Alliance for Children and Families, March 15, 2006
Mixing Politics with Nonprofits
How to Engage Politically Without Violating IRS Regulations
In 1954, Congress imposed a requirement on all 501(c)(3) exempt organizations that they not engage in partisan political activity. Of course, this doesn’t mean
that you cannot speak. But it does mean that you cannot campaign.
This strikes me as fair. We receive a tremendous public benefit with our tax exemption and with the fact that people who donate to us can deduct their contributions from taxable income. Since political contributions are not deductible, there would be no way for the IRS to track the proper or improper use of donated funds if 501(c)(3) organizations were involved in partisan politics. However, the penalty is severe for not complying, and there is no middle ground. If you do engage in politics, you lose your exemption.
Nevertheless, there are ways for you to engage in the political life of your local communities, states, and national races without running askance of this prohibition. You simply need to know the rules and abide by them.
How to lose your exemption. The rules began to blur in the early 1990s, when religiously based groups became politically active. Two religious organizations actually lost their exemption because the egregiousness of their conduct.
Four days before the 1992 presidential election, The Church at Pierce Creek in Binghamton, New York took out an ad in two national newspapers urging Christians not to vote for Bill Clinton because of his positions on certain issues. This was the first time in IRS history where a bona fide church’s tax-exempt status was revoked because of its involvement in politics.1
Two days before the same election, Pat Robertson’s Christian Coalition distributed 40 million distinctly partisan “voter guides” by inserting them in the service bulletins of Christian churches nationwide. The leaflets used highly inflammatory language to insinuate that Democratic candidates for Congress were “unchristian,” and they were credited with changing the outcome in several elections.2
Because of who these entities are, the public’s awareness of political activity within the exempt sector has focused on religious organizations. But the proscriptions apply equally well to all organizations with a 501(c)(3) exemption. These and other more recent cases provide us now, in 2006, with clearer guidelines than we had in the 1990s. With the upcoming Congressional races later this year, this is a good time to review what is and is not allowed in the way of political involvement.
Acceptable limits for lobbying, none for politicking. Despite the prohibition against politicking, you may engage in certain public policy and election-related work without jeopardizing your exempt status. There are restrictions on certain kinds of political actions, of course, but the range of what is acceptable is wide enough to give you many opportunities for action without crossing any legal lines.
IRS regulations on the political activities of 501(c)(3) entities can be summarized in three simple rules:
1. You can educate the public about political issues and encourage voters to vote. You may issue position papers to the media and work with local coalitions or partnerships on issues of public importance. You can educate and register voters—so long as you do this in a non-partisan manner.
2. You may engage in a limited amount of lobbying. Lobbying is defined as advocating for or against specific pieces of legislation. Your lobbying activities must be an “unsubstantial” portion of your over-all activities. The IRS has not provided a guideline for exactly what is “unsubstantial,” but experts generally agree that up to 5 percent is acceptable.3 If you wish to engage at a higher degree of lobbying, you may file an election to be judged on an expenditure basis.4 Grassroots lobbying activities are an acceptable way to engage in public debate, so long as they remain an “unsubstantial” part of your overall activities.
3. You may not engage in partisan political activity. You can do nothing that advocates for or against specific candidates for public office or their political parties. This includes fundraising on behalf of candidates and donating meeting space, among other things. Election-related activities such as candidate questionnaires and forums are acceptable, so long as all major candidates are invited to participate and they are fair in their presentation.
Important notes. First, keep in mind that the restrictions against political activity apply only to the 501(c)(3) organization as a legal entity and those who speak in its name. An officer or director may freely make partisan statements as an individual, so long as the speaker makes it clear that he/she is not speaking on behalf of the organization.
Second, the political activity prohibition applies only to 501(c)(3) entities. If you feel that advocacy is important enough to do so, you may incorporate a separate nonprofit and get it recognized as a 501(c)(4) social welfare/advocacy organization. Donations to it are not tax deductible. Be sure to keep good records so you can demonstrate to the IRS that there is no illegal crossover between the two entities.
Third, because recent high visibility cases were triggered by the political actions of religious organizations, many of the best guides have been published by and for that sector. I especially recommend a publication issued by the Pew Charitable Trust.5 It is a concise and clearly written document that is equally applicable to all exempt organizations.
Voting guides. A guide focusing on issues of interest to your agency can be useful to voters who want to know which candidate is most likely to favor issues of importance to you. Until now, there has been little guidance as to what constitutes acceptable limits for voter guides, other than that a truly partisan guide may expose your organization to loss of its exemption.
The best description of how to create an acceptable voter guide has ironically come out of the Christian Coalition case.6 Since the IRS forced the Coalition to describe its intended process for issuing voter guides as a condition of being reinstated as an exempt entity, that approved process gives us excellent guidance in preparing our own voter guides.
Candidate forums. Candidate appearances are, of course, partisan by their very nature. However, if you invite all major candidates to speak, you may hold public forums with- out violating IRS rules. I was sensitized to the need for fairness some 25 years ago, when a trade association I represented had invited only one candidate to speak at its annual convention. A powerful member of the opposition party happened to be pres- ent, and he heatedly noted to the embar- rassed conferees that politicians “don’t get mad, they get even.” The opposing candidate was flown in the next day in a private jet at great expense to the organization.
I had an extremely fortuitous experience with candidate forums when I was the executive director of Sunburst Inc. of Wisconsin. Our advisory board at Sunburst Youth Homes invited both candidates to meet with its members, our staff, and members of the community. Only one candidate showed up, so we listened to his presentation with no fear that we had done anything wrong. When that candidate won the election, I paid a visit to him in the State Capitol on our association’s annual lobbying day. I was warmly received and we had a good talk. That is exactly what you want to have happen.
Conclusion. IRS requirements about polit- ical activities are reasonable. While they absolutely prohibit campaign involvement and partisan politics, they provide a number of accepted ways for you to become active in the public debate. I hope that you will find within this article the means to make your voice heard in the political marketplace.