JCT Examines Tax Treatment of Exempt Orgs’ Political Activity

JCT Examines Tax Treatment of Exempt Orgs’ Political Activity

U.S. Joint Committee on Taxation

The Joint Committee on Taxation in an April 29 report summarized existing laws and provided data on the tax treatment of political activity and lobbying by tax-exempt organizations, ahead of a May 4 hearing by the Senate Finance Taxation and IRS Oversight Subcommittee. 

The Joint Committee on Taxation in an April 29 report summarized existing laws and provided data on the tax treatment of political activity and lobbying by tax-exempt organizations, ahead of a May 4 hearing by the Senate Finance Taxation and IRS Oversight Subcommittee.

The Joint Committee on Taxation in an April 29 report summarized existing laws and provided data on the tax treatment of political activity and lobbying by tax-exempt organizations, ahead of a May 4 <a href="/lr/resolve//7dfh1">hearing</a> by the Senate Finance Taxation and IRS Oversight Subcommittee.  While 501(c)(3) tax-exempt organizations are prohibited from participating in political campaigns, there are allowances for political activity by section 501(c)(4), (5), or (6) organizations, as long as the organizations’ primary focus is on their tax-exempt purposes rather than on political activity, the JCT said. Section 501(c)(3) organizations that participate in political campaigning could lose their tax-exempt status or be subject to an excise tax equal to 10 percent of the prohibited political expense. Other 501(c) organizations could also face a tax under section 527(f) on the lesser of their investment income or the amounts spent on political activities. Section 501(c)(4), (5), and (6) organizations usually do not need to formally request tax-exempt status unless they wish to be exempt from specific state taxes. A section 527 organization needs to notify the IRS within 24 hours of its formation of its treatment as a tax-exempt status by submitting Form 8871. Section 501(c) organizations (except for 501(c)(3)) and 527 organizations are required to report their lobbying and political campaign activities, according to the report.  Out of more than 1.9 million tax-exempt organizations in fiscal 2020, 41,170 were tax-exempt political organizations under section 527. Nearly 1.8 million organizations were exempt under section 501(c). Religious and charitable organizations made up approximately 1.4 million, or 73 percent, of the total number of tax-exempt organizations.

The Joint Committee on Taxation in an April 29 report summarized existing laws and provided data on the tax treatment of political activity and lobbying by tax-exempt organizations, ahead of a May 4 hearing by the Senate Finance Taxation and IRS Oversight Subcommittee.  While 501(c)(3) tax-exempt organizations are prohibited from participating in political campaigns, there are allowances for political activity by section 501(c)(4), (5), or (6) organizations, as long as the organizations’ primary focus is on their tax-exempt purposes rather than on political activity, the JCT said. Section 501(c)(3) organizations that participate in political campaigning could lose their tax-exempt status or be subject to an excise tax equal to 10 percent of the prohibited political expense. Other 501(c) organizations could also face a tax under section 527(f) on the lesser of their investment income or the amounts spent on political activities. Section 501(c)(4), (5), and (6) organizations usually do not need to formally request tax-exempt status unless they wish to be exempt from specific state taxes. A section 527 organization needs to notify the IRS within 24 hours of its formation of its treatment as a tax-exempt status by submitting Form 8871. Section 501(c) organizations (except for 501(c)(3)) and 527 organizations are required to report their lobbying and political campaign activities, according to the report.  Out of more than 1.9 million tax-exempt organizations in fiscal 2020, 41,170 were tax-exempt political organizations under section 527. Nearly 1.8 million organizations were exempt under section 501(c). Religious and charitable organizations made up approximately 1.4 million, or 73 percent, of the total number of tax-exempt organizations.