The IRS And Permissible Activity

October 16, 2012       Janice Ryan      

The presidential election is just a couple of weeks away and people sometimes get desperate as the days get closer. Federal tax law strictly prohibits 501(c)(3) organizations from engaging in activities to support or oppose candidates for public office.

However, there are still a number of ways that 501(c)(3)s can be involved in the political process without running afoul of the law.

Unfortunately, the line between prohibited and permissible activities is murky and can be easily crossed if proper managers of the 501(c)(3) are not careful in how they plan and execute the activities. Now might be a good time to review the rules that will help you stay on the right side of the line while involved in the process.

If done correctly, 501(c)(3)s can:

  • Help register voters;
  • Conduct get-out-the-vote activities;
  • Publish voter guides;
  • Create candidate questionnaires;
  • Host candidate appearances;
  • Host debates;
  • Conduct issue advocacy;
  • Allow leadership and staff be politically active; and,
  • Create an affiliated organization.

The key is to remember that these activities must be non-partisan, and not favor one candidate over another.

The Internal Revenue Code prohibits 501(c)(3) organizations from engaging in political campaign intervention. Political campaign intervention includes any direct or indirect activities in support of or opposition to any candidate for elective public office. The ban applies to elections at any level of government, whether federal, state, or local.

This prohibits 501(c)(3) organizations from endorsing candidates or making other public statements of support or opposition to a candidate for office. Distributing — or even in some cases linking to — statements prepared by others that favor or oppose candidates for elective office also constitutes prohibited campaign intervention.

Furthermore, a 501(c)(3) organization may not allow a candidate to use the organization’s facilities, staff, or other resources (whether monetary or in-kind). This means that the organization’s offices, computers, photocopiers, telephones, and other supplies and equipment should not be used for prohibited campaign activities, and that staff should not engage in prohibited campaign intervention during work time.

Stiff consequences await organizations that violate the ban. The Internal Revenue Service (IRS) may deny or revoke the organization’s exempt status, may impose excise taxes on the organization, and, in some cases, impose those excise taxes on responsible individuals within the organization.

The potential for adverse consequences does not end with the IRS, however. Federal and many state campaign finance laws prohibit corporations from making campaign contributions. Because many, if not most, 501(c)(3) organizations are corporations, they are subject to corporate contribution bans under the campaign finance laws. Contributing use of the organization’s facilities, staff, or other resources to support or oppose a candidate could result not only in adverse tax consequences, but also could result in fines or other penalties imposed by the Federal Election Commission (FEC) or applicable state election authorities.

Much has been made of the U.S. Supreme Court’s January 2010 Citizens United v. Federal Election Commission decision overturning many restrictions on corporations. Specifically, it allowed corporations to make independent expenditures in support of or in opposition to candidates. Remember, however, that Citizens United did not change the tax code: 501(c)(3)s may not fund and provide materials (whether TV, radio, mail, or web sites) that support or oppose a candidate. A social welfare organization or a trade association may be able to spend millions on ads attacking a candidate, but a 501(c)(3) still cannot do so.

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Ronald M. Jacobs is a partner in the Washington, D.C. office of Venable LLP where he co-chairs the firm’s political law practice. His email is rmjacobs@venable.com. Janice M. Ryan is an associate in Venable’s political law and nonprofit practices. Her email is jmryan@venable.com

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