Media coverage of the embittered Trump versus Clinton race has been exhaustive, but coverage aside, which candidate should you actually be supporting? If you are a 501(c)(3) organization, the answer should be neither.
Nonprofits organized under section 501(c)(3) are strictly prohibited from expending funds towards a political campaign. Doing so would jeopardize your tax exempt status and could also result in a substantial excise tax, meaning that not only would the organization pay a hefty tax, the individuals responsible for the payments would also be subject to a tax themselves.
But there is a distinction between supporting (or opposing) a campaign and lobbying. Lobbying is acceptable. However, an understanding of the rules and limitations of acceptable lobbying is necessary before allocating charitable funds toward these efforts.
Vote for lobbying!
Lobbying expenditures are for the purpose of influencing legislation. Lobbying could be direct or it could be grassroots. The definition of lobbying, and its related activities, has been extensively tested in the courts. If you are unsure about how your activities could be interpreted, your tax practitioner can likely locate court cases that can offer guidance.
Once you determine that your activities are considered lobbying, you will need to determine the limits imposed on these activities. These limits can be complex and can require certain tax elections, so you should consult your tax advisor when going down this path. Your tax advisor can measure your activities and review the facts and circumstances surrounding your organization.
One option for measuring your lobbying activities is the “insubstantial part test.” This test looks at lobbying expenditures in relation to other expenditures. Some organizations use a 5% threshold to make this determination, asserting that if less than 5% of their total expenditures were used towards lobbying activities, then an insubstantial part of their operations were for lobbying. This bright line rule has not always held up in court and is subject to interpretation of other facts and circumstances pertaining to the organization. Your tax advisor can help you determine if this option would work for you and what your threshold should be.
A world with fewer limits
There are some strategies to avoid the limitations placed on 501(c)(3) lobbying activities. One strategy would be to form a separate organization under 501(c)(4) to conduct these activities. While there are additional reporting requirements, the limits on lobbying expenditures for 501(c)(4) organizations are less onerous. In addition, the separate organizations must have separate boards, day-to-day activities, use of staff, and websites, among other facets of the organizations.
The final tally
Don’t despair! There are ways to effect change in the political arena through 501(c)(3) organizations, but whether you’re with Her, or want to make America great again, you will have to refrain from voicing your opinion through your organization. An organization must tread carefully in determining the types of political activities to engage in and the extent of those activities.