Passionate About Politics? Don’t Allow it to Affect Your Organization’s Tax Exempt Status under 501(c)(3)


By Kim Hunwardsen 

The political season is in its final months, and we all have our opinions. Important issues like the fate of the Affordable Care Act and the impact of tax reform on charitable contributions have us talking.

But organizations exempt under 501(c)(3) and their leaders need to be careful about what they say — and do — politically. These types of nonprofit organizations are prohibited from engaging a substantial part of their activities in lobbying and from engaging in any direct intervention in elections for public office. Failure to follow these rules could result in loss of tax exemption. Certain other types of nonprofit organizations like those exempt as trade associations under 501(c)(6) are not subject to these same types of limitations.  For more information read the full article here.


Proposed Overtime Reform Could Affect 2016 Budgets

Nonprofits (and businesses of all types) have until September 4, 2015, to provide comments on proposed changes to overtime rules. The Labor Department has proposed raising the standard minimum level for salaried workers, as well as the standard salary minimum for highly compensated employees. No surprise here:  this could have huge implications for your overhead costs. The Council of Nonprofits has put together a good summary of the proposal, as well as developed a series of questions to help you conduct your own mission-based analysis of what these proposed changes would mean to your operations and staffing decisions. Now is the time to analyze what the changes could mean for your organization and constituents, and voice any concerns before a final decision is made!


Proposed 501(c)(4) Regs Could Change Rules for Social Welfare Organizations AND Charities

voteI don’t know about you, but I have been watching the drama with the IRS and the Tea Party/Patriot/Progressive/Occupy organizations who received extra scrutiny due to their supposed conservative/liberal political involvement.  It has been like watching a train wreck – riveting in a twisted way.  A little more personal because as a taxpayer I have an interest in the casualties as well as the survivors (not to mention the fact that the taxpayers are footing the bill for all the political posturing); but still surreal, because there is nothing I could do to stop the madness.  Until, maybe, now….

Recently, the IRS issued proposed regulations regarding political activities of Section 501(c)(4) organizations, also known as social welfare organizations.  These regulations would have a direct and significant impact on social welfare organizations, but could also have a significant impact on 501(c)(3) organizations – the 80% or so of the nonprofit world known as charities.

What is the issue?  Social Welfare organizations must be “primarily” engaged in promoting the common good and general welfare.  Unlike charities, they can get involved in political campaigning, that is opposing or supporting candidates running for office, as long as this activity does not overshadow their efforts to promote the common good and general welfare.  While allowed, it has long been held that political campaigning does not, for this purpose, promote the common good or general welfare.  The regulations do not currently clearly define political campaign activity or how much is too much, leaving social welfare organizations subject to the interpretation of the IRS, in general, and individual agents, in particular who have their own political biases.

The proposed regulations do not address the question of “how much is too much?”, but they do attempt to create a bright-line test defining what political campaign activity actually is.  Some of the definitions simply put a sharper point on commonly-held thoughts.  “Communications expressing a view on the selection, nomination, election or appointment” of one or more clearly identified candidates seems to clearly be a political campaign activity as would the distribution of material prepared by or on behalf of a candidate or by a Section 527 organization (a PAC), although I can envision certain limited examples that could be argued to be OK under the current rules.  Some wade into the grey, like the proposed strict prohibition of having a political candidate at an event within 30 days of a primary election or 60 days of a general election even if the reason and content of the appearance is for a non-campaign reason.

There are other proposed rules that seem to tread new ground.  Conducting get-out-the-vote drives and voter education guides specifically referring to candidates and/or parties would now be political campaign activities.  These types of activities have traditionally been considered “educational” rather than “political” as long as they were nonpartisan and politically neutral and may not have been limited under existing rules.

These new rules have the potential of impacting charities as well as social welfare organizations. Charities have a strict prohibition against ANY political campaign activities, so what counts, and as importantly, what does not count as a political campaign activity has even more consequences to charities than to social welfare organizations.  The proposed regulations are clear that they do not (currently) apply to charities.  However, the regulations specifically ask whether or not they should.

The good news is that the regulations are in the “proposed” stage – and this is an example of when it is good to live in the U.S.  Whatever your interest or political persuasion, you, me and everyone else are invited to participate in the rule making process by making our views known.  Comments must be received by the IRS by February 27, 2014.  For a copy of the Proposed Regulations, including detailed requirements for submitting your comments click here.