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Nonprofit Knowledge: Political Activity for Tax-Exempt Organizations

A s elections approach in the United States, it's a good opportunity for in-house counsel to remind board members, staff, and volunteers of tax-exempt organizations about the limitations that may apply to organizations' lobbying and political activities.

The Internal Revenue Service (IRS) establishes different rules for lobbying and advocacy, depending on the type of tax-exemption involved. This article focuses on the general lobbying and political campaign activity rules that apply to organizations that are tax-exempt under Sections 501(c)(3), 501(c)(4), 501(c)(5), and 501(c)(6) of the Internal Revenue Code. Note that these rules apply to all levels of lobbying or political campaign activities, from local to state to federal.

As a result, for some tax-exempt organizations, issue-specific lobbying is allowed if the activity is nonpartisan and not designed to influence the election of any particular candidate for office. Further, these organizations have more leeway when advocating support or opposition to a particular issue, rather than specific legislation or candidacy.

For purposes of this article, the following definitions apply:

Lobbying is defined as "an activity that attempts to influence legislation. Such activities include contacting, or urging 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."  

Political campaign activity is "directly or indirectly participating or intervening in any political campaign on behalf of or in opposition to any candidate for elective public office. This includes making contributions to political campaign funds or making public statements in favor of or in opposition to any candidate for public office."

501(c)(3) organizations

These nonprofit organizations are set up to further certain religious, charitable, or educational exempt purposes and include public charities and private foundations. The IRS imposes the most restrictions on these types of organizations with respect to lobbying and political activity.

501(c)(3) public charities cannot spend a "substantial part" of their activities on lobbying. However, they may engage in some lobbying, but excessive lobbying risks losing their tax-exempt status and a potential imposition of an excise tax.

If a public charity wants to lobby, they can use the IRS expenditure test also known as a "501(h) election" to calculate whether its lobbying expenses are substantial and consequently disallowed.  

However, 501(c)(3) private foundations are prohibited from engaging in any lobbying activities.

All 501(c)(3) organizations are absolutely prohibited from engaging in political activity, even though 501(c)(3) public charities are allowed to engage in limited lobbying activities. This prohibition includes directly or indirectly intervening in an election for a candidate for public office, regardless of whether that office is a local school board, a state comptroller, or a federal congressperson. Engaging in this type of activity will result in an organization's tax-exempt status being revoked.

However, if any 501(c)(3) organization engages in activities unrelated to specific legislation or a candidate for public office, such activities are allowed without restriction. This includes nonpartisan voter education drives and get out the vote initiatives.

501(c)(4), 501(c)(5), and 501(c)(6) organizations

The IRS imposes the same lobbying and political activity rules on the following three types of tax-exempt organizations.
All of these organizations can engage in unlimited lobbying, so long as the lobbying relates to the organization's exempt purpose. Furthermore, they may engage in political campaigns on behalf of or in opposition to candidates for public office provided that such intervention does not constitute the organization's primary activity.

As local, state, and federal elections approach, board members, staff, and volunteers of tax-exempt organizations need to be mindful of the various rules that apply to them. Such individuals cannot engage in these activities on behalf of their organizations unless their activities fall within the above parameters.

However, if individuals seek to engage in lobbying or political activities in their own capacities, they must be clear about whether they are acting on behalf of the organization or in their individual capacities. For example, if a board member of a public charity wants to post on social media about their support for a candidate for political office, they may do so but must also be clear that the statement is not being made on behalf of the charity or in their capacity as a board member.

It is particularly important to provide such reminders when elections are coming up. That way, individuals who may be inclined to get involved in the political process are aware of how their activities may reflect on the organization and can engage in the political process without potentially jeopardizing their organization's tax-exempt status.

About the Author

Lakshmi Sarma Ramani Lakshmi Sarma Ramani was the general counsel of the National Association for the Education of Young Children and senior attorney at The Nature Conservancy. She is currently a member of the firm at Outside GC LLC where she is the outside general counsel to multiple nonprofit organizations.

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