Health Care Law Blog

What is the Effect of Recent, Landmark First Amendment Cases on the Ability of a Tax Exempt Organization to Engage in Political Activities?

In 2010, the United States Supreme Court in Citizens United v. Federal Election Commission ("Citizens United") reinforced the free speech rights of corporations and labor unions to participate in the political process through independent communications expressly advocating the election or defeat of a clearly identified candidate.  Also in 2010, the United States District Court for the Western District of Michigan held in Michigan Chamber of Commerce v. Land¹ ("Michigan Chamber of Commerce") that corporations could pool their resources with other corporations in order to exercise their rights to make independent expenditures expressly advocating the election or defeat of a candidate.

While these landmark rulings certainly allow for greater participation in the political process, the ability of tax exempt organizations to engage in political activities is unaffected by these cases.  It is essential to note that the Citizens United and Michigan Chamber of Commerce cases only concerned the validity of campaign finance law; they did not address Federal tax law.  Because Federal tax law continues to prohibit partisan political activities by tax exempt organizations formed under Section 501(c)(3) of the Internal Revenue Code, tax exempt organizations should not be misled into believing that they are now permitted to engage in partisan political activity.

The origin of any such misunderstanding in this area is undoubtedly caused by numerous commentators who have theorized about the judiciary's rationale in these campaign finance cases.  They argue that the court rulings create a legitimate possibility of a successful challenge to end the prohibition on partisan political activities by tax exempt organizations.  However, to date, these Federal tax law challenges have not occurred.  Therefore, Federal tax law continues to prohibit partisan political activities by 501(c)(3) organizations as well as their use of tax exempt resources to assist with such activities.

The rules that existed before the Citizens United and Michigan Chamber of Commerce cases still exist today and remain applicable to hospitals and other 501(c)(3) organizations.  As with any set of rules, however, there are exceptions.  For example, although a tax exempt organization may not use its resources to engage in partisan political activity, there is nothing to prevent an individual associated with a tax exempt organization from using personal resources to engage in partisan political activities.  There may be other exceptions to these rules, so please consult your advisor before taking any action in this area.

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¹Eric Doster represented the Michigan Chamber of Commerce in the landmark campaign finance case of Michigan Chamber of Commerce v. Land.

Categories: Hospitals, Physicians, Tax