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501(c) Organizations & Political Activities

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501(c) Organizations & Political Activities

Citzens United v. FEC

The Supreme Court's recent opinion in Citizens United v. FEC changes the rules for 501(c) corporations that engage in partisan political activity. The decision will not affect 501(c)(3)s, which are prohibited under the tax laws from engaging in any electioneering activities, and it will not affect lobbying and other non-electoral activities by tax-exempt organizations. It is strictly about activities designed to influence the outcome of elections, which is permitted under the tax laws for 501(c)(4)s, 501(c)(6)s and other 501(c) groups, as long as such activities do not constitute the primary purpose of such organizations. For organizations that engage (or plan to engage) in such activities, the boundary lines have been redrawn.


Before Citizens United, 501(c) corporations were subject to federal election law limits when engaging in electoral activities that prevented them from making expenditures for what are known as "express advocacy" communications (also called "independent expenditures" under the election laws when not coordinated with a candidate or political party). Express advocacy communications are those that directly instruct a voter how to vote (e.g., "Vote for candidate X," "Support candidate Y" or "Oppose candidate Z"). Before Citizens United, under the McCain Feingold Act, corporations were also banned from making "electioneering communications," which were essentially broadcast advertisements aiming to influence elections within 30 days of a primary or 60 days of a general election.


The Supreme Court has now held that both of the restrictions described above are unconstitutional limits on free speech, clearing the way for corporations to make unlimited expenditures from their treasury funds on these types of communications. The opinion applies to, and invalidates, state and local election laws as well as federal laws to the extent they place limits on such communications. Note that the disclaimer and disclosure requirements imposed by the federal election laws in connection with political expenditures remain in place, as do the limits on direct corporate contributions to candidates. And as noted above, partisan political expenditures by 501(c) organizations will still be limited by the tax law requirement that such organizations have a primary purpose other than engaging in electioneering activity. In certain circumstances, a tax will apply to such expenditures.

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