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Two members of the House Ways and Means Committee — Chairman Jason Smith (R-Missouri) and Subcommittee on Oversight Chairman David Schweikert (R-Arizona) — have issued a "Request for Information," or public comment, on tax-exempt organizations' political activities and whether they are receiving funding (including foreign funds) that they are using to influence US elections. Reps. Smith and Schweikert point to news reports indicating tax-exempt organizations under IRC Sections 501(c)(3) and 501(c)(4) have accepted donations from large corporations that may "help one political party over another," and that foreign funds are flowing through such organizations to influence US politics. Their Request for Information also cites reports of tax-exempt organizations mishandling funds by using the funds to pay for personal expenses, instead of for their tax-exempt purposes.

Because of these reports, Reps. Smith and Schweikert are seeking from the public the following information on whether:

1. It would help IRC Section 501(c)(3) and 501(c)(4) organizations if the IRS issued updated guidance on the "political campaign intervention" definition and the extent to which IRC Section 501(c)(4) organizations may intervene in political campaigns
2. The current guidance on "political campaign intervention" covers new forms of political advocacy and, if not, what should be included in the IRS's updated guidance
3. There are "tax-exempt organizations whose voter education or registration activities [are suspected to] have had the effect of favoring a candidate or group of candidates, which would constitute prohibited participation or intervention" and what those activities are
4. Changes to Form 990 would help clarify how IRC Section 501(c) organizations are using contributions, especially contributions aimed at funding political activities and nonpartisan voter education activities
5. Congress should make policy changes that focus on money from foreign nationals flowing through tax-exempt organizations to influence elections
6. The IRS collects information from tax-exempt organizations that would assist the Federal Election Commission "in enforcing the foreign national prohibition under the Federal Election Campaign Act of 1971"
7. IRS examiners should review the national origin of donors of donations reported on Forms 990
8. Additional disclosures by tax-exempt organizations would assist in preventing contributions from foreign nationals to influence elections
9. There are tax-exempt organizations with "the true purpose of influencing elections in favor of one political party" and how those organizations are achieving that purpose
10. There are tax-exempt organizations that have misused donor funds to cover their executives' personal expenses or for something other than the donors' stated purposes

Comments in response to these requests may be submitted to waysandmeansRFI@mail.house.gov by September 4, 2023.

Implications

Congress's interest in certain lobbying or political campaign activity of tax-exempt organizations, as reflected in the Request for Information, typically swells as a new election cycle draws near. Although interest in this activity waxes and wanes, federal tax law governing lobbying and political activity of tax-exempt organizations has largely remained unchanged over the past 25-30 years. In summary, 501(c)(4) entities may engage in political activity, so long as they are primarily engaged in promoting social welfare; that is, the common good and general welfare of people in their community. Political campaign activity does not constitute the promotion of social welfare. IRC Section 501(c)(3) entities may not engage in any political campaign activity and can participate in limited lobbying activity so long as their lobbying comprises no more than an insubstantial portion of their total activities. During a political campaign season, activities that normally would comply with federal tax law (e.g., inviting a political office holder to speak at a charity's fundraising event) could constitute political campaign activity (e.g., if the political office holder speaking at the charity's fundraising event is campaigning for reelection).

With the scrutiny of lobbying and political activity by Congress, IRS and the press likely to increase in the upcoming campaign season, organizations engaging or looking to engage in political campaign and/or lobbying activities should freshly review those activities for compliance with federal tax rules. If they have concerns about potential noncompliance involving other exempt organizations' lobbying or political activity, or seek greater clarity in the rules, they should consider providing comments to the House Ways and Means Committee by September 4, in response to Reps. Smith and Schweikert's request.

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Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor