August 22, 2023
House Ways and Means Committee seeks comments on tax-exempt organizations' political activities
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:
Comments in response to these requests may be submitted to waysandmeansRFI@mail.house.gov by September 4, 2023.
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.
Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor