SSRN: Flannery & Mittendorf Post “Campaigns and Capital Gains: The Relationship between Nonprofit Political Spending, Investment Income, and Taxation”

Helen Flannery and Brian Mittendorf (Ohio State) have posted a paper dealing with, among other things, nonprofit political spending. You can read a draft on SSRN. From the abstract: 

“American nonprofits engage in political activity to varying degrees depending on their federal tax status. Explicitly nonpolitical organizations — those approved as 501(c)(3) charities — are not permitted to support or oppose political candidates, and, because of this, they generally do not have to pay taxes on their income. Other types of 501(c) nonprofits, while not chartered solely for political work, have more freedom to engage in it; however, they may have to pay taxes on their income depending on their revenue and political spending mix. In this study, we use publicly filed IRS 990 forms to examine the scale of political spending by 501(c) organizations and the degree to which that spending is ultimately taxed. We find that 501(c) organizations do a significant amount of political spending, and that the timing of that spending and their investment income is such that they often avoid taxation. We also examine the financial transactions between politically active 501(c) organizations and affiliated nonpolitical tax-exempt 501(c)(3) charities, finding that these transactions are material in scale and that, when they are present, 501(c)s pay even lower taxes on their political spending. Together, the results suggest that 501(c) organizations are playing a substantial role in post-Citizens United politics, while benefiting from more favorable tax treatment than other political funding vehicles.”