Jennifer Ewald, Senior Accountant, Tax Strategies
With the 2022 elections quickly approaching, it is important for not-for-profit organizations to understand how their participation in public office elections can affect their Section 501(c)(3) tax-exempt status.
Under the “Johnson Amendment,” all 501(c)(3) nonprofit organizations are prohibited from engaging in the act of electioneering. The Internal Revenue Code defines electioneering as “directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.” These rules also require organizations to remain nonpartisan.
An example of unacceptable election and voter activities that would classify as electioneering is publishing or distributing written or oral statements that contain evidence of bias – either on behalf of or in opposition to a candidate. Organizations are also prohibited from using any resources to support or oppose a candidate; for example, a monetary contribution to a campaign. This example can also extend to allowing, without equivalent opportunity to all candidates, the use of an organization’s assets or facilities.
Some activities that would not constitute electioneering include educational programs or get-out-the-vote initiatives that intend to prepare voters to participate in elections. If an organization intends to invite all candidates to speak at a meeting or other event to educate the attending audience on each candidate’s position, this action is considered nonpartisan and is not electioneering. However, if questions for the attending candidates show evidence of bias or are strategically asked in a way to promote one candidate over another, this action would be considered electioneering.
In addition, the organization itself can take positions on issues but must be conscious of unintentionally favoring one candidate over another in doing so. Comparing an organization’s position to that of a candidate’s is considered electioneering. Individuals affiliated with an organization are permitted to voice personal political opinions as long as the statements are explicitly and clearly identified as personal and are separate from the organization’s views. However, these comments cannot be made in organization publications or during organization functions.
Because there is a fine line between what is and isn’t permitted, the IRS uses a “facts and circumstances” test to determine whether an organization has interfered with a public office election.
Some considerations the IRS will make to determine electioneering include:
- Whether the communication refers to an election or voting processes
- The timing of a political communication in its proximity to an election
- The audience for which the communication or action is targeted
- Whether the communication indicates approval or disapproval of a certain candidate
- Whether the communication or action is a part of ongoing effort by the organization
Penalties for electioneering include excise taxes and potential revocation of tax-exempt status. The IRS will typically notify the organization if it believes the organization is engaging in electioneering and will outline ways to correct the violation. The IRS can also impose excise taxes on the funds used to take part in the prohibited activity. In the event a member of the organization has directly approved of the prohibited activity, the IRS can issue penalties for that specific individual as well.
Ensuring not-for-profit organizations understand these guidelines and circumstances for participating in a public office election will help avoid penalties and other consequences associated with their tax-exempt status.
Please note that the Internal Revenue Service differentiates between “Electioneering Activities” and “Lobbying Activities” (influence of legislation), which we will discuss in a future article.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.