ACTIVITIES OF POLITICAL FUND ARE FOR EXEMPT FUNCTION.

UIL Number(s) 0527.03-00

                                             Date: November 21, 1997

[2] The Fund is a nonprofit corporation organized and operated for the purpose of making expenditures for exempt function activities within the meaning of section 527 of the Internal Revenue Code. The Fund is developing a public education program to raise public consciousness about the importance of social and economic values that it favors and about the positions of incumbent public officials at all levels of government and candidates on those values, without engaging in express advocacy for or against any identified candidates.

[3] The Fund will select, from time to time, certain issues based on their importance to the Fund's agenda and their expected resonance with the public in present and future political campaigns, for special emphasis in the Fund's voter education program. The activities of the Fund will be limited to:

     1. Preparation, publicizing, and distribution of information,

[5] The issue advocacy program to be paid for by the Fund consists of activities which will repeat the Fund's name and its views on economic and social issues and themes throughout the country, and in particular states, regions or legislative districts within states, using the mass media and other means of dissemination. These issues and themes will be linked to the records and positions of incumbents, candidates and potential candidates in order to reinforce the significance of these connections in the minds of voters.

[6] Distribution of the Fund's legislative materials, which the Fund has described as politically biased, will be targeted toward particular areas of the country in which the Fund has a political interest and often will be timed to coincide with political campaigns. These activities will also be timed to develop a political consensus favorable to the Fund and its political agenda between particular federal, state and local elections. The Fund will develop and maintain a list of congressional, state, and local legislative districts and states where these materials have been and will be targeted, primarily for political reasons. The grass roots legislative material will be as follows:

     1. The Fund will address past legislative decisions on social

     o Comparative information about the identities and amounts of

     1. A grass roots lobbying handout may be used in door-to-door

[10] You have requested the following rulings:

     1. Disbursements made and contemplated to be made by the Fund

[12] 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."

[13] Section 527(f)(3) of the Code provides that, for purposes of section 527(e)(1), a separate segregated fund maintained by an organization described in section 501(c) which is exempt from tax under section 501(a) shall be treated as a separate organization.

[14] Section 1.527-2(a) of the Income Tax Regulations defines a "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 for an exempt function activity as defined in section 1.527-2(c)."

[15] Section 1.527-2(a)(3) of the regulations, relating to the operational test for a political organization, gives examples of activities that are not for an exempt function, but which a political organization may undertake if they are not the organization's primary activities. One such example is sponsoring "nonpartisan educational workshops which are not intended to influence or attempt to influence the selection, nomination, election, or appointment of any individual for public office."

[16] Section 1.527-2(c)(1) of the 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.

[17] Section 1.527-2(c)(2) of the regulations, relating to indirect expenditures for an exempt function, provides in relevant part that "expenditures that are not directly related to influencing or attempting to influence the selection process may also be an expenditure for an exempt function by a political organization. These are expenses which are necessary to support the directly related activities of the political organization. Activities which support the directly related activities are those which must be engaged in to allow the political organization to carry out the activity of influencing or attempting to influence the selection process."

[18] Section 1.527-2(c)(5) of the regulations provides examples of expenditures for an exempt function within the meaning of section 527(e)(2). 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."

[19] Section 1.527-6(f) of the regulations provides that an organization or fund described in section 527(f)(3) of the Code is a separate segregated fund. An organization described in section 501(c) that is exempt from taxation under section 501(a), may, if it is consistent with its exempt status, establish and maintain such a separate segregated fund to receive contributions and make expenditures in a political campaign. If such a fund meets the requirements of section 1.527-2(a) of the regulations, (relating to the definition of a political organization), it shall be treated as a political organization subject to the provisions of section 527.

[20] Section 501(c)(3) of the Code provides, in part, for the exemption of organizations that are organized and operated exclusively for religious, charitable, or educational purposes and that do not "participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

[21] Section 1.501(c)(3)-1(c)(3)(i) of the regulations provides that an "action" organization described in section 1.501(c)(3)- 1(c)(3)(iii) is not described in section 501(c)(3).

[22] Section 1.501(c)(3)-1(c)(3)(iii) of the regulations provides that an organization is an "action" organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office. The term "candidate for public office" means an individual who offers himself, or is proposed by others, as a contestant for an elective public office, whether such office be national, state, or local. Activities which constitute participation or intervention in a political campaign on behalf of or in opposition to a candidate include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to such a candidate.

[23] Rev. Rul. 67-71, 1967-1 C.B. 125, holds that an organization may not qualify for exemption from federal income tax under section 501(c)(3) where the organization evaluates the qualifications of candidates for school board and then selects and supports a slate of candidates whom it determines are the best qualified. This activity constitutes intervention in a political campaign on behalf of particular candidates, even if the organization's selection process is objective and unbiased and intended primarily to educate and inform the public.

[24] Rev. Rul. 78-248, 1978-1 C.B. 154, discusses whether certain "voter education" activities by 501(c)(3) organizations constitute prohibited political activities under section 501(c)(3). Whether an organization is participating or intervening, directly or indirectly, in a political campaign depends upon all of the facts and circumstances of each case. The ruling sets forth four illustrative situations with different outcomes.

[25] 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.

[26] 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, a section 501(c)(3) 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 generally available to the public. The activity is permissible where the organization selected 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 prohibited political activity where some questions evidence a bias on certain issues.

[27] Rev. Rul. 80-282, 1980-2 C.B. 178, holds that a 501(c)(3) organization's publication of a newsletter containing voting records of congressional incumbents on selected issues would not, based on the facts in that case, constitute participation or intervention in a political campaign within the meaning of section 501(c)(3). The ruling reiterates 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 in each case. In this case, the format and content were not neutral. The newsletter would report the incumbents' votes on selected issues of importance to the organization, state the organizations' own views on the issues, and indicate whether the incumbent supported or opposed the organization's views. But weighing in favor of the conclusion that the publication of voting records would not constitute direct or indirect participation or intervention in a political campaign were the following factors: the publication would present the voting records of all incumbents and point out the limitations of judging qualifications based on voting records; and the publication would 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 would not gear the timing of the distribution to any federal election and would not target distribution to any particular areas where elections were occurring, but instead would distribute the voting record compilation only in its newsletter to the regular subscribers who number only a few thousand nationwide.

[28] Section 501(c)(4) of the Code provides for the exemption from federal income tax of organizations not organized for profit but operated exclusively for the promotion of social welfare.

[29] Section 1.501(c)(4)-1(a)(2)(i) of the regulations provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.

[30] Section 1.501(c)(4)-1(a)(2)(ii) of the regulations provides that the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.

[31] Rev. Rul. 67-368, 1967-2 C.B. 194, describes an organization formed for the purpose of promoting an enlightened electorate. Its primary activity is rating candidates for public office on a nonpartisan basis. In order to acquaint voters with candidates for local public offices, the organization analyzes the candidate's qualifications, such as education and experience. On the basis of its conclusions, it rates candidates as average, good, or excellent and disseminates these ratings to the public. The ruling concludes that the comparative rating of candidates, even though on a nonpartisan basis, is participation or intervention on behalf of those candidates favorably rated and in opposition to those less favorably rated. Therefore, such participation or intervention does not promote social welfare within the meaning of section 501(c)(4) of the Code and the organization does not qualify for recognition of exemption.

[32] Rev. Rul. 81-95, 1981-1 C.B. 332, holds that a section 501(c)(4) organization may participate or intervene in political campaigns and remain exempt under 501(c)(4) as long as it is primarily engaged in activities designed to promote social welfare. The ruling cites 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).

[33] The organizational test of section 527(e)(1) of the Code requires that the Fund's governing documents indicate that it was organized primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function. "Exempt function" is in turn defined as influencing or attempting to influence the election of any individual to any office.

[34] The Fund will target its efforts to particular races. The Fund's articles of incorporation states that it was formed ". . . to raise public consciousness about issues of importance to conservatives . . . so people can make judgements about the conservative positions and qualifications of incumbent government officials and candidates between and during election seasons." This purpose is equivalent to accepting and expending funds not to expressly advocate for or against candidates, but to indirectly influence the election. Therefore, the Fund meets the organizational test for qualification under section 527(e)(1).

[35] Section 527 also imposes on political organizations an operational test. The operational test requires that the Fund be "primarily" operated for the purpose of accepting contributions and making expenditures for an exempt function. Whether the Fund's expenditures for voting records and voter guides are for an exempt function depends on all the facts and circumstances. Regulations section 1.527-2(c)(1).

[36] The regulations under section 527 distinguish between "nonpartisan educational workshops" which are not intended to influence or attempt to influence the selection and election process and which, therefore, are not exempt function expenditures (see regulations section 1.527-2(a)(3)), and seminars and conferences which are intended to have a political impact and which, therefore, are exempt function expenditures (see Example 8, regulations section 1.527-2(c)(5)(viii)).

[37] Rev. Rul. 78-248 and Rev. Rul. 80-282 address the facts and circumstances that are relevant to determining when voting records and voter guides cross over the line from simply educating voters to influencing or attempting to influence their votes in the context of section 501(c)(3)'s prohibition on participation or intervention in a political campaign on behalf of or in opposition to a candidate. But they also may be used to indicate the types of voter guides and voting records that would qualify as an exempt function activity under section 527(e)(2). Since the section 501(c)(3) prohibition is also based on a "facts and circumstances" test, the rulings provide guidance as to the important factors to consider.

[38] Rev. Rul. 81-95, in discussing what activities constitute participation or intervention in a political campaign for a section 501(c)(4) organization, refers to Rev. Rul. 78-248 and Rev. Rul. 80-282 for examples. It follows that any activities constituting prohibited political intervention by a section 501(c)(3) organization are activities that must be less than the primary activities of a section 501(c)(4) organization, which are, in turn, activities that are exempt functions for a section 527 organization.

[39] In general, the Fund will attempt to influence the public through education linking candidates to issues selected by the Fund. For example, the Fund will prepare or compile and distribute voting records and voter guides which will educate the public on the records of incumbents and the legislative positions of the candidates. While both factual and educational, the content, timing, and targeting of this material, as well as the manner in which it will be presented, will be intended to influence readers to consider the Fund's views when voting. The program will identify candidates for public office whose philosophy about social and economic issues is in harmony with the Fund's own stance. The Fund's expenditures for such educational activities are similar to the type of exempt function expenditures described in section 1.527-2(c)(5) of the regulations.

[40] 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 to be covered will be dictated by the Fund's public policy agenda, and the targeted distribution and timing of the publications will be tied to influencing future elections. As in Situation 4 of Rev. Rul. 78-248, which was deemed unacceptable for a section 501(c)(3) organization, the Fund's materials will present incumbents' voting records only on selected issues, and will be widely distributed to voters prior to an election. The format and content of the voting records will not be neutral. The Fund will select issues based on the Fund's public policy agenda and will by implication approve or disapprove an incumbent's position based on how well it matches the Fund's position. 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 the Fund's case. The Fund will intentionally target distribution of voter guides to areas in which the Fund's issues are thought to be critical to voter's choices, and time those distributions throughout election cycles to maximize their impact.

[41] 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. The Fund's voter guides, in which candidates' views on issues will be compiled without contacting the candidates themselves, will be 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 also be aimed at influencing the public's judgment about the conservative positions of the candidates.

[42] Based on the factors identified in the revenue rulings, the Fund's voter information material, including voter guides and voting records, would be prohibited political intervention for a section 501(c)(3) organization, and are, correspondingly, for an exempt function within the meaning of section 527(e)(2). The distribution of this material is an exempt-function activity within the meaning of section 527(e)(2).

[43] The Fund anticipates making a variety of expenditures that are necessary to make it possible for the Fund to carry out its activities directed at influencing voters' views on the connections between conservative economic and social issues and candidates. These include, but may not be limited to, research activities, management and administrative personnel and associated expenses, rent, phone and other overhead items, legal services, and accounting services. Such indirect expenditures qualify as exempt function expenditures by a section 527 organization under section 1.527-2(c)(2) of the regulations.

[44] The content, timing, and targeting of the Fund's grassroots lobbying will reflect a dual character: calling for legislative action, but also, by strong implication, raise public awareness about how the identified legislators stand on issues that the Fund believes voters, based on opinion polling, will take into account in making judgments about the positions of the candidates. All three types of grassroots lobbying described above will have a political purpose even though they do not expressly advocate the election or defeat of any particular candidate. Moreover, the second and third types of communications contain voting record analysis of the current Congress or certain named legislators which would constitute political intervention for a section 501(c)(3) organization under the standards described in Rev. Rul. 78-248 and Rev. Rul. 80-282.

[45] The repeated public presentation of the importance of selected issues, targeted to geographical areas and timed to coincide with the election, together with legislators' positions on those issues as compared with the Fund's views, is intended to have an effect on how the public will judge the positions of the incumbents and their challengers in November. The link between these issues and the various candidates will be reinforced through the voting records and the voter guides.

[46] Based on the foregoing, we rule as follows:

     1. Disbursements made and contemplated to be made by the Fund

[48] We are sending a copy of this ruling to your key District Director for exempt organization matters. Because this letter could help resolve any questions about your exempt status, you should keep it with your permanent records.

[49] If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

[50] This ruling is directed only to the organization that requested it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

[51] Thank you for your cooperation.

                                   Sincerely,