IRS: IRS Revenue Rulings

Revenue Rulings Relating to Section 501(c)(3) Organizations' Political Activities

The Internal Revenue Service has provided no precedential guidance on political activities of section 501(c)(3) public charities since 1986. During the intervening 18 years, much has changed with respect to the conduct of electoral campaigns and exempt organizations' roles in them. Inaction by the Internal Revenue Service means that the guidance does not reflect contemporary campaign practices. Exempt organizations that wish to operate within the law have little guidance and organizations that wish to push the boundaries of the law far beyond reasonable limits face few constraints. The consequences of this situation extend to other exempt organizations as well since the section 501(c)(3) definition of prohibited political activity is used to define the activities that are limited, but not prohibited, for section 501(c)(4) social welfare organizations, section 501(c)(5) labor organizations, and section 501(c)(6) trade associations.

The revenue rulings that the Internal Revenue Service has issued with respect to the political campaign activities of section 501(c)(3) organizations are listed below with brief descriptions of the topics each addresses. Revenue rulings are important because any exempt organization may cite them as authority. Private letter rulings, which are listed separately, can only be relied upon as authority that binds the Internal Revenue Service only by the organization to which a particular ruling was issued.

Revenue Ruling 67-71 denies section 501(c)(3) status to an organization that rates candidates in school board elections and campaigns on behalf of those candidates identified as supportive of the organization's goal of improving public education. Click here to read the Revenue Ruling 67-71.

Revenue Ruling 74-574 takes the position that a section 501(c)(3) organization that operates a noncommercial radio station does not participation or intervene in a political campaign by providing free air time to candidates consistent with the requirements of Federal Communications Act as then in effect. Click here to read Revenue Ruling 74-574.

Revenue Ruling 76-456 takes the position that a section 501(c)(3) organization that prepares and distributes a code of fair campaign practices but does not solicit signing or endorsement of the code by candidates is engaged in public education, not campaign participation or intervention. Click here to read Revenue Ruling 76-456.

Revenue Ruling 78-248 presents four fact patterns relating to voter guides. Those voter guides that address a broad range of issues are treated as public education, not as campaign participation or intervention. This ruling revokes Revenue Ruling 78-160, which had treated a voter guide as campaign participation or intervention because it solicited candidate's views on issues of concern to the organization and published the responses without editorial comment. Revenue Ruling 78-248 considers more factors and underscores that determinations in this area turn on all the facts and circumstances of each particular case. Click here to read Revenue Ruling 78-248.

Revenue Ruling 80-282 takes the position that publication in an organization's newsletter of the voting record of all members of Congress on selected legislative issues important to the organization constitutes public education, not participation or intervention in a political campaign. Click here to read Revenue Ruling 80-282.

Revenue Ruling 86-95 provides that conducting candidates forums open to all legally qualified candidates for Congress in a Congressional district is consistent with section 501(c)(3) status. The ruling also notes that the questions will be prepared by neutral parties and will cover a broad range of issues and the moderator will not indicate approval or disapproval of particular candidates. Click here to read Revenue Ruling 86-95.

Revenue Procedure 86-43 lists a variety of factors indicating that advocacy of a point of view is educational within the meaning of section 501(c)(3). The "methodology test" in this revenue procedure turns primarily on whether there is a factual basis for the claims made in the communication. However, other factors can also be considered in treating claims with a factual basis as participation or intervention in a political campaign, not as education of the public. A revenue procedure can be relied on by any organization, but revenue procedures, in contrast to revenue rulings, do not reach substantive conclusions. Click here to read Revenue Ruling 86-43.

Revenue Rulings Relating to Section 501(c)(4) Organizations' Political Activities

Revenue Ruling 67-368 denies section 501(c)(4) status to an organization having a primary purpose of rating candidates for local offices even though the rating was determined on a nonpartisan basis. Click here to read Revenue Ruling 67-368.

Revenue Ruling 81-95 provides that section 501(c)(4) organizations may participate in political campaign activities provided that these activities are not the organization's primary activities. This ruling does not provide guidance on what types of activities constitutes political campaign activities but instead cross-references the section 501(c)(3) revenue rulings listed above for guidance on this issue. The ruling also notes that the organization may be subject to tax under section 527. This issue is addressed in Revenue Ruling 2004-6. Click here to read Revenue Ruling 81-95.

IRS Revenue Ruling number 2004-06 on Public Policy Advocacy of Non-Profit Organizations

The IRS addresses the specific technical issue of how section 527 applies to certain electoral campaign activities of section 501(c)(4) social welfare organizations, section 501(c)(5) labor unions, and section 501(c)(6) trade associations. While section 527 generally provides that political organizations will be exempt from federal income tax with respect to expenditures for exempt function activities, section 527(f)(1) provides that section 501(c) organizations will be taxable on expenditures for these same activities. This means that a social welfare organization or labor union or trade association will be bifurcated, in effect, into a section 501(c) organization and a section 527 organization for this purpose. Rev. Rul. 2004-6 identifies factors that indicate that the listed section 501(c) organizations may or may not be taxable on these section 527 activities and then applies these factors in six examples.

The ruling does not address many of the issues that are important for social welfare organizations, labor organizations, or trade associations that contemplate certain types of advocacy activities during an election campaign. The ruling does not address issues of qualification for exemption. Instead, the ruling assumes that the organizations discussed in the examples continue to qualify for exemption. None of the examples addresses the scope of the section 527 exempt function activities as a proportion of the organization's total activities. This is possible because each of the types of exempt organization to which the ruling applies may, consistent with its exempt status, engage in some unspecified amount of election activity. It should be noted that the ruling does not apply to section 501(c)(3) organizations, which cannot engage in any activity which constitutions prohibited election activity. Thus, the ruling should not be read as addressing the definition of what types of activities are permissible or impermissible for section 501(c)(3) organizations.

The ruling does not address the difficult issues raised by the intersection of election law and tax law. The examples are carefully crafted to avoid the FECA provisions on electioneering communication, which indicates that the IRS is not yet prepared to address the question of the implications of funding electioneering communications on exempt status.

Click here to read the IRS' Revenue Ruling in its entirety.

IRS Q&A on Disclosure Requirements for Tax-Exempt Political Organizations

The IRS has adopted a revenue ruling providing questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527 of the Internal Revenue Code. The document accounts for recent modifications made by Congress to the disclosure regime for tax-exempt political organizations. The new Revenue Ruling will appear in the 2003-20 IRB published on May 19, 2003.

Click here to view Revenue Ruling 2003-49 in its entirety.