Election Year Cautions for Exempt Organizations

Posted on Oct 5, 2016 in Not-for-Profit Boards

By Karen Dunn, JD, LLM

It is an election year and a CEO of a charitable, exempt organization personally endorses a presidential candidate at a forum sponsored by another public charity. The sponsoring organization of the event also invites one of the local gubernatorial candidates to speak to their members, but does not invite all of the candidates.

An employee of another public charity writes a letter to the editor of the local newspaper announcing her support for the incumbent mayoral candidate. Her organization also provides free advertisements supporting the incumbent mayor.

Meanwhile, the pastor down the street urges his congregants to get out and vote because no vote is a vote for the other presidential candidate. This is not fiction. A recent Pew Research Center report[i] indicates that 14% of churchgoers heard their clergy speak directly in support of or against a specific presidential candidate.

Debates are getting heated and the mud is flying. Could your charitable organization get dragged into hot water by political actions of your CEO, employees, or postings on its website? Could its exemption be jeopardized? Does it matter what type of exempt organization it is?

At this time in an election year, every tax exempt organization should be concerned and monitoring its political activities and the political activities of the people representing it.

To do this, its managers must first know when individuals are acting as private citizens and when they are acting as representatives of the organization. Second, the managers must understand what the organization and its representatives are allowed to do and what it is not. Let’s start with a refresher of the basic rules.

Political campaign activity involves support of, or opposition to, a candidate for any elected office at any level of government. Lobbying on legislative issues is not political campaign activity unless it is closely identified with a candidate for office.

Examples of political campaign activity includes:

Giving a candidate a contribution;
Providing a candidate free use of facilities, services, or advertising; or
Publishing or distributing printed statements or making an oral statement for or against a candidate.

Section 501(c)(3) charitable organizations may not be involved in any political campaign. This is an absolute prohibition. A violation could result in more than imposition of excise tax penalties. It could also result in revocation of an organization’s tax-exempt status.

The rules for Section 501(c)(4), (5) and (6) exempt organizations are a bit more lenient. Such organizations may intervene in political campaigns, provided that they do not constitute the organization’s primary activity.[ii] It is common for these types of organizations to engage in campaign activities.

The question is how much activity would be considered a “primary” activity? The current guidance is leaning toward 49% or fewer of its activities. Activities includes both spending and volunteer efforts.

Many organizations do not want to stand by and refrain from participating when so much is at stake in a general election year. They also do not want to violate the prohibition on electioneering.

To help organizations understand, the following are some of the “can dos” and “can’t dos.”

Can Do:

Voter education or “get out the vote” drives are allowed if conducted in an educational and non-partisan manner. Running public forums that include information and voter education guides in a non-partisan manner do not constitute prohibited political campaign activity. [iii]

Organizations that invite one candidate to speak, must make sure all opposing candidates are offered equal time to speak.

Organizations may invite a candidate to speak on their own behalf on other subject matters, such as promoting a book he or she has authored or an incumbent on legislation they have sponsored that has helped the organization and their constituents. The candidate may not speak about their candidacy or the issues of the election. They should not even speak about the fact there is an election in which they are participating. Political fundraising must not occur at any of these kinds of events.

Leaders of organizations may speak on their own behalf as private individuals. The political campaign activity prohibition is not intended to restrict free speech by leaders of exempt organizations if they are speaking for themselves as individuals. However they must clearly indicate that their comments are personal and do not represent the views of any organization. This includes social media.

Taking a stand on public policy issues may be allowed, provided that the issue advocacy does not function as supporting or opposing a candidate. How closely the issue is related to the candidate, and how close to the election this activity is done, are important factors. When in doubt, avoid issue advocacy closely tied to a candidate close to the election.

Can’t Do:

Contributions to political campaign funds or political parties.

Public statements for or against any candidate.

Favoring one candidate over another in activities such as selling mailing lists, leasing office space, or accepting paid advertising.

Voter education or registration activities that favor one candidate over another, oppose a candidate, or have the effect of favoring a candidate over another.

When leaders of an organization speak at their organization’s official functions or write in organization publications, making partisan comments as representatives of the organization.

Taking a public stand on an issue that is closely related to a particular candidate. Issue advocacy can be political campaign intervention. All facts and circumstances must be considered to determine if statements on an issue constitute political intervention.

Use of a PAC:

No discussion of political intervention limitations for non-501(c)(3) organizations would be complete without touching on PACs (Political Action Committees). Should an organization use a PAC? A PAC’s purpose is to accept contributions for political campaign activities.

Political organizations, including PACs, are also known as Section 527 organizations. They are exempt from income tax on contributions and fundraisers, but taxed on net investment income at the highest corporation tax rate (35%).

A political action committee can either stand alone as a separate legal entity, or be a separate segregated fund created by a Section 501(c) organization. It is common for Section 501(c)(3) organizations to create related Section 501(c)(4) organizations that in turn establish a PAC to support or oppose candidates. These arrangements should be monitored so that separate records are strictly maintained and no commingling of funds or other resources occurs.

Put a fence around the “Can’t Do’s:”

It may be a good idea for an organization to have policies in place about permissible and impermissible activities. Include in the policy what its officers and employees may do regarding political campaigning as representatives of the organization.

Train the organization’s officers and employees about what is permitted and prohibited and how to engage in their own personal campaign activities without creating problems for the exempt organization.

Websites are treated the same as printed material or oral statements. Organizations should put procedures in place to regularly monitor links on its website where the linked content may be viewed as political campaigning by the IRS.

As discussed in last month’s article, Top 6 Tax Risks for Your Nonprofit Website, organizations seldom have control over the content of linked sites, which may change over time. It is wise to put a separation page in place to let readers know when they have left the organization’s webpage and the organization is no longer responsible for the content of what the viewer is seeing.

Finally, the number of factors to be considered in determining if an organization is violating the prohibition on electioneering are many. It is always recommended to seek outside legal counsel specializing in lobbying and political rules and regulations, prior to engaging in any political activities.

[i] Pew Research Center, Aug. 8, 2016, “Many Americans Hear Politics Form the Pulpit”

[ii] A discussion of the Supreme Court decision in Citizens United is outside the scope of this article.

[iii] Private foundations may want to consider obtaining an advance ruling via Form 8490 from the IRS before engaging in voter registration drives.

This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.