Yes, your association can solicit contributions and advocate for a candidate or cause. Just make sure you understand the risks and possible tax consequences.


Rights of Associations to Influence the Vote

  • John Tauer
  • 8/18/2016

If you think you’ve seen more political ads, TV commercials, Facebook posts, tweets, talk shows, and political analysis than ever before, you’re probably not imagining. Nationwide campaign spending is expected to top $11.4 billion in 2016, a 20 percent increase over 2014. As an association, you have the right to participate in this process, and many associations are investing heavily in government affairs to protect the rights of their members.

But before jumping onto the stage, it is crucial that your association properly navigate the compliance and reputation risks that go hand-in-hand with political activity. Without a thorough understanding of the risks and requirements, associations can undermine their credibility and incur significant fines and penalties.

To be clear, this article is not intended to address the requirements of nonprofit organizations classified as exempt under Internal Revenue Code Section 501(c)(3). Associations and membership organizations are typically classified as exempt under Section 501(c)(4), (5), or (6), so the rules are significantly different.

No limit on contributions

Since the landmark Citizens United v. Federal Election Commission decision in 2010, the ways in which associations can become involved in the process have expanded. Prior to Citizens United, an association could assist in soliciting limited individual contributions into a political action committee (PAC) and then contribute limited amounts directly to candidates. Today, an association can establish a political fund and solicit unlimited contributions, including funds from corporations, or general funds to independently advocate for or against a candidate.

In addition, many associations are seeing an opportunity to consolidate funds from other like-minded groups to invest in targeted areas. This coordinated activity often involves an independent expenditure fund.

Political expenditures defined

Now let's step back a little and define political expenditures. The word “political” is often used in a broader sense than what is defined by the IRS. We’ll refer to all related activities as “advocacy.” For an association, there are three types of advocacy-related activities:

  • Issue advocacy — The promotion of a position on an issue that is consistent with your members’ views, such as “we support lower taxes.” These communications occur year around and are not directly connected with a legislative vote or election. Issue advocacy by an association is unlimited and the expenditures do not have tax consequences. This activity is considered part of your primary mission.
  • Lobbying — Lobbying activities involve attempts to influence individuals once they have been elected or appointed to office. This includes influencing the legislative process through direct lobbying, or grassroots activity such as directing your members to call their representative on an issue up for a vote. An association can engage in unlimited lobbying but must then report an equivalent amount as non-deductible dues for its members. Failing to do so will trigger a tax on lobbying expenditures. Lobbyists must be registered at the state and federal level and additional regulatory reporting is required.
  • Political expenditures — This includes participation or intervention, directly or indirectly, in a political campaign on behalf of, or in opposition to, any candidate for public office. Historically, connected PACs were used to contribute to the committees of candidates, but today, a majority of the expenditures are independent. An association is prohibited from having the influencing of elections as its primary activity — the current rule of thumb is less than 40 percent. Political expenses typically have tax consequences and significant reporting disclosures are required whether these activities are direct or indirect. An organization’s structure and the way funds are solicited can often be modified to limit both tax exposure and disclosures.

Ten common political pitfalls for associations

Since the requirements for political expenditures are relatively new and complex, we often see these 10 common pitfalls with associations:

  • The association engages in political expenditures because a peer association is doing so, without considering whether their peer is using a different entity structure or funding source.
  • The association does not properly segregate the funds of the political committee or fund.
  • The association does not define or document whether costs are issue advocacy, lobbying, or political.
  • Confusion among association members as to what political expenditures are actually for and internal departments are inconsistent with their internal messages.
  • The organization does not file the appropriate IRS forms to establish a political fund.
  • The association uses general funds to support political expenditures, not realizing that taxes are incurred on investment income that the association receives.
  • The association does not consistently report to both the campaign finance agency (state or federal) and the IRS.
  • Funds are solicited directly from members for political purposes, but the association fails to disclose to the donor what amounts are not deductible.
  • An association gives funds to another organization for political activities and does not report the funds as political. The transfer of funds to another organization retains the same characteristics as what they are ultimately used for.
  • The association does not fully understand the extent of penalties for noncompliance with disclosures and deadlines. A $1,000 unintentional error can result in a $3,000 fine to an association and/or the individual involved.

How we can help

Association members consistently report that their most valuable member benefit — one that can have a substantial return — is the group’s influence over laws and regulations and its investment in advocacy. Our professionals can work with you to sort through the regulations to help minimize the risk of penalties for exercising your political voice. We also recommend engaging legal counsel experienced in election law.