As the 2012 elections draw near, the IRS is once again increasing its oversight of the ban on political campaign activities by Sec. 501(c)(3) charitable organizations. An IRS work plan (Exempt Organizations 2011 Annual Report & 2012 Work Plan, available at tinyurl.com/bos7pb4) states that, in enforcing the ban this year, the IRS will use new information about organizations' activities from Form 990, Return of Organization Exempt From Income Tax, which was expanded in 2008.
While many charities speak out on issues as an integral part of carrying out their charitable purpose, these organizations are prohibited from engaging in political campaign activities. The consequences of violations can be severe, including fines and possible revocation of the organization's tax-exempt status. Understanding and communicating to organization managers the rules discussed in this article will help CPAs ensure that clients do not jeopardize their tax-exempt status.
A Sec. 501(c)(3) organization, including a church, is not permitted to be an "action" organization, as defined in any of three ways. First, an organization is an action organization if a substantial part of its activities is attempting to influence legislation, including by advocating its adoption or rejection, or by contacting federal, state, or local legislators to propose, support, or oppose legislation, or urging the public to do so (Regs. Sec. 1.501(c)(3)-1 (c)(3)(ii)). The second definition likewise involves proposed legislation: A Sec. 501(c)(3) organization is an action organization if its main or primary objective may be attained only by the passage or defeat of proposed legislation and it advocates or campaigns for the attainment of the objective, as distinguished from engaging in nonpartisan analysis, study, or research and making those results available to the public (Regs. Sec. 1.501(c)(3)-1(c)(3)(iv)) (see also "Issue Advocacy vs. Political Intervention," below).
Third--and the focus of this article--an organization is an action organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office. Pegs. Sec. 1.501(c)(3)-1(c)(3)(iii) defines "candidate for public office" as an individual who offers himself or herself, or is proposed by others, as a contestant for an elective public office, whether the office is national, state, or local.
It is crucial for CPAs to advise their exempt-organization clients about IRS guidance on what is and is not allowed in relation to political campaigns.
A good place to start is Rev. Rul. 2007-41, in which the IRS provides examples of acceptable and unacceptable campaign involvement. The IRS website (nonprofits and charities section) has additional resources, including answers to frequently asked questions on this topic (see the "Resources" box near the end of this article for links). The following sections of this article provide an overview of what constitutes inappropriate political activity and suggest what organizations can do to avoid engaging in political intervention.
ACTIVITY BY LEADERS AND OTHER INDIVIDUALS
The political campaign prohibition is not intended to restrict free expression of opinions on political or public policy issues by an organization's leaders, including its board members, as long as they are speaking for themselves as individuals. However, leaders may not make partisan comments in their official capacity where it appears they are speaking on behalf of the charitable organization. Partisan comments in the organization's publications and newsletters or at official functions are prohibited.
Rev. Rul. 2007-41 provides an example in which the CEO of a tax-exempt hospital endorsed a political campaign candidate, and his endorsement was made public in an ad in the local newspaper. Although the endorsement identified the individual as the CEO of the hospital, the ad also stated that "[t]itles and affiliations of each individual are provided for identification purposes only. …