Greenberg Traurig Alert
Political Activities and Lobbying Update
By Harry J. Friedman, Greenberg Traurig, Miami
View or download the PDF version of this Alert here.
Political and lobbying activities of Section 501(c)(3) organizations have been a
frequent issue, particularly in presidential election years. The IRS recently issued an
advisory for Section 501(c)(3) organizations that are engaging in educational activities
for voters. Also, the IRS recently issued a letter to a Washington, D.C. trade association
discussing the rules for lobbying activities applicable to Section 501(c)(3)
organizations. We believe that a review of these rules will be useful for Section
501(c)(3) organizations and their managers.
Political Activities Prohibited
The Internal Revenue Code is clear that Section 501(c)(3) organizations may not
"participate in, or intervene in (including publishing or distributing of statements)
any political campaign on behalf of (or in opposition to) any candidate for public
office." There is no de minimus test or incidental test; supporting a candidate for
public office in any manner is forbidden. This prohibition is applicable to all Section
501(c)(3) organizations without exception. Revocation of exempt status is a possible
penalty for engaging in political activities.
Recently, the U.S. Court of Appeals for the District of Columbia decided in favor of
the IRS in connection with an IRS decision to revoke the tax exempt status of a church
because of the churchs involvement in political activities. The church had
co-sponsored ads in The Washington Times and USA Today criticizing
then-Governor Clintons position on homosexuality, abortion and other issues. The
statement also urged people to make tax-deductible donations to the church.
The IRS revoked the churchs exempt status, ruling that the ads violated the Code
prohibition on political activity. The fact that the Section 501(c)(3) organization was a
church did not affect the outcome: The First Amendment did not allow it to ignore rules
applicable to other Section 501(c)(3) organizations.
Section 501(c)(3) organizations that wish to influence election campaigns do have
alternatives. A Section 501(c)(3) organization can establish a subsidiary to engage in
activities that the Section 501(c)(3) organization itself would not be permitted to do. As
a general matter, the IRS recognizes the separate corporate existence of corporations for
a variety of purposes. The separateness of the organization will be recognized unless it
is a sham or is merely acting as an agent for the Section 501(c)(3) organization. An
agency relationship is not created simply because the affiliate organization has a similar
name and goals as the Section 501 (c)(3) organization.
As a result, a Section 501(c)(3) organization can establish and control an organization
described in Section 501(c)(4), an exempt organization that is permitted to engage in
substantial lobbying or political activities (although, that cannot be the only purpose of
the Section 501(c)(4) organization). It is important that the two organizations observe
the formalities of their separate status and deal with each other at arms length.
Maintenance of separate bank accounts and separate records is a must. Overlapping
officers, directors, or employees must allocate their time between the organizations. It
is important to demonstrate that the political activities (including any lobbying
activities) engaged in by the Section 501(c)(4) organizations are not accomplished by the
use of the Section 501(c)(3) organizations funds. The Section 501(c)(4) organization
can establish a political action committee to conduct exempt functions under Section 527
of the Code so long as political activities are not the primary activity of the
A Section 501(c)(3) organization may engage in voter educational activities. These
activities may include controversial issues, "so long as [the organization] presents
a sufficiently full and fair exposition of the pertinent facts as to permit an individual
or the public to form an independent opinion or conclusion." Section 501(c)(3)
organizations may also conduct voter registration drives or publish voter guides as long
as the activity does not support a particular candidate. A candidate forum is permissible
if all candidates are permitted to participate, although some limitation may be acceptable
if the criteria is applied in a non-arbitrary manner.
Limited Lobbying Activities
While Section 501(c)(3) organizations may not engage in political activity, lobbying to
influence legislation may be undertaken if it is not a substantial part of the
organizations activities. (Note, however that private foundations may not engage in
any lobbying activities; permission is only available to public charities).
A Section 501(c)(3) organization desiring to lobby can follow two courses. It can
simply rely on the statutory provision that "no substantial part" of its
activities is to influence legislation or the organization can make an election under
Section 501(h) to apply a "safe harbor" that a specified amount of expenditures
will not constitute a "substantial part." An organization making an election
under Section 501(h) and complying with the rules contained in the Code will not lose its
exempt status because of its lobbying activities. Generally, the amount of lobbying
expenditures permitted is a sliding scale based on the organizations exempt
expenditures (up to $1,000,000 on total lobbying activities and up to $250,000 on
grassroots lobbying). Grassroots lobbying is lobbying the public with respect to proposed
legislation; e.g., requesting the public to call to make their views known.
Certain activities are not deemed to be lobbying, including making available the
results of non-partisan analysis study and research; providing technical advice or
assistance to a government body or to a committee in response to a request; appearances
before any legislative body with respect to decisions which might affect the existence of
its organization; and communications between the organization and its members with respect
to direct interest legislation.
We generally recommend that organizations look to electing the optional sliding scale.
While the dollar limitations should be considered when making the election, the safety of
employing specific limitations may be beneficial. Frequently, organizations are concerned
that making a Section 501(h) election may expose the organization to an increased risk of
IRS audit. The Internal Revenue Manual specifically states that IRS examination personnel
should not use making a Section 501(h) election as a basis for initiating an examination.
IRS representatives in speeches have confirmed this fact.
* * * * *
Election year campaigning and lobbying presents many dangers for Section 501(c)(3)
organizations. An organization engaging in support for a political candidate places its
exempt status in jeopardy. Further, the Code imposes an excise tax on the organization and
its managers if a political expenditure is made by the organization. A Section 501(c)(3)
organization intending to engage in any political activity should review the proposed
activity with its tax advisor before commencing any actions. The distinctions between
educational activities and political activities are difficult to apply in practice. Prior
precedents will be helpful in characterizing an activity.
Similarly, consultation with a tax advisor should precede lobbying expenditures by a
Section 501(c)(3) organization. The organization should consider whether an election under
Section 501(h) is appropriate. As with political activity, lobbying can endanger the
exempt status of the organization and should be dealt with accordingly.
© 2000 Greenberg Traurig
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