RSF – Our Legal and Financial Status

During presentations by Gordon Klingenschmittt at recent RSF meetings, two chapters of his book How To Liberate America raised a discussion on El Paso County Republican Strategy Forum’s incorporation and fundraising.  In Chapter 13, the author briefly explains types of non-profit organizations used by charities and political groups.  The choice of non-profit organization type should be derived from the purpose and activities of the group.  His brief coverage of the subject applies mainly to large national organizations.  Here are the basics of how the federal government classifies non-profit and/or charitable organizations.  

Charitable Organizations

The most common non-profit organizations recognized by the Internal Revenue Service (IRS) are described in IRS code – Section 501.  There are several types of Sec 501 non-profits that are considered charitable. The main ones are 501c(3) and 501c(4).  The purpose of a 501c(3) must be charitable, religious, educational, scientific, literary, public safety testing, fostering amateur sports competitions or preventing cruelty to animals or children.   Examples are the Red Cross and Habitat for Humanity.  The purpose of a 501c(4) is  to promote social welfare within a community and the it must benefit the entire community, not a subset of the population.  Examples are volunteer fire departments and civic associations. 

Both these organizations enjoy tax exempt status and file reports with the IRS to maintain tax exemption.   Donors to the organizations may claim their contributions as charitable tax deductions.  Because of these benefits and others such as bulk USPS mailing rates, these organizations are prohibited from political expenditures exceeding 5% of annual expenditures.  This limits the organizations’ ability to support political parties and candidates to a large degree.

Political Organizations

According to IRS Section 527, a political organization is any group, including a party, committee, association, or fund that is organized and operated primarily to directly or indirectly accept contributions and/or make expenditures for exempt functions. 

What are exempt functions?   According to IRS code, exempt functions are any activities that influence (or attempt to influence) the selection, nomination, election or appointment of an individual to a federal, state, or local public office or office in a political organization.  This includes elections of Presidential or Vice-Presidential electors.  Based on this definition, the purposes and activities of the Republican Strategy Forum (RSF) are exempt functions.   

Interestingly, Section 527 was added to IRS code in 1975 due to realization that political organizations do not derive all income from contributions, nor do they pass through all their income sources directly to promotion of candidates.  If the organization profits from income other than contributions, that income can be taxed at various corporate rates.  Initially, annual filing to the IRS for a Sec 527 organization was only required if taxable income exceeded expenditure for exempt functions.

527 organizations taxable income is calculated as gross income, excluding exempt function income, less $100 and any allowable deductions. Examples of exempt function income are”: 

• contributions of money or other property
• membership dues, fees, or assessments
• proceeds, which are not received in the ordinary course of business, from political fundraising and entertainment events or from the sale of campaign materials, and
• proceeds from conducting a bingo game

Later, around 2000, the IRS began requiring Sec 527 organizations with non-exempt taxable income to file tax reports annually and the current requirements are to file a return (Form 990) with the IRS if the Section 527 organization has gross receipts of at least $25,000 ($100,000 if a qualified state or local political organization.

However, a 527 organization is not required to file federal tax Form 990 if it is:

• a state or local committee of a political party,
• a political committee of a state or local candidate,
• required to report to the FEC as a political committee,
• a caucus or association of state or local officials,
• an authorized committee under FECA § 301(6) of a candidate for federal office,
• a national committee under FECA § 301(14) of a political party,
• a Congressional campaign committee of a political party committee 

We do not have to file taxes federally due to gross receipts under $25,000.  If we exceed this amount, we need to begin federal filing. 

State of Colorado Filings

Despite not needing annual tax filing with the IRS, we do need to be in compliance with the State of Colorado requirements via the Colorado Secretary of State (SOS) Campaign Finance statutes.   Our requirements include registration with the SOS including our organizational documents. We were registered on March 2, 2018 as a Nonprofit Corporation with Kathy Horsky as the registered agent and our name is El Paso County Republican Strategy Forum (state ID number: 20181229752).

For more detailed information about statutes, you can refer to CRS (Colorado Revised Statutes), Title 1 (Elections), Articles 45 & 46 (Election Campaign Regulations).   An informative PDF file (182 pages) is supplied on the SOS website; the final pages cover Article XXVIII of the Colorado Constitution, the FCPA (Fair Campaign Practices Act), and the Rules Concerning Campaign and Political Finance.   It outlines financial requirements of election candidates and groups.  You can read or download it at:  https://www.sos.state.co.us/pubs/elections/CampaignFinance/files/CPFManual.pdf     

We are filed with the Colorado SOS as: “A 527 Organization to educate and provide information to voters concerning Colorado Elections for the purpose of supporting Republican Candidates for state and local offices.”   As such, we are required to register and report our financial transactions using the states web-based system called TRACER at: https://tracer.sos.colorado.gov/PublicSite/homepage.aspx. Tracer training is available to anyone publicly online without registering.  Find it at:  https://tracer.sos.colorado.gov/PublicSite/WebTraining.aspx.  

Our TRACER filing status shows registered agent as Sandra Mattingly with the registered filing being done by Julia Lindahl.  The filings are generally quarterly; all are complete and available at: 

https://tracer.sos.colorado.gov/PublicSite/SearchPages/CommitteeDetail.aspx?OrgID=35865

Nothing in our federal or state statutes indicates we cannot do fundraising – so long as the expenditures of those funds are supporting our exempt functions (stated in our registered purpose statement). Thus, as along as we are spending our money on our stated purpose of “providing information to voters” – we are not violating any campaign finance rules.  Sec 527 organizations can accept contributions – large and small.   Hopefully, this clarifies our legal and financial status.