ORGANIZATION'S POLITICAL ACTIVITIES ARE EXEMPT FUNCTIONS.

UIL: 0527.00-00, 4941.04-00

[1] This is in response to your representative's letter of October 28, 1998, as revised by his submission dated December 14, 1998. You have requested rulings with respect to whether a broad range of activities, from contributions to the campaigns of certain candidates and political advertising expressly advocating the election or defeat of named candidates, to more indirect political activities such as mass media campaigns, initiative campaigns and litigation strategically aimed at altering the political process, constitute exempt functions under section 527(e)(2) of the Internal Revenue Code.

[2] You are a nonprofit corporation, organized and operated as a section 527 political organization. You state that the main part of your program centers on issue advocacy connecting public concerns about your chosen issue to the views and records of federal, state, and local candidates and incumbents. You indicate that the political nature of your issue advocacy program is supported by your mission statement, the timing and targeting of messages, and the variety of ways in which you plan to use ballot measures and other public opinion campaigns to affect the candidate selection process.

[3] Your program will initially focus on local, state, and federal elections in five states. The program may include the development and distribution of voter guides and voting records, mass media advertisements, grassroots lobbying, direct mail campaigns, and the active use of ballot measures, referenda, initiatives, and other public opinion campaigns, all linked to the primary purpose of influencing the political process in those states. These activities will occur over several election cycles.

[4] You will select certain issues to emphasize based on their importance to your agenda and their expected resonance with the public. You may conduct voter opinion polls, focus groups, opinion research, meetings and conferences, and other related activities to determine which issues deserve special emphasis. The particular issues may vary from community to community. You plan to inject these issues into selected political campaigns for the purpose of encouraging candidates to adopt certain positions, and encouraging voters to give greater weight to certain issues when voting.

[5] Each project you undertake is to be authorized by a resolution of your board of directors that describes the specific electoral goal of the project. The electoral goal will be substantiated in one or more of the following ways (hereinafter referred to as "substantiation methods"):

     1. The written opinion of one or more experts in the fields of

A. Traditional candidate campaign expenditures

[7] You plan, as a minor part of your program activities, on making expenditures reportable under the Federal Election Campaign Act and parallel state campaign finance laws. These would include contributions of cash or in-kind services to assist the campaigns of candidates in selected areas and independent expenditures expressly advocating the election or defeat of identified candidates in selected areas.

[8] Section 527(e)(1) of the Code defines the term "political organization" as a party, committee, association, fund or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

[9] Section 527(e)(2) of the Code defines the term "exempt function" to mean, in relevant part, the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected or appointed.

[10] Section 1.527-2(c)(1) of the Income Tax Regulations provides that expenses directly related to an "exempt function," as defined in section 527(e)(2), include all activities that are directly related to and support the process of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to public office or office in a political organization (the selection process). Whether an expenditure is for an exempt function depends upon all the facts and circumstances. Generally, where an organization supports an individual's campaign for public office, the organization's activities and expenditures in furtherance of the individual's election or appointment to that office are for an exempt function of the organization. The individual does not have to be an announced candidate for the office. Furthermore, the fact that an individual never becomes a candidate is not crucial in determining whether an organization is engaging in an exempt function.

[11] Contributions to candidates' campaigns and expenditures expressly advocating the election or defeat of candidates are within the meaning of "directly related" expenses in the definition of exempt function set forth in section 1.527-2(c)(1) of the regulations.

B. Voter education linking issues with candidates

[12] You will develop and distribute voting records and voter guides, conduct grass roots lobbying, and employ other methods of voter education using a particular approach that is distinguishable from charitable nonpartisan voter education activities permitted for section 501(c)(3) organizations. You may disseminate voter guides, voting records, grass roots lobbying messages, and other forms of voter education through television, radio, newspaper, newsletters, magazines and other print media, on-line electronic transmission, mail (including a direct mail campaign), telephone banks, facsimile transmission, posting of signs, public meetings, rallies, media events, door-to-door canvassing and other forms of direct contact with the public.

[13] You indicate that issues will be selected based on a combination of your legislative priorities, your general public policy agenda, and public opinion research. The issues selected will encourage differentiation between candidates whose views on the identified issues agree with yours and their election opponents. Distribution of all materials and the scheduling of events will be targeted toward particular areas of the states in which you have a political interest and believe you can have a political impact. You will develop a list of electoral districts to be targeted, primarily for political reasons.

[14] In addition, the various parts of the voter education element of your program will contain the following features:

     1. Voter guides: Candidate information and comparisons will

[16] Rev. Rul. 78-248, supra, indicates that whether an organization is participating or intervening, directly or indirectly, in a political campaign depends upon all of the facts and circumstances. The ruling sets forth four situations with different outcomes.

[17] Situations 1 and 4 involve compilations of officeholders' voting records. In Situation 1, the activity is permissible given the following factors: the publication contains voting records of all members of Congress on "major legislative issues involving a wide range of subjects," the publication does not imply approval or disapproval of any members or their records; and the publication is compiled annually and made available to the public. By contrast, in Situation 4, where an organization that is primarily concerned with land conservation issues presents incumbents' voting records only on issues of importance to the organization, and widely distributes the guide among the electorate during an election campaign, the activity is prohibited political activity even though the materials contain no express statements supporting or opposing any candidate.

[18] Situations 2 and 3 involve publicly distributed voter guides presenting candidates' positions on the issues based on candidates' responses to a questionnaire. In Situation 2, the organization solicited from all candidates for governor a brief statement of the candidate's position on a wide variety of issues. The results then were published in a voters' guide made available to the public. The activity is permissible where the organization selects the issues "solely on the basis of their importance and interest to the electorate as a whole" and "neither the questionnaire nor the voters guide, in content or structure, evidences a bias or preference with respect to the views of any candidate or group of candidates." In Situation 3, the same questionnaire-based voter guide is considered prohibited political activity where some questions evidence a bias on certain issues.

[19] Rev. Rul. 80-282, supra, holds that the publication of a newsletter containing voting records of congressional incumbents on selected issues would not, based on these facts, constitute participation or intervention in a political campaign within the meaning of section 501(c)(3). The ruling restates the rule that whether an organization is participating or intervening, directly or indirectly, in a political campaign depends upon all of the facts and circumstances.

[20] In this case, the format and content were not neutral. The newsletter reported the incumbents' votes on selected issues of importance to the organization, stated the organizations' own views on the issues, and indicated whether the incumbent supported or opposed the organization's views. Weighing in favor of the conclusion that the publication of voting records did not constitute direct or indirect participation or intervention in a political campaign were the following factors: the publication presented the voting records of all incumbents and pointed out the limitations of judging qualifications based on voting records; and the publication did not identify who was running for reelection nor comment on individuals' overall qualifications for office nor expressly or impliedly endorse any incumbent nor compare incumbents with candidates. Given that the format and content was not conclusive, the determining factor was the timing and nature of the distribution. The organization did not gear the timing of the distribution to any federal election and did not target distribution to any particular areas where elections were occurring. The voting record compilation was distributed only in the organization's newsletter to its regular subscribers numbering only a few thousand nationwide.

[21] Rev. Rul. 81-95, supra, holds that a section 501(c)(4) organization may participate or intervene in political campaigns and remain exempt under that section as long as it is primarily engaged in activities designed to promote social welfare. The ruling relies upon Rev. Rul. 78-248, supra, (pertaining to voter guides and voting records) and Rev. Rul. 80-282, supra, (pertaining to voting records), among others, as examples of what constitutes participation or intervention in political campaigns. The ruling further states that a section 501(c)(4) organization is subject to the tax imposed by section 527 on any of its expenditures for political activities that come within the meaning of section 527(e)(2).

[22] The regulatory scheme under section 527 distinguishes between "nonpartisan educational workshops" which are not intended to influence the selection and election process and are not exempt function expenditures, and seminars and conferences which are intended to have a political impact and which therefore are exempt function expenditures. See section 1.527-2(a)(3) and 1.527-2(c)(5) of the regulations. Example (8), described in section 1.527- 2(c)(5)(viii), relates to "Q," a political organization described in section 527(e)(2). In this example, "Q finances seminars and conferences which are intended to influence persons who attend to support individuals to public office whose political philosophy is in harmony with the political philosophy of Q. The expenditures for these activities are for an exempt function."

[23] A close reading of the Revenue Rulings along with the section 527 regulations provides guidance as to the type of activities that constitute participation or intervention in a campaign for public office and would be considered exempt function activities.

[24] Your publication and distribution of voter guides and voting records attempts to influence the public by linking candidates to the issues you are identified with. While both factual and educational, the selective content of this material, and the manner in which it is presented is intended to influence voters to consider particular issues when casting their ballot. The program will identify candidates whose views on selected issues are in harmony with yours.

[25] Unlike Situation 1 of Rev. Rul. 78-248, which was deemed to be acceptable voter education for a section 501(c)(3) organization, the issues you plan to cover will be dictated by your legislative agenda, and the targeted distribution and timing of the publications will be tied to upcoming elections. As in Situation 4 of Rev. Rul. 78-248, which was deemed unacceptable for a section 501(c)(3) organization, your materials will present incumbents' voting records on selected issues matching your legislative agenda, and will, by implication, approve or disapprove an incumbent's position based on how well it matches yours. You plan to distribute this material widely to voters prior to an election. The format and content of the voting records will not be neutral. Furthermore, the key factors present in Rev. Rul. 80-282 that tipped the balance in favor of acceptable voter education under section 501(c)(3) are not present in your case. You plan to intentionally target the distribution of voter guides to areas in which your legislative agenda is thought to be critical to voters' choices, and to time those distributions throughout election cycles to maximize their impact.

[26] A critical factor suggested by Situations 2 and 3 of Rev. Rul. 78-284 in determining whether a voter guide is nonpartisan, is whether the guide evidences a bias or preference with respect to the views of any candidate or group of candidates. Your voter guides, in which candidates' views on issues will be compiled without contacting the candidates themselves, are intended to evidence a bias on the issues, in the selection of the issues, in the language used in characterizing the issues, and in the format. As with the voting records, the targeting and timing of the distribution will be aimed at influencing the public's judgment about the positions of the candidates on issues at the heart of your legislative agenda.

[27] Based on the factors identified in the revenue rulings, your preparation and distribution of voter education material, including voter guides and voting records, would be prohibited