Lobbying & political activities for 501c3 nonprofit organizations explained
A section 501c3 nonprofit organization may conduct a limited amount of lobbying activity BUT, and this is an important BUT, is PROHIBITED from intervening in any political campaign activities. Failure to do so will result in loss of tax exemption status, and worst still liable for excise tax on its political expenditures. Let’s start with the lesser of two evils:
Lobbying activity for a 501c3 nonprofit
Lobbying is defined as an attempt to influence legislation. A 501c3 organization may conduct lobbying activities provided they are insubstantial in relation to their exempt purpose activities.
Legislation includes action by Congress, state legislatures, local councils, or similar governing bodies, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office). It also includes action by the public in referendum, ballot initiatives, constitutional amendments, or similar procedures. It does not include actions by executive, judicial, or administrative bodies.
An organization is considered to be attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation, or if the organization advocates the adoption or rejection of legislation.
Organizations may, however, engage in public policy issues without the activity being considered lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.
If lobbying activities are substantial, a 501c3 organization may fail the operational test and risk losing its tax-exempt status. Substantiality is measured by one of the following two tests:
- Substantial part test
- Expenditure test
Measuring Lobbying Activity: Substantial Part Test
The substantial part test determines substantiality on the basis of all the pertinent facts and circumstances in each case. The IRS considers many factors, including the time devoted (by both compensated and volunteer workers) and the expenditures devoted to the activity, when determining whether the lobbying activity is substantial.
Under the substantial part test, an organization that conducts excessive lobbying activity in any taxable year may lose its tax-exempt status, resulting in all of its income being subject to tax. In addition, an organization is subject to an excise tax equal to 5 percent of its lobbying expenditures for the year in which it ceases to qualify for exemption.
Further, a tax equal to 5 percent of the lobbying expenditures for the year may be imposed against organization managers who facilitated or agreed to such expenditures with the knowledge that the expenditures would likely result in the loss of tax-exempt status.
Measuring Lobbying Activity: Expenditure Test
As an alternative to the subjective substantial part test, public charities may elect to use the expenditure test under section 501(h), which is an objective, mathematical test. Sections 501(h) and 4911 of the Code establish a sliding scale of permissible “lobbying nontaxable amounts.” Expenditures in excess of the nontaxable amount are called excess lobbying expenditures and are subject to a 25 percent excise tax. In addition, an organization will lose its exemption if it “normally” spends more than 150 percent of its lobbying nontaxable amount over a 4-year period.
Churches and church-related organizations, including integrated auxiliaries and conventions or associations of churches and affiliates of these organizations, may not use the expenditure test.
Organizations electing to use the expenditure test must file Form 5768, Election/Revocation of Election by an Eligible IRC Section 501c3 Organization to Make Expenditures to Influence Legislation, at any time during the tax year for which it is to be effective. The election remains in effect for succeeding years unless it is revoked by the organization.
Revocation of the election is effective on the year following the year in which the revocation is filed.
Political Campaign Activity for a 501c3 nonprofit
My short advice is to not even think about it. I don’t care what your god says, I don’t care which political party you belong to; if you conduct such activities buckle up for the consequences. Period.
Section 501c3 nonprofit organizations are prohibited from directly or indirectly participating or intervening in any political campaign on behalf of, or in opposition to any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office violate the prohibition against political campaign activity. Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of an excise tax on the amount of the political expenditure.
For example, voter education or registration activities with evidence of bias that: (a) would favor one candidate over another; (b) oppose a candidate in some manner, or (c) have the effect of favoring a candidate or group of candidates, would constitute prohibited participation or intervention.
Depending on the facts and circumstances, certain activities or expenditures may not be prohibited. For example, certain voter education activities, including the presentation of public forums and the publication of voter education guides, conducted in a non-partisan manner, do not constitute prohibited political campaign activity.
In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not constitute prohibited political campaign activity if conducted in a non- partisan manner.
Individual Political Activity by Nonprofit Organizations’ Leaders
The political campaign activity prohibition is not intended to restrict free expression on political matters by leaders of organizations speaking for themselves in their private capacity as individuals. Nor are they prohibited from speaking about important issues of public policy. However, for their organizations to remain exempt under section 501c3, leaders cannot make partisan comments in official organization publications or at official functions.
Example: A church Sunday service IS AN OFFICIAL FUNCTION. When a pastor gets up and says how he likes and endorses candidate X, he is breaking the law. I have a complete section related to Churches political and lobbying activity so if you’re a church or a religious organization you should read it.
To avoid potential attribution of their comments outside of organization functions and publications, organization leaders who speak or write in their individual capacity are encouraged to indicate their comments are personal and not intended to represent the views of the organization.
Inviting a Political Candidate to Speak by a Nonprofit
Depending on the facts and circumstances, an exempt nonprofit organization may invite political candidates to speak at its events without jeopardizing its tax-exempt status. Political candidates may be invited in their capacity as candidates, or individually (not as a candidate).
Speaking as a Candidate: When a candidate speaks at an organization event as a political candidate, the organization must take steps to ensure that:
- It provides an equal opportunity to political candidates seeking the same office
- It does not indicate any support of or opposition to the candidate (this should be stated explicitly when the candidate is introduced and in communications concerning the candidate’s attendance)
- No political fundraising occurs
Equal Opportunity to Participate: In determining whether candidates are given an equal opportunity to participate, an organization should consider the nature of the event to which each candidate is invited and the manner of presentation.
For example, an organization that invites one candidate to speak at its well- attended annual banquet, but invites the opposing candidate to speak at a sparsely attended general meeting, will have violated the political campaign prohibition, even if the manner of presentation for both speakers is otherwise neutral.
Public Forum: Sometimes an organization invites several candidates to speak at a public forum. A public forum involving several candidates for public office may qualify as an exempt educational activity. However, if the forum is operated to show a bias for or against any candidate, it would be considered intervention or participation in a political campaign and would be a violation of the prohibition.
When an organization invites several candidates to speak at a forum, it should consider the following factors:
- Whether questions for the candidate are prepared and presented by an independent, nonpartisan panel
- Whether the topics discussed by the candidates cover a broad range of issues that the candidates would address if elected to the office sought and are of interest to the public
- Whether each candidate is given an equal opportunity to present his or her views on the issues discussed
- Whether the candidates are asked to agree or disagree with positions, agendas, platforms, or statements of the organization
- Whether a moderator comments on the questions or otherwise implies approval or disapproval of the candidates
Speaking as a Non-Candidate: An organization may invite political candidates to speak in a non-candidate capacity. For instance, a political candidate may be a public figure because he or she:
- Currently holds, or formerly held, public office
- Is considered an expert in a non-political field
- Is a celebrity or has led a distinguished military, legal, or public service career
When a candidate is invited to speak at an event in a non-candidate capacity, it is not necessary for the organization to provide equal access to all political candidates. However, the organization must ensure that:
- The individual is chosen to speak solely for reasons other than candidacy for public office
- The individual speaks only in a non-candidate capacity
- Neither the individual nor any representative of the organization makes any mention of the individual’s candidacy or the election
- The event is held in a nonpartisan atmosphere
- No campaign activity occurs in connection with the candidate’s attendance
In addition, the organization should clearly indicate the capacity in which the candidate is appearing and should not mention the individual’s political candidacy or the upcoming election in the communications announcing the candidate’s attendance at the event.
Voter Guides – Some organizations distribute voter guides as part of their voter education activities. Voter guides are usually distributed during an election campaign and provide information on how candidates stand on various issues.
A careful review of the following facts and circumstances may help determine whether an organization’s publication or distribution of voter guides constitutes prohibited political campaign activity:
- Whether the candidates’ positions are compared to the organization’s position
- Whether the guide includes a broad range of issues that the candidates would address if elected to the office sought
- Whether the description of issues is neutral
- Whether all candidates for an office are included
- Whether the descriptions of candidates’ positions are either:
- The candidates’ own words in response to questions
- A neutral, unbiased, and complete compilation of all candidates’ positions
The question of whether an activity constitutes participation or intervention in a political campaign may also arise in the context of a business activity of the organization, such as the selling or renting of mailing lists, the leasing of office space, or the acceptance of paid political advertising. This brings up another evil which is Unrelated Business Income. In this context, some of the factors to be considered in determining whether the organization has engaged in prohibited political campaign activity include the following:
- Whether the good, service, or facility is available to the candidates on an equal basis
- Whether the good, service, or facility is available only to candidates and not to the general public
- Whether the fees charged to candidates are at the organization’s customary and usual rates
- Whether the activity is conducted only for the organization or solely for the candidate
Consequences of Political Campaign Activity for nonprofits
In addition to risking loss of tax-exempt status under section 501c3 and eligibility to receive tax-deductible contributions, an organization that engages in political campaign activity may become subject to an excise tax on its political expenditures. A political expenditure is any amount paid or debt incurred while participating or intervening in any political campaign. This excise tax may be imposed in addition to, or in lieu of, revocation of exempt status. The organization must correct the violation to avoid additional taxes.
Excise Tax – An initial tax is imposed on an organization at the rate of 10 percent of the political expenditures. Also, a tax at the rate of 2.5 percent of the expenditures is imposed against the organization managers who, without reasonable cause, agreed to the expenditures knowing they were political. The tax on management may not exceed $5,000 with respect to any one expenditure.
In any case in which an initial tax is imposed against an organization, and the expenditure is not corrected within the period allowed by law, an additional tax equal to 100 percent of the expenditures is imposed. In that case, an additional tax is also imposed against the organization managers who refused to agree to make the correction. The additional tax on management is equal to 50 percent of the expenditures and may not exceed $10,000 for any one expenditure.
Correction of Expenditure
Correction of a political expenditure requires the recovery of the expenditure, to the extent possible, and establishment of safeguards to prevent future political expenditures.
- Nonprofit Articles of Incorporation,
- Nonprofit Bylaws,
- Nonprofit Conflict of Interest Policy,
- Conflict of Interest Policy Acknowledgment,
- Form 1023 Attachment with all the answers,
- Form 1023 Expedite Letter template,
- and Donor Contribution Form
in Microsoft Word Document format, please consider making a donation and you’ll get to download them immediately. Not only they're worth well over $1000 in value, they will save you weeks of copy pasting and formatting as they are ready to go templates which only need changing names and addresses.
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