As the calendar quickly approaches Election Day, many nonprofit organizations may be finding it difficult to advocate for their organizations and ensure the public officials who support their missions are elected without jeopardizing their tax exempt status.
The majority of nonprofits are exempt under Internal Revenue Service code 501(c)(3) and are absolutely prohibited from engaging in political activities. Such organizations cannot, directly or indirectly, endorse or oppose a candidate in verbal form or in writing. This includes participating in or intervening in (including distribution or publishing statements) a political campaign for public office.
Additionally, the organizations are forbidden from making contributions to or soliciting funds or support for a political campaign. 501(c)(3) nonprofits are prohibited from rating candidates, even on a nonpartisan basis or creating a political action committee.
Some organizations find that participating in lobbying activities is an essential way to advocate and promote their mission. 501(c)(3) organizations are generally not allowed exempt status if a considerable amount of their activities is influencing legislations or lobbying. However, 501(c)(3) organizations are allowed to perform limited lobbying that does not make up a substantial amount of the organization’s activities based on time devoted to lobbying activities and lobbying expenditures.
Violation of the political activities rules and engagement in substantial lobbying could result in the organization losing their exempt status and/or being subject to certain excise taxes by the IRS.
There are limited situations where an organization could keep their exempt status and only pay imposed excise taxes. Under IRC 4955, the initial excise tax on violating organizations is 10 percent of each political expenditure. An additional tax may also be imposed of 100 percent of each expenditure previously taxed and not corrected within the taxable period. There is no upper limit on the amount of tax that can be imposed.
How are nonprofit organizations able to promote their causes and missions without violating their exempt status? Voter education activities are not prohibited, which allows organization to present their causes at public forums or educational meetings as long as it is done in a nonpartisan manner.
Organizations can create and distribute neutral or unbiased voter education materials. Organizations can also encourage people to vote through voter registration and drives. Meetings, debates or forums can be sponsored by organizations as long as the organization is impartial, all candidates are invited and no bias is shown.
Board members and the organization’s leaders as individuals in their private capacity are able to campaign and endorse candidates, but this cannot be under the organization or through use of the organization’s financial resources, facilities or personnel. Board members or leaders are also allowed to be involved or establish a non-connected political action committee, which is independent from the organization. The IRS would consider a PAC to be that of the organization if the name is similar, or there exists an excessive overlap of directors or sharing of facilities.
Nonprofit organizations often promote issues or beliefs that may be similar to a platform that a candidate is running on. Nonprofits do not have to stop advocating their causes during election time as long as they are not endorsing a candidate or indicating a candidate by a particular label used as a stand-in for a candidate. The IRS will determine this by examining if the focus is on whether the organization is, in fact, commenting on a candidate rather than speaking about an issue.
It is important to all nonprofit organizations to advocate their causes and beliefs and it is beneficial to the organization to have officials in public office who support those same causes and beliefs. As organizations are promoting their causes during election time, it is vital that organizations keep in mind the rules that govern their tax exempt status and what is allowed or prohibited regarding political activities.
Carol Gubb, CPA, is a manager with Mengel, Metzger, Barr & Co. LLP and can be reached at Cgubb@mmb-co.com or (585) 423-1860.