Charities Must Avoid Political Campaign Activity
Nonprofit organizations exempt as charities under Internal Revenue Code 501(c)(3) frequently raise questions about their political activities, with the biggest being: what is permitted and what is not? This is important to know — especially during an election year — because charities have effectively made a promise to the federal government to refrain from political campaign intervention in return for tax exemption. An organization’s very existence could be jeopardized by breaking that pledge.
A charity may conduct limited lobbying activities, but it is prohibited from all forms of political campaign activity.
Loss of exempt status and excise taxes
Charities face revocation of their exempt status for participating in or intervening in a political campaign. They may also be subject to excise taxes, which increase if the organization does not take corrective measures. Managers or executives who knowingly approve such activity also may be subject to individual excise taxes.
The requirements for organizations that are classified as exempt under Internal Revenue Code (IRC) Section 501(c)(4), (5), or (6) are significantly different from the rules governing 501(c)(3)s. Associations and membership organizations, for example, can engage in issue advocacy, lobbying, and direct support of political candidates; however, influencing elections cannot be the primary activity of an association.
The prohibition on political activity
The IRC contains an absolute prohibition on certain political activity by charitable organizations. IRC Section 501(c)(3) defines a charitable organization in part as one “which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Section 1.501(c)(3)-1(c)(3) of the regulation further provides that if an organization “participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any (national, state, or local) candidate for public office,” then it is an “action organization” and cannot qualify for tax exemption under 501(c)(3). Participation or intervention in political campaign activity includes direct or indirect donations of cash, free services, free use of space, and publishing or distributing statements that indicate a preference for a candidate or a candidate’s positions.
Five key factors should be considered in determining whether issue advocacy has become political campaign intervention (Revenue Ruling 2007-41):
- Have the candidates been directly or indirectly identified?
- Are the candidates’ positions supported or opposed?
- Is there reference to a pending election?
- What is the organization’s history of addressing the issue?
- Are other issues covered?
Educational efforts must be fair and unbiased
Education is an important element of a charitable organization’s activities. 26 CFR 1.501(c)(3)-1(d)(3) defines educational activities as including the advocacy of “a particular position or viewpoint so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion.”
In practice, such efforts often reveal the organization’s bias toward a particular candidate. For example, a charity might create and distribute a voter guide containing details about a candidate’s positions on specific issues. Even a subtle bias in the content and distribution of materials that directly mention candidates can be considered political intervention.
An organization can produce and distribute material regarding its own preferences on certain issues, but must exclude any direct or indirect reference to specific candidates (see Catholic Answers, Inc. v. U.S., 107 AFTR 2d 2011-2670). The issues important to a charity may occasionally become closely identified with a particular candidate during a campaign. In these cases, the charity must be careful to address the issue, not the candidate. Terms such as “pro-choice” or “anti-immigrant” are not acceptable substitutes for naming the candidate (Private Letter Ruling 9117001).
Even get-out-the-vote activities must be conducted in a way that doesn’t favor one candidate over another. For example, a recent voter registration event in central Florida was criticized by the Democratic Party as an effort to register high numbers of Republican voters because it was held at a Chick-fil-A restaurant. Planned Parenthood has been criticized by Republicans for launching a “nonpartisan campaign to register voters at its clinics, on college campuses, and online.”
A charity may provide website hyperlinks to a candidate’s websites as long as no preferential treatment is given. Hyperlinks can be a valuable educational tool, but the charity must be cautious not to post anything indicating its own support of or opposition to the candidates or their positions. The charity should regularly monitor the linked contents and make adjustments as needed.
Public debates and forums
The presentation of public forums or debates is another recognized method of educating the public. The attendance or participation of a political candidate is not prohibited as long as there is no preferential treatment given to any one candidate. Speaking opportunities must be equal, questions must be unbiased, and no fundraising can occur. Precautions must be taken even with an individual who is rumored to be a candidate but has not yet announced an intention to run for office.
What about First Amendment free speech?
These restrictions are not meant to suppress the free expression of an individual acting as a private citizen. The charity’s leaders are free to say or write whatever they wish as long as they are not acting as representatives of the organization. Therefore, the executive director or president must refrain from expressing a preference for one candidate when presiding at the charity’s events, but is free to participate in the candidate’s campaign as a private citizen, as long as there is no reference to the individual’s role at the charity.
How we can help
Charitable organizations should exercise care, be aware of all the relevant facts and circumstances, and seek qualified professional advice before engaging in any political activity that could violate IRS prohibitions. CLA’s nonprofit team is ready to help organizations wishing to engage in the political process to avoid unwanted and unintended entanglements with the IRS.