527 Groups: A Definition and Their Purpose

A 527 group is a political organization that operates under section 527 of the U.S. Internal Revenue Code. These organizations are created with the primary purpose of influencing the selection, nomination, election, or appointment of candidates to federal, state, or local public office. They are a type of tax-exempt organization, meaning their income related to political activities is not subject to federal income tax.

These groups can include political parties, committees, associations, or funds. While many types of political committees fall under the 527 designation, the term is commonly used to describe groups that focus on influencing elections through means other than direct contributions to candidates. They function as a channel for individuals and other entities to participate in the political process.

Defining the Purpose and Scope of a 527 Group

The operational authority of a 527 organization is centered on its “exempt function.” This term, defined in the tax code, encompasses all activities related to influencing the selection, nomination, election, or appointment of individuals to public office. To maintain its tax-exempt status on political income, a group’s activities and expenditures must align with this core purpose.

Exempt function activities commonly include voter registration drives designed to increase participation in elections. They also frequently involve creating and disseminating issue advocacy advertisements. These communications often highlight specific policy issues and the stances of various candidates on those topics, without explicitly telling viewers how to vote. Another activity is get-out-the-vote (GOTV) efforts, which are mobilization campaigns aimed at encouraging registered supporters to cast their ballots on election day.

Rules Governing Contributions and Expenditures

A defining characteristic of 527 groups is their ability to accept unlimited financial contributions. Unlike traditional candidate campaigns, there are no federal caps on the amounts that individuals, corporations, or labor unions can donate to a 527 organization. This allows these groups to amass significant funds for their political activities.

It is important for donors to understand that contributions made to a 527 group are not tax-deductible. While the organization itself is tax-exempt on its political income, the Internal Revenue Service (IRS) does not permit individuals or businesses to claim these donations as charitable deductions on their own tax returns. This is a distinction from contributions made to 501(c)(3) charitable organizations.

To protect its tax-exempt status, a 527 group must ensure its expenditures are for its defined exempt function. If the organization generates income from sources unrelated to its political purpose, such as investment interest or dividends, that income is considered taxable. If the organization has $100 or more in taxable income for the year, it is required to file Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, to report and pay tax on this non-exempt function income.

Required Information for IRS Notification and Reporting

Before a 527 organization can begin its activities, it must first obtain an Employer Identification Number (EIN) from the IRS. This nine-digit number is a prerequisite for filing the necessary notification and reporting documents and requires providing basic identifying information about the organization.

An organization must file Form 8871, Notice of 527 Status, with the IRS. This form must generally be filed electronically within 24 hours of the organization’s establishment. However, an organization that does not anticipate its annual gross receipts will exceed $25,000 is not required to file at that time. If the organization later surpasses the $25,000 threshold, it must then file Form 8871 within 30 days. The form requires the disclosure of specific details, including the organization’s name, address, its stated purpose, and a list of its officers, directors, and affiliated organizations.

For ongoing compliance, the organization must file Form 8872, Report of Contributions and Expenditures. This form requires detailed information about donors and expenses. For every contributor who gives an aggregate of $200 or more in a year, the organization must report the person’s name, address, and their occupation and employer. Similarly, for every expenditure of $500 or more, the report must include the name and address of the person or entity that received the payment, along with the purpose of the expenditure.

The IRS Filing and Disclosure Process

The filing process begins with the electronic submission of Form 8871 to the IRS. This ensures that the agency and the public are aware of the new organization’s existence and its intent to operate as a 527 group.

Following the initial notice, the organization must electronically file Form 8872 to report its financial activities. The filing schedule is determined by whether it is an election year. In non-election years, organizations may file on a monthly or semi-annual basis. In an election year, they may choose a monthly or quarterly schedule, and additional pre-election reports are often required.

Upon submission, the information from both Form 8871 and Form 8872 is made publicly available by the IRS. The agency maintains a searchable online database where the public can view the filed forms. This disclosure provides transparency, allowing anyone to see the names of donors, the amounts of their contributions, and how the organization is spending its funds.