With the 2016 election season picking up steam, not-for-profit organizations need to exercise caution not to stray into political activities that could put their tax-exempt status on the line. However, while the Internal Revenue Code (IRC) clearly prohibits certain activities and expenditures related to the political process, other activities may be permissible.
Prohibited Campaign Intervention
The IRC states that 501(c)(3) organizations cannot participate or intervene in any political campaign on behalf of, or in opposition to, any candidate for public office. An organization engages in prohibited political intervention when it:
- Makes or solicits contributions to or for candidates or political organizations;
- Endorses a candidate or rates the candidates;
- Publishes or distributes partisan campaign literature or written statements (including online material); or
- Allows its representatives speak out about a candidate.
Organizations are, however, permitted to conduct nonpartisan activities that educate the public and help them participate in the electoral process as long as these activities are in line with their exempt purpose.
Not-for-profit organizations also can provide voter education, including voter registration or host get-out-the-vote drives, as long as they are conducted in a nonpartisan manner. To reduce the odds of bias, the organization should avoid mentioning any candidates or political parties in communications about the activity.
For example, communications related to get-out-the-vote efforts should only urge people to register and vote, and describe the hours and places of registration and voting. Any services offered in connection with the activity, such as rides to polling places, should be offered to everyone, regardless of political affiliation.
Not-for-profit organizations might compile the voting records of incumbents or document candidates' responses to questions posed by the organization. Regardless of its form, a voter guide must cover a broad range of issues and refrain from judging the candidates or their positions.
Voting records can be considered political campaign intervention if they identify any incumbent as a candidate or compare an incumbent's positions with those of other candidates or the organization. Such guides are particularly risky if published simultaneously with a political campaign or aimed at areas where campaigns are occurring.
Organizations sometimes use questionnaires to collect and distribute information about candidates and the issues. However, they also can be a way to intervene in a campaign.
To reduce the risk of prohibited intervention, not-for-profit organizations should phrase their questions neutrally in a way that does not suggest a preferred answer. For example, "Do you support saving innocent lives through gun control?" can be deemed subjective. Further, an organization should send the questionnaire to all candidates for a particular office, publish all responses received (without substantive editing) and avoid comparing the responses to its own positions.
Candidate appearances can take a variety of forms. For example, so-called "non-candidate" appearances take place when candidates appear in a role other than that of the candidate or to speak on a topic other than the election.
To pass muster with the IRS, the host organization should maintain a nonpartisan atmosphere at the event and ensure that no campaigning activity goes on. None of the organization's representatives should mention the campaign or the invitee's candidacy. And any announcement of the event should clearly indicate the capacity in which the candidate is appearing and, again, avoid mention of his or her candidacy.
If a candidate is invited to speak as a candidate, the organization is engaging in political campaign intervention unless it gives all qualified candidates an equal opportunity to speak, meaning substantially similar invitations and events. The organization also must make clear that it neither supports nor opposes any speaker's candidacy.
Candidate forums, with all of the politicians appearing together, are generally permissible. But the organization must see that the candidates are treated fairly and impartially.
Consequences of Political Intervention
The IRS itself admits it has only proposed revocation in a few egregious cases. Engaging in political campaign intervention can lead to excise taxes on the amount of money spent on the prohibited activity, reputational damage and even, in the worst case, revocation of your organization's exempt status. When in doubt, make sure your political activity is clearly nonpartisan.
Sidebar: What About Lobbying?
A 501(c)(3) organization may engage in some lobbying to influence legislation, but too much could jeopardize tax-exempt status. (However, a 501(c)(4) social welfare organization may further its exempt purposes with lobbying as its primary activity without jeopardizing its tax exemption.)
A not-for-profit organization will be regarded as lobbying if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation. An organization that advocates the adoption or rejection of legislation also is lobbying.
Organizations can, however, get involved in public policy issues without the activity being deemed lobbying. For example, an organization could conduct educational meetings or prepare and disseminate educational materials.
Whether a not-for-profit's actual lobbying efforts constitute a "substantial part" of its overall activities — and, thus, are not permitted — is determined on the basis of the relevant facts and circumstances. Those include the amount of time devoted (by both employees and volunteers) and the relative amount of expenditures made by the organization for the activity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.