How Do I Form a PAC?
In Massachusetts, the process is simple
on October 1, 2018
Updated on July 1, 2022
Having the power to influencing an election—whether for city council, state legislator or president—is seen as beneficial to individuals, business owners, nonprofits, corporations and trade association. Contributing to a candidate is one direct way to help influence the election outcome, but there are contribution limits under federal election law, as well as Massachusetts state law. If an individual or group of people want to increase their contributions, or perhaps communicate their own message to the public, forming a PAC might be the solution.
What is a PAC?
A political action committee (PAC) is a general term that describes different types of political committees regulated by the Federal Election Commission (FEC) and campaign finance law. For individuals that want to band together to influence an election, the default PAC is the traditional nonconnected committee. Under federal election law, a nonconnected committee is any committee that conducts activities in connection with an election—and is not one of the other three defined political committees, which are:
Party committees, which represent a political party and are part of the official local, state or national party structure
Authorized committees, which have been authorized by a candidate to accept contributions or make expenditures on the candidate’s behalf
Separate segregated fund (SSF), which are established, administered or financially supported by a connected organization (either a corporation or labor organization)
A leadership PAC is a nonconnected PAC that is established by a candidate. Super PACs and hybrid PACs are also political committees with different benefits and limitations from traditional nonconnected committees. Super PACs are also called independent expenditure-only committees, because their expenditures are limited to communications that are independent from, and not coordinated with, a candidate. The independence of super PACs (a creature of recent Supreme Court decisions) has allowed them to solicit unlimited amounts donations from individuals and corporations. A hybrid PAC is a combination of a traditional nonconnected committee and a super PAC –but it must maintain separate bank accounts for each function.
Little is required to set up a nonconnected committee
It’s not necessary for a PAC to incorporate or form an LLC, but many do to protect themselves personally from any actions of the PAC. The FEC allows PACs to incorporate for liability purposes only. These PACs won’t be subject to campaign restrictions placed on other, for-profit corporations if the PAC primarily performs what the FEC labels “exempt activities.”
The PAC must designate a treasurer before it can accept contributions or make disbursement and expenditures. The treasurer will be responsible for ensuring the PAC meets its FEC annual reporting requirements. An Employer Identification Number (EIN) must be obtained for the PAC from the IRS. A bank account must be opened in the name of the PAC, separate from any personal accounts of the organizers of the PAC. Once of all these tasks are complete, the PAC must register with the FEC by filing FEC Form 1, a statement of organization. Registration with the FEC is required once the PAC raises or spends more than $1,000 in a calendar year.
Will my PAC contributions be tax-exempt?
Any organization required to report to the FEC as a political committee is waived from providing separate notice to the IRS of tax-exempt status under section 527 of the Internal Revenue Code (IRC). Because PACs qualify for tax-exempt status under section 527, PACs are often also referred to as 527s. However, not all 527s are PACs.
Section 527 organizations are required to be organized and operated primarily for the purpose of directly (or indirectly) accepting contributions or making expenditures, or both, for an exempt function. The exempt function of a political organization is influencing or attempting 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. Activities that directly or indirectly relate to or support an exempt function are exempt function activities and a political organization’s primary activities must be exempt function activities to be within the law.
With the complexity of election laws organizations must follow, legal advice is critical to helping form and maintain a PAC. Discuss your plans with an experienced Massachusetts nonprofit attorney when you are ready to form your PAC. For more information on this area, see our business organizations overview.