Can a church or other public charity support a candidate? Tax Treatment of Political Campaigning and Lobbying by Tax Exempt Organizations | law of the free man

On April 29, 2022, the Joint Committee on Taxation released its 35-page report (the “Report”) regarding the federal tax treatment of political campaigning and lobbying activities of tax-exempt organizations.

The report provides an overview of the legal and regulatory permissions and prohibitions applicable to the 28 different categories of organizations that are generally exempt from federal income tax under Section 501(c), Title 26 of the Internal Revenue Code (“Code”). See 26 USC § 501.

The report separates the different applicable standards for engaging in (1) political campaigning activities and (2) lobbying, and the report also separates organizations that are exempt under section 501(c)(3) – i.e. public charities, private foundations and the like – and organizations exempt under other subsections of Section 501, such as social welfare organizations which are exempt under 501(c)(4) and trade associations and chambers of commerce that are exempt under 501(c)(6) .

Section 501(c)(3) and participation in political campaigns for (or against) a candidate – an absolute prohibition.

Under the Code, organizations that are tax-exempt under section 501(c)(3) must be organized and operated exclusively for religious, charitable, educational and other permitted purposes, “. . . no substantial part of the activities who makes propaganda or otherwise attempts to influence legislation (except as otherwise provided in paragraph (h)), and who does not participate in, or intervene in (including publishing or distributing statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Identifier. at § 501(c)(3) (emphasis added).

The Treasury Regulations provide additional regulatory restrictions on organizational testing and operational testing to qualify for tax exemption under Section 501(c)(3) of the Code. See 26 CFR § 1.501(c)(3)-1(b)(3)-(b)(3)(iii) (organizational requirements and prohibitions); identifier. § 1.501(c)(3)-1(c)(1)-(3) (operational requirements and prohibitions).

Pursuant to Treasury Regulations, an organization is not entitled to a tax exemption under Section 501(c)(3) of the Code if the organization”participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office”. Identifier. § 1.501(c)(3)-1(c)(3)(iii) (emphasis added). This prohibition is, in fact, absolute.

Candidates for public office generally refer to a candidate who is running as a candidate for elective public office at the local, state or national level. 26 CFR § 1.501(c)(3)-1(c)(3)(iii) (flush language).

The report addresses these political campaign issues, noting the absolute ban to intervene for or against any campaign of a candidate for public office:

Section 501(c)(3) expressly provides that the tax-exempt organizations described in this section may not participate in or intervene in political campaigning on behalf of (or in opposition to) any candidate for public office. This legal prohibition is absolute and applies to both types of 501(c)(3) organizations. — that is, public charities and private foundations. In theory, no political campaign activity is compatible with an organization retaining 501(c)(3) tax-exempt status.

Report on p. 6.

Section 501(c)(3) and Voter Education – Permit, but be careful…

The report also discusses voter education and so-called “get out of the vote” campaigns, noting that voter education activities generally do not constitute “participation or intervention” in a political campaign for or against a particular candidate. However, these activities must be conducted in a non-partisan manner. For example, if a candidate is permitted to appear and speak at a public charity, the forum must operate in a way that does not show bias or preference for or against another candidate. See Rev. Rule. 2007-41, 2007-25 IRB 1421; Report on p. 9. In this regard, Revenue Ruling 2007-41 provides, in part, as follows:

When a candidate is invited to speak at an event organized by an organization in their capacity as a political candidate, the factors determining whether the organization has participated or intervened in a political campaign include the following:

Whether the organization provides equal opportunity to participate to political candidates seeking to hold the same position;

Whether the organization indicates support or opposition to the candidate (including candidate introductions and communications regarding the candidate’s attendance); and

If a political fundraiser is taking place.

Rev. Rule. 2007-41, 2007-25 IRB 1421.

This is because if a public charity approves or assesses the qualifications of a candidate for public office, then the organization has violated the tax exemption requirements, and the tax exemption may be revoked or tax penalties imposed. excise imposed on the organization or its management, or both. See 26 USC § 4955 (Taxes on Political Expenses of Section 501(c)(3) Organizations).

Private foundations and political campaigns and lobbying.

Other tax consequences fall on private foundations, even for voter registration campaigns, unless specific statutory criteria are met. See Report on p. 8-9. In addition to the potential revocation of the tax exemption, a private foundation that engages in prohibited political campaign activities may be subject to excise tax for “taxable expenses”. For more information on private foundations and taxable expenses, see Freeman Law attorney Cory Halliburton’s blog on Private Foundations, Taxable Expenses, and Excise Taxes: IRS Issues Guidance.

Other Section 501 Organizations.

The report also discusses standards for permitted political campaign activities of organizations that are exempt under other subsections of Section 501, including subsections 501(c)(4), 501(c) (5), 501(c)(6) and political organizations that may qualify for various types of tax exemptions under Section 527 of the Code. See Report on p. 11-20.

Disclosure Requirements.

The report outlines the disclosure and reporting requirements of tax-exempt organizations, including requirements for expenses and activities related to participation in any political campaign for candidates for elected public office and any lobbying. See Report on p. 22-27.

Statistical data.

The report ends with statistical data. The report indicates that approximately 2 million organizations are exempt under 501(c)(3), representing approximately seventy-five percent of all tax-exempt organizations. See Report on p. 29-30.

Knowledge: The tax-exempt sector is a major player in the global economy, with more than 2 million Section 501 organized organizations registered with the IRS. Before an exempt organization engages in political campaigning or lobbying, the organization should have a good understanding of the statutory and regulatory safeguards that apply to the organization. Violations of legal or regulatory requirements could cost the organization its tax-exempt status, or result in excise taxes being imposed on the organization or its management, or all of the above. The Joint Committee on Taxation report is a decent arrow for any exempt organization to put in its regulatory quiver, but as these matters go, taxes are in the details. Competent legal and tax advisors should be consulted, where appropriate, to ensure that one of the organization’s most valuable assets – federal income tax exemption – is protected and maintained.

See also Freeman Law attorney Cory Halliburton’s blog on Report of the Joint Committee on Taxation on the tax treatment of charitable contributions

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