas. Reg. Sec. 56.4911-2(b)(2)(iii). Merely naming the main sponsor(s) of the

legislation for purposes of identifying the legislation will not constitute a “call to action.” Id. A

communication that merely identifies one or more legislators who will vote on the legislation as

supporting the communication’s view (as opposed to identifying legislators as opposing the

communication’s view, or as being undecided with respect to the legislation, or as being the

recipient’s representative in the legislature) is not a “grass roots lobbying communication” as long

as the communication does not include one of the four specific types of “calls to action.” See Treas.

Reg. sec. 56.4911-2(b)(4)(ii)(A) ex.7; Hopkins, Charity, Advocacy, and the Law, supra, at 145.

89 See 1997 IRS CPE Text, supra, at 300-301 (an exhortation to the public to “oppose” a

particular legislative proposal is not, by itself, a “call to action” under sec. 4911).

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With respect to communications with the general public, Treasury regulations provide a

three-part test for determining whether such a communication by an organization making the

section 501(h) election constitutes a “grass roots lobbying communication.” Under this threepart test, a communication with the general public will be treated as a “grass roots lobbying

communication” under section 4911 only if the communication: (1) refers to specific legislation;

(2) reflects a view on such legislation; and (3) encourages the recipient to take action with respect

to the legislation (referred to as a “call to action” requirement) in at least one of four specifically

enumerated ways.87 The first two requirements for “grass roots lobbying communications”

generally are interpreted in the same manner as under the two-part test for “direct lobbying”

(with an exception described below for certain mass media advertising that is presumed to refer

to specific legislation). With respect to the third requirement--i.e., a “call to action”--this

requirement is satisfied only if the communication (1) states that the recipient should contact a

legislator or an employee of a legislative body, or should contact any other government official or

employee (provided that the principal purpose of urging contact with such official or employee is

to influence legislation), (2) states the address, telephone number, or similar information of a

legislator or employee of a legislative body, (3) provides for a petition, tear-off postcard, or

similar material for the recipient to communicate with any legislative or government official, or

(4) specifically identifies one or more legislators who will vote on the legislation as: opposing the

organization’s view with respect to the legislation; being undecided with respect to the

legislation; being the recipient’s representative in the legislature; or being a member of the

legislative committee or subcommittee that will consider the legislation.88 To be considered a

“call to action,” a communication must satisfy at least one of these four specific tests enumerated

in the Treasury regulations.89 Thus, except in the case of certain mass media advertisements (as

described in the following paragraph), no matter how clearly an organization identifies a specific

legislative proposal or comments on the merits of that legislation when it communicates with the
90 Id at 298-299.

91 Treas. Reg. sec. 56.4911-2(b)(5)(iii)(C) provides that “highly publicized” means

frequent coverage on television and radio, and in general circulation newspapers, during the two

weeks preceding the vote by the legislative body or committee. However, the regulation goes on to

state that, even where legislation receives frequent coverage, it is “highly publicized” only if “the

pendency of the legislation or the legislation’s general terms, purpose, or effect are known to a

significant segment of the general public (as opposed to the particular interest groups directly

affected) in the area in which the paid mass media advertisement appears.” Id.

92 Where an electing organization is itself a mass media publisher or broadcaster, all

portions of that organization’s mass media publications or broadcasts are treated as paid

advertisements in the mass media, except those specific portions that are advertisements paid for by

another person. Treas. Reg. sec. 56.4911-2(b)(5)(iii)(B).

93 See 1997 IRS CPE Text, supra, at 308-09 (noting that presumption does not apply if an

advertisement appears even one day more than two weeks before a vote; nor does the presumption

apply if public pressure from an advertising campaign results in a scheduled vote being canceled).

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general public, the absence of a “call to action” means that the communication is not a “grass

roots lobbying communication” for purposes of section 4911.90

Mass media advertisements.--Under a special rule contained in the section 4911

regulations, certain mass media advertisements that otherwise do not satisfy the three-part test for

a “grass roots lobbying communication” may nevertheless be treated as “grass roots lobbying

communications.” Under this special rule, if, within two weeks before a vote by a legislative

body or committee (but not subcommittee) on “highly publicized”91 legislation, a paid

advertisement appears in the mass media (i.e., television, radio, billboards and certain general

circulation newspapers and magazines92), then such an advertisement will be presumed to be a

“grass roots lobbying communication” if it (1) reflects a view on the general subject of such

legislation, and (2) either refers to the highly publicized legislation or encourages the public to

communicate with legislators on the general subject of such legislation. Treas. Reg. sec.

56.4911-2(b)(5).93 This presumption may be rebutted if the organization demonstrates that the

advertisement is a type of mass media communication regularly made by the organization

(without regard to the timing of the legislation) or that the timing of the advertisement was

unrelated to the upcoming legislative action. If a mass media advertisement falls outside the

special rule of Treasury regulation sec. 56.4911-2(b)(5), or if the special rule applies but the

presumption is rebutted, then the general three-part test applies for determining whether the

advertisement constitutes a “grass roots lobbying communication.”

Discussions of broad social issues.--Consistent with the definitions of “direct lobbying

communications” and “grass roots lobbying communications” under section 4911, Treasury

regulations provide that "[e]xaminations and discussions of broad social, economic, and similar

problems are neither direct lobbying communications under section 56.4911-2(b)(1) nor grass
94 The counterpart regulation for private foundations is Treas. Reg. sec. 53.4945-2(d)(4).

95 For example, Treas. Reg. sec. 56.4911-2(b)(4)(ii)(a) ex.4, points out that an organization

could encourage members of the public to send their legislators a coupon to “support a drug free

America” without referring to any specific legislation, and this would not be treated as a “grass

roots lobbying communication” under the general three-part test. However, if such a

communication appeared in a paid mass media advertisement within two weeks of a vote on highly

publicized legislation concerning drug abuse, then such a communication potentially could be

presumed to be a “grass roots lobbying communication” under Treas. Reg. sec. 56.4911-2(b)(5).

96 See 1997 IRS CPE Text, supra, at 306 n.37 (noting that the exception in the sec. 4911

regulations for discussion of broad social problems was included to provide parity with a preexisting exception under sec. 4945, but, as a substantive matter, the exception is “superfluous”

given the definitions of lobbying communications in the sec. 4911 regulations). See also James J.

Mcgovern et al., The Revised Lobbying Regulations--A Difficult Balance, 41 Tax Notes 1245

(1988) (“[T]he revised definition of grass roots lobbing will reduce or eliminate the need for

organizations to depend upon the exception for discussion of broad social, economic, and similar

problems.”)

97 As discussed previously, whether or not the discussion is conducted in a manner that

furthers an educational or other exempt purpose (or violates the private benefit test) is a separate

question. 

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roots lobbying communications under section 56.4911-2(b)(2) even if the problems are of the

type with which government would be expected to deal ultimately.” Treas. Reg. sec. 56.4911-

2(c)(2).94 Consequently, lobbying communications do not include public discussion, or

communications with members of legislative bodies or governmental employees, the general

subject of which is also the subject of legislation before a legislative body, so long as such

discussion does not address itself to the merits of a specific legislative proposal and so long as

such discussion does not directly encourage recipients to take action with respect to legislation. 

Id.

95 This treatment of discussions of broad social and policy issues is implicit in the two-part

definition of “direct lobbying” and the general three-part definition of “grass roots lobbying,”

because both definitions require that the communication in question “reflects a view” on a

specific legislative proposal (and the general definition of “grass roots lobbying communication”

under section 4911 further requires that there be a specific “call to action”).96 Moreover, if a

mass media advertisement appearing within two weeks of a vote reflects a view on a general

social or policy issue that also is the subject of highly publicized legislation, then the

advertisement could be presumed to be a grass roots lobbying communication only if the

advertisement also refers to specific legislation or encourages the public to communicate with

legislators on the general social or policy issue. Thus, if there is neither a reference to specific

legislation nor a mass media “call to action” regarding the general social or policy issue that is

also the subject of legislation that is voted on within two weeks, then the public discussion of

broad social or policy issues is not a lobbying communication under section 4911.97
98 Sec. 4911(d)(2)(A).

99 Treas. Reg. sec. 1.501(c)(3)-1(d)(3) provides that “an organization may be educational

even though it advocates a particular position or viewpoint so long as it presents a sufficiently full

and fair exposition of the pertinent facts as to permit an individual or the public to form an

independent opinion or conclusion.” In Rev. Proc. 86-43, 1986-2 C.B. 729 (which was issued to

address the vagueness concerns identified in the Big Mama Rag decision, discussed above), the

IRS indicated that its focus in applying Treas. Reg. sec. 1.501(c)(3)-1(d)(3) is not on the viewpoint

or position advocated, but rather on the method used by the organization to communicate its

viewpoint. Rev. Proc. 86-43 indicates that the method used by the organization “will not be

considered educational if it fails to provide a factual foundation for the viewpoint or position being

advocated, or if it fails to provide a development from the relevant facts that would materially aid a

listener or reader in a learning process.” Further, Rev. Proc. 86-43 indicates that the presence of

any of the following factors in the presentations made by an organization is indicative that the

method used by the organization to advocate its views is not educational: (1) the presentation of

viewpoints unsupported by facts is a significant portion of the organization’s communications; (2)

the facts that purport to support the viewpoints or positions are distorted; (3) the organization’s

presentations make substantial use of inflammatory and disparaging terms and express conclusions

more on the basis of strong emotional feelings than of objective evaluations; and (4) the approach

used in the organization’s presentations is not aimed at developing an understanding on the part of

the intended audience or readership because it does not consider their background or training in the

subject matter. However, Rev. Proc. 86-43 goes on to provide that, even if one or more of the

above four factors are present, the IRS will look to all facts and circumstances to determine

whether an organization nonetheless may be considered “educational.” An examination of the

factors listed in Rev. Proc. 86-43 is commonly referred to as the “methodology test.” See

Nationalist Movement v. Commissioner, 102 T.C. 558 (1994) (upholding the constitutionality of

the methodology test), aff’d 37 F.3d 216 (5th Cir. 1994). 

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Statutory exceptions under section 4911.--Even if a communication by an organization

meets the definition of a “direct lobbying” or “grass roots lobbying” communication under the

general rules described above, the communication nonetheless may be exempt if one of the five

statutory exceptions of section 4911(d)(2) apply. The first of these statutory exceptions is

“making available the results of nonpartisan analysis, study, or research.”98 With respect to this

exception, Treasury Regulation section 56.4911-2(c)(1)(ii) provides that the term "nonpartisan

analysis, study, or research" means “an independent and objective exposition of a particular

subject matter, including any activity that is ‘educational’ within the meaning of [Treasury

Regulation] section 1.501(c)(3)-1(d)(3).”99 Treasury Regulation section 56.4911-2(c)(1)(ii) goes

on to provide: “Thus, ‘nonpartisan analysis, study, or research’ may advocate a particular

position or viewpoint so long as there is a sufficiently full and fair exposition of the pertinent

facts to enable the public or an individual to form an independent opinion or conclusion. The

mere presentation of unsupported opinion, however, does not qualify as ‘nonpartisan analysis,
100 As discussed in more detail below, it is not clear whether the IRS intends to use the

arguably stricter “full and fair exposition” test with respect to advocacy involving legislation, or

whether satisfying the “methodology” test of Rev. Proc. 86-43 (which can be viewed as a subset of

the “full and fair exposition” test) would suffice, even if both sides of the debate on a legislative

issue are not presented. It is also questionable whether use of the “full and fair exposition” test

(without the overlay provided by the “methodology” test) for judging advocacy with respect to

legislation would be constitutionally permissible in view of the Big Mama Rag decision. But see

Nat’l Endowment for the Arts v. Finley, 524 U.S. 569 (1998). Compare Nationalist Movement v.

Commissioner, 102 T.C. at 587 n.17 (noting that it is doubtful that the IRS could require the

presentation of opposing views) with Fund for the Study of Econ. Growth & Tax Reform v. I.R.S.

997 F. Supp. 15 (D.D.C. 1998) (finding that the organization did not conduct nonpartisan analysis,

but the court did not refer to either the “full and fair exposition” test or the “methodology” test),

161 F.3d 755 (1998).

101 Treas. Reg. secs. 56.4911-2(b)(2)(iii) and 56.4911-2(c)(1)(vi).

102 See 1997 IRS CPE Text, supra, at 302-03.

103 Under this exception, the request for assistance or advice must be made in the name of

the requesting governmental body, committee, or subdivision rather than an individual member

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study, or research.’”100

Treasury Regulations provide that nonpartisan analysis that reflects a view on specific

legislation is not within the section 4911(d)(2)(A) exception if the communication “directly

encourages” the recipient to take action--meaning that the communication expressly states that

the recipient should contact a legislative or government official or employee, includes the

address, telephone number or similar information of a such official or employee, or includes a

petition tear-off postcard, or similar material for the recipient to send to such an official or

employee. However, nonpartisan analysis within the section 4911(d)(2)(A) exception is allowed

to include a limited (or implicit) “call to action” that specifically identifies one or more

legislators who will vote on the legislation as (1) opposing the organization’s views with respect

to the legislation, (2) being undecided with respect to the legislation, (3) being the recipient’s

representative in the legislature, or (4) being a member of the legislative committee or

subcommittee that will consider the legislation.101

Under section 4911(d)(2)(A), an organization may choose any suitable means, including

oral or written presentations or disseminations to the news media, to distribute its nonpartisan

analysis or research. However, communications may not be limited to, or be directed toward,

persons who are interested solely in one side of a particular issue (Treas. Reg. sec. 56.4911-

2(c)(1)).102

The four additional statutory exceptions provided for by section 4911(d)(2) include (1)

providing technical advice or assistance upon written request from a governmental body,103 (2)
thereof; and the response to such request must be made available to every member of the

requesting body, committee, or subdivision. Treasury regulations further provide that because such

assistance or advice may be given only at the express request of a governmental body, the oral or

written presentation of such assistance or advice need not qualify as nonpartisan analysis, study or

research. The offering of opinions or recommendations will ordinarily qualify under this exception

only if such opinions or recommendations are specifically requested by the governmental body or

are directly related to the materials so requested. See Treas. Reg. secs. 56.4911-2(c)(3) and

53.4945-2(d)(2).

104 See Treas. Reg. secs. 56.4911-2(c)(4) and 53.4945-2(d)(3); 1997 IRS CPE Text, supra,

at 307-08.

105 Treas. Reg. sec. 56.4911-5. For purposes of this exception, the term “directly

encourage” has the same meaning as for the nonpartisan analysis exception. See Treas. Reg. sec.

56.4911-5(f)(6)); 1997 IRS CPE Text, supra, at 314-17. A communication between an

organization and a member of the organization which directly encourages the member to engage in

direct lobbying of a member of employee of a legislative body is considered a direct lobbying

communication (unless the self-defense exception applies). See sec. 4911(d)(3)(A); Treas. Reg.

sec. 56.4911-5(f)(6)(B).

106 When a communication is with government official or employee who is not a member

of (or employed by) a legislative body, then the costs of the communications are taken into account

under section 4911 only if the principal purpose of the communication is to influence legislation. 

See General Explanation of Tax Reform Act of 1976, supra, at 410.

107 Treas. Reg. sec. 56.4911-3(a)(1).

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so-called self-defense direct lobbying--that is, communications with a legislative body with

respect to a possible decision by the body which might affect the existence of the organization,

its powers and duties, or its tax-exempt status, or the deduction of contributions to the

organization,104 (3) communications between an organization and its bona fide members,

provided that the communication does not directly encourage the members to contact legislators

or to urge nonmembers to influence legislation,105 and (4) communications with government

officials or employees, provided that the communication is not a direct lobbying communication

with a member or employee of a legislative body and, in the case of other government officials,

does not have the principal purpose of influencing legislation.106

Cost allocations.--In addition to defining direct and grass roots lobbying communications

and the five statutory exceptions, Treasury regulations issued under section 4911 provide detailed

guidance for allocating particular expenditures to lobbying communications. In general, public

charities making the section 501(h) election are required to treat as lobbying expenditures all

direct costs of producing the communication, as well as an allocable share of overhead costs.107

In addition, rules are provided for so-called “mixed purpose” expenditures and for allocating

costs when non-lobbying materials (e.g., nonpartisan analysis) subsequently are used by an
108 Treas Reg. secs. 56.4911-2(b)(2)(v) and 56.4911-3(a)(2); 1997 IRS CPE Text, supra, at

304-06. See also Hopkins, Charity, Advocacy, and the Law, supra, at 155-57.

109 Id. at 49. Although the section 4945 excise tax conceptually could be viewed by private

foundations as a “cost of doing business” in situations where the foundation wants to engage in

insubstantial lobbying (without meeting one of the statutory exceptions), private foundations

generally have not adopted this view. See Galston, supra, at 1278 n.21. In theory, a willful and

flagrant lobbying expenditure that leads to imposition of a penalty excise tax under section 4945

also could lead to termination of a private foundation’s tax-exempt status due to the operation of

section 507(a)(2), even though the lobbying activity might not be “substantial” under section

501(c)(3).

110 Sec. 4945(e). In contrast to section 4911(d)(2), there is no explicit exception under

section 4945(e) for membership communications, because private foundations generally do not

have members.

111 Sec. 501(h)(1).

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organization as part of a grass roots lobbying campaign.108

Penalties applicable to private foundations.--For purposes of determining whether a

private foundation should have its exemption revoked, the substantial part test under section

501(c)(3) continues to apply. As a separate issue, private foundations and their managers are

potentially subject to excise taxes under section 4945 (as described above), if any expenditures

are made for either direct or grass roots lobbying. Lobbying activities may be subject to tax

under section 4945 even in cases where such activities are not substantial relative to the private

foundation’s other activities.109 For purposes of section 4945, lobbying is defined in a manner

similar to the definition under section 4911(d). Specifically, as under section 4911(d)(2), the

section 4945 penalty excise taxes do not apply to (1) making available the results of nonpartisan

analysis, study, or research, (2) providing technical advice to a governmental body in response to

a written request, or (3) direct lobbying of a legislative body with respect to a possible decision

of such body which might affect the existence of the private foundation, its powers and duties, its

tax-exempt status, or the deduction of contributions to such foundation.110

Penalties applicable to public charities.--For public charities making the section 501(h)

election, there is an intermediate sanction of an excise tax penalty that may be imposed in cases

in which an organization exceeds the so-called “lobbying nontaxable amount” (or “grass roots

nontaxable amount”) but the organization does not normally exceed the numeric limits by more

than 150 percent.111 In cases in which the electing public charity does not normally exceed the

lobbying nontaxable amount by more than 150 percent, an excess tax penalty may be imposed

under section 4911, but the charity’s tax-exempt status may not be revoked due to the lobbying

activity. In contrast, for non-electing public charities, there is no excise tax penalty that can be

imposed as an intermediate sanction (i.e., in lieu of revocation of the organization’s tax exempt

status) due to the charity’s lobbying activities. In 1987, Congress enacted section 4912, which
112 See H.R. Conf. Rep. No. 100-495, at 1023 (1987).

113 See Announcement 88-114, 1988-37 I.R.B. 26 (Sept. 12, 1988) (proposing that attempts

to influence confirmation of a federal judicial nominee, or other nominee to a nonelective public

office, constitute an “exempt function” under sec. 527(e)(2), and soliciting comments from the

public on this issue). But see 1993 IRS CPE Text, supra, at 448 n.8 (noting that no final

determination has been made of this issue).

114 See General Explanation of the Tax Reform Act of 1976, supra, at 414.

115 Sec. 504(a)(2)(A).

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provides for the imposition of penalty excise taxes due to improper lobbying expenditures made

by a non-electing public charity (other than a church). However, the section 4912 excise taxes

may be imposed only if the charity ceases to qualify for tax-exempt status under section

501(c)(3) due to its substantial lobbying activities.112 Section 4912 imposes on such a

disqualified organization an excise tax equal to five percent of the amount of lobbying

expenditures incurred during the year in which the organization has ceased to qualify under

section 501(c)(3) due to making lobbying expenditures. Organization managers who, without

reasonable cause, agree to make lobbying expenditures knowing that they are likely to result in

revocation of the organization's tax-exempt status under section 501(c)(3) also are subject to an

excise tax equal to five percent of such lobbying expenditures.

A section 501(c)(3) organization also may be subject to an excise tax under section 527(f)

(discussed in greater detail below) if the organization engages in activity which is "exempt

function" activity under section 527 -- broadly meaning attempts to influence the selection of any

individual to public office -- even though such activity is not prohibited political campaign

intervention under section 501(c)(3) (e.g., attempts by section 501(c)(3) organizations to

influence appointments to nonelected public office, such as Supreme Court appointments).113

There is no rule preventing an organization that loses its tax-exempt status under section

501(c)(3) because it engages in substantial lobbying (or normally exceeds the section 501(h)

ceiling) from applying for restoration of its section 501(c)(3) status in a subsequent taxable year,

at which time the organization will again be subject to the lobbying limitation.114 However, a

charitable organization (other than a church) that loses its tax-exempt status under section

501(c)(3) because of excessive lobbying activities may not attempt to thereafter escape the

lobbying limitation by being treated as a tax-exempt social welfare organization under section

501(c)(4).115

Other organizations

Section 501(c) organizations (other than charities described in section 501(c)(3)) are not

subject to any specific provision that restricts their lobbying activities. In general, the only limit

imposed by the Internal Revenue Code is that the lobbying activities must be germane to the
116 See Rev. Rul. 71-530, 1971-2 C.B. 237; Rev. Rul. 61-177, 1961-2 C.B. 117; 1997 IRS

CPE Text, supra, at 261. As discussed above, tax-exempt trade associations and certain other

tax-exempt organizations (but not charities described in section 501(c)(3)) generally are required

to provide annual information disclosure to members estimating the portion of their dues

allocable to lobbying activities, and to political campaign activities, as defined under section

162(e)(1). Sec. 6033(e). Some organizations, such as section 501(c)(19) veterans groups, can

engage in virtually unlimited lobbying. See Regan v. Taxation With Representation of Washington,

461 U.S. 540 (1983)). Section 501(c)(12) cooperatives and section 501(c)(14) credit unions may

lobby as an incidental part of providing their services. Section 501(c)(7) social clubs also may

lobby if it furthers their recreational or other nonprofitable purposes. Arguably, substantial

lobbying--other than self-defense lobbying--by some tax-exempt organizations could violate the

terms of their exemption that they be organized and operated “exclusively” for certain narrow

purposes enumerated by statute. See Galston, supra, at 1276-77 n.18.

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accomplishment of the organization’s exempt purposes. For some organizations, such as social

welfare organizations or business leagues, lobbying may be the organization’s primary, or even

sole, activity.116 It is not uncommon for organizations such as social welfare organizations, labor

organizations, and business leagues to conduct substantial lobbying as their primary activity. 

However, as discussed below, some lobbying activities (i.e., attempts to influence the selection

of an individuals to a non-elective public office) potentially could lead to the imposition of tax

under section 527(f).
117 Sec. 527(e)(1). A political organization for purposes of section 527 need not be

formally organized as a separate legal entity. A separate bank account in which political campaign

funds are deposited and disbursed for political campaign expenses can qualify as a political

organization. See Rev. Rul. 79-11, 1979-1 C.B. 207. A separate statutory rule provides section

527 status to certain newsletter funds. Sec. 527(g).

118 Sec. 527(e)(2). The term “exempt function” also includes the making of expenditures

relating to a Federal, State, or local public office or office in a political organization which, if

incurred by the individual occupying that office, would be allowable as a trade or business expense

deduction under section 162(a). Sec. 527(e)(2).

119 Sec. 527(e). A political organization means a party, committee, association, fund, or

other organization (whether or not incorporated) organized and operated primarily for the purpose

of directly or indirectly accepting contributions or making expenditures to influence or attempt to

influence the selection, nomination, election, or appointment or any individual to any Federal,

State, or local public office or office in a political organization, of the election or Presidential or

Vice-Presidential electors.

120 See Treas. Reg. secs. 1.527-2(d) and 53.4946-1(g)(2).

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B. Section 527 Political Organizations

In general

Section 527 provides a limited tax-exempt status to "political organizations," meaning a

party, committee, association, fund, or other organization (whether or not incorporated)

organized and operated primarily for the purpose of directly or indirectly accepting contributions

or making expenditures (or both) for an "exempt function".117 These organizations are generally

exempt from Federal income tax on contributions they receive, but are subject to tax on their

investment income and certain other income. Donors generally are exempt from gift tax on their

contributions to such organizations. For purposes of section 527, the term "exempt function"

means: "the function of influencing or attempting to influence the selection, nomination, election

or appointment of any individual to any Federal, State, or local public office or office in political

organization, or the election of Presidential or Vice-Presidential electors, whether or not such

individual or electors are selected, nominated, elected, or appointed".118 Thus, by definition, the

purpose of a section 527 organization is to accept contributions or make expenditures for

political campaign (and similar) activities.119

The facts and circumstances of each case determine whether a particular Federal, State, or

local office is a “public office” for purposes of section 527, although the focus usually is upon

whether a significant part of the activities of the office consist of the independent performance of

policy-making functions.120 “Exempt function" activities for purposes of section 527 include not

only attempts to influence voting with respect to elective public or political offices but also may

include attempts to influence selections or appointments of individuals to non-elective public or
121 See Notice 88-76, 1988-2 C.B. 392, and Announcement 88-114, 1988-37 I.R.B. 26

(Sept. 12, 1988). Treas. Reg. 1.527-6(b)(4) suggests that attempts to influence appointments to

nonelected public offices generally are “exempt function” activities under section 527, by

providing a specific exemption for an appearance by section 501(c) organization before a

legislative body in response to a written request for the purpose of influencing the appointment or

confirmation of an individual to a public office. But see 1995 ABA Comments, supra, at 31

(arguing that “exempt function” under sec. 527(e)(2) should be interpreted as not applying to

activities to influence selections to non-elected public offices). In this regard, it should be noted

that the Senate passed an amendment to the Technical and Miscellaneous Revenue Act of 1988,

which would have statutorily provided that attempts to influence the selection of an individual to a

non-elected public office are not "exempt function" activities for purposes of section 527(f). In

conference, this provision was dropped from the 1988 Act.

122 See secs. 527(c)(1)(A) and 527(c)(3); Treas. Reg. sec. 1.527-3 (providing examples of

exempt function income).

123 Expenses incurred in conducting an “exempt function” activity under section 527 may

be either directly or indirectly related to such activity, including expenses related to activities

engaged in between elections to support the next political campaign and fundraising activities. See

Treas. Reg. sec. 1.527-2(c). As one example, Treasury regulations provide that expenses for voice

and speech lessons to improve a candidate’s skills are for an “exempt function” (Treas. Reg. sec.

1.527-2(c)(5)(iii)). See also Rev. Rul. 79-13, 1979-1 C.B. 208 (expenses for voter research and

public opinion polls are “exempt function” expenses under sec. 527, provided that there is a nexus

with an election). An “exempt function” also generally includes an activity which is in furtherance

of the process of terminating a political organization’s existence. See Treas. Reg. sec. 1.527-

2(c)(3).

124 See Treas. Reg. sec. 1.527-3(d); Rev. Rul. 80-103, 1980-1 C.B. 120 (income of political

organization from sale of art reproductions was not exempt function income for purposes of sec.

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political offices. If so, the scope of “exempt function” activities under section 527 would be

broader than the "political campaign” activities that are impermissible for section 501(c)(3)

organizations.121

Limited tax exemption under section 527

Section 527 exempts from taxation certain "exempt function income" (i.e., contributions,

dues, proceeds from political fundraisers or the sale of campaign materials, and proceeds from

bingo games) but only to the extent such income is segregated for use only for an "exempt

function" of a political organization.122 Thus, no entity-level income tax is imposed on

contributions (and certain other “exempt function” income) received by a political organization

which are used for electioneering or other “exempt function” activities (as defined in section

527).123 However, a political organization’s investment income and any other non-exempt

function income (e.g., income from events that are not political in nature),124 minus expenses
527). See also 1993 IRS CPE Text, supra, at 458-59.

125 See Treas. Reg. sec. 1.527-4(c). In computing taxable income, a political organization

is allowed a specific deduction of $100 under section 527(c)(2)(A).

126 See Treas. Reg. sec. 1.527-5(a)(1). If a political organization contributes any amount to

any other political organization, to or for the use of certain public charities, or to the general fund

of the Federal, State, or local government, then such amount will not be treated as expended for the

personal use of the candidate or any other person. Treas. Reg. sec. 1.527-5(b).

127 Treas. Reg. sec. 1.527-5(c)(1).

128 Sec. 2501(a)(5). A special rule provides, however, that the contributor’s gross income

for income tax purposes will include the built-in gain in any appreciated property contributed to

political organizations. Sec. 84.

129 Sec. 2522(a)(2). See Rev. Rul. 82-216 C.B. 1982-1 C.B. 220 (“The Service continues

to maintain that gratuitous transfers to persons other than organizations described in section 527(e)

of the Code are subject to the gift tax absent any specific statute to the contrary, even though the

transfers may be motivated by a desire to advance the donor’s own social, political, or charitable

goals.”) However, with respect to political contributions made prior to the enactment of sections

527 and 2501(a)(5) in 1974, two courts held that such contributions were not within the purview of

the Federal gift tax regime. See Carson v. United States, 641 F.2d 864 (10th Cir. 1981); Stern v.

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directly connected with the production of such income,125 is subject to tax at the highest corporate

income tax rate (currently 35 percent).

Amounts expended by a political organization described in section 527 for an exempt

function are not income to the individual (i.e., the candidate) on whose behalf such expenditures

are made. However, if a political organization expends any other amount for the personal use of

any individual (e.g., if a political organization pays a personal legal obligation of the candidate),

the individual on whose behalf the amount is expended must include such amount in his or her

gross income.126 Excess funds controlled by a political organization after a campaign are

includible in the gross income of the person having control over the ultimate use of such funds,

unless the funds are transferred to another political organization (or to certain public charities or

governmental general funds) within a reasonable period of time or are held in reasonable

anticipation of being used for a future campaign.127

Gift tax implications

 Contributions to political organizations described in section 527 are specifically

exempted from the Federal gift tax.128 Contributions to charities are likewise exempt from the

Federal gift tax, but there is no similar statutory exemption from the Federal gift tax for

contributions to social welfare organizations described in section 501(c)(4).129
United States, 436 F.2d 1327 (5th Cir. 1971). The rationale reflected in the Carson and Stern

decisions--i.e., that the recipient organization or candidate may be viewed for gift tax purposes as a

means to the end of the contributor--arguably could be applied to contributions made to fund

advocacy activities (“express advocacy” or “issue advocacy”) of section 501(c)(4) organizations. 

130 See 1993 IRS CPE Text, supra, at 448-49; TAM 9320002 (Jan. 14, 1993). See

generally Milton Cerny and Frances R. Hill, Political Organizations, 13 Exempt. Org. Tax Review

591, 596-97 (1996) (explaining that the determination of whether a particular expenditure

constitutes an “exempt function” expenditure depends on whether there is a nexus with an election,

nomination, or selection process, based on an examination of the facts and circumstances of each

case, and does not depend on any intrinsic qualities of the event at which expenditures are

incurred).

131 See TAM 9130008 (April 16, 1991) (ruling that distributing campaign material

promoting a statewide referendum, which displayed a candidate’s name and picture and identified

him as a leader on the issue, but did not specifically mention his candidacy since he was not an

announced candidate at the time, was “exempt function” activity under sec. 527).

132 Although some uncertainty remains, courts generally have held that only

communications that contain express words advocating the election or defeat of a political

candidate--so-called “express advocacy”--are subject to the requirements of the Federal Election

Campaign Act (FECA), which includes restrictions on contributors who are eligible to fund such

communications (i.e., corporations, unions, and foreign persons are prohibited from making

contributions), dollar contribution limits for individual contributors, and public disclosure

requirements for funds raised and spent for such communications. See Federal Election

Commission v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 (1986); Maine Right to Life

Committee v. Federal Election Commission, 98 F.3d 1 (1st Cir. 1996); Federal Election

Commission v. Christian Action Network, 110 F.3d 1049 (4th Cir. 1997). But see Federal Election

Commission v. Furgatch, 807 F.2d 857 (9th Cir. 1987); FEC regulation 11 C.F.R. sec. 100.22

(1995) (providing that “express advocacy” includes communications which, when taken as a

whole, reasonable persons could not differ as to whether it encourages actions to elect or defeat a

clearly identified candidate). Communications that fall outside of the FECA definition of “express

advocacy” are commonly referred to as “issue advocacy.” See generally CRS, Campaign Finance

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Disparity between definition of “exempt function” activities under section 527 and Federal

election law “express advocacy” standard

In determining whether a particular activity is an “exempt function” activity under section

527, the IRS examines all relevant facts and circumstances to determine the relationship (that is,

whether there is a nexus) between the activity and the statutory definition of “influencing or

attempting to influence” the election of an individual to a public or political office.130 Generally,

expenditures incurred for any activity that supports an individual’s campaign are treated as an

“exempt function” expenditure under section 527,131 regardless of whether the particular activity

involves “express advocacy” as that term is defined for Federal election law purposes.132 For
Reform: A Legal Analysis of Issue and Express Advocacy (98-282A, updated May 15, 1998); CRS,

Soft and Hard Money in Contemporary Elections: What Federal Law Does and Does Not Regulate

(97-91 GOV, Jan. 10, 1997). Nevertheless, communications that constitute unregulated “issue

advocacy” for FECA purposes may constitute “exempt function” activities for purposes of section

527. In addition, whereas FECA applies only to Federal elections, section 527 applies to attempts

to influence elections of individuals to Federal, State, or local public offices.

133 See Treas. Reg. sec. 1.527-2(c)(5)(viii) ex.8; 1993 IRS CPE Text, supra, at 449-51.

134 See PLR 9808037 (Nov. 21, 1997); PLR 9725036 (March 24, 1997); PLR 9652026

(Oct. 1, 1976).

135 In PLR 9808037 (Nov. 21, 1997), the IRS stated: “It follows that any activities

constituting prohibited political intervention by a section 501(c)(3) organization are activities that

must be less than the primary activities of a section 501(c)(4) organization, which are, in turn,

activities that are exempt functions for a section 527 organization.” See also PLR 1999-25051

(March 29, 1999).

136 See sec. 2501(a)(5).

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purposes of section 527, “exempt function” expenditures need not be related to a particular

candidate or office holder’s campaign, but can relate to attempts to influence voting on multiple

(announced or unannounced) candidates.133

In a series of recent private letter rulings (“PLRs”), the IRS has recognized the “political

organization” status under section 527 of organizations that are specifically prohibited (either by

their charter or by a resolution adopted by their board of directors) from expressly advocating the

election or defeat of any particular candidate.134 In these private letter rulings, the organizations

represented that their primary activity would be conducting voter education efforts and grass

roots lobbying (commonly referred to as “issue advocacy”), the content, timing, and geographic

targeting of which was intended to influence recipients to favor the organization’s view when

voting for candidates. The IRS ruled that, because such biased voter education activities

constituted political campaign intervention under long-standing interpretations of section

501(c)(3), such activities were, in turn, “exempt function” activities under section 527.135 The

organizations themselves sought section 527 status, apparently to clarify that their donors would

be immune from Federal gift tax liability, while simultaneously preserving the organization’s

ability to assert (for non-tax purposes) that their implied approval or disapproval of candidates

was beyond the reach of the Federal election laws.136

Other tax-exempt organizations

Section 527(f) provides that if any tax-exempt organization described in section 501(c)

makes expenditures for an “exempt function” activity (within the meaning of sec. 527(e)(2)),

then the organization’s net investment income, up to the amount of the “exempt function”
137 Sec. 527(f)(3).

138 Any investment income of a section 501(c) organization that already is subject to

unrelated business income tax is disregarded so that it is not subject to double taxation. Sec.

527(f)(2).

139 However, section 527(f) does not, in all situations, prevent other tax-free monies from

being used to subsidize "exempt function" activities within the meaning of section 527. For

instance, a section 501(c)(3) charity which has no (or insignificant) investment income could use

tax-deductible charitable contributions (assuming that the contributions were not earmarked for

lobbying) to finance attempts to influence a judicial nomination, which may be an “exempt

function” activity under section 527. As another example, a nonprofit organization that is exempt 

from the section 6033(e) flow-through information disclosure and proxy-tax requirements (because

substantially all dues paid to the organization are not deductible to the payor) may receive dues

from a small fraction of its members who, in fact, deduct such dues as a trade or business expense. 

If such an organization makes “exempt function” expenditures within the meaning of section 527

in excess of its net investment income, than some of the excess “exempt function” expenditures

could be partially funded with tax-free monies (i.e., a minority of the dues-paying members

deducted their dues payments and the organization did not pay an entity-level tax on such amounts,

which were used to fund electioneering).

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expenditures, will be subject to tax (at the highest corporate income tax rate). For purposes of

section 527(f), a separate segregated fund (meeting certain criteria) maintained by a section

501(c) organization is treated as a separate organization.137

The provisions of subsection 527(f) operate to ensure that tax-free investment income of

a tax-exempt organization described in section 501(c) is not used to pay for "exempt function"

activities within the meaning of section 527. In this way, section 527 political organizations and

section 501(c) organizations receive similar treatment with respect to their electioneering

activities. The section 527(f) tax applies regardless of whether there is any direct tracing of the

section 501(c) organization’s investment income to “exempt function” expenditures within the

meaning of section 527.138 As a result, section 527 "exempt function" activities cannot be

directly or indirectly subsidized with tax-free investment income.139

The same definition of "exempt function" provided for in section 527(e)(2) generally

applies for purposes of defining both the permissible tax-free activities of political organizations

and the activities of 501(c) organizations which may result in imposition of tax under section

527(f). However, Treasury regulations specifically provide that, in the case of a tax-exempt

organization described in section 501(c), expenditures for nonpartisan voter registration and

"get-out-the-vote" campaigns not specifically identified with any candidate or political party do

not constitute "exempt function" expenditures and, thus, will not lead to tax under section
140 Treas. Reg. sec. 1.527-6(b)(5). It is not clear whether the same expenditures if incurred

by a section 527 political organization would constitute “exempt function” expenditures. Treas.

Reg. sec. 1.527-2(a)(3) provides that a political organization does not conduct “exempt function”

activities when it sponsors “nonpartisan educational workshops which are not intended to

influence” the election of candidates. See also 1993 IRS CPE Text, supra, at 450. Nevertheless,

expenses of voter registration activities could be considered indirect “exempt function” expenses

(regardless of intent) under Treas. Reg. sec. 1.527-2(c)(2), which provides that expenses for an

“exempt function” activity include expenses “which are necessary to support the directly related

activities of the political organization,” such as overhead, record keeping, and fundraising

expenses.

141 Treas. Reg. secs. 1.527-2(c)(5)(vi) and 1.527-6(b)(4). This exception for providing

technical advice applies only to expenditures which are directly related to appearances before a

legislative body to influence the appointment or confirmation or a nominee for public office. 

Apparently, this exception is similar to, but more limited than, the “furnishing technical advice or

assistance” exception relating to legislative lobbying under sections 4911(2)(B) and 4945(e)(2),

which applies to furnishing technical advice to a governmental body by providing an oral or written

presentation. See Treas. Reg. secs. 56.4911-2(c)(3) and 53.4945-2(d)(2); 1993 IRS CPE Text,

supra, at 482 n.11.

142 Treas. Reg. sec. 1.527-6(b)(3) has not yet been issued, however, and is therefore

“reserved.”

143 In enacting section 527, Congress expected that, to avoid taxation on investment income

not used for "exempt function" activities within the meaning of section 527, section 501(c)

organizations would establish separate funds that would operate primarily as political organizations

and directly receive and disburse funds for section 527 activities. See S. Rep. No. 93-1357, at 29

(1974).

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527(f).140 Treasury regulations also provide that when a tax-exempt organization described in

section 501(c) appears before any legislative body in response to a written request by such body

for the purpose of influencing the appointment or confirmation of an individual to a public office,

any expenditure directly related to such appearance is not treated as an “exempt function”

expenditure under section 527.141 In addition, expenditures made by a section 501(c)

organization which are otherwise allowable under the Federal Election Campaign Act (FECA) or

similar State statute are treated as being incurred for an “exempt function” only to the extent

provided in Treas. Reg. sec. 1.527-6(b)(3).142

Use of separate segregated funds

Subsection 527(f)(3) provides that certain separate segregated funds, such as a political

action committee (“PAC”), established by tax-exempt organizations will be treated as separate

organizations. In essence, the separate segregated fund is taxed as if it were a separate political

organization.143 An organization may establish a separate segregated fund only if this is
144 Treas. reg. sec. 1.527-6(f). 

145 Sec. 527(f)(1). 

146 See Conf. Rpt. No. 93-1642, at 30 (1974).

147 See Treas. Reg. sec. 1.527-6(e).

148 See PLR 9245001 (June 8, 1992) (quarterly transfer of political contributions to a

separate segregated fund were made “promptly and directly” within the meaning of Treas. Reg.

sec. 1.527-6(e)); GCM 39837 (May 22, 1990) (contributions designated for an affiliated PAC that

were received and temporarily deposited in an interest bearing checking account by 501(c)(5) and

501(c)(6) organizations were transferred to the separate segregated fund "promptly and directly");

TAM 8628001(Feb. 7, 1986) (labor organization did not earmark certain percentage of member’s

dues to be used for political purposes, but transfer of funds from general accounts into segregated

accounts for state election purposes was a qualifying transfer for sec. 527 purposes). But see

Alaska Public Service Employees Local 71 v. Commissioner, T.C. Memo. 1991-650 (1991)

(transfer of monies by labor organization to separate political fund constituted political expenditure

by labor organization itself because transfer was made from undesignated funds and no showing

that transfer consisted solely of dues and not of investment income). See generally Cerny & Hill,

supra, at 609-10.

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consistent with its tax-exempt status.144 Thus, a section 501(c)(3) charity may not establish a

PAC or other separate fund to engage in political campaign intervention, but may establish a

separate fund to attempt to influence nominations to non-elected public offices (provided that

this activity and other lobbying activities are not substantial).

The separate-fund rule provided by subsection 527(f)(3) does not reduce the section

527(f) tax to a mere formality which can be avoided by an organization described in section

501(c) simply establishing a separate fund and transferring monies at any time (perhaps including

investment income) to that separate fund. The section 527(f) tax applies if an organization either

directly expends amounts for an exempt function activity or does so indirectly "through another

organization."145 However, consistent with the legislative history to section 527,146 transfers of

political contributions by a section 501(c) organization to a separate segregated fund are not

treated as “exempt function” expenditures by the transferor organization if the transfer is made

“promptly and directly” (under procedures permitted by Federal or State campaign laws) after the

contributions are received by the transferor organization from third-party contributors.147 In such

cases, the section 501(c) organization is treated as a mere conduit for the transfer of political

contributions from a third party to the separate segregated fund, and the subsequent expenditures

of the separate segregated fund will not be attributed to the affiliated 501(c) organization.148

C. Limitations on Charitable Contributions Deductions For Lobbying

In general, the fact that a section 501(c)(3) charity engages in some lobbying activities,
149 Treas. Reg. sec. 1.170A-1(h)(6) provides: "No deduction shall be allowed under

section 170 for expenditures for lobbying purposes, the promotion or defeat of legislation, etc. See

also the regulations under sections 162 and 4945." See also Rev. Rul. 80-275, 1980-2 C.B. 69. 

Because section 501(c)(3) organizations cannot engage in political campaign intervention, a

contribution earmarked for such political campaign purposes likewise would not be allowable as a

charitable deduction.

150 Sec. 170(f)(9). 

151 Prior to the 1993 Act amendments, Code section 162(e) disallowed deductions for

amounts paid for political campaign activities or grass roots lobbying. However, a deduction was

allowed for all ordinary and necessary business expenses incurred in direct connection with

lobbying legislative bodies with respect to legislation of direct interest to the taxpayer. Prior to

1993, a deduction also was permitted for business expenses incurred in direct connection with the

communication of information between a taxpayer and an organization of which he is a member

(and for dues payments) with respect to legislation of direct interest to the taxpayer and

organization. In 1993, Congress repealed the deduction previously allowed under section 162 for

certain "direct lobbying" expenses, except that expenses for direct lobbying before local councils

continues to be deductible if related to legislation of direct interest to the taxpayer. See sec. 

162(e)(2). At the Federal level, however, the section 162(e) nondeductibility rule applies not only

to direct and grass roots lobbying to influence legislation, but also to contacting certain highranking Federal executive branch officials in an attempt to influence their official actions or

positions. See sec. 162(e)(1)(D).

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but only to the extent consistent with remaining exempt under that section, has no effect on the

charitable contribution deductions of taxpayers making contributions to the charity. However,

Treasury regulations provide that contributions to a charity that are specifically earmarked for

lobbying are not allowable as charitable contribution deductions.149 In addition, section 170(f)(6)

provides that no charitable contribution deduction is allowed for an out-of-pocket expenditure

made by any person on behalf of a charity--other than a church--if the expenditure is made for the

purpose of influencing legislation (within the meaning of section 501(c)(3)). 

 Furthermore, section 170 was amended by Congress in 1993 to prevent donors from

using charities as a conduit to conduct legislative activities, the cost of which would not be

deductible if conducted directly by the donor. No charitable contribution deduction is allowed

for amounts contributed to a charity that conducts lobbying activities (as defined in section

162(e)(1)) if (1) the charity's lobbying activities regard matters of direct financial interest to the

donor's trade or business, and (2) a principal purpose of the contribution is to avoid the general

disallowance rule under section 162 that would apply if the contributor directly had conducted

such lobbying activities.150 This anti-abuse rule is designed to prevent taxpayers from evading

the rules under section 162(e)--which do not contain an exception for nonpartisan analysis--by

simply contributing funds to a charity that, in turn, conducts nonpartisan analysis of legislative

proposals affecting the contributor’s trade or business.151
152 Sec. 508.

153 Sec. 508(c).

154 Sec. 508(d)(2)(B).

155 Section 501(c)(9) voluntary employees’ beneficiary associations and section 501(c)(17)

employee supplemental unemployment compensation benefits trusts also must apply to the IRS for

recognition of tax-exempt status. Sec. 505(c).

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III. PRESENT LAW DISCLOSURE RULES

RELATING TO POLITICAL AND LOBBYING ACTIVITIES

OF TAX-EXEMPT ORGANIZATIONS

A. Overview of Present-Law Filing Requirements and Disclosure Rules

for Tax-Exempt Organizations

1. Overview of present-law filing requirements for tax-exempt organizations and section

527 organizations

Recognition of tax-exempt status

Under present law, section 501(c)(3) organizations generally are required to notify the

IRS of their tax-exempt status by filing an application for recognition of tax-exempt status.152

Certain section 501(c)(3) organizations, including churches, certain church-related organizations,

and organizations (other than private foundations) the gross receipts of which in each taxable

year are normally not more than $5,000, and subordinate organizations (other than private

foundations) to other tax-exempt organizations that are covered by a group exemption letter, are

not required to notify the IRS of their tax-exempt status.153 Section 501(c)(3) organizations

comply with the notification requirement by filing Form 1023 (Application for Recognition of

Exemption Under Section 501(c)(3) of the Internal Revenue Code.) Contributions to section

501(c)(3) organization that are subject to the notification requirement are not deductible from

income, gift, or estate tax until the organization receives a determination letter from the IRS.154

Other organizations described in section 501(c) generally are not subject to the Code’s

mandatory notice requirements and, therefore, are not required to notify the IRS that they are

seeking recognition of their tax-exempt status.155 Such organizations may voluntarily file

exemption applications in order to establish their qualifications for tax exemption with the IRS. 

Such organizations file Form 1024 (Application for Recognition of Exemption Under Section

501(a)). Because such organizations generally are not required to notify the IRS of their taxexempt status, there is no specific time requirement for such organizations to file Form 1024 and

such organizations are presumed to be tax exempt from the date of their formation.

Section 527 organizations are subject to no notification requirement when they are
156 Certain organizations file special forms. For example, black lung trusts described in

section 501(c)(21) file form 990-BL.

157 Form 990-PF requires, among other things: information about the foundation’s gross

income for the year; information about expenses attributable to such income; information about

disbursements for exempt purposes; information about total contributions and gifts received, and

the names of all substantial contributors; names, addresses, and compensation of officers and

directors; an itemized statement of securities and other assets held at the close of the year; an

itemized statement of all grants made or approved; and information about whether the organization

has complied with the restrictions applicable to private foundations (secs. 4941-4945). 

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formed and there is no separate application for recognition of status as a section 527

organization. However, an organization wishing to receive confirmation of its status as a section

527 organization may request a written determination from the IRS in the form of a private letter

ruling.

Annual filing requirements

Form 990

Tax-exempt organizations generally are required to file an annual information return with

the IRS. An organization that has not received a determination of its tax-exempt status, but that

claims tax-exempt status under section 501(a), is subject to the same annual reporting

requirements and exceptions as organizations that have received a tax-exemption determination.

Most tax-exempt organizations are required to file annually Form 990 (Return of

Organization Exempt From Income Tax).156 Section 501(c)(3) organizations that are classified as

public charities must file Form 990 and an additional form, Schedule A, which requests

information specific to section 501(c)(3) organizations. An organization that is required to file

Form 990, but that has gross receipts of less than $100,000 during its taxable year, and total

assets of less than $250,000 at the end of its taxable year, may file Form 990-EZ instead of Form

990. Private foundations are required to file Form 990-PF rather than Form 990.157

On the applicable annual information return, organizations are required to report their

gross income, information on their finances, functional expenses, compensation, activities, and

other information required by the IRS in order to review the organization’s activities and

operations during the previous taxable year and to review whether the organization continues to

meet the statutory requirements for exemption.

The requirement of filing an annual information return does not apply to several

categories of tax-exempt organizations. Organizations excepted from the filing requirement

include: churches, their integrated auxiliaries, and conventions or associations of churches;

certain organizations (other than private foundations), the gross receipts of which in each taxable
158 Sec. 6033(a)(2)(A); Treas. reg. sec. 1.6033-2(a)(2)(i); Treas. reg. sec. 1.6033-2(g)(1).

159 The Privacy Act, which was enacted in 1974 to regulate the collection, use,

dissemination, and maintenance of personal information about individuals by Federal agencies,

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year are normally not more than $25,000; the exclusively religious activities of any religious

order; section 501(c)(1) instrumentalities of the United States; section 501(c)(24) trusts described

in section 4049 of the Employer Retirement Income Security Act of 1974; an interchurch

organization of local units of a church; certain mission societies; and certain church-affiliated

elementary and high schools.158

Other filing requirements for section 501(c) organizations

Any organization that is subject to UBIT and that has $1,000 or more of gross unrelated

business taxable income must file Form 990-T (Exempt Organization Business Income Tax

Return). An organization described in section 501(c) must file Form 1120-POL (U.S. Income

Tax Return for Certain Political Organizations) for any year in which it has net investment

income and expends any amount to influence the selection, nomination, election or appointment

of any individual to office, unless either the amount of such expenditures or the organization’s

net investment income does not exceed $100 for the taxable year. Public charities that make the

section 501(h) lobbying election and that incur tax for excess lobbying expenditures must also

file Form 4720. Tax-exempt organizations generally must file reports and returns applicable to

taxable entities with respect to Social Security taxes and (with the exception of section 501(c)(3)

organizations) Federal unemployment taxes.

Filing requirement for section 527 organizations

A non-section 501(c)(3) organization also is required to file Form 1120-POL (U.S.

Income Tax Return for Certain Political Organizations) if the organization’s political

expenditures and net investment income both exceed $100 for the year. If a non-section

501(c)(3) organization establishes and maintains a section 527(f)(3) separate segregated fund, the

fund is required to file Form 1120-POL.

Section 527 political organizations are not required to apply for tax-exempt status and are

not required to file Form 990. If the section 527 political organization has taxable income, it is

required annually to file Form 1120-POL; similarly, if the political organization does not have

taxable income, the Form 1120-POL is not required to be filed. The Form 1120-POL is not

publicly disclosable under present law.

2. Overview of present-law disclosure rules for tax-exempt organizations

Three Code sections (sections 6103, 6104, and 6110) and the Freedom of Information Act

(the “FOIA”) govern the disclosure of information relating to tax-exempt organizations.159
does not apply to persons other than individuals. Therefore, the Privacy Act is inapplicable to taxexempt organizations.

160 Sec. 6103(a). A “return” includes any tax or information return, declaration of

estimated tax, or claim for refund required by, or provided for, or permitted under the provisions of

the Code, which is filed with the IRS. Sec. 6103(b)(1). “Return” also includes any amendment or

supplement to the filed return. Sec. 6103(b)(1). “Return information” is defined broadly to

include any data received by, recorded by, prepared by, furnished to, or collected by the Secretary

with respect to a return or with respect to the determination of the existence, or possible existence,

or liability (or the amount thereof) of any person for any tax, penalty, interest, fine, forfeiture, or

other imposition, or offense under the Code. The term “return information” does not include data

in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular

taxpayer. Sec. 6103(b)(2)(A). 

161 Internal Revenue Manual, Disclosure of Official Information Handbook, 1.3.9.1(8).

162 Sec. 6110(k)(1).

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Section 6103 provides a general rule that tax returns and return information generally are not

subject to public disclosure.160 Given the broad definitions of returns and return information,

much tax-exempt organization information comes within the ambit of section 6103. However, in

order to allow the public to scrutinize the activities of tax-exempt organizations, section 6104

grants an exception to the confidentiality rule of section 6103 for certain categories of taxexempt organization documents and information. Thus, section 6104 permits the release in

unredacted form of approved applications for tax-exempt status, certain related documents, and

annual information returns filed by tax-exempt organizations. As a general rule, to the extent

section 6104 specifically provides for the disclosure of tax-exempt organization information,

other disclosure provisions (sections 6103, 6110, or the FOIA) do not apply.161 If tax-exempt

organization information does not come within the scope of section 6104, other disclosure

provisions will govern whether the information may be disclosed.

Section 6110 provides that written determinations (e.g., private letter rulings) by the IRS

and related background file documents generally are open to public inspection in redacted form. 

Section 6110 does not apply to any matter to which section 6104 applies.162 As discussed more

fully below, IRS regulations have interpreted this restriction to apply to some written

determinations and other documents relating to tax-exempt organizations that are not subject to

disclosure under section 6104. Thus, some written determinations regarding tax-exempt

organization issues are not disclosable under either section 6110 or 6104.

The FOIA provides a rule of general disclosure of information by government agencies

upon request. Generally, the FOIA provides that any person has a right of access to Federal

agency records, except to the extent that such records (or portions thereof) are protected from

disclosure by one of nine exemptions or by one of three special law enforcement record

exclusions. Most courts have taken the position that section 6103 qualifies as one of the nine
163 A court of appeals has held that the section 6104 disclosure requirements do not apply

to documents relating to whether a tax-exempt organization is also a private foundation. Breuhaus

v. Internal Revenue Service, 609 F.2d 80, 82 (2d Cir. 1979). Another court has held that disclosure

of information relating to an investigation of a violation of section 501(c)(3) by an organization

does not fall within the plain meaning of section 6104(a)(1) and, thus, is not subject to disclosure

under section 6104. Belisle v. Internal Revenue Service, 462 F. Supp. 460 (W.D. Okla. 1978).

164 Sec. 6104(d)(1)(A).

165 Treas. reg. sec. 301.6104(d)-3(b)(3)(iii)(A).

166 Sec. 6104(d)(2).

167 Sec. 6104(d)(1)(B). This rule was added to the Code in 1996 by the Taxpayer Bill of

Rights 2. It became effective on June 8, 1999, 60 days after the date the Treasury Department

published regulations under the new provision.

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statutory exemptions to the FOIA; thus, information that contains returns or return information

within the meaning of section 6103 typically cannot be disclosed pursuant to a FOIA request. 

There has been substantial litigation, however, over whether documents not specifically covered

by section 6104 may be obtained either under section 6110 or under the FOIA.

3. Section 6104: disclosure of applications for recognition of tax exemption and annual

information returns

Disclosure to the public

Under present law, section 501(c) organizations are required to make a copy of their 

application for recognition of tax-exempt status163 (and certain related documents) and their

annual information return (Form 990 or Form 990-PF) available for inspection by any individual

during regular business hours at the organization’s principal office or any regional or district

office that has three or more employees.164 Organizations are not required to disclose an

application for tax exemption filed by the organization unless the IRS responded favorably to the

application.165 The required disclosure does not include Form 990-T, Exempt Organization

Business Income Tax Return, or Form 1120-POL, U.S. Income Tax Return for Certain Political

Organizations. In addition, public charities are not required to disclose the names of donors to

the organization. Annual information returns must be made available for a three-year period

beginning with the due date for the return (including any extension of time for filing).166

All tax-exempt organizations (other than private foundations) are required to comply with

requests made in person or in writing by individuals who seek a copy of the organization's Form

990 for any of the organization's three most recent taxable years.167 Upon such a request, the

organization is required to supply copies without charge other than a reasonable fee for

reproduction and mailing costs. If the request for copies is made in person, then the organization
168 Sec. 6104(d)(4); Treas. reg. secs. 301.6104(d)-4(b)(2) and 301.6104(d)-5. Section

6104 was amended by the Tax and Trade Relief Extension Act of 1998 to extend to private

foundations the same disclosure requirements that are now applicable to all other tax-exempt

organizations. Pub. L. No. 105-277, sec. 1004 (1998). Under the new provision, private

foundations will be required to comply with requests for copies of the foundation’s annual

information return for any of the foundation’s three most recent taxable years and its application

for tax exemption. Section 6104(d)(1). The provision extending the disclosure requirements to

private foundations will be effective 60 days after the Treasury Department publishes final

regulations in the Federal Register. Final regulations were published on January 13, 2000; thus,

the new disclosure provisions will apply to private foundations whose annual information returns

are due on or after March 13, 2000. See Treas. reg. secs. 301.6104(d)-1,-2,-3.

169 Treas. reg. secs. 301.6104(a)-6 and 301.6104(b)-1.

170 Id.

171 Sec. 6104(a)(1)(D). In the case of a pension plan, information may be withheld if it

would identify any particular individual covered under the plan. Id.

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must provide such copies immediately. If the request for copies is made in writing, then copies

must be provided within 30 days. Tax-exempt organizations (other than private foundations)

also must comply in the same manner with requests made in person or in writing by individuals

who seek a copy of the organization's application for recognition of tax-exempt status and certain

related documents. However, an organization may be relieved of its obligation to provide copies

if (1) the organization has made the requested documents widely available by posting them on

the Internet, or (2) the Secretary of the Treasury has determined, upon application by the

organization, that the request is part of a harassment campaign and that compliance with such

request is not in the public interest.168

Upon written request to the IRS, members of the general public also are permitted to

inspect annual information returns of tax-exempt organizations and applications for recognition

of tax-exempt status (and related documents) at the IRS National Office in Washington, D.C. or

in the office of any district director.169 A person making such a written request is notified by the

IRS when the material is available for inspection at the IRS National Office, and where notes

may be taken of the material open for inspection, photographs taken with the person's own

equipment, or copies of such material obtained from the IRS for a fee.170

The Secretary may withhold disclosure of certain information described in an

organization’s application for tax-exempt status if disclosure would: (1) divulge a trade secret,

patent, process, style of work, or apparatus of the organization, and the Secretary determines that

such disclosure would harm the organization; or (2) harm the national defense.171 The

organization must apply to the Commissioner for a determination that the disclosure would
172 Treas. reg. sec. 301.6104(a)-5(a)(1).

173 Id.

174 Treas. reg. sec. 301.6104(a)-1(e).

175 132 F.3d 1463 (D.C. Cir. 1998).

176 Id. at 1466.

177 Id.

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violate one of these criteria.172 The organization will be given 15 days to contest an adverse

determination before the information is made available for public inspection.173

Section 6104(a)(1)(A) provides that “any papers submitted in support of” an application

for tax-exempt status must be available for inspection. By regulation, the Treasury Department

has limited the definition of supporting documents to papers submitted by the organization.174

The U.S. Court of Appeals for the District of Columbia Circuit upheld this regulation in Lehrfeld

v. Commissioner,

175 on the ground that it harmonizes the meanings of two provisions within the

general rule that applications for tax exemption are subject to public disclosure.

In Lehrfeld, an attorney submitted a request to the IRS for a copy of a particular

organization’s exemption application and all other documents available to the public under

section 6104 and the FOIA. The attorney believed that prominent politicians might have written

letters to the IRS to expedite the handling of the organization’s application for tax exemption. 

The IRS released certain materials responsive to the attorney’s request, but declined to release

other documents on the ground that they fell outside the scope of section 6104 and therefore

could not be disclosed under section 6103. According to the court, the documents the attorney

sought were return information, and thus not subject to FOIA requests. Further, the court upheld

the regulation on the ground that section 6104(a)(1)(A) was not intended to require disclosure of

third-party documents.176 The court found the plain meaning of section 6104(a)(1)(D) does not

provide trade secret protection to third parties that submit documents in favor of another entity’s

tax-exempt status application. If the disclosure requirements applied to third-party documents,

then information regarding trade secrets would not be submitted to the IRS by third parties in

support of tax-exempt status applications. Therefore, the court held that the regulation is a valid

interpretation of section 6104(a)(1)(A).177

Disclosure to State officials

With respect to section 501(c)(3) organizations, the IRS is required to notify the attorney

general and the principal tax officer of the State in which the principal office of the organization

is located and the State in which the organization was incorporated or created, of two types of

final determinations: (1) the denial or revocation of tax-exempt status; or (2) a deficiency of tax
178 Sec. 6104(c). Treas. reg. sec. 301.6104(c)-1(a). Section 507 imposes tax on certain

organizations terminating their status as private foundations. Chapter 41 (secs. 4911 and 4912)

imposes taxes on excess lobbying expenditures and disqualified lobbying expenditures by public

charities. Chapter 42 (secs. 4940-4963) provides for taxes on private foundations for violations of

restrictions on their operations, a tax on certain nonexempt trusts, taxes on certain foreign

organizations, taxes on black lung benefit trusts, and taxes on political expenditures by section

501(c)(3) organizations.

179 Treas. reg. sec. 301.6104(c)-1(a)(2).

180 Sec 6104(c)(1)(C); Treas. reg. sec. 301.6104(c)-1(b)

181 Sec. 6104(a)(2).

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under section 507, or Chapter 41 or 42.178 Other appropriate officers of any State may request

that the IRS provide notification to them of such determinations, either generally or with respect

to a particular organization or type of organization.179 At the request of an appropriate State

officer, the IRS must make available for inspection and copying such returns, filed statements,

and other records relating to such determinations as are relevant to a determination under State

law.180

Disclosure to Congressional committees

Any committee of the Congress may inspect exemption applications and any related

papers held by the IRS.181
182 Sec. 6110(a).

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4. Section 6110: disclosure of written determinations

Section 6110 provides that the text of any written determination by the IRS and related

background file document is open to public inspection.182 The term “written determination”
183 A ruling is a written statement issued by the National Office to a taxpayer or his or her

authorized representative. Treas. reg. sec. 301.6110-2(d). It generally recites the relevant facts,

sets forth the applicable provisions of law, and shows the application of the law to the facts. Treas.

reg. sec. 301.6110-2(d). In fiscal year 1999, the IRS issued 943 private letter rulings involving

section 501(c) organizations; in fiscal year 1998, the IRS issued 1,059 private letter rulings

involving section 501(c) organizations; and in fiscal year 1997, the IRS issued 975 private letter

rulings involving section 501(c) organizations. IRS Exempt Organizations Division Inventory

Control System.

184 A district director issues a “determination letter” in response to a written inquiry from

an individual or organization that applies principles and precedents previously announced by the

IRS National Office to the particular facts involved. Treas. reg. sec. 301.6110-2(e).

185 A “technical advice memorandum” is a written statement issued by the IRS National

Office of the IRS to a district director in connection with the examination of a taxpayer’s return or

consideration of a taxpayer’s claim for refund or credit. Treas. reg. sec. 301.6110-2(f). Generally,

a technical advice memorandum states the relevant facts, sets forth the applicable law, and states a

legal conclusion. Treas. reg. sec. 301.6110-2(f). In fiscal year 1999, the IRS issued 22 technical

advice memoranda involving section 501(c) organizations; in fiscal year 1998, the IRS issued 56

technical advice memoranda involving section 501(c) organizations; and in fiscal year 1997, the

IRS issued 69 technical advice memoranda involving section 501(c) organizations. IRS Exempt

Organizations Division Inventory Control System.

186 Sec. 6110(b)(1). Any IRS National Office component of the Office of Chief Counsel

can issue Chief Counsel advice. The IRS National Office component issues the advice to IRS

field or service center employees, or to regional or district employees of Chief Counsel. Sec.

6110(i)(A)(i). The definition of Chief Counsel advice does not encompass advice issued from

one IRS National Office component of the Office of Chief Counsel to another. The advice by

definition conveys: (1) a legal interpretation of a revenue provision; (2) the IRS or Chief

Counsel position or policy concerning a revenue provision; or (3) a legal interpretation of any

law (Federal, State, or foreign) relating to the assessment or collection of liability under a

revenue provision. Sec. 6110(i)(A)(ii).

187 See S. Rep. No. 94-938, at 307 (1976). H.R. Rep. No. 94-658, at 316 (1976). In fiscal

year 1999, the IRS finalized 78 closing agreements with section 501(c) organizations; in fiscal year

1998, the IRS finalized 72 closing agreements with section 501(c) organizations; and in fiscal year

1997, the IRS finalized 65 closing agreements with section 501(c) organizations. IRS Exempt

Organizations Return Inventory and Classification System.

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means a ruling,183 determination letter,184 technical advice memorandum,185 or Chief Counsel

advice.186 Closing agreements, which are final and conclusive written agreements entered into by

the IRS and a taxpayer in order to settle the taxpayer’s tax liability with respect to a taxable year,

do not constitute written determinations.187 A background file document includes the request for

a written determination, any written material submitted by the taxpayer in support of the request,
188 Sec. 6110(b)(2). Communications between the IRS and the Department of Justice

relating to a pending civil or criminal case are not considered background file documents.

189 Sec. 6110(e).

190 Sec. 6110(c) provides the following exemptions from disclosure: 

(1) the names, addresses, and other identifying details of the person to whom the written

determination pertains and of any other person, other than a person with respect to whom

a notation is made under subsection (d)(1) (relating to third party contacts), identified in

the written determination or any background file document;

(2) information specifically authorized under criteria established by an Executive order to

be kept secret in the interest of national defense or foreign policy, and which is in fact

properly classified pursuant to such Executive order; 

(3) information specifically exempted from disclosure by any statute (other than

this title) which is applicable to the Internal Revenue Service; 

(4) trade secrets and commercial or financial information obtained from a person

and privileged or confidential; 

(5) information the disclosure of which would constitute a clearly unwarranted

invasion of personal privacy; 

(6) information contained in or related to examination, operating, or condition

reports prepared by, or on behalf of, or for use of an agency responsible for the

regulation or supervision of financial institutions; and 

(7) geological and geophysical information and data, including maps, concerning

wells. 

191 Sec. 6110(k)(1); Treas. reg. sec. 301.6110-1(a).

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and any communications between the IRS and other persons in connection with the written

determination received before issuance of the written determination.188

A background file document is available upon written request to any person requesting a

copy of the related written determination.189 Before releasing any written determination or

background file document, the IRS must delete identifying details of the person about whom the

written determination pertains and certain other information.190 With respect to tax-exempt

organizations, disclosure under section 6110 is limited to letters and rulings unrelated to an

organization’s tax-exempt status.191
192 See S. Rep. No. 94-938, at 307.

193 Treas. reg. sec. 301.6110-1(a).

194 Treas. reg. sec. 301.6104(a)-1(i).

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While section 6110 makes much IRS guidance public, its application to guidance relating

to tax-exempt organizations is quite limited in comparison to guidance for taxable organizations. 

When section 6110 was enacted in 1976, Congress believed that section 6104 already permitted

disclosure of guidance relating to tax-exempt organizations.192 Thus, section 6110(k)(1)

provides, “this section shall not apply to any matter to which section 6104 applies.” The

regulations under section 6110 clarify which matters are within the ambit of section 6104 and,

therefore, are not subject to disclosure under section 6110:

“[a]ny application filed with the Internal Revenue Service with respect to the

qualification or exempt status of an organization . . .; any document issued by the

Internal Revenue Service in which the qualification or exempt status of an

organization is . . . granted, denied or revoked or the portion of any document in

which technical advice with respect thereto is given to a district director; . . . the

portion of any document issued by the Internal Revenue Service in which is

discussed the effect on the qualification or exempt status of an organization of

proposed transactions by such organization; and any document issued by the

Internal Revenue Service in which is discussed the qualification or status of a

[private foundation or private operating foundation].193

In addition, the regulations under section 6104 provide that some determination letters

and other documents relating to tax exemption that are not open to public inspection under

section 6104(a)(1)(A) are nevertheless “within the ambit” of section 6104 for purposes of the

disclosure provisions of section 6110.194 The regulation explains that the following documents

are, therefore, not available for public inspection under either section 6104 or 6110:

(1) unfavorable rulings or determination letters issued in response to applications for tax

exemption;

(2) rulings or determination letters revoking or modifying a favorable determination

letter;

(3) technical advice memoranda relating to a disapproved application for tax exemption

or the revocation or modification of a favorable determination letter;

(4) any letter or document filed with or issued by the IRS relating to whether a proposed

or accomplished transaction is a prohibited transaction under section 503;

(5) any letter or document filed with or issued by the IRS relating to an organization’s

status as a private foundation or private operating foundation, unless the letter or

document relates to the organization’s application for tax exemption; and

(6) any other letter or document filed with or issued by the IRS which, although it relates
195 Id.

196 Sec. 6652(c)(1)(A).

197 Sec. 6652(c)(1)(B).

198 Sec. 6652(c)(3).

199 Secs. 6652(c)(1)(C) and 6652(c)(1)(D).

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to an organization’s tax exempt status as an organization described in section 501(c),

does not relate to that organization’s application for tax exemption.195

The effect of these limitations is that written determinations relating to exempt status

issues are not released, even in redacted form. The IRS does, however, release written

determinations issued to tax-exempt organizations that include issues that clearly are not within

the ambit of section 6104, such as the application of the unrelated business income tax to a

particular proposed transaction.

5. Penalties related to tax-exempt organization disclosure requirements

Penalties for failure to file timely or complete return

A penalty is imposed on a tax-exempt organization that either fails to file a Form 990 in a

timely manner or fails to include all required information on a Form 990 of $20 for each day the

failure continues (with a maximum penalty with respect to any one return of the lesser of $10,000

or five percent of the organization's gross receipts).196 Organizations with annual gross receipts

exceeding $1 million are subject to a penalty of $100 for each day the failure continues (with a

maximum penalty with respect to any one return of $50,000). The IRS may make a written

demand on an organization that has failed to file a timely or complete return specifying a date by

which the return is to be filed or the information furnished. A penalty is imposed on any person

failing to comply with the IRS demand equal to $10 for each day after the expiration of the time

specified by the IRS during which the failure continues, subject to a maximum penalty of $5,000,

with respect to any one return.197 No penalty is imposed for failure to file in a timely manner or

to include all required information if it is shown that the failure was due to reasonable cause.198

Penalties for failure to allow public inspection or provide copies

Penalties are imposed on tax-exempt organizations that fail to allow public inspection or

provide copies of certain annual returns or applications for exemption at a level of $20 per day

(with a maximum of $10,000 with respect to any one return).199 No penalty is imposed with

respect to a failure if it is shown that the failure was due to reasonable cause. In addition, there is
200 Sec. 6685.

201 Sec. 6113.

202 Sec. 6711(a).

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a penalty of $5,000 imposed for willful failure to allow public inspections or provide copies.200

6. Other Federal tax law disclosure rules applicable to tax-exempt organizations

Disclosure relating to deductibility of solicited funds

Fundraising solicitations, including solicitations for contributions, annual membership

dues, or other payments, made by certain tax-exempt organizations must include a statement that

payments to those organizations are not deductible as charitable contributions for Federal income

tax purposes.201 The requirement generally applies to organizations described in section 501(c)

unless the organization is eligible to receive contributions that are deductible as charitable gifts

under section 170(c) (e.g., section 501(c)(3) organizations), or is otherwise excepted from the

requirement. Thus, section 501(c)(4) social clubs, section 501(c)(5) labor unions, section

501(c)(6) trade associations, section 501(c)(7) social clubs, section 501(c)(8) and section

501(c)(10) fraternal organizations, and certain other organizations must comply with the

nondeductibility disclosure requirement.

Failure to include the required statement may result in a penalty imposed on the

organization of $1,000 for each day on which the failure occurred, subject to a maximum penalty

on failures by any organization during any calendar year of $10,000. However, the $10,000

maximum penalty does not apply if the failure is due to intentional disregard of the

nondeductibility disclosure requirement. In such case, the penalty is $1,000 or 50 percent of the

aggregate cost of the solicitations that occurred on such day and with respect to which there was

a failure to disclose.

Disclosure relating to information or services that are available free from the government

Organizations described in section 501(c)(3), section 501(c)(4), or section 527(e) that sell

information or routine services that could be readily obtained from an agency of the Federal

government, either free or for a nominal fee, must include a statement when making an offer or

solicitation that the information or service can be so obtained.202 A penalty of the greater of

$1,000 or 50 percent of the aggregate cost of the offers and solicitations that occurred on each

day on which such failure to disclose occurred is imposed on the organization if the failure to

make the required statement is due to intentional disregard of the disclosure requirement.
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B. Disclosure of Lobbying Expenses and Political Activities

by Tax-Exempt Organizations

1. Disclosure of lobbying expenses

In general

Non-section 501(c)(3) organizations are required to provide annual information

disclosure to members (sometimes referred to as “flow-through information disclosure”)

estimating the portion of such members’ dues allocable to political campaign activities, as well

as any lobbying activities. Such disclosure is not required for an organization that: (1) incurs

only a de minimis amount (i.e., $2,000 or less) of in-house political campaign and lobbying

expenditures during the taxable year; (2) elects to pay a 35-percent proxy tax on its political

campaign and lobbying expenditures incurred during the taxable year rather than providing flowthrough information disclosure to its members; or (3) establishes pursuant to Treasury

Department rules that substantially all of its dues monies are paid by members not entitled to

deduct such dues in computing their taxable income.

For Federal tax purposes, public charities are required to disclose their lobbying

expenditures on Schedule A of Form 990, and to maintain records that will enable them to

calculate and report these expenditures. Public charities electing the expenditure test report their

expenditures on two charts. The first table requires the organization to list the amounts spent on

grassroots lobbying, on direct lobbying, and on the organization’s exempt purposes. The table

requires this information both for the electing public charity and for its affiliated group, if the

charity is part of one. The second table requires the organization to fill in its lobbying

expenditures for the four most recent years in order to determine whether, on average, the

organization has exceeded the lobbying expenditure limits during that period. Schedule A does

not provide any information on the issues the organization lobbied nor does it require disclosure

of whether the organization engaged in activities that come within one of the statutory exceptions

to lobbying. Expenditures for activities that come within one of the exceptions to the definition

of lobbying will be disclosed elsewhere on the return, although they are unlikely to be identified

specifically by activity. For example, nonpartisan study, analysis, or research projects typically

will be disclosed as part of a charity’s educational activities in Part III of Form 990, which

requires disclosure of program service expenses for each of the charity’s exempt purpose

accomplishments.

Nonelecting public charities complete a different table on Schedule A requesting

information about whether the organization attempted to influence national, state or local

legislation through the use of: volunteers; paid staff or management; media advertisements;

mailings to members, legislators, or the public; publications, or published or broadcast

statements; grants to other organizations for lobbying purposes; direct contact with legislators,

their staffs, government officials, or a legislative body; or rallies, demonstrations, seminars,

conventions, speeches, lectures, or any other means. If the organization used any of the above

methods of lobbying, it must disclose the amount spent on the lobbying activity and provide a
203 Pub. L. No. 104-65 (1995).

204 General Accounting Office, Federal Lobbying: Differences in Lobbying Definitions and

Their Impact (GAO/GGD-99-38) (April 1999).

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detailed description of its lobbying activities. According to the instructions for Schedule A of

Form 990, the detailed description should include all lobbying activities, whether expenses are

incurred or not. Thus, lobbying activities carried out by unreimbursed volunteers must be

disclosed. As is the case for electing public charities, there is no requirement that a nonelecting

public charity disclose on Schedule A activities or amounts spent on activities that are defined as

an exception to the definition of lobbying; however, expenditures for such activities will be

disclosed elsewhere on the return, although they are unlikely to be identified specifically by

activity.

Lobbying Disclosure Act of 1995

The Lobbying Disclosure Act of 1995 (the “LDA”) requires persons, including taxexempt organizations, that engage in certain lobbying activities to register with the Secretary of

the Senate and the Clerk of the House of Representatives.203 The LDA also requires persons that

register to report lobbying expenditures semiannually. Organizations that register employees

who lobby on the organization’s behalf have the option of reporting their lobbying expenses

under the LDA using either the LDA definitions of lobbying activities or the definitions under

the applicable Internal Revenue Code provisions: section 4911 (the lobbying expenditure test,

discussed above) and section 162(e) (denying a federal tax deduction for certain lobbying

expenses of businesses and requiring tax-exempt associations to disclose the association’s

lobbying expenses to members).

A recent report by the GAO reviewed the impact that differences in the definitions (LDA,

section 4911, and section 162(e)) have on registration and reporting under the LDA.204 The

report concluded that the LDA definition of lobbying differs significantly from the definitions of

lobbying under sections 4911 and 162(e). These differences can affect whether an organization

is required to register under the LDA and, if it must register, what information the organization is

required to report under the LDA. The GAO identified several options, including harmonizing

the different definitions of lobbying activities, that might help to ensure that the public disclosure

purposes of the LDA are realized. Because analysis of the options proposed by the GAO would

require substantial review of the various legislative purposes for enacting the LDA (which is not

a Federal tax statute), section 4911, and section 162(e), as well as the different objectives

underlying each provision’s definition of lobbying activities, the Joint Committee staff

determined that review of the GAO options for modifying the disclosure provisions of the LDA

was not within the scope of this study.
205 See Frances R. Hill, Probing the Limits of Section 527 to Design a New Campaign

Finance Vehicle, Tax Notes, January 17, 2000, at 387.

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2. Disclosure of political activities

Section 501(c) organizations are required to disclose on their annual returns (Form 990)

for each year the total amount of direct or indirect political expenditures made by the

organization during the year. In addition, the annual return requires section 501(c) organizations

to disclosure whether the organization filed a Form 1120-POL for the year, which is required if

the organization’s political expenditures and net investment income both exceed $100 for the

year. If a non-section 501(c)(3) organization establishes and maintains a section 527(f)(3)

separate segregated fund, the fund is required to file Form 1120-POL. The Form 1120-POL is

not publicly disclosable under present law.

Section 527 political organizations are not required to apply for tax-exempt status and are

not required to file Form 990. If the section 527 political organization has taxable income, it is

required to file Form 1120-POL; similarly, if the political organization does not have taxable

income, the Form 1120-POL is not required to be filed.

Because it is an income tax return, the Form 1120-POL requires information related to the

amount of income and expenses of the filing organization (or separate segregated fund) for the

year. Thus, the Form 1120-POL does not contain information relating to contributors to the

organization or the specific activities of the organization (or fund).

Some section 527 political organizations are subject to disclosure requirements under the

Federal Election Campaign Act of 1971 (see the discussion below); however, other such

organizations are outside the reach of the disclosure requirements under the Federal elections

laws.205
206 Buckley v. Valeo, 424 U.S. 1 (1976).

207 Pub. L. No. 94-283.

208 Pub. L. No. 96-187.

209 2 U.S.C.S. 434(a)(2).

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IV. OVERVIEW OF DISCLOSURE REQUIRED UNDER

FEDERAL ELECTION LAWS

The Federal Election Campaign Act of 1971 (“FECA”) was enacted to regulate

communications made in connection with Federal elections by imposing restrictions on eligible

contributors, dollar contribution limits for individual contributors, and reporting and disclosure

requirements. Among other things, FECA required full reporting of campaign contributions and

expenditures. In the wake of documented campaign abuses in the 1972 presidential election,

comprehensive amendments to FECA in 1974 resulted in the establishment of the Federal

Election Commission (the “FEC”), an independent agency to assume the administrative functions

under FECA and to serve as a clearinghouse for information on the administration of elections. 

In its ruling on a lawsuit filed by Senator James L. Buckley of New York and former Senator

Eugene McCarthy to challenge the constitutionality of key provisions of the 1974 amendments to

FECA, the Supreme Court ruled that some of the FECA expenditure limits and the method of

appointing FEC commissioners were unconstitutional but upheld the FECA disclosure and

recordkeeping requirements.206

In response to the Supreme Court’s decision in Buckley v. Valeo, the Congress amended

FECA in 1976 to repeal most of the expenditure limits and revise the provisions for the

appointment of FEC Commissioners.207 Additional amendments to FECA in 1979 simplified the

reporting requirements.208

The courts have generally held that only communications that contain express words

advocating the election or defeat of a political candidate (so-called “express advocacy”) are

subject to the requirements of FECA. Communications that fall outside of the FECA definition

of “express advocacy” are commonly referred to as “issue advocacy.” In many instances,

communications by tax-exempt organizations and section 527 organizations may be subject to

the FECA disclosure requirements. In other instances, such communications may not be 

“express advocacy” subject to the FECA reporting and disclosure requirements.

FECA requires each treasurer of a political committee to sign and file reports of receipts

and disbursements. During any calendar year in which there is a regularly scheduled election or

nomination for election, a political committee that is the principal campaign committee of a

congressional candidate is required to file a pre-election report, a post-election report, and

additional quarterly reports. In any other calendar year, a congressional candidate’s committee is

required to file semi-annual reports.209 During any calendar year in which a general election is
210 2 U.S.C.S. 434(a)(3).

211 2 U.S.C.S. 434(a)(4).

212 2 U.S.C.S. 434(b).

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held, the principal campaign committee of a presidential candidate generally is required to file

monthly reports if the committee receives contributions aggregating $100,000 or more or makes

expenditures aggregating $100,000 or more, or anticipates receiving such contributions or

making such expenditures. If a presidential candidate’s principal campaign committee is not

required to file monthly reports due to the level of actual or anticipated contributions and

expenditures, the committee generally must file the same pre-election, post-election, and

quarterly reports required for congressional candidates. In a calendar year in which a general

election is not held, a presidential candidate’s committee is required to file either monthly reports

or quarterly reports.210 Political committees other than authorized committees of a congressional

or presidential candidate are required to file either monthly reports or pre-election, post-election,

and quarterly reports.211

The items that each report must disclose include the following:

(1) The total amount of all receipts and the total amount of all receipts in each of several

categories, including contributions, transfers, and loans from committees, individuals, the

candidate, and political party committees.

(2) The identification of contributors, transferors, and recipients of disbursements of

more than $200.

(3) The total amount of all disbursements, and all disbursements in several categories,

including expenditures made to meet candidate or committee operating expenses,

transfers to other committees authorized by the same candidate, and loans and repayment

of loans.

(4) The amount and nature of outstanding debts and obligations owed by or to such

political committee; and where such debts and obligations are settled for less than their

reported amount or value, a statement as to the circumstances and conditions under which

such debts or obligations were extinguished and the consideration therefor.212

In addition to reports by political committees, FECA requires every person other than a

political committee who makes independent expenditures in an aggregate amount or value in

excess of $250 during a calendar year to file a statement that contains (1) the identity of the

contributor, the date and the amount of all contributions received by such person, (2) the identity

of the recipient of the independent expenditure, the date, amount, and purpose of the expenditure,

and an indication of whether the independent expenditure is in support of, or in opposition to, the
213 2 U.S.C.S. 434(c).

214 Federal Election Commission, Twenty Year Report 4 (1995).

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candidate involved, (3) a certification whether or not such independent expenditure is made in

cooperation, consultation, or concert with, or at the request or suggestion of, any candidate or any

authorized committee or agent of such candidate, and (4) the identification of each person who

made a contribution in excess of $200 to the person filing such statement which was made for the

purpose of furthering an independent expenditure. Any independent expenditure aggregating

$1,000 or more made after the 20th day, but more than 24 hours before any election must be

reported within 24 hours after such independent expenditure is made. The statement concerning

such an expenditure must contain the identity of the recipient of the independent expenditure, the

date, amount, and purpose of the expenditure, and an indication of whether the independent

expenditure is in support of, or in opposition to, the candidate involved. FECA requires the FEC

to prepare indices that set forth, on a candidate-by-candidate basis, all independent expenditures

separately made by or for each candidate and to periodically publishing such indices on a timely

pre-election basis.213

Since 1979, the FECA amendments and election reform measures adopted by the

Congress have been limited in scope. The most significant developments in election reform have

been judicial and administrative, especially as a result of FEC attempts to implement and enforce

the applicable laws. As the agency responsible for administration and enforcement of FECA, the

FEC provides disclosure of the campaign finance information it gathers pursuant to the FECA

reporting and recordkeeping requirements. In a report commemorating its 20th anniversary, the

FEC provided the following description of its disclosure responsibility:

Disclosing the sources and amounts of funds used to finance Federal elections is

perhaps the most important of the FEC’s duties. In fact, it would be virtually

impossible for the Commission to effectively fulfill any of its other

responsibilities without disclosure. The Commission could not, for example,

enforce the law without knowledge of each committee’s receipts and

disbursements. Disclosure also helps citizens evaluate the candidates running for

Federal office and it enables them, along with the agency, to monitor committee

compliance with the election law. Given these facts, the Commission has devoted

substantial resources to providing effective access to campaign finance data.214

Since it was established in 1974, the FEC has disclosed campaign finance data and

provided information on the election law to both the general public and regulated committees and

persons in order to create an educated electorate and promote compliance with the campaign

finance law. Both the FEC’s public disclosure program and educational outreach efforts promote

compliance by facilitating public scrutiny of campaign finance records and by fostering
215 Federal Election Commission, Annual Report 1998, p. 7.

216 Federal Election Commission, Twenty Year Report 4 (1995).

217 Federal Election Commission, Annual Report 1998, p. 7.

218 Id.

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understanding of the law.215

When a committee files its report with the FEC, the Public Records Office ensures that a

copy is available for public inspection within 48 hours. Simultaneously, the FEC’s data staff

begins to enter the information disclosed in the report into the FEC computer database. The

amount of information disclosed has grown dramatically over the years. By December 1994,

more than 12 million pages of information were available for public review. In the Public

Records Office, citizens may inspect microfilm and paper copies of committee reports, as well as

the FEC’s computer database and more than 25 different computer indexes that make the data

more accessible. For example, the “G Index” lists individuals who have given more than $200 to

a committee during an election cycle. The “K Index” and the “L Index” offer broader “bank

statement” views of receipts and disbursements for PACs, parties and candidates.216

In recent years, computers have enhanced the disclosure process. FEC currently uses

computer technology in virtually every aspect of the disclosure process, from electronic filing to

distributing information over the Internet. In January 1997, the FEC established the first phase of

an interim electronic filing program that allowed committees to file reports via computer disk. In

1998, the FEC launched the second phase of the program, permitting filers to submit reports to

the FEC by modem and via the Internet.217

The FEC creates digital images of all reports filed with the FEC by scanning the

documents. The public may view these digital images in the FEC’s Public Records Office or on

the FEC’s Internet web site. In addition to the digital imaging system, the FEC codes and enters

information from campaign finance reports into the FEC’s disclosure database, which contains

data from 1977 to the present. Information is coded so that committees are identified

consistently throughout the database.218

In recent years, the FEC has significantly enhanced the availability of campaign finance

data through its web site. One enhancement is a new query system that allows visitors to access

the name and contribution amount of any individual who contributed $200 or more to a Federal

political committee during the 1997-1998 election cycle. In addition, the query system allows

users to access lists of PACs or party committees that contributed to specific candidates and to

view lists of candidates to whom selected PACs and parties contributed. The system, which is

updated daily, also allows users to access digitized copies of the actual reports filed by House

candidates, PACs and party committees. The Public Records Office continues to make available

microfilmed copies of all campaign finance reports, paper copies of reports from Congressional
219 Id.

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candidates and FEC documents such as press releases, audit reports, closed enforcement cases

and agenda documents. The FEC also continues to offer on-line computer access to the

disclosure database to more than 1,000 subscribers to the thirteen-year-old Direct Access

Program for a small fee. Subscribers include journalists, political scientists, campaign workers

and other interested citizens.219
220 The source of this data is the IRS Exempt Organizations/Business Master File, Table 3. 

The data regarding tax-exempt organizations provided in this section and elsewhere in this volume

of the study were assembled by the IRS for a variety of purposes. Different data were subject to

different levels of quality review by the IRS; consequently, the accuracy of the numbers provided

may vary. Unless otherwise noted, the data provided includes only those organizations that have

received recognition of their tax-exempt status from the IRS. Thus, the data does not include

organizations, such as churches, that are not required to seek recognition of tax-exempt status from

the IRS.

221 Ibid.

222 Ibid.

223 Ibid.

224 Ibid.

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V. DATA RELATING TO TAX-EXEMPT ORGANIZATIONS

A. Tax-Exempt Organization Data

As of October 31, 1999, there were over 1.3 million organizations exempt from taxation

under section 501(a) and described in section 501(c) that had received recognition of their taxexempt status from the IRS.220 Somewhat more than half of those organizations, or 776,557, are

charitable, educational, religious, and other organizations described in section 501(c)(3).221 Of

the organizations described in section 501(c)(3) as of October 31, 1999, approximately 90

percent are public charities.222

Between 1996 and 1999, the total number of organizations described in section 501(c)

rose by between 40,900 and 44,000 annually.223 The number of organizations described in

section 501(c)(3) also grew steadily during the same period by roughly 40,000 per year.224 Table

1, below, shows a breakdown of the number of organizations described in each subparagraph of

section 501(c), as of October 31, 1999: 
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Table 1.--Number of Tax-exempt Organizations by Category

Category of Organization Number of

Organizations

Instrumentalities of the United States (sec. 501(c)(1)) 19

Title and real property holding companies (sec. 501(c)(2)) 7,032

Charitable organizations (sec. 501(c)(3)) 776,557

Social welfare organizations (sec. 501(c)(4)) 138,998

Labor, agricultural, or horticultural organizations (sec. 501(c)(5)) 63,708

Trade associations (sec. 501(c)(6)) 81,489

Social clubs (sec. 501(c)(7)) 67,001

Fraternal benefit societies (sec. 501(c)(8)) 84,051

Voluntary employees’ beneficiary associations (sec. 501(c)(9)) 13,848

Domestic fraternal organizations (sec. 501(c)(10)) 23,227

Teachers’ retirement fund associations (sec. 501(c)(11)) 14

Benevolent life insurance associations, mutual ditch or irrigation

companies, mutual or cooperative telephone companies, or like

organizations (sec. 501(c)(12)) 6,461

Cemetery companies (sec. 501(c)(13)) 9,978

Nonprofit credit unions (sec. 501(c)(14)) 4,402

Certain insurance companies or associations (sec. 501(c)(15)) 1,298

Crop-financing corporations (501(c)(16)) 23

Supplemental unemployment compensation trusts (sec. 501(c)(17)) 515

Employee-funded pension trusts (sec. 501(c)(18)) 2

U.S. armed forces posts or organizations (sec. 501(c)(19)) 35,499

Black lung trusts (sec. 501(c)(21)) 28

Multiemployer plan trusts (sec. 501(c)(22)) 0

Armed forces insurance associations (sec. 501(c)(23)) 2

Trusts described in ERISA section 4049 (sec. 501(c)(24)) 1
Category of Organization Number of

Organizations

225 For a detailed discussion of filing requirements for tax-exempt organizations, see Joint

Committee on Taxation, Study of Present-Law Taxpayer Confidentiality and Disclosure Provisions

as Required by Section 3802 of the Internal Revenue Service Restructuring and Reform Act of

1998, Volume II: Study of Disclosure Provisions Relating to Tax-Exempt Organizations (JCS-1-

00), January 28, 2000.

The requirement of filing an annual information return does not apply to several categories

of tax-exempt organizations. Organizations excepted from the filing requirement include:

churches, their integrated auxiliaries, and conventions or associations of churches; certain

organizations (other than private foundations), the gross receipts of which in each taxable year are

normally not more than $25,000; the exclusively religious activities of any religious order; section

501(c)(1) instrumentalities of the United States; section 501(c)(24) trusts described in ERISA

section 4049; an interchurch organization of local units of a church; certain mission societies; and

certain church-affiliated elementary and high schools.

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Title-holding corporations or trusts (sec. 501(c)(25)) 1,102

State-sponsored high-risk health insurance pools (sec. 501(c)(26)) 8

State-sponsored workers’ compensation organizations (sec.

501(c)(27))

5

Source: IRS Exempt Organizations/Business Master File Table 3

B. Annual Filing Requirements for Tax-Exempt Organizations

Tax-exempt organizations generally are required to file an annual information return with

the IRS.225 An organization that has not received a determination of its tax-exempt status, but

that claims tax-exempt status under section 501(a), is subject to the same annual reporting

requirements and exceptions as organizations that have received a tax-exemption determination.

Most tax-exempt organizations are required to file annually Form 990 (Return of

Organization Exempt From Income Tax). Section 501(c)(3) organizations that are classified as

public charities must file Form 990 and an additional form, Schedule A, which requests

information specific to section 501(c)(3) organizations. An organization that is required to file

Form 990, but that has gross receipts of less than $100,000 during its taxable year, and total

assets of less than $250,000 at the end of its taxable year, may file Form 990-EZ instead of Form

990.

On the applicable annual information return, organizations are required to report their

gross income, information on their finances, functional expenses, compensation, activities, and

other information required by the IRS in order to review the organization’s activities and

operations during the previous taxable year and to review whether the organization continues to
226 Public charities that make the section 501(h) lobbying election and that incur tax for

excess lobbying expenditures must also file Form 4720. 

227 The IRS speculates that the increase in Forms 990 recorded as filed in 1997 may have

resulted from the centralization of Form 990 processing at the IRS Service Center in Ogden, Ohio.

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meet the statutory requirements for exemption. Form 990 also requires disclosure of certain

activities including the following:

(a) Political expenditures: Line 81a of Form 990 requires the disclosure of the

amount of expenditures, direct or indirect, intended to influence the selection,

election, or appointment of anyone to political office.

(b) Lobbying activities: Schedule A, Part III and Parts VI-A and VI-B requires public

charities to quantify their attempts to influence national, state, or local

legislation.226

An organization described in section 501(c) or section 527 must file Form 1120-POL for

any year in which it has net investment income and expends any amount to influence the

selection, nomination, election or appointment of any individual to office, for which the

combined total expenditure for the taxable year is $100 or greater.

Table 2, below, provides the number of Forms 990, Forms 990-EZ, and Forms 1120-POL

filed in calendar years 1996, 1997, 1998.

Table 2.--Returns Filed for Tax-Exempt Organizations

Returns Filed 1998 1997 1996

Form 990 287,627 320,130227 281,864

Form 990-EZ 124,076 124,551 118,271

Form 1120-POL 5,649 6,006 4,363

Source: IRS Statistics of Income samples of joint returns posted for tax periods December 1996 -

November 1997, December 1995 - November 1996, and December 1994 - November 1995.
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Table 3, below, reports the number of 501(c)(3) organizations that reported political

expenditures on Form 990 in 1994 and 1995 and the aggregate expenditure of all organizations

that reported.

Table 3. - Political Expenditures and Expenses Incurred

to Influence National, State, or Local Legislation Reported by 501(c)(3)

Tax-Exempt Organizations on Form 990,

1994 and 1995

1994 1995

Number

of

Returns

Aggregate

Dollar

Expenditures

Reported

on All Returns

Number

of Returns

Aggregate

Dollar

Expenditures

Reported

on All Returns

Political Expenditures

(Line 81a of Form 990) 309 $4,498,540 470 $3,498,996

Expenses Incurred to

Influence National, State, or

Local Legislation

(Part III, line 1, Schedule A) 2,658 $247,765,988 2,380 $91,246,395

source: Internal Revenue Service, Statistics of Income Division and Joint Committee on Taxation

staff calculations.
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Table 4, below, reports the political expenditures reported on Form 990 for organizations

that are tax exempt under Code sections 501(c)(4), 501(c)(5), 501(c)(6), 501(c)(7), 501(c)(8), and

501(c)(9). In addition, Table 4 reports the number of such organizations that reported filing a

Form 1120-POL.

Table 4. - Reported Political Expenditures of 501(c)(4)-501(c)(9)

Tax-Exempt Organizations Reported on Form 990,

1994 and 1995

1994 1995

Number

of

Returns

Aggregate Dollar

Expenditures

Reported

on All Returns

Number

of

Returns

Aggregate Dollar

Expenditures

Reported

on All Returns

Political Expenditures

(Line 81a of Form 990) 1,274 $20,069,432 1,280 $19,025,702

Filed Form 1120-POL 811 $17,832,559 970 $9,750,707

source: Internal Revenue Service, Statistics of Income Division and Joint Committee on Taxation

staff calculations.

The IRS conducts examinations annually of selected returns filed by tax-exempt

organizations. Table 5, below, provides the number of tax-exempt organization return

examinations of Form 990, Form 990-EZ, and Form 1120-POL completed in fiscal years 1997

through 1999.

Table 5.--Number of Form 990, 990-EZ, and 1120-POL Return Examinations Closed 

Form FY 1999 FY 1998 FY 1997

Forms 990, 990-EZ (All Other TaxExempt Organizations)4,170 4,145 4,166

Form 1120-POL 75 107 30

Source: IRS Audit Information Management System, Tables 20.1 and 20.3.
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VI. DESCRIPTION OF CERTAIN PROPOSALS TO INCREASE DISCLOSURE OF

POLITICAL ACTIVITIES BY TAX-EXEMPT ORGANIZATIONS

A. H.R. 4168 (the “Underground Campaign Disclosure Act of 2000"),

Introduced by Mr. Doggett and Others

In general

H.R. 4168 would increase the reporting and disclosure of information by political

organizations (as defined in section 527(e), but without regard to whether an organization claims

the specific tax treatment contained in section 527.) An organization that engages in activities

defined in section 527(e) is treated as a political organization subject to reporting and disclosure

requirements even if the organization does not file a Form 1120-POL.

Statement of organization

Under the bill, a political organization would be required to file a statement of

organization with the Secretary of the Treasury no later than 10 days after the date the

organization is established (or, if earlier, 10 days after the date of enactment).

The statement of organization would be required to include the following information:

(1) the name and address of the organization;

(2) the name, address, relationship, and type of any person directly or indirectly related to

or affiliated with the organization;

(3) the name, address, and position of the custodian of books and accounts of the

organization;

(4) the name and address of the treasurer of the organization; and

(5) a listing of all banks, safety deposit boxes, and other depositories used by the

organization.

In addition, under the bill, if the information contained in the statement of organization

ceases to be accurate, the organization is required to file a corrected statement with the Secretary

of the Treasury no later than 10 days after the information ceases to be accurate.

For purposes of the statement of organization, a person is considered directly or indirectly

related to or affiliated with a political organization if, at any time during the 3-year period ending

on the date of the statement, the person was in a position to exercise substantial direct or indirect

influence over the process of collecting or disbursing the exempt purpose funds of the

organization or was in a position to exercise substantial, overall direct or indirect influence over

the activities of the organization.
228 2 U.S.C. 434(a).

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Under the bill, the present-law public inspection requirements of section 6104 would be

extended to the statement of organization required to be filed for political organizations. Thus, a

copy of the statement of organization would be required to be made available by the organization

for inspection during regular business hours at the principal office of the organization and, if the

organization maintains at least one regional or district office with 3 or more employees, at each

such regional or district office. In addition, an individual would be permitted to request a copy of

such statement of organization.

The penalty for failure to file properly the required statement of organization would be

$100 for each day during which such failure continues, up to a maximum of $50,000 on failures

with respect to one statement of organization. In addition, the bill would permit the Secretary of

Treasury to make a written demand of a political organization of a reasonable future date by

which a statement of organization will be filed. Any person who fails to comply with such a

written demand would be subject to a penalty of $10 per day for each day after the expiration of

the time specified in the demand for filing, up to a maximum penalty with respect to such

statement of $5,000.

The penalty for failure to satisfy the public inspection requirements with respect to a

statement of organization would be $20 for each day during which such failure continues up to a

maximum of $10,000 with respect to each failure.

Statement of contributions and disbursements

The bill would require a political organization to file a statement of contributions and

disbursements with the Secretary of the Treasury for each reporting period.

Under the bill, the reporting periods and deadlines generally would be the same as those

required for reports under the Federal Election Campaign Act of 1971 (“FECA”).228 In general,

the FECA specifies different reporting periods and deadlines depending upon whether it is an

election or non-election year and the nature of the organization (i.e., principal campaign

committee of a candidate for the House of Representatives or Senate, principal campaign

committee of a candidate for the office of President, or a political committee other than an

authorized committee of a candidate). Under the FECA, reporting can be required monthly,

quarterly, or semi-annually and special pre- and post-general election reports are required. Under

the bill, in the case of a political organization organized and operated exclusively for the purpose

of securing the nomination, election, or appointment of a candidate for State, local, or judicial

office, the reporting period would be the organization’s taxable year and the deadline for

reporting would be the due date for the organization’s annual return, whether or not the

organization is required to file an annual return.

Under the bill, the statement of contributions and disbursements would be required to
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include the following information:

(1) the name and address of each person to whom the organization made any

disbursement during the reporting period in excess of $200 within the calendar year;

(2) a certification, under penalty of perjury, whether the disbursement is made in

cooperation, consultation, or concert with, or at the request or suggestion of, any

candidate for public office or any authorized committee of such a candidate;

(3) the name, address, occupation, and employer name of each person who made a

contribution in excess of $200 to the organization during the reporting period;

(4) the name, address, and business purpose of any entity that made a contribution in

excess of $200 to the organization during the reporting period;

(5) in the case of an entity described in (4), whether the entity claims to be exempt from

tax and the basis for the tax-exempt status; and

(6) the original source and the intended ultimate recipient of all contributions made by a

person directly or indirectly, including contributions that are earmarked or otherwise

directed through an intermediary.

Modification of Federal gift tax provisions

The bill provides that the present-law exclusion from the Federal gift tax for transfers to

political organizations described in section 527 would not apply to a political organization that

fails to satisfy the reporting and disclosure requirements under the bill.

Effective date

The bill would be effective on the date of enactment.
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B. H.R. 3688 (the “Campaign Integrity Act of 2000"),

Introduced by Mr. Moore and Others

In general

H.R. 3688 would amend the definition of a political organization in section 527(e) of the

Code to require that such an organization file an annual statement with the Secretary of the

Treasury certifying that the organization is in compliance with reporting requirements under the

FECA, as amended by the bill. The annual statement would be required to be filed no later than

the due date for the annual return for the organization, whether or not the organization is required

to file an annual return for such year.

Under the bill, the annual statement would not be required by the following

organizations:

(1) any organization that exists for the exclusive purpose of influencing or attempting to

influence (a) the selection, nomination, or appointment of any individual to State or local

public office or office in a State or local political organization, (b) the appointment of any

individual to any Federal public office, or (c) the selection, nomination, election, or

appointment of any individual to any office in a political organization;

(2) any committee, club, association, or other group of persons (other than a separate

segregated fund established under the FECA) that accepts contributions or makes

expenditures during a calendar year in an aggregate amount of less than $5,000; and

(3) any political committee described in section 301(4) of the FECA (generally, any

committee, etc., that accepts contributions or makes expenditures of less than $1,000 in

the aggregate for the calendar year, any separate segregated fund established under the

FECA, or any local committee of a political party that accepts contributions or makes

expenditures during a calendar year of less than $5,000).

However, under the bill, an organization cannot fall into the exception described in (1), above, if

a payment is made during an election cycle for any communication that mentions a clearly

identified candidate for election for Federal office or that contains the likeness of such a

candidate, other than certain news stories, commentaries, and editorials and certain payments

made or obligations incurred by a corporation or labor organization that would not constitute an

expenditure by such corporation or labor organization under the FECA.

Reporting requirements under FECA

Under the bill, a section 527 organization satisfies the reporting requirements under the

FECA if the organization files a statement of organization with the Federal Election Commission

no later than 10 days after the organization first receives or spends an aggregate amount of at

least $5,000 during the year for an exempt function as defined in section 527. In addition, the

organization would be required to file with the Federal Election Commission a report of receipts

and disbursements at the same time and in the same manner as a political committee is required
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to file under the FECA.

The statement of organization would be required to contain the following information:

(1) the name, address, and type of organization;

(2) the name, address, relationship, and type of connected or affiliated organization;

(3) the name, address, and position of the custodian of books and accounts of the

organization;

(4) the name, address, and position of the president, chief executive officer, or similar

authority of the organization.

The report of receipts and disbursements would be required to contain the following

information:

(1) the amount of cash on hand at the beginning of the reporting period;

(2) for the reporting period and the calendar year, the total amount of all receipts, and the

total amount of receipts in the following categories:

(a) receipts from persons other than political committees,

(b) receipts from political party committees,

(c) receipts from other political committees,

(d) all loans (other than loans made by or guaranteed by a candidate), and

(e) dividends, interest, and other forms of receipts;

(3) the identification of the following:

(a) each person (other than a political committee) who makes disbursements to the

organization in excess of $200 within the calendar year and the date of

disbursements made,

(b) each political committee that makes a disbursement to the organization during

the reporting period, with the date and amount of each such disbursement,

(c) each person who makes a loan to the organization during the reporting period,

including any endorser or guarantor and the date and amount or value of the loan,

(d) each person who provides a rebate, refund, or other offset to an organization’s

operating expenditures in excess of $200 for the calendar year, with the date and

amount of the receipt,

(e) each person who provides any dividend, interest, or other receipt to the

organization in excess of $200 for the calendar year, with the date and amount of

the receipt;

(4) for the reporting period and the calendar year, the total amount of all disbursements,

and all disbursements in the following categories:

(a) disbursements to persons other than political committees,

(b) disbursements to political party committees,

(c) disbursements to other political committees,

(d) the repayment of all loans (other than loans made by or guaranteed by a

candidate), and

(e) any other disbursements; and
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(5) the name and address of each

(a) person to whom disbursements in excess of $200 for the calendar year are

made to meet a candidate or organization operating expenses, with the date,

amount, and purpose of the expenditure,

(b) person who receives a loan repayment during the reporting period, with the

date and amount of the repayment, and

(c) person who receives a refund or offset to receipts from the organization,

together with the date and amount of such disbursement.

Effective date

The bill would be effective on the date of enactment.