It’s an election year, and we are being bombarded with politics. It seems everyone feels the need to share opinions on candidates or issues. For most people, there are no consequences to expressing views, but for not-for-profit organizations, political involvement can be as precarious as stepping off a cliff.
Under the Internal Revenue Code Section 501(c)(3), not-for-profit organizations are absolutely forbidden from directly or indirectly participating in any political campaign on behalf of or in opposition to any candidate for elective public office. Violating this prohibition could lead to denial or revocation of your organization’s tax-exempt status and the imposition of certain excise taxes. In other words, the IRS is strict about this issue and you must make certain the board and officers in your organization comply.
The prohibition against charitable organizations participating in political campaigns is absolute and is made crystal clear by a memorandum in which the IRS revoked a Section 501(c)(3) organization’s exemption for simply criticizing a candidate in a radio commentary. The IRS’s position is further supported by a judicial decision that stated, “It should be noted that exemption is lost . . . by participation in any political campaign on behalf of any candidate for public office. It need not form a substantial part of the organization’s activities.” In addition to a possible loss of exemption, a not-for-profit is subject to a 10 percent excise tax on amounts paid or incurred in participating or intervening in a political campaign. If the expenditure is not corrected within a certain period, an excise tax equal to 100 percent of the political expenditure is imposed.
What does participating in a political campaign mean?
Your organization cannot take a stand in any campaign or support or oppose a candidate for public office, which is defined as one who offers himself, or is proposed by others, as a contestant for an elective public office at the national, state, or local level.
Some activities that violate the prohibition on political campaigning include the following:
- Giving a candidate or political party cash, property, the free use of facilities, or free services
- Publishing or distributing written or printed statements or making oral statements on behalf of or in opposition to candidates
- Analyzing candidates’ qualifications and publishing the names of those deemed most qualified. Be cautious, since the rule also forbids indirect participation. Thus, if you are associated with another organization that has direct political participation, you may also be treated as participating in the eyes of the IRS.
What political activities are allowed for not-for-profits?
- Personal views versus official views: The prohibition against political campaign activity does not prevent an organization’s officers, directors, or other leaders from expressing their personal views, as individuals, on a candidate, a political party, or a campaign. However, they should not use the organization’s financial assets, facilities, or personnel in any way and should clearly indicate that their actions or statements are entirely their own and not the organization’s. Also, they cannot express their views in official organization publications or at official organization functions. The organization must not explicitly or implicitly ratify the actions of any individual.
- Educational and voter registration activities: Your organization may participate in non-partisan activities such as voter education, registration and get-out-the-vote drives if conducted in a nonpartisan manner. But such activities will be deemed to be prohibited participation or intervention if conducted with evidence of bias that favors one candidate over another, opposes a candidate in some way or favors a candidate or group of candidates.
- Issue advocacy: A not-for-profit organization can continue to advocate an issue when a candidate has become closely identified with that issue during a campaign, but certain precautions are necessary to prevent issue advocacy from becoming campaign intervention. A determination that issue advocacy has become campaign intervention requires more than just a positive or negative correlation between an organization’s position and a candidate’s position. The test is whether the organization is commenting on a candidate rather than speaking about an issue. The IRS warns that words such as conservative, liberal, pro-life or pro-choice cannot be used in lieu of a candidate’s name to subliminally support or oppose a candidate.
- Newsletters: The IRS has ruled that a charitable organization may publish a newsletter of an incumbent’s voting records on selected issues if certain parameters are met. However, the reproduction of candidate views on a narrow range of issues important to the organization can be considered campaign intervention.
- Lobbying activities: Lobbying is permissible, provided it is not a substantial part of an organization’s activities. The downside is there is no simple rule as to the amount of lobbying activities deemed substantial. A public charity is considered to be lobbying if it advocates the adoption or rejection of legislation or contacts members of a legislative body or urges the public to do so concerning legislation. Eligible entities may make a lobbying election to avoid being governed by the substantial part test, but will still have limitations on the amount of lobbying they can do. Nevertheless, both electing and non-electing organizations are prohibited from intervening in a political campaign. Eligible organizations that make the lobbying election can expend a specified amount to influence legislation without risking the organization’s tax exemption. However, amounts exceeding the prescribed limitation are subject to a 25 percent excise tax. In addition, if the electing charity’s lobbying expenditures normally exceed 150 percent of the prescribed amount, its exempt status will be revoked.
As a charitable organization, you need to be aware of the consequences of your actions and avoid crossing the political line. A simple mistake could cause the IRS to revoke your tax-exempt status, which once denied will be difficult and costly to reinstate. If you have any further questions, please contact Bart Halderson or another member of Schenck’s not-for-profit team at 800-236-2246.
Bart Halderson, CPA, is a manager and member of Schenck’s Not-for-profit industry team. Bart has more than fifteen years of experience providing tax consulting services to both for-profit and tax-exempt organizations.