UPDATE:  The provision in the House bill, discussed below, was not included in the final Conference Agreement that became law. 

There is one very important political law provision to watch as the tax bill moves to a final vote in the Senate, and potentially a conference committee reconciles the House and Senate versions.  This amendment will remove the ban on partisan political activities by charitable entities, churches, educational institutions and all other organizations exempt from tax under Section 501(c)(3) of the tax code.  If adopted, this change could have a significant effect on the flow of money in future election campaigns.  Here is a short description of the current state of the law, and why the language in the House bill could have a sweeping impact.

Currently, the IRS can revoke the tax-exempt status of a 501(c)(3) organization, such as a church, school, or foundation, if it participates or otherwise intervenes in a political campaign, which includes statements made by representatives of an organization on behalf of, or in opposition to, a political candidate.  This bright line rule has been in place since 1954.  While President Trump issued an Executive Order in May instructing the Treasury Department “to the greatest extent practicable” not to take adverse action against religious organizations for speech on “political issues,” that discretion must be exercised consistent with existing law.

The original House tax bill contained a modest exception to current law, ensuring that an entity would not lose its status as “exclusively operated for religious purposes” if the content of a “homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings” contained political content, so long as it occurred in the “ordinary course” of the organization’s regular activities, and resulted in no more than de minimis incremental expenses.

House Ways and Means Committee Chairman Kevin Brady proposed an amendment, which was adopted into the final House bill, that dramatically expanded that exception to include all organizations exempt under Section 501(c)(3), not just religious organizations, in any of their normal operations, again, so long as they did not incur more than de minimis incremental expenses.  There was no similar language in the Senate Finance Committee’s bill released last week.

There are several reasons why the House language, if included in the final bill, would likely result in widespread involvement of 501(c)(3) organizations in political campaigns.

First, having the limits set at “not more than de minimis incremental expenses” will presumably allow these organizations to shift certain existing fixed costs, such as in-house staff, to partisan political activity, for this will not result in any “incremental expenses.”  In addition, much internet advocacy involves only de minimis incremental expenses.  Finally, ambiguities in interpreting what “de minimis” and “incremental” mean will presumably come within the Presidential Executive Order’s directive that “to the greatest extent practicable” the provisions shall be interpreted to favor more political speech.

Second, for donors interested in political spending, politically active 501(c)(3) organizations are vastly preferable to other types of nonprofits, for they contain a double tax advantage: not only is the entity exempt from tax on the income it receives, the donors also may deduct their contributions from their income taxes.

Third, 501(c)(3) organizations, like social welfare organizations operating under Section 501(c)(4), are not required to disclose the identity of their donors.  This makes charities unlike more transparent political entities, such as candidate campaigns, party committees, PACs and Super PACs, which must disclose their donors.

If this provision makes it into law, we should expect to see the rapid growth of 501(c)(3) “educational” organizations with significant political operations, as well as existing churches and charities becoming more active politically.  While the House bill provides for this provision to sunset in 2023, between now and then, if enacted, we would expect significant political activity to move into the charitable space.

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Photo of Robert Kelner Robert Kelner

Robert Kelner is the chair of Covington’s nationally recognized Election and Political Law Practice Group.  He counsels clients on the full range of political law compliance matters, and defends clients in civil and criminal law enforcement investigations concerning political activity. He also leads

Robert Kelner is the chair of Covington’s nationally recognized Election and Political Law Practice Group.  He counsels clients on the full range of political law compliance matters, and defends clients in civil and criminal law enforcement investigations concerning political activity. He also leads the firm’s prominent congressional investigations practice.

Rob’s political law compliance practice covers federal and state campaign finance, lobbying disclosure, pay to play, and government ethics laws. His expertise includes the Federal Election Campaign Act, Lobbying Disclosure Act, Ethics in Government Act, Foreign Agents Registration Act, and Foreign Corrupt Practices Act.

He is also a leading authority on the arcane rules governing political contributions and marketing activities by registered investment advisers and municipal securities dealers.

Rob’s political law clients include numerous multinational corporations, many of which are household names.  He counsels major banks, hedge funds, private equity funds, trade associations, PACs, political party committees, candidates, lobbying firms, and politically active high-net-worth individuals. He has represented the Republican National Committee, National Republican Congressional Committee, and National Republican Senatorial Committee.  He also advises Presidential political appointees on the complex vetting and confirmation process.

As a partner in the firm’s White Collar Defense & Investigations practice group, Rob regularly defends clients in congressional investigations before virtually every major congressional investigation committee.  He also defends corporations and others in investigations by the Federal Election Commission, the Public Integrity Section of the U.S. Department of Justice, federal Offices of Inspector General, and the House & Senate Ethics Committees.  He has prepared many CEOs and corporate executives for testimony before congressional investigation panels. He regularly leads the Practicing Law Institute’s training program on congressional investigations for in-house lawyers.  In addition, he is frequently retained to lead internal investigations and compliance reviews for major corporate clients concerning lobbying and campaign finance law issues.

Rob has appeared as a commentator on political law matters on The PBS News Hour, CNBC, Fox News, and NPR, and he has been quoted in the New York Times, Washington Post, Wall Street Journal, Associated Press, Legal Times, Roll Call, The Hill, Politico, USA Today, Financial Times, and other publications.

Rob is Chairman of Covington’s Professional Responsibility Committee and a General Counsel of the firm.  He also currently serves as Chairman of the District of Columbia Bar’s Legislative Practice Committee, and he previously was appointed by the President of the American Bar Association to serve on the ABA’s Standing Committee on Election Law.

Photo of Robert Lenhard Robert Lenhard

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice…

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice relating to federal and state campaign finance, lobbying, pay-to-play, and government ethics laws. As an advocate, counselor, and regulator, Mr. Lenhard brings a depth of experience on matters that involve legal as well as political risk.

Bob led Covington’s representation of the Biden for President campaign, the Super PAC supporting President Obama’s re-election, as well as several prominent professional sports leagues, pharmaceutical manufacturers, technology companies, advocacy groups, and trade associations.

Prior to joining the firm in 2008, Mr. Lenhard served as Chairman of the Federal Election Commission (FEC) in 2007 and Vice Chairman of the agency in 2006, during which time the agency handled over 10 major rulemakings, had among its most productive years in enforcement and audit, and adopted several reforms to the enforcement process. Mr. Lenhard also led the Presidential Transition Team that reviewed the FEC for the incoming Obama administration in 2008-2009.

Mr. Lenhard is frequently quoted in the press, has lectured at major law schools, and Before his service to the FEC, Mr. Lenhard provided legal advice to labor organizations active in the political process at the federal, state, and local levels. Mr. Lenhard also was involved in litigation in the Florida trial and appellate courts over the counting of absentee ballots in Seminole County, Florida in 2000.

Robert Lenhard is a member of the firm’s Election and Political Law Practice Group and advises corporations, trade associations, not-for-profit organizations, and high-net-worth individuals on compliance with federal and state campaign finance, lobbying, and government ethics laws.

Mr. Lenhard routinely assists clients in establishing and operating federal and state PACs, compliance programs associated with campaign finance and pay-to-play laws; advises advocacy groups and their donors; conducts compliance trainings and audits of federal and state lobbying and political programs; and counsels clients on compliance with congressional gift and travel rules. According to Chambers, sources report: “He is strategic and always sees the big picture. He is a great person who provides excellent non-legal counsel as well.”

Photo of Susan Leahy Susan Leahy

Susan Leahy has advised tax-exempt, nonprofit organizations on tax and corporate governance matters for over 25 years. She assists organizations in obtaining and maintaining tax-exempt status and advises boards and senior executives on a range of governance policies and procedures.

In her work…

Susan Leahy has advised tax-exempt, nonprofit organizations on tax and corporate governance matters for over 25 years. She assists organizations in obtaining and maintaining tax-exempt status and advises boards and senior executives on a range of governance policies and procedures.

In her work with tax-exempt organizations that operate in the United States, as well as internationally, Susan regularly:

  • Counsels clients on the tax implications involving:
  • Self-dealing, inurement, and impermissible private benefit to individuals and for-profit companies;
  • Lobbying, and political activities;
  • Unrelated business income tax;
  • Excess benefit transactions and compensation of executives;
  • Joint ventures and relationships with for-profit organizations;
  • Mergers of tax-exempt organizations and the acquisition or donation of assets; and
  • Corporate sponsorship.

Advises nonprofit boards of directors, board committees, and management with respect to:

  • Corporate formation and good governance principles;
  • Preparation for board and committee meetings; and
  • Conflicts of interests.
  • Provides guidance on state corporate and tax compliance for nonprofit organizations.

“Susan has been my ‘Go-To’ attorney for adept legal strategy and guidance for over 20 years. Susan skillfully led our organization’s volunteer leadership through a needed transition with compassion and sensitivity. Her legal assistance remains invaluable!” a nonprofit organization client noted.

“I highly value Susan’s expertise, responsiveness, and pragmatism,” said another client. “Her insight and advice have proven invaluable time and time again and remain integral to our ability to operate quickly and nimbly.”

Susan is the past chair of the Exempt Organizations Committee of the District of Columbia Bar and a member of the American Bar Association. Susan received her J.D. from Catholic University of America, Columbus School of Law and a B.B.A. from St. Bonaventure University.

Photo of Zachary G. Parks Zachary G. Parks

Zachary Parks advises corporations, trade associations, campaigns, and high-net worth individuals on their most important and challenging political law problems.

Chambers USA describes Zachary as “highly regarded by his clients in the political law arena,” noting that clients praised him as their “go-to outside…

Zachary Parks advises corporations, trade associations, campaigns, and high-net worth individuals on their most important and challenging political law problems.

Chambers USA describes Zachary as “highly regarded by his clients in the political law arena,” noting that clients praised him as their “go-to outside attorney for election law, campaign finance, pay-to-play and PAC issues.” Zachary is also a leading lawyer in the emerging corporate political disclosure field, regularly advising corporations on these issues.

Zachary’s expertise includes the Federal Election Campaign Act, the Lobbying Disclosure Act, the Ethics in Government Act, the Foreign Agents Registration Act, and the Securities and Exchange Commission’s pay-to-play rules. He has also helped clients comply with the election and political laws of all 50 states. Zachary also frequently leads political law due diligence for investment firms and corporations during mergers and acquisitions.

He routinely advises corporations and corporate executives on instituting political law compliance programs and conducts compliance training for senior corporate executives and lobbyists. He also has extensive experience conducting corporate internal investigations concerning campaign finance and lobbying law compliance and has defended his political law clients in investigations by the Federal Election Commission, the U.S. Department of Justice, Congressional committees, and in litigation.

Zachary is also the founder and chair of the J. Reuben Clark Law Society’s Political and Election Law Section.

Zachary also has extensive complex litigation experience, having litigated major environmental claims, class actions, and multi-district proceedings for financial institutions, corporations, and public entities.

From 2005 to 2006, Zachary was a law clerk for Judge Thomas B. Griffith on the United States Court of Appeals for the District of Columbia.

Photo of Derek Lawlor Derek Lawlor

Derek Lawlor is of counsel in the firm’s Election and Political Law Practice Group. Derek advises corporations, nonprofit organizations, and trade associations on compliance with federal and state lobbying, campaign finance, and government ethics laws.

Clients regularly rely on Derek to assist with…

Derek Lawlor is of counsel in the firm’s Election and Political Law Practice Group. Derek advises corporations, nonprofit organizations, and trade associations on compliance with federal and state lobbying, campaign finance, and government ethics laws.

Clients regularly rely on Derek to assist with their complex questions related to activities and projects that implicate all of these laws. Derek advises federal and state candidates and super PACs on campaign finance and disclosure issues. Derek also represents clients in government investigations and inquiries conducted by the Federal Election Commission, Office of Congressional Ethics, and Congressional Committees and Commissions.

Derek’s representation of clients covers the full range of important political law issues that they face, including:

  • Advising clients on their registration and reporting obligations under the federal Lobbying Disclosure Act, as well as state and local lobbying laws, including helping client organizations evaluate the core questions that arise in this space:
    • Has the organization or any of its employees triggered lobbying registration requirements?
    • What lobbying income, expenditures, issues, or contacts need to be disclosed on lobbying reports?
    • Does procurement or sales activity directed at governmental entities trigger lobbying registration in a particular jurisdiction?
    • What are the best practices for designing a lobbying compliance program?
  • Assisting corporations and trade associations with the establishment and operation of connected PACs, which frequently entails evaluating the following questions:
    • What steps does the organization need to take to start up and register a connected PAC?
    • What are the ongoing reporting requirements under the Federal Election Campaign Act (“FECA”) or state campaign finance laws?
    • Which employees can the organization solicit and what are the rules on conducting a solicitation campaign?
    • What are the limits on making contributions to federal, state, or local candidates, party committees, or other political committees?
    • What are the best practices for designing a PAC compliance program?
  • Evaluating whether a client’s proposed activities might trigger registration under the Foreign Agents Registration Act (“FARA”), and if so, advising on registration and ongoing reporting obligations;
  • Advising federal and state candidates, super PACs, and other political committees on compliance with FECA, FEC regulations and reporting requirements, state campaign finance laws, rules on disclaimers placed on communications, and other political law compliance topics;
  • Counseling individuals who are entering government service, including Senate-confirmed positions, on the various financial disclosure requirements, conflicts of interest considerations, and other ethics law issues they may face;
  • Helping clients establish politically active or policy-focused nonprofit organizations, and proving ongoing support related to tax and political law issues that might arise from their activities; and
  • Advising corporations, nonprofits, and individuals on their proposed donations to candidates, political committees, and other politically active outside groups.

Derek is a Professorial Lecturer in Law at the George Washington University Law School.

Prior to receiving his law degree, Derek worked in the Office of General Counsel at the U.S. House of Representatives.