Ways & Means Inquiry into Tax Exempt Orgs’ “Political Campaign Intervention” May Have Unintended Consequences

House Ways and Means Chair Jason Smith (R-MO) and Oversight Subcommittee Chair David Schweikert (R-AZ), issued a letter this week on regulations surrounding political involvement by tax-exempt organizations. In the letter, Reps. Smith and Schweikert cited potential for foreign influence through 501(c)(3) and 501(c)(4) groups in American elections and sought input while hinting that legislative action may be necessary which could unintentionally impact a wide range of (c)(3) and (c)(4) organizations. 

Jeffrey P. Altman, a Partner at Whiteford, assessed the letter by saying, “Of particular relevance to the ASAE community, the letter is an important reminder that organizations with affiliated Section 501(c)(3), Section 501(4) or (6), PACs and SuperPacs may engage in a wide range of educational, issue advocacy, voter registration, lobbying and political campaign activities. In doing so, however, they must be extremely careful how they share staff, facilities, and funding, as well as how these activities are separately reported to the IRS and FEC. It will be interesting to see what responses are submitted, but any attempt to define more clearly what activities are designed to influence elections will not be easy, since the “expansion of politics into almost all aspects of life means that activities that were previously nonpartisan have been made partisan” as the letter concludes. A question that was not asked, is whether the IRS is equipped or should be charged with further developing and enforcing subjective definitions to regulate free speech and associational rights that are guaranteed by the Constitution.” 

Reps. Smith and Schweikert seem particularly concerned about the possibility of ideological groups exploiting loopholes to direct large sums of money towards election efforts. Their letter highlighted a lack of transparency and called for responses to 10 questions, addressing issues such as political intervention definitions, law violations, and foreign funding in various organizations. 

Noting the potential for a significant impact across the non-profit community, association attorney Jeff Tenenbaum, Managing Partner of the Tenenbaum Law Group, said, “Any time that Congress revisits existing requirements, limitations, and prohibitions for any category of tax-exempt organization, there is the risk of a spillover effect and unintended consequences for all tax-exempt entities. We have seen that happen numerous times in the past. Even though the initial inquiry may be focused on 501(c)(4)/(c)(3) affiliations in the political campaign space, any new rules put into place to regulate that space have a high likelihood of adversely affecting the very important 501(c)(6)/(c)(3) affiliations that exist throughout the association community.” 

The focus of the Smith-Schweikert letter seems to stand in notable contrast to Trump Administration Treasury Department regulations which stopped the requirement for 501(c)(4) and 501(c)(6) organizations to disclose donors on the Schedule B of their Form 990.

“Charitable nonprofits have always been prohibited from engaging in express political activity, and there are reporting requirements and penalties in the tax code to ensure compliance with those restrictions,” said Sara Barba, Principal, Integer, LLC. “ It is responsible of Committee Chair Smith and Subcommittee Chair Schweikert to solicit feedback from those with experience in this space, but any future legislative action that results from this inquiry must keep in mind the consequences that further restrictions on charities could have for the democratic process as well as the communities that rely on their services.”

The deadline for comments to the Smith-Schweikert letter is September 4th.