With the upcoming presidential election, it is important to understand what a nonprofit organization can and can’t do when it comes to political activity. A nonprofit organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code (also known as a Section 501(c)(3) organization) may be tempted to promote policies that are in line with its nonprofit purpose. However, these entities must be very careful.
Section 501(c)(3) organizations are prohibited from directly or indirectly participating or intervening in political campaigns on behalf of, or in opposition to, any candidate for elective public office. A candidate is someone who offers himself or herself or is proposed by others as a contestant for public office, at the national, state, or local level.
Prohibited campaign activity includes actions that favor or oppose a candidate for public office, including:
- endorsing a candidate, such as by posting a sign on the organization’s property, or an organization official verbally endorsing a candidate,
- contributing funds to a political campaign,
- distributing campaign literature, such as brochures and pamphlets,
- publicly stating a position on an issue over which the candidates are in clear disagreement, and
- allowing a candidate to use the organization’s assets or facilities without giving equal opportunity to the other candidates.
A nonprofit organization that violates this prohibition jeopardizes both its tax-exempt status and its eligibility to receive tax-deductible contributions. Federal tax law may also impose an excise tax in addition to or instead of revocation.
Nonpartisan political activities are permissible, that is to say that:
- Activities intended to encourage people to participate in the electoral process, such as voter education, voter registration, and get-out-the-vote drives, are allowed as long as there are no biased references to particular candidates or political parties;
- A nonprofit organization may invite a political candidate to give a speech at an event, if:
- the opposing candidates are given an equal opportunity to speak, and the event as a whole does not advocate for a certain position, or
- the candidate appears in a personal capacity and the organization ensures that the candidate does not appear to be campaigning for office;
- Candidates may appear without an invitation at an organization’s events that are open to the public;
- A nonprofit organization with facilities may rent space to a candidate seeking to make a speech, as long as the organization:
- charges the campaign its customary fees,
- offers rental of its facilities on a regular basis and not specifically for the candidate,
- makes the space equally available to opposing candidates, and
- makes clear to the campaign that it must not state or imply that the candidate’s appearance at the venue constitutes an endorsement by the organization;
- A nonprofit organization’s sale or rental of its mailing lists, or other goods or services it may offer to the general public, is permitted as long as the equal-opportunity, regular-offering, and no-endorsement rules are respected;
- Nonprofit leaders may engage in political activities in their personal capacity, such as by:
- endorsing candidates, as long as it is done on their personal stationery, e-mail account, social media page, etc., or
- making campaign donations, as long as it is done with their own funds, or if paid online, from their personal computer.
Political activity must be distinguished from legislative activity, also known as lobbying, which is contacting, or urging the public to contact, legislators for the purpose of proposing, supporting, or opposing legislation, or advocating the adoption or rejection of legislation. While public charities may lobby to a limited extent, private foundations are prohibited from engaging in any lobbying activities whatsoever.
Generally, a non-profit organization may not qualify for Section 501(c)(3) tax-exempt status if a substantial part of its activities consists of attempting to influence legislation through lobbying. The substantial part test looks at all the pertinent facts and circumstances of each case, including the time and expenditures devoted by the organization to the activity. To bypass the uncertainty of the substantial part test, an organization can make what is known as a 501(h) election by filing IRS Form 5768, by which it elects to be measured by a more straightforward expenditure test. Organizations that lobby in excess of permitted limits risk losing their tax-exempt status and may be liable for excise taxes.
If you sit on the Board of Directors of a Section 501(c)(3) organization, or serve as an officer of such an organization, keep in mind that the organization can engage in nonpartisan activities, but cannot participate or intervene in political campaigns. Also remember that a public charity can lobby to a limited extent, while a private foundation cannot lobby at all.
If you have any questions, please call us at 716.636.7600. We'd be happy to assist you.