Chicago just elected an extreme progressive union organizer as its new mayor. Reports indicate the Chicago Teachers Union (CTU) – an affiliate of the American Federation of Teachers (AFT) – was key to ensuring Brandon Johnson’s victory.
Because the CTU enjoys a special status as a tax-exempt organization, it must follow certain rules when it decides to spend money on political activities. Electing one of its own as mayor therefore raises a host of tax questions. Does a union have to pay taxes if it deploys its membership to canvas and campaign on behalf of a candidate? Can a union underwrite the costs for political rallies, T-shirts, and phone banks without incurring tax liabilities? What about paying for travel expenses for political candidates? Answers to these questions aren’t always clear – IRS guidance and regulations are dated and incomplete. This leads to exempt organizations such as labor unions flexing their political muscles with little concern for the tax repercussions.
Labor unions (like the AFT or CTU) and other types of organizations (such as social welfare groups like the ACLU) can use general revenue for political activities without risking their exempt status. If they decide to do this, however, the organization needs to report and pay taxes on such expenditures. The principle behind taxing political activities is that such outlays are not strictly in-line with an exempt organization’s missions such as improving working conditions, accessing greater benefits, or negotiating higher salaries. The problem is that the IRS hasn’t fully spelled out what constitutes a political activity.
Despite the tax implications, many (if not most) of these organizations spend considerable resources on politics. Unions deploy hundreds of members to canvass during election season. Their leadership campaigns relentlessly for favored candidates and they contribute millions to candidates and political parties through their political action committees. Social welfare organizations sponsor advertisements supporting issues that influence elections.
Problems arise when you look at how these organizations treat these kinds of expenditures. What’s striking is the differences in how large and sophisticated exempt entities (who spend millions on lawyers and accountants) all seem to interpret tax laws and regulations differently. The ACLU, for example, believes simply spending money describing a candidate’s position on civil liberties during political campaigns requires it to both report and pay taxes on such outlays. The National Education Association (NEA) thinks it must disclose the money it uses to support its political action committee but not pay taxes on those expenses. The AFT, on the other hand, states that it doesn’t spend a penny of dues money on what the IRS classifies as political activity. Who is right? If AFT deploys its personnel to campaign for Brandon Johnson, doesn’t that constitute a taxable event?
What has caused this inconsistency in how exempt organizations report and pay taxes on their campaign related activities? The answer can be found in the fact that the IRS hasn’t updated its guidance on what constitutes taxable political activity in almost 20 years. Loopholes in tax regulations haven’t been closed or even addressed in over 25 years. This leads to some groups (like the ACLU) paying taxes on ads it runs that simply mention political candidates. Meanwhile, other groups (like the AFT) believe they don’t have any tax obligations – even when their highest-ranking officials spend months campaigning for Joe Biden and Kamala Harris.
The changing political landscape also demands action. Years ago, most people voted in-person and on election day. Those days are over. Now, many use mail-in ballots to vote. Registrars accept votes for weeks before election day. Today, unions mobilize thousands of members to canvas election districts during election season under the guise of “get-out-the-vote” and essentially ballot harvest for preferred candidates. No word from the IRS on whether such activities obligate the union to pay taxes.
Going forward, certain exempt organizations will continue to exploit the IRS’s inaction. Powerful unions will use their enormous resources to help elect their preferred candidates without having to pay their share of taxes. Other groups may even pay taxes they don’t owe. Only additional guidance from the IRS or pressure from Congress can solve the problem.
By Michael O’Neill | Landmark Legal Foundation
Michael O’Neill is the Assistant General Counsel at Landmark Legal Foundation