What are 501(c) tax-exempt groups?
Where 527s had electioneering as the function that exempted them from having to pay taxes on their income, 501(c)s are exempt because their principal purpose is, in some nonpolitical way, to improve conditions for their members. That applies to both 501(c)(5) labor unions and 501(c)(6) business associations, and it also applies to 501(c)(4) social welfare organizations, which can serve very vaguely defined constituencies. These groups are not excluded from all political activity, as they may lobby Congress to advocate for the kinds of legislation that will promote their principal purposes.26
These groups may also participate in elections as long as that participation is not their primary activity. To be sure, labor unions, corporations, and trade associations have long participated in elections indirectly through their PACs. So did some of the larger 501(c)(4)s, such as Planned Parenthood and the National Rifle Association; but they registered their PACs with the FEC, which treated them the same way as other connected PACs. Direct participation in elections was permissible only if it was a secondary activity. It is that supposedly nonprimary political activity that has drawn so much attention to 501(c)s.27
That political activity began to increase in 2004, when BCRA drove some soft money to the kind of "stealth" 527s that many of those groups had already formed. It continued in 2008, after the Supreme Court's decision in FEC v. Wisconsin Right to Life (2007) made them a more attractive channel for outside money by allowing them to get around BCRA.