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.
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:
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:
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.
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.