IRS and Laws Prohibiting Nonprofits From Political Activity

By T.C. Edere

Federal tax laws prohibit nonprofit organizations from engaging in partisan political activity. Tax-exempt organizations may run afoul of the Internal Revenue Service if those groups take part in political campaigns for or against a candidate for public office. Nonprofits that violate IRS guidelines and U.S. laws prohibiting nonprofits from partisan political activity risk losing their tax-exempt status and may also incur tax penalties.

Basics

Federal law prohibits partisan political activity by nonprofit organizations, such as charities, private foundations, colleges and churches that enjoy tax-exempt status under the Internal Revenue Code. Tax exemption is a privilege, not a right, and Congress imposed the ban as a condition for a nonprofit obtaining tax-exempt status. Nonprofits cannot campaign for or against a candidate for political office, contribute money or labor to a political campaign or distribute campaign literature. The IRS can punish infractions by revoking the nonprofit’s tax-exempt status and imposing a tax penalty on the organization’s partisan activities.

Constitutionality

The U.S. Supreme Court has rejected challenges to laws and IRS regulations barring tax-exempt nonprofits from political activity. Challengers have argued that the laws violate First Amendment protections for free speech, religion and assembly; however, the high court has ruled that the tax laws are a subsidy for speech (the group’s activities), not a restriction on speech. As with any other Congressional subsidy, what Congress gives, Congress can take away. The court said the laws and IRS regulations applied equally across the board to religious and nonreligious groups, and did not prevent religious groups from engaging in religious activity. There’s no ban on nonpartisan lobbying by nonprofits to advance causes on their own behalf.

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Activities

The IRS permits nonprofits to express views on public policy, so long as they don’t make partisan political comments in the organization’s publications or at official meetings and other functions. Any member or leader of a nonprofit can politick all he wants – on his own behalf. He must make it clear that he is not speaking for the nonprofit. The nonprofit can take part in nonpartisan voter education activities and conduct nonpartisan voter registration drives. A politician can speak at a nonprofit’s event but can’t use the event to campaign for office. The group can’t mention his political campaign or the election and must make clear he’s there to talk about issues other than his political future. A nonprofit can engage in business activity with a politician, such as leasing office space or renting out the group’s mailing list. However, the group must deal with the politician in the same nonpartisan manner as it would do business with anybody else.

Guidance

Section 4945 of the tax code sets out guidelines on how nonprofits can participate in nonpartisan political activities without jeopardizing their tax-exempt status. Tax-exempt 501(c)(3) charities should review taw laws carefully and consult IRS publications or legal counsel to clarify prohibitions on political activity. The IRS issues revenue rulings from time to time to help organizations better understand how the ban on political activity works. There’s even an online course that the IRS offers to educate charities about how, and how not, to participate in politics.

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What Are 501(c)4 Organizations?

References

Resources

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