Pushing the Limits on Political Activity by 501c3s
Are nonprofits getting too involved in American politics, or is the IRS pushing a little too hard to keep these organizations out of the public discussion? During the recent pre-election frenzy, I saw examples of both...
First, I heard a radio report that various Christian sects had warned local congregations against doing ANYTHING to influence voters on candidates and even issues. Seems that the churches had become quite pro-actively involved in the 2004 election, particularly in discussing/publishing opinions with their members. The report stated that NO involvement was allowed if churches and other organizations are to maintain their 501c3 nonprofit status. I was struck by the report; while this hard-line approach has always been the case with candidates, it has never been "the party line" when dealing with political issues.
Then, an October 29 article in USA Today said that the IRS is reviewing the tax-exempt status of the NAACP (National Association for the Advancement of Colored People), the nation's oldest civil rights organization, saying criticism of President Bush at the NAACP's national convention in July may have violated rules against partisan activity. In a letter sent to the nonprofit, the IRS said that NAACP Chairman Julian Bond's July 11 speech "condemned the administration policies of George W. Bush on education, the economy and the war in Iraq," asked who authorized Bond's speech and sought an accounting of all expenses for the Philadelphia convention.
USA Today reports: "Frances Hill, an authority on nonprofit groups at the University of Miami Law School, called it 'amazing' that the IRS would audit a group based on a public speech. 'Usually you would look for some activity other than disagreeing with policies,' she said."
U.S. tax law provides 501c3 tax exempt status only for those organizations that do not "participate in, or intervene in, any political campaign on behalf of any candidate for public office." Similarly, these organizations cannot form, or "cleanly" contribute to a political action committee (PAC), due to the fact that contributions, in turn, are made to specific candidates.
The laws concerning nonprofit involvement in political issues (rather than candidates) and lobbying activities have always been less strict. In determining limits to this type of involvement, organizations have two options: making a Section 501(h) election with the IRS (not available to churches and their integrated auxiliaries, conventions and associations), which comes with a specific set of rules and regulations; or the "substantial part test."
The substantial part test allows the IRS to revoke 501c3 exempt status if a "substantial part" of the organization's activities include lobbying. The IRS has never defined the phrase "substantial part," and application of the test is quite subjective and on a case-by-case basis. Although not explicitly stated, it has been commonly accepted that up to 15% of agency resources may be committed to such activity.
Steven B. Smith with the law firm Holme Roberts and Owens in Colorado Springs provides the following suggestions for 501c3 organizations:
1. leave lobbying to other organizations
2. evaluate the benefits of the 501(h) election and file Form 5768, if appropriate; stay within the provided limits for lobbying activity and spending
3. do not violate the substantial part test if you do/can not take the 501(h) election
4. take advantage of the IRS definition of "exceptions" to lobbying, including reporting results of research and other studies; communications on issues of broad interest to your members; discussion of broad social, economic or other policy issues wherein resolution will require legislation; responses to written requests from a legislative body for technical advice on pending legislation; and matters of self-defense (those actions affecting your organization's powers, duties, tax-exempt status or deductibility of contributions to the organization).
5. do not include a "call to action" in communications with membership unless you are prepared to treat these communications as lobbying.
6. do not establish a PAC and do not contribute directly to any PAC without consulting legal counsel.
First, I heard a radio report that various Christian sects had warned local congregations against doing ANYTHING to influence voters on candidates and even issues. Seems that the churches had become quite pro-actively involved in the 2004 election, particularly in discussing/publishing opinions with their members. The report stated that NO involvement was allowed if churches and other organizations are to maintain their 501c3 nonprofit status. I was struck by the report; while this hard-line approach has always been the case with candidates, it has never been "the party line" when dealing with political issues.
Then, an October 29 article in USA Today said that the IRS is reviewing the tax-exempt status of the NAACP (National Association for the Advancement of Colored People), the nation's oldest civil rights organization, saying criticism of President Bush at the NAACP's national convention in July may have violated rules against partisan activity. In a letter sent to the nonprofit, the IRS said that NAACP Chairman Julian Bond's July 11 speech "condemned the administration policies of George W. Bush on education, the economy and the war in Iraq," asked who authorized Bond's speech and sought an accounting of all expenses for the Philadelphia convention.
USA Today reports: "Frances Hill, an authority on nonprofit groups at the University of Miami Law School, called it 'amazing' that the IRS would audit a group based on a public speech. 'Usually you would look for some activity other than disagreeing with policies,' she said."
U.S. tax law provides 501c3 tax exempt status only for those organizations that do not "participate in, or intervene in, any political campaign on behalf of any candidate for public office." Similarly, these organizations cannot form, or "cleanly" contribute to a political action committee (PAC), due to the fact that contributions, in turn, are made to specific candidates.
The laws concerning nonprofit involvement in political issues (rather than candidates) and lobbying activities have always been less strict. In determining limits to this type of involvement, organizations have two options: making a Section 501(h) election with the IRS (not available to churches and their integrated auxiliaries, conventions and associations), which comes with a specific set of rules and regulations; or the "substantial part test."
The substantial part test allows the IRS to revoke 501c3 exempt status if a "substantial part" of the organization's activities include lobbying. The IRS has never defined the phrase "substantial part," and application of the test is quite subjective and on a case-by-case basis. Although not explicitly stated, it has been commonly accepted that up to 15% of agency resources may be committed to such activity.
Steven B. Smith with the law firm Holme Roberts and Owens in Colorado Springs provides the following suggestions for 501c3 organizations:
1. leave lobbying to other organizations
2. evaluate the benefits of the 501(h) election and file Form 5768, if appropriate; stay within the provided limits for lobbying activity and spending
3. do not violate the substantial part test if you do/can not take the 501(h) election
4. take advantage of the IRS definition of "exceptions" to lobbying, including reporting results of research and other studies; communications on issues of broad interest to your members; discussion of broad social, economic or other policy issues wherein resolution will require legislation; responses to written requests from a legislative body for technical advice on pending legislation; and matters of self-defense (those actions affecting your organization's powers, duties, tax-exempt status or deductibility of contributions to the organization).
5. do not include a "call to action" in communications with membership unless you are prepared to treat these communications as lobbying.
6. do not establish a PAC and do not contribute directly to any PAC without consulting legal counsel.
