Staying on Course: Navigating Election Year Issues for Exempt Organizations

Restrictions on Political Activities

Exempt organizations are subject to certain restrictions regarding their participation in political campaign activities, and the amount of permissible participation is a key distinction between Section 501(c)(3), 501(c)(4), and 501(c)(6) organizations. To comply with these restrictions, an exempt organization must (1) know their specific tax-exempt status and the restrictions that apply to them, (2) understand what activities constitute political campaign activities, (3) avoid activities that violate the applicable restrictions, and (4) mitigate the risk that activities conducted by employees in their individual capacities are attributed to the organization.

Prohibited Political Campaign Intervention for Section 501(c)(3) Organizations

Section 501(c)(3) organizations are subject to an absolute prohibition on participation or intervention in political campaign activities. Organizations that violate this ban are subject to the revocation of their tax-exempt status and the imposition of excise tax penalties on both the organization itself and organization managers who approve expenditures used for impermissible political purposes. Therefore, Section 501(c)(3) organizations must avoid activities that violate the prohibition on political campaign intervention.

Prohibited political campaign intervention occurs when an exempt organization “participates in, or intervenes in” a “candidate’s” campaign for “public office” (Section 501(c)(3)).

The term “candidate” refers to any person who has declared an intent to run for national, state, or local office and likely includes incumbents until they announce an intention not to run. A candidate also includes individuals who have yet to declare an intention to run for public office, but whose potential candidacy generates significant public speculation. The term “public office” broadly refers to any national, state, or local elective office, as well as any elected position in a political party.

An organization is considered to “participate in, or intervene in” political campaign activity by making contributions to political campaign accounts or making public statements on behalf of the organization in favor of or in opposition to a candidate for public office. Specifically, the Internal Revenue Service (IRS) regulations define participation in a political campaign as “publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to … a candidate” (Treas. Reg. § 1.501(c)(3)-1(c)(3)(iii)). The IRS regulations also note that political campaign intervention is not limited to these specified activities.

The IRS has interpreted prohibited political campaign intervention to include even some nonpartisan educational activities. For example, the IRS has ruled that an organization that was formed to promote public education violated the prohibition on political campaign activities when it announced the names of the school board candidates it considered most qualified following an objective review of the candidates’ qualifications (Rev. Rul. 67-71, 1967-1 C.B. 125).

These restrictions on political campaign activities do not extend to the officers, directors, or employees of a 501(c)(3) organization, provided they are acting in their individual capacities. It is particularly important, however, to mitigate the risk that any personal political activities conducted by officers, directors, or employees will be attributed to the organization. An exempt organization should ensure their employees do not use institutional resources to engage in personal political campaign activities or act in a manner that suggests they are speaking on behalf of the organization when engaged in campaign advocacy. Exempt organizations should adopt clear policies regarding political activities and institutional resources and communicate the importance of such policies to employees during an election year.

Permissible Political Activities

Some educational activities that are election-related are permissible, however, and will not be considered prohibited campaign intervention. In order to be considered “educational,” the activities must present “a sufficiently full and fair exposition of the pertinent facts” (Treas. Reg. § 1.501(c)(3)-1(d)(3)). The information presented must “permit an individual or the public to form an independent opinion or conclusion” and not be biased. Activities that satisfy this definition may be considered permissible educational activities rather than prohibited or restricted political activities.

The following types of educational activities, although election-related, are generally permissible:

• Voter Registration: Voter registration drives are not considered political campaign activities if they are conducted in a nonpartisan and fair manner. An organization conducting the voter registration drive should not expressly advocate for or against any candidates or political parties as part of the voter registration. They also generally should not name candidates or provide their party affiliations. If any candidates are named, all candidates should be named. All persons interested in registering must also be permitted to register, regardless of their political preference or party affiliation.
• Voter Education: Certain forms of voter education, such as the distribution of voter guides and voting records, may qualify as an educational activity provided the organization avoids editorial commentary and ensures the materials cover a broad range of issues. Organizations must not demonstrate a preference toward a certain candidate or only cover a narrow range of issues when engaging in voter education activities.
• Candidate Debates and Forums: Providing a fair, neutral forum for candidate debates may qualify as an educational activity so long as the debate provides equal time to all qualified candidates. Organizations should be particularly careful to include all qualified candidates, cover a broad range of topics, have a nonpartisan group compose the questions, and clarify that the candidates’ views are not the views of the exempt organization. The moderator selected by the organization can ensure the candidates follow the ground rules for the debate, but they should not ask questions or comment on the candidate’s statement in a way the indicates support or opposition to the candidate or their positions.

Section 501(c)(4) Organizations

Section 501(c)(4) social welfare organizations have more latitude to engage in political campaign activities than Section 501(c)(3) organizations. Section 501(c)(4) organizations are not subject to an absolute ban on campaign intervention, but instead are permitted to engage in some limited political activities, provided they remain primarily engaged in social welfare activities. The IRS will compare an organization’s political activities and expenditures (plus its non-exempt activities) with its social welfare activities to determine whether the organization remains primarily engaged in promoting social welfare consistent with its tax-exempt status. Accordingly, Section 501(c)(4) organizations should maintain records to ensure they remain primarily engaged in social welfare activities during an election year. If a Section 501(c)(4) organization engages in political activities, it must also provide its members with a notice of how much of their dues were used towards political activities and determine the proxy tax on those expenditures. If member dues are used for political campaign activities, then a portion of the dues may not be a deductible business expense under Section 162.

Section 501(c)(6) Organizations

Business leagues described in Section 501(c)(6) are subject to the same less-stringent rules regarding political campaign activities as Section 501(c)(4) organizations. Section 501(c)(6) organizations may engage in some political activities on a limited basis, provided such political activities are not the organization’s primary activity. If a Section 501(c)(6) organization engages in political activities, it must also provide its members with a notice of how much of their dues were used towards political activities and determine the proxy tax on those expenditures. If member dues are used for political campaign activities, then a portion of the dues may not be a deductible business expense under Section 162.

Related Restrictions

The scope of this alert is limited to restrictions on political campaign activities under federal tax law. Exempt organizations are also subject to campaign finance restrictions and requirements by the Federal Election Commission, as well as rules regarding legislative or lobbying activities imposed by the IRS, the Lobbying Disclosure Act of 1995, and other federal, state, and local laws, which are beyond the scope of this alert. If you have questions about restrictions on political campaign activities under federal tax law or any related restrictions and requirements, please contact your relationship attorney at ArentFox Schiff or one of the authors of this alert.