Winners aside, some things are certain every election season. For example, when November 8 finally rolls around, you’ll probably never want to see or hear another political advertisement again. One thing nonprofit organizations can be sure of is that their political activities will be watched by the IRS. To ensure that your tax-exempt status survives this election year, learn the rules regarding political activities and follow them.
To protect their exempt status, 501(c)(3) organizations don’t have to remain on the political sidelines. In fact, many nonprofits exist to advocate for or against certain issues. What you need to be cautious about is political campaigning or what the IRS calls “campaign intervention” — promoting or opposing particular political parties or candidates and encouraging supporters to vote in certain ways.
Generally prohibited activities include:
- Endorsing candidates,
- Donating to and fundraising on behalf of parties and candidates,
- Contributing to political action committees (PACs),
- Engaging in business with particular candidates (such as selling mailing lists or renting office space) without offering the same to opposing candidates or the public, and
- Inviting a candidate to speak at an event in anything other than a noncandidate capacity.
If, for example, a speaker who is also running for office mentions his or her campaign at the event or the nonprofit sponsoring the event displays partisan materials or solicits campaign contributions, the organization’s nonexempt status will likely come under scrutiny.
Of course, there are plenty of ways for nonprofits to participate in the electoral process. Encouraging people to vote — as long as you don’t tell them which box to tick — is acceptable. It’s also generally OK to host nonpartisan candidate forums, distribute nonbiased voter guides and sponsor voter registration drives.
And in both election and nonelection years, 501(c)(3) organizations can participate in advocacy and lobbying, within limits. In most cases, educating supporters and the public about issues is acceptable. You also are free to explain to elected officials your nonprofit’s positions and ask supporters to contact officials and voice their opinions about legislative proposals. However, lobbying activities must remain an “insubstantial” part of your organization’s business. The IRS doesn’t define “insubstantial,” so most nonprofits are advised to keep it to a minimum.
Complex and nuanced
Unfortunately, the rules governing the campaign activities of 501(c)(3) organizations are complex and can be confusing. For example, the IRS advises nonprofits to be careful to extend equitable offers to political candidates. If your nonprofit invites one candidate to speak at a well-attended annual gala but invites the opposing candidate to address a sparsely attended weekday meeting, you may be in trouble. Even if you present both candidates in a neutral, nonbiased way, you’ve provided greater exposure to one of them and implied your support of that candidate.
Examples illustrating such nuanced interpretations of the rules can be found in the IRS fact sheet, “Election Year Activities and the Prohibition on Political Campaign Intervention for Section 501(c)(3) Organizations” (https://www.irs.gov/irb/2016-09_IRB/ar09.html).
The rules governing political campaigning are a little different for 501(c)(4), 501(c)(5) and 501(c)(6) organizations. In general, these nonprofits may participate in campaigns for or against candidates and parties, provided that campaigning isn’t their primary activity.
Participation includes donating directly to candidates’ campaigns and to PACs. (See “Citizens United and nonprofit politics.”) However, organizations can’t deduct campaign contributions as a business expense and their members may not deduct on their individual tax returns membership dues that are used to support campaigns. It’s the responsibility of organizations to inform members what percentage of their dues has been used for political activities.
Don’t be sorry
Determining whether your nonprofit is in compliance with IRS rules isn’t always simple or straightforward. Whenever you’re unsure about an election-related activity, check with your tax and legal advisors. Otherwise, you risk your nonprofit’s exempt status — and may even owe excise taxes on campaign expenditures.
Citizens United and nonprofit politics
Whether you characterize the U.S. Supreme Court’s 2010 ruling in Citizens United v. FEC as a victory for free speech or a blow to responsible campaign spending, it has altered the political landscape. In a nutshell, the Court declared as unconstitutional limits on campaign spending by corporations and unions.
But the decision’s impact has been broader — emboldening political action committees known as super PACs and causing individuals to pour millions of dollars into politically active 501(c)(4) and 501(c)(6) organizations. Most of these nonprofits follow IRS rules and conduct their activities independent of specific parties or candidates. However, some have been accused of crossing the line and coordinating with campaigns. Unfortunately, the law is murky about where exactly the line lies, so your organization is probably safest to deploy its political dollars carefully and consult your tax advisor when uncertain about political activities.