Don’t let Extreme Political Polarization Tempt your 501(c)(3) into Jeopardizing its Exempt Status!

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Recent political and social events have prompted many businesses to vocalize their opinions about legislation and/or elected officials.  While businesses carry a powerful voice in politics and social issues, 501(c)(3) organizations have strict limitations when it comes to influencing legislation and supporting or opposing political candidates.  Violating these laws may result in the revocation of your organization’s exempt status. 

Attempts to Influence Legislation

501(c)(3) entities may retain their exempt status so long as lobbying does not become a substantial part of their activities.  Lobbying is any attempt to influence legislation, whether directly by the nonprofit’s employees or indirectly through grassroots lobbying.  Nonprofits may utilize one of two tests in determining compliance with this law.

Expenditure Test

The expenditure test, or 501(h) election, supplies nonprofits with exact guidelines on how much money may be spent on lobbying activities.  Allowable lobbying expenditures under this test range from $100,000 to $1,000,000, depending on the total exempt purpose expenditures of the entity.  To review the expenditure categories under this test, visit the IRS website here.  Of note, this test may only be utilized by a nonprofit if it elects to do so by filing Form 5768 with the IRS, which may be revoked later by the nonprofit.

If entities electing to use this test go over the amounts outlined by the IRS, the additional lobbying expenditures are subject to an excise tax of 25%.  Additionally, any entity that utilizes this test and consistently exceeds the limitations in a four-year period puts its exempt status in jeopardy. 

Substantial Part Test

Unlike the expenditure test, the substantial part test is difficult to apply.  However, it may allow larger organizations to spend more money on lobbying without fear of paying excise taxes or losing exempt status.  The IRS simply looks to the facts and circumstances, such as the time and money spent on lobbying activities by the organization. 

Political Campaign Activities

Unlike lobbying activities, political campaign intervention is strictly prohibited by 501(c)(3) entities.  This means nonprofit entities must not support or oppose any political candidate or elected official. 

Nonprofits may educate their constituents about the voting process or supply information about candidates in a non-partisan manner.  For instance, a nonprofit could send an unbiased survey to all candidates asking questions on the beliefs of each candidate.  The nonprofit could then publish this data, without editing the information in a biased manner.  Where many nonprofits cross the line is by rating each candidate based on the candidate’s answers and how those answers impact the constituents of the nonprofit.  This presents the candidates in a biased manner and the IRS may immediately revoke the entity’s exemption.

Questions?

The Colorado Nonprofit Legal Center is available to provide specific legal advice for your organization.

1 comment on “Don’t let Extreme Political Polarization Tempt your 501(c)(3) into Jeopardizing its Exempt Status!

  1. Thank you Katie, this is very helpful and timely.

    Like

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