Tax-Exempt Organizations and Political Activities – Proceed with Caution
With the upcoming election in November, politics is at the forefront of everyone’s minds. But for a not-for-profit organization, it is critical that its management understands what types of political activities are allowed and what types of activities may jeopardize an organization’s tax-exempt status. It is also important to note that these regulations differ based on the IRS code section under which an organization claims its tax-exempt status.
Generally speaking, 501(c)(3) public charities are the most restrictive in the types of activities allowed. They are strictly prohibited from engaging in any political activity, such as participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public office. Public charities may not endorse any particular candidate or party and leaders cannot make partisan comments in official organization publications or at official functions. Contributions to political campaign funds or public statements of position (verbal or written) made by or on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.
However, a 501(c)(3) organization may hire lobbyists to attempt to influence certain legislation. In addition, the organization may also perform certain “grass-roots” lobbying which raises awareness of certain issues and/or attempts to influence the general public on legislative matters. For example, charities may conduct educational meetings, prepare and distribute educational materials, or otherwise highlight public policy issues in an educational manner without jeopardizing its tax-exempt status. It is also important to note that the tax code places limits on the amount that public charities may spend on lobbying. The general rule is that 501(c)(3) organizations are limited in lobbying by the requirement that, “no substantial part of the activities be used for carrying on propaganda or otherwise attempting to influence legislation.” Too much lobbying risks loss of tax-exempt status.
It can be especially tricky to understand whether certain issues that fall into the “gray area” are acceptable. Certain activities may not be prohibited depending on the specific circumstances. For example, voter education activities conducted in a non-partisan manner do not constitute prohibited political campaign activity. Other activities intended to encourage people to vote, such as voter registration, would not constitute prohibited political campaign activity if conducted in a non-partisan manner. On the other hand, voter education or registration activities with evidence of bias that would favor or oppose a specific candidate does constitute prohibited participation or intervention.
It is also important to note that, unlike charitable organizations, Section 501(c)(4), 501(c)(5) and 501(c)(6) organizations do not endanger their tax-exempt status if they engage in limited political activities. However, they may incur a tax for such activities.
When participating in any activity that may be construed as political in nature, it’s best to err on the side of caution. Before proceeding, not-for-profit organizations are strongly encouraged to consult with their attorneys and tax advisors if there is any uncertainty in the allowability of a certain activity.