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Political Advocacy and Taxable Entities: Are They the Next 'Loophole'?

Donald B. Tobin

University of Maryland Francis King Carey School of Law

August 31, 2007

First Amendment Law Review, Vol. 6, 2007
Ohio State Public Law Working Paper No. 105
Center for Interdisciplinary Law and Policy Studies Working Paper No. 67

Independent political organizations have become increasingly active in political advocacy and in their attempts to influence elections. These independent political organizations generally organize as non-profit organizations and are not directly associated with a candidate or political party. The groups either seek to promote issues associated with candidates running for office, or seek to influence an election in favor of or in opposition to a specific candidate. As these organizations have become more involved in political advocacy, campaign finance reform advocates have pressed for further regulation of these entities. Attempts to regulate the activities of independent groups are often in tension with First Amendment principles. The Supreme Court's decision in Federal Election Commission v. Wisconsin Right to Life significantly rolled back some of the restrictions placed on independent groups, and this decision may encourage Congress to seek alternative means of regulating campaign activities.

In the past, Congress has regulated independent political groups by putting restrictions on the entity structures under which these entities are organized. For example, as a condition of receiving tax-exempt status under section 527 (as a political organization) an entity must disclose the contributions it receives and its expenditures. Some in Congress and in academia have argued that section 527 political organizations should be regulated under election law as political committees. This article examines whether an organization could avoid some of these restrictions by forgoing tax-exempt status and organizing as a taxable organization. Proponents of such a move argue that political organizations have no taxable income and there would therefore be no consequences to organizing as political organizations. This article examines the characteristics that independent organizations seek when choosing an organizational form and discusses various tax theories that provide the basis for examining the tax implications of an organization's forgoing tax-exempt status. The article concludes that there will be significant tax implications to an independent political group that decides to forgo tax-exempt status and that taxable independent groups are not an ideal mechanism for avoiding restrictions on non-profit organizations.

Number of Pages in PDF File: 63

Keywords: campaign finance, campaign reform, BCRA

JEL Classification: H20, H25, K34

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Date posted: October 10, 2007 ; Last revised: June 18, 2014

Suggested Citation

Tobin, Donald B., Political Advocacy and Taxable Entities: Are They the Next 'Loophole'? (August 31, 2007). First Amendment Law Review, Vol. 6, 2007; Ohio State Public Law Working Paper No. 105; Center for Interdisciplinary Law and Policy Studies Working Paper No. 67. Available at SSRN: http://ssrn.com/abstract=1020421

Contact Information

Donald B. Tobin (Contact Author)
University of Maryland Francis King Carey School of Law ( email )
500 West Baltimore Street
Baltimore, MD 21201-1786
United States
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