There are approximately 30 types of entities that qualify for federal tax-exempt status as organizations described in section 501(c) of the Internal Revenue Code (IRC). The most common types are
§ 501(c)(3) charitable organizations, § 501(c)(4) social welfare organizations, § 501(c)(5) labor unions, and § 501(c)(6) trade associations. Whether a § 501(c) organization may engage in political activity, such as lobbying or campaign activity, under the IRC depends on the subparagraph in which it is described. While this report discusses the political activity limitations in the IRC, it is important to realize that organizations must also comply with applicable election and lobbying laws. For analysis of the intersection between tax and campaign finance laws, see CRS Report R40141, 501(c)(3) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws , by [author name scrubbed] and [author name scrubbed]; CRS Report RL34447, Churches and Campaign Activity: Analysis Under Tax and Campaign Finance Laws , by [author name scrubbed] and [author name scrubbed]; CRS Report R40183, 501(c)(4) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws , by [author name scrubbed] and [author name scrubbed]; and CRS Report RS22895, 527 Groups and Campaign Activity: Analysis Under Campaign Finance and Tax Laws , by [author name scrubbed] and [author name scrubbed]. For discussion of the applicability of federal lobbying law to tax-exempt organizations, see CRS Report 96-809, Lobbying Regulations on Non-Profit Organizations , by [author name scrubbed]. The organization's managers may also be subject to tax. The organizations described in these three sections may participate in an unrestricted amount of lobbying so long as the lobbying is related to the organization's exempt purpose. Thus, these organizations may engage in such activity under the tax laws. Political Activity by Other Types of § 501(c) Organizations

While the majority of § 501(c) organizations fall into one of the types discussed above, the IRC describes numerous other types of organizations. The second category are those § 501(c)s that appear able to participate in political activity under the rules applicable to § 501(c)(4), (c)(5), and (c)(6) organizations. Thus, for organizations with little or no net investment income or those making low-cost expenditures, the tax is of minimal import. For others groups, however, it might serve as a disincentive to directly engage in the activities giving rise to the taxable expenditures. Filing organizations are required to report information regarding their political activities on the Form's Schedule C.
On the Schedule C, § 501(c)(3) organizations are required to describe their direct and indirect political campaign activities and report information on their political expenditures, volunteer hours, and any § 4955 excise taxes incurred. Meanwhile, organizations other than those described in § 501(c)(3) must: (1) describe their direct and indirect political campaign activities; (2) report the amount spent conducting campaign activities and the number of volunteer hours used to conduct those activities; (3) report the amount directly spent for § 527 exempt function activities; (4) report the amount of funds contributed to other organizations for § 527 exempt function activities; (5) report whether a Form 1120-POL (the tax return filed by organizations owing the § 527 tax) was filed for the year; and (6) report the name, address, and employer identification number of every § 527 political organization to which a payment was made and the amount of such payments, and indicate whether the amounts were paid from internal funds or were contributions received and directly transferred to a separate political organization. However, identifying information about the donors reported on the Schedule B is not subject to public disclosure, except for donors to private foundations.
As the 2010 election cycle heats up, attention is focused on the political activities of tax-exempt § 501(c) organizations. This is due in large part to a recent Supreme Court case, Citizens United v. FEC, which invalidated long-standing prohibitions in federal campaign finance law on corporate and labor union campaign treasury spending. These prohibitions had affected § 501(c) organizations because many are incorporated and because all organizations (regardless of corporate status) could not serve as conduits for corporate or labor union treasury funds. Thus, post-Citizens United, § 501(c) organizations are among the entities operating with less restriction under federal campaign finance law. As a result, it is expected there will be increased political activity by the tax-exempt sector in 2010 in comparison with past election cycles.
Due to this expectation, significant attention is being paid to the regulation of § 501(c) groups under the Internal Revenue Code (IRC). Under the IRC, the ability of § 501(c) organizations to engage in political activity, such as electioneering and lobbying, depends on the type of organization. For example, the charitable organizations described in § 501(c)(3) may not engage in any campaign activity and may only conduct a limited amount of lobbying. Meanwhile, § 501(c)(4) social welfare organizations, § 501(c)(5) labor unions, and § 501(c)(6) trade associations may engage in campaign activity (so long as such activity and any other non-exempt purpose activity is not their primary activity) and an unlimited amount of lobbying. Other types of § 501(c) organizations appear to either be subject to restrictions like those imposed on § 501(c)(3) organizations or treated similarly to § 501(c)(4), (c)(5), and (c)(6) organizations.
While some types of organizations are permitted to engage in election-related activities under the IRC, § 501(c) organizations are subject to tax for making certain political expenditures. The tax is imposed on the lesser of the taxable expenditures or the organization's net investment income. Thus, for organizations with little or no net investment income or those making low-cost expenditures, the tax is of minimal import. For other groups, however, it might serve as a disincentive to directly engage in the activities giving rise to the taxable expenditures.
Finally, § 501(c) organizations must report information regarding their political activities to the IRS on Schedule C of the Form 990. This information must be made publicly available by the organization and the IRS. While information on certain donors also must be reported to the IRS on the Form's Schedule B, any identifying information about those donors is generally not subject to public disclosure.
While this report discusses the political activity limitations in the IRC, it is important to realize that organizations must also comply with applicable election and lobbying laws. For analysis of the intersection between tax and campaign finance laws, see CRS Report R40141, 501(c)(3) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws, by [author name scrubbed] and [author name scrubbed]; CRS Report RL34447, Churches and Campaign Activity: Analysis Under Tax and Campaign Finance Laws, by [author name scrubbed] and [author name scrubbed]; CRS Report R40183, 501(c)(4) Organizations and Campaign Activity: Analysis Under Tax and Campaign Finance Laws, by [author name scrubbed] and [author name scrubbed]; and CRS Report RS22895, 527 Groups and Campaign Activity: Analysis Under Campaign Finance and Tax Laws, by [author name scrubbed] and [author name scrubbed]. For discussion of the applicability of federal lobbying law to tax-exempt organizations, see CRS Report 96-809, Lobbying Regulations on Non-Profit Organizations, by [author name scrubbed].