PTOs and Politics

A primer on the campaign finance and tax laws for PTOs and other school supporters who want to engage in the political process

By Andrew C. Richner and Duane L. Tarnacki, Clark Hill PLC

With another election season upon us, many parent-teacher organizations and other public school organizations (collectively, “PTOs”) may be asked to take part in political activities such as supporting or opposing candidates for public office or ballot proposals and in other political activities.  We thought it appropriate to provide a primer on the campaign finance and tax laws relevant to PTOs as they, and their public school district partners, consider the degree to which they should engage in the political process.

Most PTOs are unincorporated associations with self-appointed boards.  While sometimes PTOs have made the effort to apply for and qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code (“IRC”) or other provisions of the Code, often the tax status of PTOs is unclear.  Also varying from school district to school district is the degree to which financial arrangements and governance of PTOs are intertwined with the schools.  These factors can affect whether PTOs can engage in political activity.  We describe the various tax status scenarios below.     

Section 501(c)(3) Organizations 

Tax-exempt organizations under IRC Section 501(c)(3) are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective office.  This prohibition would extend to candidate endorsements.  Therefore, any PTO that is tax-exempt under 501(c)(3) may not endorse candidates for school board.   

A Section 501(c)(3) organization can contribute funds to a non-501(c)(3) organization, but only to support 501(c)(3) activities of the latter organization. The 501(c)(3) organization must avoid funding, participating in, or having attributed to it, any non-501(c)(3) appropriate activities. 

If a PTO that is tax-exempt under Section 501(c)(3) is going to engage in political activities, it  should implement measures to comply with these requirements.  Such measures would include segregating 501(c)(3) funds from other funds and including a disclaimer on written materials relating to the Section 501(c)(3) organizations.

Section 501(c)(4) Organizations   

Tax-exempt organizations under IRC Section 501(c)(4) may endorse candidates and/or ballot proposals.  Such an organization may make political contributions, but only if its primary purpose is civic or social welfare in nature and it only incidentally gets involved in political campaigns.  Note that contributions by individuals to a Section 501(c)(4) organization are not deductible as charitable contributions.  

Public Bodies

Public bodies (e.g., governmental instrumantiolites like school districts) are prohibited by the Michigan Campaign Finance Act from spending public funds or other resources for campaign activities, including for the election or defeat of candidates or ballot proposals.  If a PTO “is primarily funded by or through state or local authority, which body exercises governmental or proprietary authority or performs a governmental or proprietary function,” the PTO may be considered a public body.  Thus, a PTO must make it consistently clear that it is independent of the school district.  Any school district accounts designated for a PTO should be kept separately from accounts holding school district  funds.  The PTO should have exclusive control over its funds.  The PTO should not use the school district federal taxpayer identification number or state tax-exempt number for purchases or other purposes.     

A public body may endorse a ballot proposal as long as such endorsement does not entail the expenditure of public funds.  Whether this power also extends to the endorsement of candidates is less certain. 

Section 527 Political Organizations

If a PTO’s primary activity is to make expenditures associated with a candidate for public office or a ballot proposal, it could be considered a political organization under Section 527 of the IRC and subject to applicable reporting requirements if it wishes to claim tax-exempt status under that section.  A PTO can make contributions to candidate or ballot campaigns, or make independent expenditures in support of candidates or ballot proposals, so long as it obeys campaign finance laws.  If a PTO uses its funds to urge the election or defeat of a candidate or ballot proposal, the PTO must register as a committee (which would be a Section 527 organization) and file reports with the Michigan Secretary of State under the Michigan Campaign Finance Act.  If the expenditures are coordinated with a candidate committee, then those expenditures would be treated as contributions to the candidate committee and subject to contribution limits.   

Taxable Entities

If a PTO is not a Section 501(c)(4) civic or social welfare organization, Section 527 organization or a governmental entity, it would likely be a taxable entity and must file a corporate tax return and pay income tax on net revenues.  Like a tax-exempt entity (with the exception of Section 501(c)(3) organizations), a taxable organization may endorse candidates or ballot proposals. It may also make contributions to candidate or ballot proposal committees, or make independent expenditures urging the election of candidates or ballot proposals, but would be subject to the registration and reporting requirements as a political committee as described above.             
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Andrew Richner and Duane Tarnacki are members of the Clark Hill law firm, with specialized practices in education, government and nonprofit law.  If you have any questions concerning these issues, please contact Andrew Richner at 313.965.8531, arichner@clarkhill.com, or Duane Tarnacki at 313.965.8264, dtarnacki@clarkhill.com. 
With more than 200 attorneys and professionals located in several states, Clark Hill provides services to clients throughout the country.  For more information, visit www.clarkhill.com or call 800.949.3124.
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