Tax Laws Specify Ways Groups Can Play Politics

To the Editor:

An article in your November 13 issue characterized the use of political organizations by social-welfare organizations as a way to “get around” the limitations on political activities that are imposed on social-welfare groups (“I.R.S. Rulings on Politics Stir Controversy,” Tax Watch). The fact is that this is not an example of “getting around” anything. This is the way it is supposed to be done.

The use of political organizations in this manner is one of many instances of bifurcation in the exempt-organizations setting. Thus, a charitable organization can indirectly engage in more lobbying than it can do directly by utilizing a related social-welfare-advocacy entity. A trade association can operate a related foundation, which can receive deductible gifts and grants that the association cannot obtain. A tax-exempt organization can utilize a taxable subsidiary or a partnership in which to house sizeable unrelated business.

These and other forms of in-tandem operations are not instances of “getting around” a principle of law. They are proper uses of the law by placing the appropriate functions in the appropriate organizations.

Tax-exempt social-welfare organizations — Internal Revenue Code Section 501!#*copyrt(4) entities — are allowed, under the tax law, to engage in an insubstantial amount of political campaign activity. Some of this political activity, however, is not permitted by the federal election laws (such as campaign contributions).

Tax-exempt political organizations — Internal Revenue Code Section 527 entities — have as their exempt function participation or intervention in political campaigns on behalf of or in opposition to candidates for public office. Thus, these organizations can do many things that the tax law (and the election law) does not allow social-welfare organizations to do.

The Chronicle’s article focused on social-welfare organizations referenced in two recent Internal Revenue Service private-letter rulings (9725036 and 9652026). Both of these organizations, for years, have maintained related political organizations (political-action committees). The social-welfare organizations, however, set up second political organizations, which do not directly involve themselves in attempts to elect or defeat candidates.

Instead, these political organizations engage in election-year voter-education activities. In this way, the social-welfare organizations are able to raise public consciousness about issues of concern to them and to focus on the positions of public officials and candidates on these issues. This is done, in part, by addressing past legislative decisions by legislators by paying for the distribution of incumbents’ voting records. These distributions are targeted to particular locations and timed in relation to elections.

Political organizations also pay for grassroots lobbying messages timed in relation to elections, as well as for voter guides and other handouts that may be used in door-to-door canvassing, with the political interests of the social-welfare organization in mind. …

The Chronicle article pronounces these arrangements to be “controversial,” but that is not the case. (In both rulings, the social-welfare organizations have had a related political organization for “many years.”) If anything is controversial in these rulings, it is the view of the I.R.S. that grassroots lobbying of this nature is also political campaign activity. . . .

Such grassroots lobbying, the I.R.S. said, has a “political purpose,” even though there is no express advocacy of the election or defeat of any particular candidate. The targeting of the materials and the timing of their distribution means that there is a “link” between the issues involved and the candidates, according to the I.R.S., with the link “reinforced” through the voting records and the voter guides.

Bruce R. Hopkins
Polsinelli, White, Vardman & Shalton
Kansas City, Mo.