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June/July 1996 Special Double Issue


Is it Legal for a 501(c)(3) to Work on a Candidates' Political Campaign?

This article was excerpted with permission from an article published by Washington, D.C.-based Independent Sector in 1986 entitled, "Permissible Activities of a 501(c)(3) Organization during a Political Campaign".

Some groups confuse lobbying with political activity. Lobbying -- influencing the outcome of legislation by a 501(c)(3) -- is lawful, even encouraged by legislation Congress enacted in 1976 (section 1307 of PL94-455 Lobbying by Public Charities). Political activity -- influencing the outcome of an election by a 501(c)(3) -- is not permitted.

In 1987 Congress enacted additional provisions relating to political activity by 501(c)(3)s. These provisions are discussed at greater length in the January 1988 Independent Sector publication, "Tax Exempt Organizations' Lobbying and Political Activities Accountability Act of 1987: A Guide for Volunteers and Staff of Nonprofit Organizations." None of the provisions in that publication invalidates any part of the information on permissible activities stated in this article. The provisions in the 1987 legislation are:

  1. Section 501(c)(3) of the Internal Revenue Code was amended to make it plain that, as has been assumed all along, political activity against a candidate, as well as on behalf of a candidate, is prohibited.
  2. In addition to or in lieu of revoking the 501(c)(3) status of an organization determined to have violated the "no political activity" proviso, IRS may levy heavy fines, in the nature of excise taxes, against such organization. Fines may also be assessed against staff and/or volunteer leaders who knowingly made or agreed to political expenditures.
  3. Before enactment of the 1987 amendments there could be considerable lag between the time IRS concluded an organization was engaging in political activity, and thus no longer eligible for 501(c)(3) status, and the actual revocation of its tax exemption. The new law gives IRS the authority to seek an injunction to bring to an immediate halt any violation it deems to be flagrant. Before seeking the injunction however, IRS must notify the organization of its intent. If the notice is unheeded, IRS may then take the organization to court. In addition, IRS may immediately levy the excise taxes described above.
The following is information indicating permissible activities that a 501(c)(3) may carry out during a political campaign.

In 1954 Congress wrote into Section 501(c)(3) of the Internal Revenue Code, the section granting tax-exempt status to public charities, the proviso that the organization must: "not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office."

Congress did not elaborate on the above language, and for a number of years there has been considerable uncertainty as to just what a 501(c)(3) organization could and could not do during a campaign. Rulings by the IRS, four of them in direct response to questions asked by Independent Sector, have greatly clarified the situation. Although these are private rulings (that is, technically they apply only to the organization asking the question), they are useful to other organizations of the same character inasmuch as they indicate the current position of the IRS.


Background

To remove any possible doubt it should be stated at the outset that it is perfectly legitimate and highly appropriate for a 501(c)(3) organization to work for the passage of legislation that would further its cause, whether during a campaign or not, assuming of course the organization complies with other applicable statutes, especially the lobbying limitations set forth by Congress in the tax amendments of 1976.

On the other hand, working for the election of a political candidate -- federal, state or local -- is strictly prohibited and may cause the organization to lose both its tax-exempt status and its ability to assure donors that their contributions are tax deductible.


Timing

A basic concept underlying the IRS ruling is that it is what an organization does during a campaign that is the determining factor. In other words, what is done before or after a campaign is not a consideration, with the possible exception of an activity so timed as to deliberately circumvent the law.

What, then, is "during a campaign"? Generally, a campaign for office is deemed to begin when someone announces either by public statement or, in the absence of a statement by filing notice with the election commission that he or she is a candidate for that office.


Electioneering

Starting with the obvious, you cannot as a 501(c)(3) organization endorse, contribute to, work for, or otherwise support a candidate for public office. Conversely, is follows that neither can you oppose one.

This is no way prohibits any of your officers, individual members, or employees from participating -- provided that anything they say or do is done as private citizens and not as spokespersons from your organization. If they choose to identify themselves with the organization, they must make it plain that they are speaking solely for themselves and not for the organization. If they do not identify themselves but the media does, they have done nothing wrong.


Candidates' Statements

It is entirely proper for your 501(c)(3) group to inform candidates of your position on issues of the day, to urge candidates to support your position if elected, and to ask them to go on record as pledging their support. In fact, getting the issues into the campaign, getting them discussed by both candidates and the media before the election often proves to be a highly effective device for subsequently obtaining the legislation you favor.

It is what you do with the candidates' responses that may lead to problems. First, each candidate is free to respond in any manner he or she chooses and to distribute the response not only to your organization but to the general public. On the contrary, however, you do not have the same freedom. Section 501(c)(3) itself contains the prohibition against the "publishing or distributing of statements". It is crystal clear from this that you cannot distribute a candidate's statement to the media or the general public.

Ordinarily it would seem that an organization could distribute such a statement at least to its own members. The law makes no such exception. Of course, if the response from the candidate who ultimately wins the election is favorable, you may want to dit it up later and remind the victor of his or her promises.

The same considerations apply to any statement volunteered by a candidate even if you did not ask for one. He or she may distribute it at will, but you are governed by the language of Section 501(c)(3).


Questionnaires

Questionnaires pose a ticklish problem. If you are a 501(c)(3) organization with a broad range of interests such as the League of Women Voters or the United Way, you are on safe ground in issuing questionnaires to candidates and disseminating their responses. The questions must cover a wide range of subjects, be framed without bias, and be given to all candidates for a given office.

On the other hand, if your organization has a relatively narrow focus -- and this includes all but a very small handful of 501(c)(b) organizations -- there could be serious problems. In the first place, framing questions without emphasizing your special interest is extremely difficult. In the second place, and probably the more compelling, the IRS has taken the position that the very narrowness of your focus implies your endorsement of the candidates whose replies are most favorable. The wisest course for the vast majority of 501(c)(3) groups would be to refrain from issuing questionnaires. For those who already ventured into this area or may still elect to do so, at least refrain from publishing the replies.

The same rationale applies when candidates are asked to respond to a position paper drawn up by the organization. The position-paper-with-response-requested is in effect an elaborate form of questionnaire.


Voting Records

Many organizations follow the practice of telling their members after a key vote on an issue of concern to the organization how each member of the legislature voted. This serves to show the membership how well or how poorly the proposal fared, which legislators they should thank, and which ones they still need to convince. There is no problem with this, provided the information is presented and disseminated during the campaign in the same manner as other times. Any new twists or slants to the procedure can result in a determination that the organization has engaged in improper electioneering. In presenting the results, do not say "voted for us" or equal; simply indicate whether the legislator voted for or against the particular motion on which the issue was decided. In some cases, this may require an explanation of the parliamentary significance of the motion, such as "the motion to table had the effect of killing the bill for this session."

A problem does arise, however, if the organization waits until the campaign is underway to disseminate voting records. The better part of wisdom in this area is to disseminate voting records during a campaign only if it has been your practice to do so at other times. Reaching back during a campaign and publishing a recap of legislators' votes for the entire session or session to date would be unacceptable. It would be unobjectionable, however, after the election.

As for distributing voting records to the public at-large, that would be unwise at any time unless you are one of the very few 501(c)(3) "broad focused" groups as described above.


Public Fora

There can be no objection to a 501(c)(3) organization inviting candidates to attend a meeting of the organization or a public forum sponsored by the organization and state their views on subjects of interest to the organization. Obvious evenhandedness must be maintained in all aspects of promoting and holding the meeting or public forum. Avoid stating your organization's position or commenting on the candidates responses. If there is a question period, each candidate must be given the opportunity to answer all questions put by your organization. In an open meeting, members of the general public of course are not bound by the same considerations, but the moderator for your group should do his or her best to assure balance.

Of course, all bona fide candidates must be invited, and it would be best to invite them simultaneously and to use identical language in the invitations. It is not necessary that they all attend as long as all are invited.

As for distributing copies of the candidates' speeches or other remarks, the IRS position is that if you regularly publish a newsletter and limit its circulation generally to your own members, you may report candidates' statements as news items. All candidates must be given equal opportunity to appear, those who must be presented without editorial comment. Make it plain that the views being reported are those of the candidates and that all candidates for given office were afforded the same opportunity to participate in the forum.


Membership Lists

Some organizations give, sell, trade or lend lists of their members to others. If your organization wishes to make its membership available to candidates, there is no objection to its doing so, provided of course that all candidates are made aware of the opportunity and are given the same access. However, two other considerations enter the picture. If an organization gives or lends its membership list to a candidate, it is in effect making a campaign contribution; to avoid this, it must receive something of fair value in return. Also, before selling or renting membership lists, 501(c)(3) groups would do well to check rules on unrelated business income.


How can a 501(c)(3) Participate in a Ballot Initiative or Referendum?

The following was excerpted from a publication of the Alliance for Justice: "Seize the Initiative". This publication and others are available by calling Donna Ouabain, Nonprofit Advocacy Counsel, at the Alliance for Justice (202) 822-6070.


Definitions:

A Statutory Initiative is a ballot measure that enables voters directly to propose and enact laws. The proponents of a statutory initiative qualify the measure for the ballot by collecting signatures of a specified percentage of registered voters, or a specified percentage of those registered voters who voted in a recent election.

A Referendum is a ballot measure that permits voters to determine whether a bill enacted by the state or local legislative body should become law. Typically, if those opposing the legislative enactment submit the required number of voter signatures within a specified time period after the legislative bid has acted and before the new law has taken effect, enforcement of the law is suspended until the referendum is presented to the voters.

An Initiative Constitutional Amendment is similar to a statutory initiative, but it seeks to amend the state constitution rather than enact a statute. Generally, more signatures are required to qualify a constitutional amendment for the ballot than are required to place a statute before the voters.

A Bond Measure is a statutory initiative that proposes issuing bonds to finance government programs, which can range from the acquisition of a public park to the construction or renovation of public schools. Bond measures typically provide for repayment to bondholders out of general tax revenues or out of the specific revenues anticipated from the completed project.


What a 501(c)(3) can do...

A. While you cannot electioneer for or against candidates, you are allowed to work on ballot measure campaigns.

Section 501(c)(3) provides federal tax exemption to a charitable organization so long as it "does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

The prohibition focuses on activities for or against candidates for public office only. Initiatives, referenda, state constitutional amendments and bond measures are voted upon during elections, but they involve passing laws, not selecting or removing public officials. 501(c)(3) organizations may safely participate in a ballot measure campaign without fear of violating the "electioneering" prohibition.

B. Ballot measure activities by a 501(c)(3) organization are treated as lobbying.

Ballot measures are legislative proposals submitted for approval by the voters. Therefore, a charity's work to support or oppose a ballot measure is actually a lobbying effort directed at the voters, who will enact or reject the proposed law.

C. Lobbying is allowed for 501(c)(3) organizations.

Section 501(c)(3) defines a tax-exempt organization as one that devotes "no substantial part of its...activities to carrying on propaganda, or otherwise attempting to influence legislation (except as otherwise provided in section (h)." In other words, you may lobby so long as it is an insubstantial part of your overall activities.

D. For maximum latitude on ballot measures, file the Section 501(h) election with the IRS.

In 1976, Congress enacted 501(h) to provide an alternative method for measuring a public charity's lobbying activity that is more clear, predictable and generous than the "insubstantial" standard. The great advantage of 501(h) is that only your expenditures for or against the ballot measure count as lobbying. You can safely spend on ballot measures as much s 20 percent of your annual budget, depending on the size of your organization. You can spend even more if you use certain exceptions allowed by the IRS.

But, take advantage of this alternative, you must file a one-page, one-time form to notify the IRS that your organization is electing to use the expenditure test under 501(h).

E. The 501(h) rules provide that ballot measure activity is "direct lobbying" of voters, which means you can spend as much as 20 percent of your budget on such activities.

F. By choosing 501(h), your volunteer time, endorsements, and other types of support work won't count as lobbying only your expenditures.

This is of great benefit to you, but only if you make the 501(h) election. For instance:

G. Under 501(h), communications with the public that refer to and reflect a view on a ballot measure count as lobbying.

The 501(h) lobbying limits apply only to "communications" paid for by your organization. The special rule for ballot measures is:

Where a communication refers to and reflects a view on a measure that is the subject of a referendum, ballot initiative or similar procedure, the general public in the state or locality where the vote will take place constitutes the legislative body... Accordingly, if such a communication is made to one or more members of the general public in that state or locality, the communication is a direct lobbying communication.

Note: This is a two-part test. It requires only (1) a reference to and (2) a view on the ballot measure. The communication is lobbying even if it does not urge the public to support or oppose the measure.


Questions and Answers about 501(c)(3) Involvement
in Initiatives and Referenda

The following was excerpted from a publication of the Alliance for Justice: "Seize the Initiative". This publication and others are available by calling Donna Ouabain, Nonprofit Advocacy Counsel, at the Alliance for Justice (202) 822-6070.

What are the cons of electing 501(h)?

The only potential downside to 501(h) exist for organizations that are very large or are part of a closely knit affiliated group. If your budget exceeds $20 million, your 501(h) ceiling drops to less than 5%. You might be better off not electing if you plan to spend more than that in a particular year. If you are part of a group of affiliated 501(c)(3) organizations with interlocking boards of directors, or if your governing instruments (articles or bylaws) require you to be bound by the legislative positions of another organization, you might have to share a combined lobbying limit with them.

Will electing 501(h) increase the chances of an IRS audit?

Probably not. In fact, the IRS has informally advised the charitable sector to elect 501(h) as "a bit of insurance against an audit."

Will electing 501(h) require a more elaborate accounting system?

No. If you lobby at all, you are required by IRS form 990, schedule A, part III, to report your lobbying expenditures, whether you elect 501(h) or not. Furthermore, even organizations that do not elect 501(h) must attach a statement to schedule A providing a detailed description of their legislative activities (including volunteer activities) and the expenses involved.

If our organization decides not to elect 501(h), may we still work on ballot measures?

Yes, but be careful. If you do not (or cannot) make the 501(h) election, your organization will remain under the IRS's "insubstantial" limitation on ballot measures and other kinds of lobbying activity.

What is "insubstantial?"

In Seasongood v. Commissioner of Internal Revenue, the court ruled an organization's activities to be insubstantial where it spent less than 5 percent of its time lobbying. However, later cases cast doubt on the usefulness of a simple percentage test and suggest that all the facts and circumstances of an organization's legislative activities must be examined. One court suggested that a single official position statement could be "substantial," depending upon its impact on the legislative process.

What if my organization wants to do more than the IRS permits for a 501(c)(3)?

You may wish to form a separate organization to conduct ballot measure activity. If you want to spend more money or have more impact in your community than the IRS allows under 501(c)(3), you may form a companion 501(c)(4) social welfare organization. The 501(c)(4) organization can be a separate nonprofit corporation or an unincorporated association or committee. The IRS permits such groups to engage in unlimited lobbying for the common good and general welfare of the community, but donations to a 501(c)(4) are not tax-deductible as charitable contributions.

If our organization wants to raise money to support (or oppose) an initiative, what must a 501(c)(3) organization know before approaching these potential sources of funds? Will donations be tax-deductible?

Be careful what you say to donors about the tax-deductibility of their gifts. As a 501(c)(3) organization, you can receive tax-deductible charitable contributions for general support of your activities, including ballot measure work. If you have a specific project that is broader than a particular ballot measure, you can raise funds earmarked for the project, and those gifts will still be deductible for the donor.

Generally, we advise you that you not solicit funds specifically earmarked for ballot measure lobbying activities through your 501(c)(3) group. If the donation is earmarked for lobbying, the donor cannot take a charitable contribution deduction, even though the donation is made to a 501(c)(3) organization. Volunteers incurring travel, telephone and other out-of-pocket campaign expenditures are barred from claiming the costs as charitable deductions.

Ordinarily, your 501(c)(3) staff and volunteers will be soliciting campaign donations to be made payable to a ballot measure committee or other 501(c)(4) group; these donations are not deductible.

Federal tax law requires you to inform donors as part of your solicitation that their contributions to a 501(c)(4) organization are not tax-deductible.

The Alliance for Justice is a Washington, D.C.-based nonprofit which provides technical and strategic assistance to community groups to enhance their capacity to conduct advocacy, through workshops, publications and a network of lawyers, the Alliance informs nonprofit organizations about the permissible forms of nonprofit advocacy.

A 501(c)(3):

CAN expend resources on ballot measures or referenda campaigns.

CAN lobby.

CAN inform members of candidates positions on issues.

CAN host a public forum inviting candidates to speak or debate.

MUST review restrictions carefully and consult with an attorney before taking action.


These articles offer simplified explanations of complex material.
These articles should in no way be used as substitutes for professional legal advice.
-- MWF editors

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