As uncertainty grows over rules concerning political non-profit organizations, the option of forgoing non-profit status is becoming an increasingly viable alternative for groups that want to engage in politics.

Thomas Catan writes for the Wall Street Journal (“Political Donors Chase Funding Alternative”):

Election lawyers say the IRS proposal, which would scale back political activity by these groups, has intensified interest in for-profit entities, rather than nonprofits, as campaigning vehicles. “They’ve become the hot trend over the last year or so,” said Robert Kelner, who heads the political law group at Covington & Burling LLP. “It’s a trend that is accelerating, and the new proposals are going to put more steam behind the train.”

Since the landmark 2010 Supreme Court ruling known as Citizens United, companies have been able to spend unlimited amounts of money to support or oppose candidates, as long as they aren’t coordinating with a campaign. They don’t have to disclose that spending to the Federal Election Commission. And, because they’re not seeking tax-exempt status, they can avoid the kind of inquiry by the IRS into their activities that touched off a political storm last year over the tax status of tea-party groups.

Those factors have drawn attention to taxable groups in the past, but attention is now growing.

Like non-profit organizations, there are some limitations to what for-profit businesses can do politically.

For example, companies must have a legitimate business interest beyond electioneering, and they cannot accept donations to directly fund advertisements.  Otherwise, companies that do this could fall under the FEC’s definition of a political action committee.

However, for-profit entities can provide services, even to campaigns, without running afoul of the law.  One company in particular, Catalist, pointed out that while their goal is only to break even financially, they have been able to successfully provide significant services to candidates.

While it is heartening seeing Americans discovering new ways to associate politically in the face of gross government over-regulation, the IRS must still work out its rules on non-profit activity in a way that respects constitutional protections. As the Center noted in its comments, the IRS must harmonize its rules with the FEC’s concerning political activity and focus on its core competency as a tax-collecting agency.

You can find CCP’s resource on the IRS rule here, along with our comments to the agency at this link.