Compliance Checkpoint: Section 501(c)(3) Election Year Activities

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Highlights

  • With only weeks left before the 2020 election and U.S. Supreme Court confirmation hearings underway, nonprofit organizations may be considering whether and how they can engage.
  • While some nonprofit organizations may engage in partisan political activities – subject to certain requirements – Section 501(c)(3) organizations are strictly forbidden from doing so.
  • Some educational and nonpartisan activities are allowed, but the lines between prohibited and permissible actions are sometimes blurry, and a misstep may be fatal for an organization. The IRS can impose excise taxes on prohibited political activity or even seek to revoke the preferential tax-exempt status of Section 501(c)(3) organizations for engaging in such activity.

With only weeks left before the 2020 election and U.S. Supreme Court confirmation hearings underway, nonprofit organizations may be considering whether and how they can engage. While some nonprofit organizations may engage in partisan political activities – subject to certain requirements – Section 501(c)(3) organizations are strictly forbidden from doing so. However, there are ways in which a Section 501(c)(3) organization may engage in other educational and nonpartisan activities, or even Supreme Court nominations. Unfortunately, the lines between prohibited actions and those that are permissible are sometimes blurry, and a misstep may be fatal for an organization. The IRS can impose excise taxes on prohibited political activity or even seek to revoke the preferential tax-exempt status of Section 501(c)(3) organizations for engaging in such activity.

This Holland & Knight alert provides some guidance for Section 501(c)(3) organizations on what activities may or may not be allowed during election season.

Prohibited Political Activity: Facts and Circumstances Test

There is no bright line test on what constitutes political activity. Instead, the IRS employs a "facts and circumstances" test which creates flexibility as well as uncertainty. This test enables the IRS to consider context when determining whether a Section 501(c)(3) organization has engaged in prohibited political activity. The IRS has identified the following as "key factors" in determining whether a communication qualifies as political activity:

  • whether the statement identifies one or more candidates for a given public office
  • whether the statement expresses approval or disapproval for one or more candidates' positions and/or actions
  • whether the statement is delivered close in time to an election
  • whether the statement references voting or an election
  • whether the issue addressed in the communication is a "wedge" issue known to divide candidates in a particular election
  • whether the communication is part of an ongoing series of communications by the organization on the same issue, and
  • whether the timing of the communication and identification of the candidate are related to a non-electoral event (e.g., a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office)

Permissible Activities

A Section 501(c)(3) organization may engage in certain nonpartisan activities that do not support or oppose any candidate over another. However, these activities still remain subject to the facts and circumstances test, where an otherwise permissible activity can be tainted by other actions of the organization.

The following are examples of nonpartisan activities that a Section 501(c)(3) organization may engage in under certain facts and circumstances:

  • Education. Section 501(c)(3) organizations are often organized and operated for educational purposes. Education and advocacy often go hand-in-hand. The IRS has recognized this connection, and IRS regulations provide that an organization may be educational, even though it advocates a particular position or viewpoint, so long as it presents a sufficiently full and fair exposition of the pertinent facts so that an individual or the public can form an independent opinion or conclusion.
  • Issue Advocacy. The IRS has recognized that Section 501(c)(3) organizations may openly take positions on public policy issues. Communications will range in their level of risk, where higher risk communications would include those that reference: 1) candidates, 2) voting in an upcoming election, or 3) a policy issue that divides candidates in an election for public office. These references do not need to be express for campaign intervention to occur. The IRS has stated that it is "evident what is happening" and that "an intervention is taking place" in instances such as when a Section 501(c)(3) organization uses "code words" to substitute for a candidate's name (e.g., "Republican" or "Democrat") together with a discussion of the candidacy or the election.
  • Individual Political Activity. Individual officers, directors or employees of a Section 501(c)(3) organization may engage in political activity when they are acting in their individual capacity rather than as a representative of the organization. There are a variety of areas where a nonprofit should exercise caution to ensure that an employee's partisan activities are kept distinct from the Section 501(c)(3) organization. For instance, staff must not engage in political activity during compensated time, and a Section 501(c)(3) organization must not allow any of its assets or facilities to be used for an individual's personal political work.

Further, a Section 501(c)(3) organization may attempt to influence the confirmation of a Supreme Court justice. The IRS has recognized that attempts to influence the confirmation of a federal judge is not campaign intervention and instead is a lobbying activity (i.e., attempting to influence the legislative vote). A Section 501(c)(3) organization must, however, follow all guidance for lobbying activities, and be mindful that any direct or grassroots lobbying activity to attempt to influence the confirmation of a Supreme Court justice will count toward the organization's lobbying limit.

Conclusion and Takeaways

Given the complex rules and many uncertain areas, Section 501(c)(3) organizations are urged to seek legal counsel to ensure that they remain tax compliant. Remaining compliant is important to retain tax-exempt status, avoid excise taxes and ensure that donations made to the organization remain tax-deductible.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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