Nonprofit organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code are not allowed to participate in political campaigns for or against any candidate for public office. This includes direct and indirect participation or intervention in political campaigns. The IRS will evaluate the “facts and circumstances” of the situation to determine if political campaign activity has occurred. Examples of prohibited activities include donating to a political campaign or endorsing a candidate in written or oral statements. Nonprofit leaders can endorse a candidate in their personal capacity as long as it’s not done in official publications or at official functions of the nonprofit. Voter education, registration, and get-out-the-vote drives are allowed as long as they are conducted in a non-partisan manner. Nonprofits that engage in political campaign activity risk losing their tax-exempt status or may be subject to taxes on political expenditures made.
Non-501(c)(3) tax-exempt organizations, such as 501(c)(4) social welfare organizations and 501(c)(6) business leagues, are not subject to the absolute prohibition on political campaign activity but cannot have it as their primary purpose. They are evaluated using a “facts and circumstances” test to determine if they are primarily engaged in their exempt purpose. These organizations are subject to a tax on political expenditures made, which applies to the lesser of the net investment income or the amount expended on political activity during the taxable year.
Nonprofits that engage in potential political campaign activity should also be aware of legislative activity limitations and applicable campaign finance laws at the federal, state, and local levels. Nonprofits that unwittingly engage in political campaign activity and take corrective action may receive a warning against future noncompliance from the IRS.
501(c)(6) organizations should also be mindful of the limitations on the deductibility of membership dues as business expenses when engaging in political or lobbying activities.
It is important to note that the IRS defines a “candidate for public office” as “an individual who offers himself, or is proposed by others, as a contestant for an elective public office, whether such office be national, state, or local.” Nominees for administrative or judicial offices are not considered candidates, as these are not elective positions.
Nonprofits that have already engaged in political campaign activity should evaluate the extent of the activity and determine if it was legally significant. The IRS has the authority to revoke tax-exempt status or levy taxes against political expenditures made by a nonprofit.
In conclusion, nonprofits exempt from taxation under Section 501(c)(3) are prohibited from participating in political campaigns for or against any candidate for public office. Non-501(c)(3) tax-exempt organizations, such as 501(c)(4) social welfare organizations and 501(c)(6) business leagues, cannot have political campaign activity as their primary purpose but are evaluated using a “facts and circumstances” test. Nonprofits engaging in potential political campaign activity should also be aware of legislative activity limitations and applicable campaign finance laws. Nonprofits that have already engaged in political campaign activity should evaluate the extent of the activity and determine if it was legally significant.
