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executive orderAt the National Prayer Breakfast earlier this year, President Trump vowed: “I will get rid of and totally destroy the Johnson Amendment.” The Johnson Amendment, named after former President Lyndon Johnson, refers to language in the Internal Revenue Code Section 501(c)(3) that prohibits charities, including religious organizations, from participating in campaigns on behalf of or in opposition to a candidate for public office.

The president took official action on May 4 through an Executive Order, titled “Promoting Free Speech and Religious Liberty,” that exhorts federal agencies to respect and protect “religious and political speech.” However, notwithstanding the controversy surrounding the announcement, including one organization’s threat to file a lawsuit the same day, the Order will have little practical effect, and the threat of a lawsuit was withdrawn.

Continue Reading Trump Asks IRS to Keep Hands Off Religious Nonprofits: Will It Have Any Effect?

Many issues important to public charities are addressed in the platforms adopted by the political parties. As Republican, Democratic, and Libertarian parties wrap up their conventions and the Green Party meets this week, charities are asking how they can talk about the issues raised in the platforms. Charities can advance their position on the issues that they had been advocating before the platforms were adopted; however, they should consider carefully whether to opine specifically on the positions of candidates and the political parties.

Section 501(c)(3) of the federal tax code strictly prohibits all charities from engaging in activities to support or oppose candidates for public office. However, public charities, in particular, can advance public policy goals—many involving specific legislative solutions that are in the platforms.

The Internal Revenue Service (IRS) and, ultimately, the courts evaluate whether a charity improperly engages in candidate campaigns by considering the context. Could the charity’s statements about policy and candidates or political parties reasonably lead an audience to believe the organization has an opinion on the candidate or party? Facts and circumstances are considered in the context of the statement and the issue.

In considering the statement:

  • Does it identify one or more candidates or parties or express approval or disapproval for positions of a political party platform or candidate?
  • Is it delivered close in time to the election or make reference to voting or the election?
  • Is the timing of the statement instead linked to a specific legislative action by an officeholder who happens to be a candidate?

In considering the issue addressed in the statement:

  • Has the position on the issue been raised to distinguish between parties or candidates?
  • Is the issue part of an ongoing series of communications by the charity on the same issue without regard to the election?

There is a safe zone for a charity that has previously advocated for a policy position that later becomes a political party platform issue or the subject of a candidate’s position.

A charity can:

  • Use earned and paid media to advocate for the charity’s position on an issue;
  • Call for all candidates and parties to support the charity’s position without calling out particular parties or candidates or mentioning the positions they’ve already taken;
  • Send materials to all candidates and party leaders to educate them about the charity’s issues;
  • Invite all candidates in a race to meet with charity leaders to discuss the issue and visit the charity’s facilities or work projects; and
  • Ask its members or the public to educate all candidates on the charity’s issues.

Charities should take care when:

  • Inviting a current officeholder who is also a candidate to a public event of the charity;
  • Naming an officeholder in paid advertising who is up for election, because of federal and state election laws that regulate campaign speech and may be triggered, requiring disclosure and other requirements close in time to the election;
  • Holding panel discussions or debates with candidates; or
  • Providing an “open forum” on social media about issues without careful monitoring or control of comments posted.

Charities should avoid:

  • Publicizing the positions of political parties and candidates on issues on which the charity has taken a position; and
  • Holding debates or developing voter guides limited to a small set of issues, such as environmental topics, on which the charity has taken a position.

Planning and Executing Activities Involving the Candidates, Parties, and Their Positions

Many activities—such as debates, voter guides, and voter registration—can also be considered by a charity on a broad range of issues of interest to the public. The key is to remember that these activities must be nonpartisan, and not favor one candidate over another. In addition, charities should consider their underlying mission and determine whether activities like general voter education are reasonably part of the chartered purpose of the charity.

Unfortunately, the line between prohibited and permissible activities for a 501(c)(3) organization is murky and can easily be crossed if not properly managed. Careful planning, clear communication about the limitations of all involved, and control in executing the activity are critical. Now might be a good time to review the rules that will help your charity stay on the right side of the line while involved in the process.

If done correctly, 501(c)(3) organizations can:

  • Help register voters;
  • Conduct get-out-the-vote activities;
  • Publish voter guides on a broad range of issues of interest to the public;
  • Create candidate questionnaires on a broad range of issues of interest to the public;
  • Host candidate appearances that are not debates;
  • Host debates on a broad range of issues of interest to the public;
  • Conduct issue advocacy;
  • Allow leadership and staff (on their own time) to be politically active; and
  • Create an affiliated organization to engage in political activities that they cannot.

Continue reading for more information on prohibited intervention and permissible activities.

The question of when a politically-active, nonprofit 501(c)(4) group must publicly disclose its donors has been on the front burner in various states—most, like New York and California, have called for greater regulation, while others like Arizona have loosened the reins. At the federal level, silence has been the norm because the statute is generally read as only requiring disclosure by a 501(c)(4) (or other nonprofit such as a 501(c)(6)) if a donor contributes for the purposes of funding a particular ad. The FEC has consistently deadlocked on complaints alleging either that a donor gave for the purpose of supporting an ad or that a 501(c)(4) should be treated as a political committee and disclose all of its donors.

Last week, however, details were released from an FEC enforcement matter that met this stringent test and, as a result, the Commission levied fines totaling $233,000 against three nonprofit groups for failing to identify donors behind specific advertisements. These three settlement agreements, released as a group, provide significant guidance to nonprofit 501(c)(4)s and other actors as to what type of conduct will trigger donor disclosure at the federal level.

Continue Reading The FEC Levels Fines on Nonprofits over Donor Disclosure

tax forms and notesA substantial number of organizations exempt under Internal Revenue Code (Code) § 501(c)(4), and their individual officers and directors, may be subject to financial penalties if they do not file a Form 8976, Notice of Intent to Operate Under Section 501(c)(4), with the Internal Revenue Service (Service or IRS) on or before September 6, 2016.

On July 8, 2016 the IRS released a revenue procedure for implementing new statutory requirements for certain organizations that operate under section 501(c)(4) of the Internal Revenue Code. This requirement comes on the heels of the December 2015 enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015.

The recently released Revenue Procedure 2016-41 contains temporary regulations implementing the 501(c)(4) provisions of the PATH Act and describes the new Form 8976 and the related rules for filing it.

Continue Reading New Mandatory IRS Notification Process for 501(c)(4) Nonprofit Organizations Finally Announced

By U.S. Government [Public domain], via Wikimedia Commons
For the rest of the 2016 election season, nonprofits in Arizona can be politically active without registering as a political committee. As long as they meet basic qualifications, nonprofits can run candidate ads, support ballot measures, and even make contributions, all without the burdens of registration, ongoing reports, and disclosure of donors.

Arizona concluded its 2016 legislative session in May with the passage of an important campaign finance law, House Bill 2296. This bill mirrors one passed earlier in the session, Senate Bill 1516. Both bills exempt certain nonprofit organizations from Arizona’s definition of a political committee, but SB 1516 would have only taken effect starting in 2017. HB 2296, on the other hand, makes these rules effective in time for the 2016 election. As of June 1, 2016, nonprofits active in Arizona elections will not have to register as a political committee and will be free from the regulatory obligations that come with being a political committee.

Continue Reading 2016 Election: New Rules for Nonprofits in Arizona

From now until the polls close on Tuesday, November 8, 2016, politics will be inescapably in the air – and in the workplace. Employees will be talking, and sometimes arguing, and sometimes participating in one campaign or another. Prudent employers should take note of what they may be required to do or prohibited from doing about their employees’ desire to participate in the electoral process. Continue Reading Election Year Tips for Employers

MeeTtheCandidatesAlthough it appears that rules governing the political activities of 501(c)(4) organizations will be some time in coming, the IRS recently provided some new insights into how 501(c)(3) organizations can – and cannot – interact with the political world.  In an adverse determination publicly released earlier this month, the IRS looked closely at how a 501(c)(3) organization can engage in educational activities, like conventions and conferences, that involve candidates who may identify with a particular political party.

In general, organizations recognized as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code cannot engage in what is called “political campaign intervention.”  This requirement is absolute:  as a condition of getting (c)(3) status, organizations essentially cannot be too politically partisan in nature.  For tax purposes, political campaign intervention includes any communications or activities that support or oppose one or more candidates for public office.  This includes the more clear-cut activities, like running an ad opposing a candidate or making endorsements in a particular race.  But it also can include other activities where the organization uses its resources to give one candidate an advantage over another.

In this determination, the IRS addressed one of these less obvious situations.  Here, the organization applying for recognition as a 501(c)(3) told the IRS it planned to hold symposiums of “thinkers, statesmen and opinion leaders” as its primary activity.  The organization anticipated that elected politicians, as well as candidates in the 2012 presidential race about to compete in a key primary, would be in attendance and would be speakers.  An agenda for the symposium submitted by the organization to the IRS showed that all political speakers invited were affiliated with one particular party; it also included a “Meet the Candidates” event, for attendees paying an additional fee.

In planning its symposium, the organization also internally discussed using contacts within the political party to get speakers and to increase attendance, targeting county party groups for attendees, coordinating with local college and high school groups associated with the party for events, and keeping the state party chair up to date and involved in decisions.  Continue Reading Too Close for Comfort? The IRS Gives New Guidance on 501(c)(3)s and Working with Candidates

Last week the U.S. Ninth Circuit Court of Appeals upheld key provisions of Hawaii’s campaign finance laws requiring a for-profit company making campaign contributions and expenditures to register as a political committee, and prohibiting government contractors from contributing to state legislators and candidates.

Broad Implications for Companies and Nonprofits Participating in Hawaii Elections

Hawaii requires entities to register and report as noncandidate committees when they have “the purpose of making or receiving contributions, making expenditures, or incurring financial obligations to influence [elections] over $1,000 in the aggregate for an election cycle.”  A-1 A-lectrician, a for-profit corporation that in 2010 contributed over $50,000 to Hawaii candidates and party committees, and spent more than $6,000 on political advertisements, challenged these requirements.  It argued that registration and reporting should only be required of entities with “the primary purpose” of political activity rather than an organization that has “the purpose” to engage in political activity.

The Ninth Circuit rejected A-1’s argument, reasoning that the $1,000 threshold ensures that the reporting and disclosure requirements will not apply to organizations engaged in only “incidental” political activity.  Large organizations, the court noted, may spend only 1% of their funds on political activity and have many other important purposes – but this small percentage may amount to tens or hundreds of thousands of dollars. As the court glosses over, however, there is a big difference between making hundreds of thousands of dollars in contributions and contributing just over $1,000, which is the threshold for registration.

This ruling has broad implications for any company or nonprofit making contributions or expenditures in Hawaii. Although the court left open the possibility that the law may be unconstitutional as applied to an organization engaged in less political activity than A-1, many companies and nonprofits face burdensome state disclosure requirements for relatively modest amounts of political spending. In addition to registering, such companies or nonprofits must file reports disclosing contributions received, contributions made to candidates, political expenditures made, and other financial information.

Hawaii’s Pay-to-Play Law Also Upheld

A-1 also challenged Hawaii’s pay-to-play law on the basis that it prohibits a contractor from contributing to legislators or candidates who will neither award nor oversee state contracts. The court rejected this argument, reasoning that the legislature as a whole deals with procurement matters and that it would be very difficult for a contractor to determine whether a particular officeholder or candidate will become involved in a contract award or oversight process.

This is the second Federal appeals court to uphold contribution restrictions on government contractors, commonly known as pay-to-play laws.  While judicial rulings after Citizens United have tended to loosen restrictions on campaign finance laws, legal challenges to state pay-to-play laws have not fared well.  As such, pay-to-play laws continue to pose compliance challenges for companies that do business with government agencies and for their politically-active officers, directors, and other principals who may also be subject to these laws.

The Maryland legislature overhauled the state’s campaign finance law almost two years ago, but many of the key provisions did not take effect until January 1, 2015. These changes significantly affect state government contractors by introducing a new electronic registration system overseen by the State Board of Elections, and requiring electronic reporting of contributions made by the contractor, as well as by its PAC and subsidiaries, and its officers, directors, and partners.

The new law also increases the limits on contributions by individuals and business entities, and compels politically active nonprofits to register and disclose their donors. Stiff penalties may be imposed on nonprofits that knowingly and willfully fail to file registration notices or reports. Also, the State Board of Elections now has the power to issue civil citations for strict liability offenses, such as failing to keep accurate books and records.

To read the full article, please continue reading on our website.

Ron Jacobs and Larry Norton presented “Election-Year Advocacy: Maintaining Your Nonprofit’s Clear Message in Cloudy Legal Seas,” a webinar covering topics for nonprofits engaged in political activity. It included topics such as:

  • The rules that apply to 501(c)(4) and 501(c)(6) organizations and how those rules are changing;
  • How to operate a political action committee (PAC), including guidelines for fundraising and advocacy communications;
  • Specific activities that 501(c)(3) organizations can and cannot engage in, and how the proposed IRS rules for 501(c)(4)’s may impact 501(c)(3)’s;
  • Rules on coordinating activities with campaigns and political parties;
  • How successful enterprises can combine a 501(c)(3), 501(c)(4) and/or 501(c)(6) organization, a PAC, and even a Super PAC;
  • The Supreme Court’s recent decision striking down aggregate contribution limits, and how it could influence 2014 elections at the state and federal level;
  • IRS proposals to change the 501(c)(4) rules; and
  • Changes to state disclosure laws.

You can view the handout for the presentation or watch it below: