POLITICAL ACTION COMMITTEES - A PRIMER
Whatever the focus of a nonprofit organization – from homelessness prevention to environmental protection to business associations – the organization’s ability to achieve positive outcomes for constituents is impacted by public policy decisions at the federal, state, or even local level. Many organizations recognize the value and importance of engaging in lobbying activity to advocate for their affected populations. In order to maximize its impact, a nonprofit may consider engaging in the political process through a political action committee or “PAC.” A PAC is another important tool to secure positive outcomes in support of a nonprofit’s mission. As is the case with lobbying, a tax-exempt organization must be sure to follow a variety of rules and restrictions applicable to engaging in electoral campaign activity.
Acceptable levels of electoral campaign activity vary by type of tax-exempt organization. There is an absolute prohibition on electoral activity for charitable organizations exempt under section 501(c)(3) of the tax code. Social welfare organizations exempt under section 501(c)(4) – and similar organizations like 501(c)(5) labor organizations and 501(c)(6) business leagues – are permitted to engage in a substantial amount of political activity, so long as electioneering is not the organization’s “primary purpose.” Unlike all other tax-exempt organizations, a political action committee may devote its activities exclusively to elections, and in many cases, the political action committee can be explicitly connected to, and share the mission of, a tax-exempt organization of another type. By carefully structuring organizations and allocating activities and resources between them, a group of individuals devoted to a tax-exempt purpose can safely and legally engage in the full gamut of programs on behalf of their affected population, from charitable activities to supporting candidates for office, or any combination in between.
Engaging in electoral campaign activity in pursuit of an exempt purpose does involve some additional compliance burden, but the benefits can be significant. Establishing a political action committee to make monetary contributions, release supportive public communications, or even organize volunteer activities in support of a candidate are all effective ways of demonstrating the organization’s alignment with a candidate’s positions and potentially pave the way for future lobbying initiatives. In many cases, the outcome of an election itself can be the factor that determines whether an organization’s priorities are included in the public budget, whether an organization’s signature policy gets consideration in legislative committee, or whether regulatory standards are well designed to serve the needs of the organization’s constituency, so the benefits are often felt directly.
Establishing and operating a political action committee requires considerable forethought and preparation in order to ensure the committee’s activities and relationship to other entities doesn’t run afoul of IRS rules for tax-exempt organizations or state and federal campaign finance laws. The political action committee is a separate entity which will need its own officers, bank accounts, bylaws, and resources. Depending on the type of committee, it will need to register with the federal or state campaign finance authority and will be expected to comply with ongoing periodic reporting obligations. The committee will also need to ensure it complies with a variety of rules that require disclaimers on communications, set contribution limits, mandate certain contributor data collection, and other requirements. Adherence to these campaign finance rules is critical as violations can lead to hefty fines and tarnished reputations.
If you are considering whether a political action committee might be a helpful tool for achieving your nonprofit organization’s goals, please don’t hesitate to be in touch with us to learn more about successfully navigating the process.
