Tax-Exempt Status

• The 501(c)(3) organizations are not required to pay taxes on income, and donors who make contributions are eligible for tax deductions. These organizations are prohibited from supporting or opposing candidates running for public office. They are only allowed a limited amount of legislative lobbying. The 501(c)(4) organizations do not pay income tax, but their donors do not qualify for tax deductions. They can lobby and engage in partisan political campaigns as a secondary activity. The 527 political committees pay no tax on operating income but are taxed on investment income. Donations made to them are not tax deductible.
  
  

Political Organizations

• Political organizations are tax-exempt under section 527 of the IRS code. They are allowed to actively engage in political activity to influence who gets elected into public office. There are three categories of these political organizations: federal, state and independent political action committees. The federal Political Action Committee is required to register with the Federal Election Commission and has contribution limits set for it to use in its election campaigns at the federal level. The state PAC is regulated at the state level, while independent PACs report to the IRS but not the FEC.
  
  

Social Welfare Groups

• Social welfare groups are allowed to engage in unlimited lobbying as long as it is related to the activities of the group. Their primary purpose must be social welfare. The Federal Lobbying Disclosure Act prevents them from getting federal grants, loans or other awards if they participate in political lobbying. These organizations come under close scrutiny during federal elections and are not allowed to use their funds for public support or opposition of federal candidates. Endorsements also are not allowed.
  
  

Affiliations

• There are cases when a 501(c)(3) organization may want to increase its lobbying campaign beyond what it is allowed. It can do this by establishing a related 501(c)(4) organization. However, it must prove that its funds are not being channeled to the second organization. They usually do this by maintaining separate independent accounts for each organization with different budgets and operational costs. Grants and loans from one organization to another are allowed as long as the funds from 501(c)(3) are not used for 501(c)(4)'s general administration and political purpose.