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Pushing the Limits on Political Activity by 501c3 Nonprofits
by Illene Roggensack November 2004
First, I heard a radio report that various Christian sects had warned local congregations against doing ANYTHING to influence voters on candidates and even issues. Seems that the churches had become quite pro-actively involved in the 2004 election, particularly in discussing/publishing opinions with their members. The report stated that NO involvement was allowed if churches and other organizations are to maintain their 501c3 nonprofit status. I was struck by the report; while this hard-line approach has always been the case with candidates, it has never been "the party line" when dealing with political issues. Then, an October 29 article in USA Today said that the IRS is reviewing the tax-exempt status of the NAACP (National Association for the Advancement of Colored People), the nation's oldest civil rights organization, saying criticism of President Bush at the NAACP's national convention in July may have violated rules against partisan activity. In a letter sent to the nonprofit, the IRS said that NAACP Chairman Julian Bond's July 11 speech "condemned the administration policies of George W. Bush on education, the economy and the war in Iraq," asked who authorized Bond's speech and sought an accounting of all expenses for the Philadelphia convention. USA Today reports: "Frances Hill, an authority on nonprofit groups at the University of Miami Law School, called it 'amazing' that the IRS would audit a group based on a public speech. 'Usually you would look for some activity other than disagreeing with policies,' she said." U.S. tax law provides 501c3 tax exempt status only for those organizations that do not "participate in, or intervene in, any political campaign on behalf of any candidate for public office." Similarly, these organizations cannot form, or "cleanly" contribute to a political action committee (PAC), due to the fact that contributions, in turn, are made to specific candidates. The laws concerning nonprofit involvement in political issues (rather than candidates) and lobbying activities have always been less strict. In determining limits to this type of involvement, organizations have two options: making a Section 501(h) election with the IRS (not available to churches and their integrated auxiliaries, conventions and associations), which comes with a specific set of rules and regulations; or the "substantial part test." The substantial part test allows the IRS to revoke 501c3 exempt status if a "substantial part" of the organization's activities include lobbying. The IRS has never defined the phrase "substantial part," and application of the test is quite subjective and on a case-by-case basis. Although not explicitly stated, it has been commonly accepted that up to 15% of agency resources may be committed to such activity. Steven B. Smith with the law firm Holme Roberts and Owens in Colorado Springs provides the following suggestions for 501c3 organizations:
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