Last Friday, I had the pleasure of discussing the political campaign activity prohibition on public charities with Tony Martignetti on Nonprofit Radio. The recorded version is available online and can also be downloaded in iTunes. Below are some main highlights from the show and additional follow up:
Internal Revenue Code Section 501(c)(3) Prohibition on Electioneering
501(c)(3) organizations are prohibited from participating in, or intervening in, any political campaign on behalf of, or in opposition to, any candidate for public office. This rules comes from the language in section 501(c)(3) of the Internal Revenue Code (IRC). Generally, this means an organization cannot make contributions to candidates (whether cash or in-kind); cannot make endorsements (whether in support or in opposition to a candidate); and cannot allow the use of the organization’s resources without giving equal opportunity to other candidates.
The penalty for violating this prohibition is revocation of tax-exempt status. The IRS does however have the option to impose intermediate sanctions provided for in IRC section 4955. The intermediate sanctions are excise taxes on the political expenditure with an initial 10% on the organization and 2.5% on an organizational manager who knowingly approved the political expenditure. The IRS has given warnings to organizations for violations in the past but there is no rule that the IRS must give a warning in lieu of or before imposing a penalty.
Permissible Election-Related Activity Under the IRC
The IRS uses a facts and circumstances test and will look to factors such as content, timing, and scope. Thus, organizations should proceed with caution when they engage in political or election-related activities.
501(c)(3) organizations are permitted to engage in issue advocacy which is advocacy related to the charitable mission and the charity’s agenda (e.g., gun-safety, sustainable practices). However, issue advocacy may cross into prohibited political campaign activity under certain circumstances, especially during election years. For example, an organization that engages in advocacy related to a particular issue only during election years and close to the election may be viewed by the IRS as engaging in political campaign activity even if the organization does not mention any candidate names or party affiliations. By contrast, it is a much more favorable set of facts and circumstances for the organization if the organization has a pattern of engaging in such advocacy during non-election years using the same means and scope.
Examples of permissible election-related activities include voter education such as voter guides and candidate debates; voter registration such as get-out-the-vote drives; and candidate education such as public policy reports created on behalf of the organization distributed to all candidates. The overarching theme of the electioneering prohibition that 501(c)(3) organizations be neutral and nonpartisan with respect to publicly elected offices must be a main consideration when undertaking any election-related activity. Thus, for example, voter education guides should not rank candidates; voter registrations should not be based on party affiliation; and candidate education should not be done in response to a candidate’s request or show favoritism to certain candidates. Organizations should become knowledgeable about the 501(c)(3) prohibition on electioneering and when unsure, seek the assistance of nonprofit legal experts.
First Amendment Rights v. Electioneering Prohibition
Individuals have First Amendment rights and can engage in political campaign activity in their individual capacity. Organizations must be sure however to put policies and training in place to prevent such individuals from unintentionally or unknowingly putting the organization at risk of an electioneering violation. Tips for organizations:
- Do not allow use of the organization’s assets or facilities for an individual’s electoral work (e.g., organization issued email accounts, staff time).
- Do not publicize an individual’s personal election choices in organizational materials.
- Do not support or oppose candidates at an organization-sponsored event.
- Use visible disclaimers.
- Check that appropriately disclaimers are used by others (e.g., when an individual is speaking in his or her individual capacity, that individual’s title in the organization, if stated, should be for identification purposes only).
First Amendment issues related to the electioneering prohibition received increased attention in recent years due to an event now known as “Freedom Pulpit Sunday” organized by the Alliance Defense Fund (ADF), a public charity, at which pastors make electoral statements from the pulpit in violation of the electioneering prohibition. Freedom Pulpit Sunday has become an annual event since it first occurred in 2008 and is intended to prompt an IRS action so that ADF can challenge the electioneering prohibition on First Amendment grounds in court. Although the IRS has yet to take any formal action against the pastors, the IRS had already started to increase its attention to political activity by 501(c)(3) organizations prior to 2008, notably with the first undertaking of the Political Activity Compliance Initiative (PACI) examinations during the 2004 elections. Accordingly, many expect to see increased enforcement especially in light of violations such as Freedom Pulpit Sunday.
Electioneering Prohibition as Applied to Websites and Social Media
501(c)(3) organizations should not only ensure their printed material is in compliance, but also their online material as well. This is a particular tricky area because organizations can connect to candidates in so many different ways (e.g., providing links to candidates’ websites; “friending” or “liking” on Facebook; “following” or “tweeting/retweeting” on Twitter) and the law in the area is still developing. Generally speaking, certain online activity can constitute violations of the electioneering prohibition and organizations should therefore apply just as much care to their online conduct.
Other Advocacy Laws
It cannot be emphasized enough that advocacy law is a complex area where many different sets of rules intersect and overlap. The above mentioned limitations relate to tax laws in the Internal Revenue Code. However, 501(c)(3) organizations must also check that they are in compliance with other bodies of regulations such as the Federal Elections Communications Act (FECA) and state and local ethics rules. For example, when the Supreme Court expanded the ability of corporations, including nonprofits, to make direct political expenditures in its January 2010 ruling in Citizens United v. Federal Election Commission, many initially believed this also changed the IRC prohibition on electioneering by 501(c)(3) organizations. This, however, was not correct. The Citizens United ruling amended the FECA, a body of rules separate from the IRC, which makes no distinction between 501(c)(3) organizations and other organizations. Thus the electioneering prohibition specific to 501(c)(3) organizations under the IRC still applies. Accordingly, 501(c)(3) organizations are encouraged to seek the assistance of experts in advocacy laws beyond the IRC and may even need to retain multiple experts in order to cover their bases.
Alliance for Justice – Rules of the Game, 2nd edition (2010)
Alliance for Justice – Influencing Public Policy in the Digital Age (2011) (free download)
For more information on the IRS’s attention to political activity compliance, please read the IRS FY 2011 Workplan.