Permissible 501(c)(4) Political Activity

Organizations designated as 501(c)(4) entities by the Internal Revenue Service are known as “social welfare organizations” and are granted tax-exempt status because their work is intended to serve the common good. Unlike their more well-known 501(c)(3) charitable counterparts, 501(c)(4) organizations are permitted to engage in political activities, including lobbying and some campaign-related efforts. This ability is not unlimited and is governed by a framework of rules designed to ensure that political action does not become the organization’s dominant focus. Understanding these boundaries is important for any such organization to maintain its tax-exempt status.

Defining Social Welfare as the Primary Purpose

The foundation of a 501(c)(4) organization is its dedication to promoting social welfare. The IRS defines this concept as operating to further the common good and general welfare of a community, such as by focusing on civic betterment and social improvements. For example, an organization that maintains public parks, offers seminars on public safety, or advocates for improved local infrastructure promotes social welfare. The work must benefit the community as a whole, not the private interests of a select group of members or individuals.

To ensure this focus, the IRS applies a “primary purpose” test, requiring that the promotion of social welfare must be the organization’s main activity. While “primary” is not a precise percentage, it is understood to mean that more than 50% of an organization’s activities must be for its social welfare mission. The IRS examines expenditures, the amount of time staff and volunteers dedicate to different activities, and the content of publications to determine if this test is met. If an organization directs most of its efforts toward political campaign intervention, it would fail this test and risk losing its tax-exempt status.

Permissible Political Activities for a 501(c)(4)

A 501(c)(4) organization is permitted to engage in political activities, provided these efforts remain secondary to its primary social welfare purpose. The scope of permissible activities is broad but falls into distinct categories, each with its own set of rules and considerations that must be managed to maintain compliance.

Political Campaign Intervention

Political campaign intervention refers to any action that supports or opposes a candidate for public office. This is the most heavily regulated type of political activity for a 501(c)(4). Examples include making direct financial contributions to a candidate’s campaign, publishing explicit endorsements, or distributing campaign literature that advocates for a specific electoral outcome.

While these actions are allowed, they cannot constitute the organization’s primary activity. For instance, an organization focused on environmental protection could endorse and financially support a candidate who has a strong record on conservation issues. All expenditures related to these activities must be meticulously tracked, as they are subject to specific tax and reporting rules.

Lobbying Activities

Lobbying, which is the act of attempting to influence legislation, is another permissible activity for 501(c)(4) organizations. An organization can engage in an unlimited amount of lobbying, as long as the legislative issues are germane to its exempt purpose. For example, a group dedicated to improving public health could lobby for a new law that restricts smoking in public places.

Lobbying itself is divided into two main types: direct lobbying and grassroots lobbying. Direct lobbying involves communications with legislators, their staff, or other government officials who participate in the formulation of legislation. Grassroots lobbying is an attempt to influence legislation by shaping public opinion and encouraging individuals to contact their lawmakers.

Issue Advocacy

Issue advocacy involves educating the public and policymakers on specific issues without explicitly supporting or opposing a candidate for office. Activities can include publishing research reports, conducting public forums, or launching awareness campaigns about a particular social or economic problem.

The line between issue advocacy and political campaign intervention can sometimes become blurred, especially during an election season. An issue advocacy piece could be classified as campaign intervention based on a “facts and circumstances” analysis by the IRS. Factors that could cause a communication to cross the line include timing it to coincide with an election, mentioning a candidate’s position on an issue that has become a distinguishing feature of a campaign, or referring to voting in the context of the issue.

Tax and Reporting Obligations for Political Expenditures

Engaging in political activities creates specific tax and reporting responsibilities for a 501(c)(4) organization. Failure to comply can result in financial penalties and, in severe cases, the loss of tax-exempt status. The primary mechanisms for this oversight are a tax on political expenditures and detailed disclosures on the organization’s annual information return.

The Section 527 Tax

When a 501(c)(4) organization makes expenditures for political campaign intervention, it may be subject to a tax under Internal Revenue Code Section 527. This tax is imposed on funds spent on “exempt functions,” which include influencing the selection, nomination, election, or appointment of any individual to public office. The tax is calculated at the flat 21% corporate income tax rate and is applied to the lesser of the organization’s net investment income for the year or its total political expenditures.

This provision prevents a 501(c)(4) from using its tax-exempt investment income, such as interest or dividends, to fund political campaigns without consequence. Organizations can also avoid this tax by establishing a separate segregated fund, often called a political action committee (PAC), to handle all partisan political activities. If the organization has no net investment income in a given year, its tax liability would be zero.

Form 990 Reporting

Every year, 501(c)(4) organizations that meet certain gross receipts thresholds must file an annual information return, Form 990, with the IRS. If the organization has engaged in political campaign or lobbying activities, it must also complete and attach Schedule C, “Political Campaign and Lobbying Activities.” This schedule requires the organization to provide detailed information about its political and lobbying expenditures.

The information reported on Schedule C is a primary tool the IRS uses to assess whether an organization is adhering to the primary purpose test. It provides a clear financial picture of how much of the organization’s resources are being directed toward social welfare versus political campaign intervention. This public disclosure allows both the IRS and the public to scrutinize the organization’s activities and priorities.

Donor Information

As of a 2020 regulatory change, most 501(c)(4) organizations are no longer required to disclose their donor information to the IRS on their annual Form 990 returns. However, the organization must still maintain these records, as they can be requested during an IRS audit. Other laws may also compel disclosure. If an organization’s political spending qualifies it as a political committee under federal or state election laws, it may be subject to separate reporting requirements that mandate public disclosure of its donors.