Any idea which IRS proposed rules received the biggest public response in the history of IRS proposals? Hint: it’s not as easy as they thought to clarify how much is too much political activity. The IRS recently announced that it will re-propose the new rules defining appropriate levels of political activity for 501(c)(4) organizations after receiving over 150,000 public comments to the proposed rules announced last November.
Social welfare organizations, commonly known as 501(c)(4) orgs, can participate in political and lobbying activities as long as the organizations continue to be operated exclusively for the promotion of social welfare. This is a fairly broad and subjective definition, which the IRS allegedly abused by rejecting nonprofit applications from tea party groups while granting exempt status for similar liberal organizations. Finger-pointing aside, the big picture is that nonprofit political and lobbying activities are supposed to serve the public on a nonpartisan basis rather than contribute directly to candidate campaigns. The challenge the IRS faces is how to limit candidate-specific activities while still allowing grassroots lobbying focused on educating the public and government officials about issues and encouraging voter engagement. Among other things, the proposed rules would have turned get-out-the-vote drives into prohibited activities.
The focus right now is on 501(c)(4) organizations, but what about other nonprofits? While 501(c)(3) charitable organizations cannot contribute to candidate campaigns at all, they can participate in some political and lobbying activities as long as these activities are not a substantial part of the organization’s activities. Once again, we’re faced with the question: how much is substantial? Many charitable organizations answer this question by claiming the 501(h) election using Form 5768. This election gives notice to the IRS that the organization will be spending money to influence legislation. The benefit is that the organization can use a prescribed formula to determine how much is too much political and lobbying activity. Without this election, the organization has to use judgment and be prepared to defend the amount if it is ever questioned by the IRS. The IRS is currently examining the websites of 501(c)(3) organizations for signs of political activity, so be careful not to link to a political organization or candidate from your website.
Associations with 501(c)(6) status are subject to rules similar to 501(c)(4) organizations – both must not devote a substantial amount of the organization’s activities to influencing legislation and must notify members what portion of their dues is spent on political activities to avoid excise taxes. So why aren’t 501(c)(6) organizations facing the same scrutiny as social welfare organizations? Additional requirements for exemption like member-support limitations make 501(c)(6) orgs less appealing for anyone interested in hiding political campaign donations. However, it seems likely that the IRS will be issuing additional political and lobbying guidance for all nonprofits in the near future.
Although the IRS has not announced when they will issue final rules on acceptable political activities, it will likely be 2015 before we get any authoritative new regulations. For now, use caution when participating in political activities – stay neutral, focus on issues relevant to your organization and be sure employees and board members keep their personal views about candidates to themselves when representing your organization.
