Nonprofits Need to Approach Election Season With Caution

As political campaigns for the 2024 election heat up, your not-for-profit may find itself at a crossroads. Generally, tax-exempt charitable organizations should avoid engaging in political activities. But this prohibition actually contains some exceptions. Make sure you understand the nuances involved or your organization could potentially have its tax-exempt status challenged.

IRS Regulations

Section 501(c)(4) organizations may participate in some political campaigning, so long as it's not their primary activity. However, Section 501(c)(3) nonprofits are strictly prohibited from engaging in direct political activity — including endorsing candidates. IRS regulations specifically state that 501(c)(3) organizations can't "participate or intervene, directly or indirectly, on behalf of or in opposition to any candidate for public office."

It's important to understand the language used in IRS directives. For example, a "candidate" is defined as an individual running for elective office. Even those who haven't officially thrown their hat into the ring may be considered candidates for this purpose. And to "participate" or "intervene" indicates any action for or against a candidate, including:

• Publishing or distributing statements or campaign literature,
• Making moral statements,
• Rating candidates,
• Providing or soliciting financial or other support, and
• Setting up a political action committee.

"Public office" refers to an elective or appointed position in any major branch of government at the federal or state level. The crux of the definition is whether a major part of the job involves independent policy-making functions.

"Substantial Part" Rule

Generally, your organization risks its exempt status if you dedicate a "substantial part" of your activities to attempting to influence legislation. According to the IRS, "legislation" includes any action by Congress, state legislatures, local councils or similar governing bodies, regarding acts, bills, resolutions or similar items. Legislation also includes public referendums, ballot initiatives, constitutional amendments and similar procedures. But actions by executive, judicial or administrative bodies aren't considered legislation.

There's no bright-line test for the "substantial part" component. But it's clear that a 501(c)(3) organization will be considered to be attempting to influence legislation if it either:

1. Contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation, or
2. Advocates the adoption or rejection of legislation.

However, nonprofits may be involved in public policy issues without influencing legislation. For example, your organization might conduct educational meetings or prepare and distribute educational materials without violating the rules.

Speaking Engagement Guidelines

One thing your organization generally can do is host informational candidate forums ahead of an election. However, you must walk a fine line. Be sure you don't:

• Invite only one candidate. Instead, provide an equal opportunity for all candidates running for the office to participate.
• Indicate support for or opposition to any candidate in your invitations, in introductions or in other communications.
• Conduct or allow fundraising at your event.

Another activity that's generally permitted is to invite a candidate for public office to speak in a "non-candidate capacity." To protect your exempt status, make sure:

1. The individual has been chosen to speak solely for reasons other than candidacy for public office (for example, disaster relief for the community).
2. Neither the candidate nor any representative of your organization makes any mention, directly or indirectly, of the individual's candidacy or the election before, during or after your event.
3. There's no campaign activity or fundraising for the candidate at the event.
4. Your organization facilitates a nonpartisan atmosphere.
5. You clearly indicate that the candidate is appearing in a capacity other than a political one (but don't refer to the person's political candidacy or the upcoming election).

Be Practical

IRS rules about tax-exempt organizations and political activities can be complicated. Err on the side of caution. If you're unsure about an event, communication or other activity, contact your tax advisor before forging ahead.