The question of whether a political advertisement is issue advocacy (including lobbying) or campaign activity is an important one under the tax laws, particularly for tax-exempt 501(c) organizations. This is because the Internal Revenue Code (IRC) imposes limitations on the ability of 501(c) groups to engage in campaign activity. Some 501(c) groups—primarily 501(c)(3) charitable organizations, including houses of worship, charities, and educational institutions—are prohibited under the IRC from engaging in any campaign intervention. They are, however, allowed to take positions on policy issues and conduct an insubstantial amount of lobbying. Others types of 501(c)s—primarily 501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations —may engage in campaign intervention. However, because these groups' primary purpose must be their tax-exempt purpose (e.g., promoting social welfare), campaign activity, along with any other non-exempt purpose activity, cannot be their primary activity. Recently, this standard has received significant attention because 501(c) organizations have reportedly spent millions of dollars on campaign activity and allegations have been made that some should have their tax-exempt status revoked. Guidance released by the IRS shows that in any situation that falls short of express advocacy, this issue does not lend itself to bright-line rules. The focus is essentially on whether the activity exhibits a preference for or against a candidate. As a result, the line between issue advocacy and campaign activity can be difficult to discern. The IRS Factors

The IRS has released two revenue rulings that discuss when an issue advocacy communication has crossed the line into campaign activity. Both contain a non-exhaustive list of factors to be considered, as well as some examples. According to the IRS, key factors to be examined in determining whether an issue advocacy communication crosses the line into campaign intervention include the following:
whether it identifies a candidate for a given public office by name or other means, such as party affiliation or distinctive features of a candidate's platform or biography; whether it expresses approval or disapproval for any candidate's positions or actions; whether it is delivered close in time to an election; whether it refers to voting or an election; whether the issue it addresses has been raised as one distinguishing the candidates; whether it is part of an ongoing series by the group on the same issue and the series is not timed to an election; and whether its timing and the identification of the candidate are related to a non-electoral event (e.g., a scheduled vote on legislation by an officeholder who is also a candidate). Application of the Factors

The determination of whether an advertisement is actually campaign activity is entirely dependent on the facts and circumstances of each case. This requires actually looking at the ad in question. Additionally, it requires being familiar with the organization's other activities—e.g., is the group running a series of ads on the issue, and one just happens to coincide with an election? Illustrating the importance of the overall context in which the ad is run, and not just the text of the ad itself, is the fact that it is not necessary for the ad to expressly mention a candidate by name. The ad ends by urging people to contact the Senator and tell him/her to vote for the bill. One recurring issue is that similar or identical terms in tax and campaign finance law and policy do not always have the same meanings. Thus, it should not be assumed that the characterization or treatment of an activity for campaign finance purposes necessarily results in the same characterization or treatment for tax purposes, and vice versa.
Television and radio airwaves are inundated with political ads right now, and their numbers will only increase as the November 2012 elections get closer. Some ads expressly tell viewers or listeners which candidate to vote for or against. Others take a different approach. These ads typically urge people to contact an elected official, who also happens to be a candidate in the upcoming election, and tell him/her to support an issue or piece of legislation. Sometimes they do not even mention any candidate/officeholder by name, yet some still feel political in nature.
The question of whether an advertisement has crossed the line into campaign activity is an important one under the tax laws, particularly for tax-exempt 501(c) organizations. There are two main reasons. First, 501(c)(3) charitable organizations (including churches and other houses of worship) are prohibited under the Internal Revenue Code (IRC) from engaging in campaign activity. They are, however, permitted to take policy positions and engage in an insubstantial amount of lobbying.
Second, other types of 501(c)s—primarily 501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations—may engage in campaign activity. However, it (along with any other non-exempt purpose activity) cannot be their primary activity. This standard has been the focus of congressional and public scrutiny, as 501(c) groups have reportedly spent millions of dollars on campaign activity in the post-Citizens United era, and allegations have been made that some should have their status revoked for engaging in too much campaign activity. Whether an advertisement is campaign activity is key in this context because a "true" issue ad, as defined for tax purposes, would not be counted as campaign activity when determining whether revocation of 501(c) status is appropriate.
The standard for determining whether something is campaign activity under the IRC is whether it exhibits a preference for or against a candidate. Clearly, ads that tell people who to vote for or against are campaign intervention. However, in situations involving something short of express advocacy, this standard does not lend itself to bright-line rules. Preference can be subtle, and the IRS takes the position that it is not always necessary to expressly mention a candidate by name. As a result, the line between issue advocacy and campaign activity can be difficult to discern.
The IRS has released two rulings that provide a non-exhaustive list of factors the agency considers when determining whether an issue advocacy communication is electioneering. The most important point to keep in mind is that the determination of whether an ad is actually campaign activity is entirely dependent on the facts and circumstances of each case. This requires looking at the ad in question, as well as being familiar with some of the organization's other activities (e.g., has the group run a series of similar ads?) and the election (e.g., has the issue been raised to distinguish among the candidates?).
Finally, the term "issue advocacy" is also used when people talk about campaign finance law and policy. The terminology used in tax and campaign finance law and policy do not always match. Thus, it should not be assumed that the characterization or treatment of an activity for campaign finance purposes necessarily results in the same characterization or treatment for tax purposes, and vice versa.