As a Donor, Know the Distinctions

Do remember Citizens United (a 501(c)4 organization) from the U.S. Supreme Court case on campaign finance Citizens United v. Federal Election Commission? In that case, the Supreme Court decided that the First Amendment prohibits the government from restricting political expenditures by corporations, associations, or labor unions – opening the floodgates for campaign contributions to lobbying groups. Last year, the IRS proposed new rules to more sharply define “political activity” for 501(c)4 organizations. The deadline for public comments on the new guidelines was last week; they drew a record number of comments – all of them passionate, and most of them in opposition. The debate will be heated with lawmakers and outside groups, so expect it to be in the news for the near future.

The topic is particularly important in this mid-term election year, with a significant number of Senate, House, and gubernatorial seats being decided on November 4. There will be a lot of fundraising and use of those funds by political groups this year. As a donor, you should know some basic differences between 501(c)3 and 501(c)4 organizations. The distinctions in political activities and tax-deductibility are stark; here is a simple chart showing them. For more information, see IRS Publication 557.