“If that bill gets passed it is really going to set us back. But what can we do? Charities can’t get involved in politics, right?” You’re probably aware that there are potential dangers for your charity if it gets involved in political or lobbying activity. But the charitable community’s stake in the political and legislative process is real. Many charities feel they may be deeply impacted, for better or for worse, by the results of this year’s election cycle and legislation. So a charity may raise the question: just what can a 501(c)(3) organization do to influence legislation and the election cycle without putting its tax-exempt status at risk?
To start this discussion, let’s define our terms. The Internal Revenue Code makes a clear distinction between Political and Lobbying activities – even though many people commonly lump both terms together when talking about influencing our local or national government. Political activities encompass the function of influencing, or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, or local public office. Lobbying activities, on the other hand, deal with attempts to influence legislation. Lobbying consists of communication with the voting public (“grassroots” lobbying) or communication with lawmakers (“direct” lobbying). So what are the implications if your organization is engaged in “political” or “lobbying” activities?
Our discussion will deal with each in its place, starting with political activities. But first, we need to identify a major subset of political activities: political campaign activities. Also known as “electioneering,” political campaign activities equate to participation or intervention in any political campaign on behalf of or in opposition to any candidate for public office.
To be crystal clear: as a 501(c)(3) charity, whether publicly-supported or a private foundation, you are strictly prohibited from engaging in political campaign activities. Therefore, charities must not, for example, make contributions to a campaign, endorse any candidates, provide facilities or lend money to candidates, etc. These are all examples of “political campaign activities” and any 501(c)(3) that engages in political campaign activities risks loss of its tax-exempt status AND will likely be assessed an excise tax on the dollars spent! The IRS can use the excise tax, revocation, or both sanctions to enforce the law.
Note that there is a subtle distinction between political activities and political campaign activities. While limited in scope, there are certain political expenditures or activities which a 501(c)(3) may undertake. To be permissible, political activities and expenditures must not be substantial relative to the organization’s other efforts, and they must not involve an election. For example, a 501(c)(3) may attempt to influence the nomination or appointment of an individual to public office such as a judge or other non-elected individual where confirmation of that individual is by the legislative branch and there is no public election. Such activities are permitted because they do not qualify as political campaign activities; however they are likely political expenditures subject to the excise tax.
In discussing politics, we focused on the dangers posed to a public charity’s exempt status. Here is the good news for publicly-supported 501(c)(3) organizations: you can still let your voice be heard on legislation that impacts your organization and its mission. The Internal Revenue Code does place restrictions on lobbying by a 501(c)(3) public charity, but it does not clearly define what is “too much” when it comes to lobbying. The only statutory language we have is that “no substantial part” of a charity’s overall activities may consist of lobbying and political activities. What is “substantial”? The courts have decided this on a case-by-case basis, which brings very little comfort to charities grappling with the decision to influence legislation and the form that might take.
If the vagueness inherent in determining whether your charity will be engaging in “substantial lobbying activity” is not acceptable, you have an alternative – elect the “expenditure test” which gives your charitable organization a baseline for how much it can spend on lobbying. It’s a tiered approach that gives limits based on your organization’s overall expenditures. Lobbying expenditures for the year cannot exceed 20% of the first $500,000 in expenditures, plus 15% of the next $500,000, plus 10% of the next $500,000, plus 5% of any remaining expenditures. Additionally, there is a cap of $1 million spent on lobbying for any electing organization. If you exceed these amounts, there is a 25% excise tax imposed on the excess. A word of caution: organizations that “normally” exceed 150% of the prescribed amount will lose their tax exemption. Many larger organizations may choose to forego or revoke this election if they feel that the $1 million ceiling is too restrictive and that their overall activities are so significant (in terms of expenditures) in relation to their lobbying that they would pass the “no substantial part” test by virtue of the immateriality of what they spend on lobbying. It is apparent that careful planning is needed.
If your 501(c)(3) organization is considering ways to impact public policy, keep in mind there are certain activities that charities can take on which will further their mission and which are not considered lobbying at all, and therefore would have no impact on tax-exempt status. For example, presenting testimony before a legislative body in response to a request for information is not an attempt to influence legislation. Additionally, nonpartisan studies or research that do not attempt to persuade readers to accept one view over another or take any type of legislative action are also not lobbying.
As you can see, if your organization chooses to get involved, there are permissible strategies and methods which can be used to influence public policies. The crux of the issue is this: know the limits, and know your options. You can indeed put your tax exemption at risk if you move forward without carefully considering all that the tax code has to say about these matters. But also know that your organization can participate as long as you make informed decisions. Our seasoned staff at BeachFleischman PC are ready to help you navigate these often confusing waters so that you can do the very best for your organization and continue to make a difference in our community!
[authorblurb name=”Jon Bickerton” image=”9665″ url=”http://beachfleischman.com/about/leadership-team/jon-bickerton/” text=”is a Senior Manager at BeachFleischman PC. Jon specializes in providing accounting and tax services to clients, from assisting accounting personnel with year-end adjustments to preparing tax returns.”]