'Tis the Season: 501(c)(3) Public Charities Must Stay Out of Candidate Elections

It’s election season. You lead a 501(c)(3) public charity that has no interest in either supporting or opposing any candidate for public office. Your organization issues no statements, positive or negative, about any of the candidates, and you believe your charity has successfully avoided any possible involvement in a political campaign for public office. But if you’ve missed some of the finer parts of the tax code, you could be very wrong and put the entire organization in jeopardy. 

Participation or Intervention in a Political Campaign

Under 501(c)(3) of the Internal Revenue Code, public charities and private foundations are prohibited from participating or intervening in any stage of a campaign for the election of a candidate to public office (the shorthand term for which is a “political campaign”). A candidate is anyone running for a federal, state or local position that is filled by a vote of the people – and “candidate” includes anyone whom people are trying to persuade to run. The prohibition encompasses all steps leading up to and beyond the nomination process, including primary elections and caucuses. Intervention may be direct or indirect and is not limited to explicit statements in favor of or in opposition to a candidate. The rule is absolute and without exceptions.

What If Your Charity Wants to Take a Position on Public Policy?

The IRS acknowledges that a public charity may take positions on public policy issues (as opposed to candidates running for office) that relate to the organization’s mission, including issues that divide candidates in an election for public office. But if the charity’s explicit or implicit message favors or opposes a candidate, issue advocacy can morph into prohibited campaign intervention.

As long as the issue advocacy of a public charity does not constitute more than an insubstantial portion of its activities, the problem comes when a charity’s communications about the issue(s) invite the audience to compare a candidate’s position with the organization’s own views. Candidates may be identified by name or merely referred to, as through “code words” like liberal, conservative, pro-life or pro-choice.

The biggest risk for the public charity is when the issue involved is widely viewed as a high-profile issue that divides the candidates and when the issue has been used (by the candidates or others) to emphasize the differences between the candidates. 

The IRS has published a list of seven nonexclusive factors that help it determine whether permissible issue advocacy and “lobbying” (particularly grass roots lobbying) have crossed the line and become prohibited intervention in a political campaign for public office.  Those factors are: 

  • Whether the advocacy statement identifies one or more candidates for a given office. 
  • Whether the advocacy statement expresses approval or disapproval for one or more candidates’ positions and/or actions. 
  • Whether the advocacy statement is delivered close in time to the election. 
  • Whether the advocacy statement makes reference to voting or to an election. 
  • Whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office. 
  • Whether the advocacy statement is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election. 
  • Whether the timing of the advocacy statement and identification of one or more candidates are related to a non-electoral event, such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.

Political Campaign Involvement Puts 501(c)(3) Status in Jeopardy

If an activity is suspected of violating the rule, the IRS examines “all the facts and circumstances of each case” (after the fact) to determine whether the charity has in fact violated the prohibition on participation or intervention in a political campaign.  

If the charity has violated the rules regarding political campaigns, it will lose one of the characteristics needed to qualify as a public charity. Consequently, the charity may temporarily or permanently lose its 501(c)(3) status. This means that the organization would owe income taxes on past and future income, and donors’ already-claimed deductions for charitable contributions may become invalid. In addition, or in the alternative at the discretion of the IRS, the IRS may impose a 10% tax on prohibited political expenditures, and even a 2-1/2% tax on the same expenditures, but charged personally against the managers who approved those expenses. 

Other Federal Campaign Laws

If certain of the public charity’s activities involve or intersect with a candidate for election to a federal office (whether or not these activities violate the Internal Revenue Code’s prohibitions for 501(c)(3) entities), completely separate restrictions arising from the Federal Election Campaign Act and regulations of the Federal Election Commission may come into play. Organizations should review these regulations and make sure they are in compliance when considering any activities that might involve the charities in a political campaign for federal office. 

If you have questions about 501(c)(3) status and public elections, contact the Day Ketterer Non-Profit and Foundations Group attorneys at 330.455.0173.

The content of this article is for informational purposes only and is not intended as legal advice for any purpose. The article is not intended to present an exhaustive summary of all applicable laws, or to take the place of legal advice. If you have any questions regarding the law, please contact us for assistance.