Section 501(c)(3) tax-exempt organizations should take note of new IRS guidance and enforcement of rules prohibiting them from participating

As the 2008 presidential election cycle begins, the Internal Revenue Service (IRS) continues its efforts to enforce the prohibition on intervention in political campaigns by section 501(c)(3) tax-exempt organizations. Organizations exempt from federal taxes under section 501(c)(3) of the Internal Revenue Code may not participate, or intervene in, any political campaign on behalf of or in opposition to any candidate for public office.

On June 1, 2007, the U.S. Department of the Treasury and the IRS issued two documents concerning this prohibition. One was an update on enforcement activities undertaken by the IRS during the federal 2006 campaigns as part of its Political Activities Compliance Initiative (PACI) project. The second document was Revenue Ruling 2007-41 (the Ruling), an important development providing guidance on which exempt organizations may rely concerning common situations that may involve political activity. The Ruling formalizes previous non-binding IRS statements of position on this topic.

Enforcement Activities

In 2006, IRS officials released a report on the agency’s examination of political activity by tax-exempt organizations during the 2004 election campaign. This report, a summary of the 2004 PACI project, found some degree of prohibited political activity by tax-exempt organizations in nearly three-quarters of the cases reviewed. A majority of the 82 case examinations completed involved one-time, isolated occurrences of prohibited campaign activity that were addressed through written advisories to the organizations. However, egregious violations by three organizations resulted in the revocation of the organizations’ tax-exempt status. Specific instances of political intervention by tax-exempt organizations examined included: giving improper preferential treatment to certain candidates by permitting them to speak at functions; making cash contributions to a candidate’s political campaign; and distributing printed materials that encouraged members to vote for a particular candidate.

Information and statistics from the 2006 PACI project demonstrate a consistent number of referrals selected for examination and similar levels and types of allegations of prohibited political intervention in both 2004 and 2006. In response to the high level of non-compliance, the IRS launched enhanced education and enforcement efforts. Included in these efforts was the publication of a fact sheet in February of 2006—Election Year Activities and the Prohibition on Political Campaign Intervention for Section 501(c)(3) Organizations (FS-2006-17)—to provide tax-exempt organizations information regarding the legal restrictions against engaging in political activities, the types of violations that occurred and recommendations on how to avoid these problems. The Ruling adopts the recommendations in this fact sheet.

The Ruling

The Ruling describes 21 factual situations in which a tax-exempt organization could have potentially intervened in a political campaign and indicates in each case whether prohibited political activity has occurred. The Ruling is helpful because it provides binding guidance on real-life situations faced by many exempt organizations. Prior to the issuance of the Ruling, the only precedential guidance issued by the IRS concerning political activity addressed education and registration activities directed toward voters.

The 21 factual situations in the Ruling are grouped into the seven categories listed below. The Ruling states that the IRS evaluates potential violations of the general prohibition based upon the facts and circumstances of each case. If a tax-exempt organization combines one or more types of activities described in the Ruling, the interaction may affect the determination of whether the organization is intervening in a political campaign.

Individual Activity by Organization Leaders

The Ruling confirms that leaders of organizations cannot make partisan comments in official publications or at official functions of the organization. This prohibition is not intended to restrict free expression on political matters by leaders speaking for themselves, as individuals. For example, campaign intervention occurs when a leader endorses a particular candidate in an organization’s newsletter, even if the leader paid for part or all of the cost of the newsletter. However, if a candidate publishes a full-page advertisement in a newspaper that lists supporters, including the leader of a tax-exempt organization who is identified as such, the prohibition against campaign intervention is not violated because the advertisement was not paid for by the organization, the advertisement was not included in an official publication of the organization and the endorsement by the leader was made in a personal capacity.

An endorsement made by a leader of an organization during a press conference at the candidate’s campaign headquarters does not constitute campaign intervention if the endorsement is not made during an official function of the organization, if the endorsement is not included in an official publication of the organization or otherwise uses the organization’s assets and if the leader does not commit to speaking as a representative of the organization. Although the Ruling does not so state, it is apparently not a problem that these activities occur during normal working hours, for which time the leader is paid by the organization.

Candidate Appearances Where Speaking or Participating as a Non-Candidate

The Ruling advises that under certain circumstances, candidates may appear or speak at an organization’s events in a non-candidate capacity. For example, the candidate may be invited to appear or speak because the candidate currently holds public office, is considered an expert in a non-political field or is a celebrity. A candidate may also choose to attend an event that is open to the public; the candidate’s presence, by itself, does not cause the organization to be engaged in a political campaign intervention. However, if the candidate is invited to speak or is publicly recognized by the organization, the following factors are used to demonstrate that the candidate’s appearance results in political campaign intervention:

  • The individual is chosen to speak solely based on status as a candidate for public office.
  • The individual speaks in the capacity of a candidate.
  • Either the individual or any representative of the organization mentions the individual’s candidacy or the election.
  • Campaign activity occurs in connection with the candidate’s attendance.
  • The organization does not maintain a nonpartisan atmosphere on the premises or at the event where the candidate is present.
  • The organization does not clearly indicate the capacity in which the candidate is appearing and mentions the individual’s political candidacy or the upcoming election in the communications announcing the candidate’s attendance at the event.

For example, an organization does not violate the prohibition against political intervention if its leader invites a congressman, who is running for re-election in the district containing the organization, to attend a groundbreaking ceremony for the organization if the leader of the organization and the congressman make no reference to the election or the congressman’s candidacy and do not perform any political campaign fundraising. Likewise, an organization has not intervened in a political campaign if the leader of an organization regularly acknowledges the presence of public officials present during the organization’s meetings and thanks them for attending.

Candidate Appearances

According to the Ruling, whether an organization’s invitation to a political candidate to speak at its events is considered campaign intervention depends on the facts and circumstances of the case. Factors that indicate that an organization participated or intervened in a political campaign include:

  • The organization does not provide an equal opportunity for all candidates seeking the same office to participate.
  • The organization indicates support for or opposition to the candidate.
  • Political fundraising occurs.

The Ruling explains that the nature of the event to which each candidate is invited and the manner of presentation will determine whether candidates are given an equal opportunity to participate in an event. Similarly, providing a fair and impartial forum for candidates is a recognized method of educating the public and is not necessarily a prohibited political activity. However, a forum for candidates operated in a manner that demonstrates a preference for or against a particular candidate amounts to participation or intervention in a political campaign. Factors that indicate that the forum results in a political campaign intervention include:

  • Questions for the candidates are not prepared and presented by an independent nonpartisan panel.
  • The topics discussed by the candidates do not cover a broad range of issues that the candidates would address if elected to the office sought and are of interest to the public.
  • Each candidate is not given an equal opportunity to present his or her view on each of the issues discussed.
  • The candidates are asked to agree or disagree with positions, agendas, platforms or statements of the organization.
  • A moderator comments on the questions or otherwise implies approval or disapproval of the candidates. It is likely that invitations need be extended only to major party candidates, although the Ruling is unclear on this point.

Websites

The Ruling specifies that information posted by an organization to its website is treated the same as if the information was included in printed material or given as an oral statement. Although an organization cannot control the content of a linked website, the Ruling indicates that an organization can reduce its risk of political campaign intervention by monitoring the content on those sites and making adjustments to its links when appropriate. Links to campaign-related material may constitute political campaign intervention depending on all of the facts and circumstances, including the context for the link on the organization’s website, whether all candidate’s are represented, whether an exempt purpose is served by offering the link, and the directness of the links between the organization’s website and the web page that contains material favoring or opposing a candidate for public office.

For instance, if an organization maintains a website that includes biographies of its leaders, the organization has intervened in a political campaign if the website states that one of the leaders is running for public office and encourages people to vote in that candidate’s favor. An organization has not intervened in a campaign if it maintains links to the website of a newspaper that includes an article praising the organization without reference or links to any candidate or election information, even if there are editorials endorsing candidates elsewhere on the newspaper’s website.

Business Activity

According to the Ruling, participation or intervention in a political campaign can also arise in the context of an organization’s business activity, such as selling or renting of mailing lists, leasing of office space or accepting paid political advertising. The following factors indicate that an organization has engaged in political campaign intervention in the context of business activities:

  • The good, service or facility is not available to candidates in the same election on an equal basis.
  • The good, service or facility is available only to candidates and not to the general public.
  • The fees charged to candidates are not at the organization’s customary and usual rates.
  • The activity was conducted only for a particular candidate.

Issue Advocacy vs. Political Campaign Intervention

The Ruling explains that tax-exempt organizations may take positions on public policy issues, including issues that divide candidates in an election for public office. However, organizations may not perform issue advocacy that operates as political campaign intervention by delivering statements that directly or indirectly favor or oppose a candidate. The Ruling further explains that a statement can identify a candidate by stating the candidate’s name, showing a picture of the candidate, referring to political party affiliations, or discussing distinctive features of a candidate’s platform or biography. Although the Ruling indicates that the context of communications is considered before conclusions are drawn, a communication that refers to candidates or voting in a specific upcoming election is more likely to be political campaign intervention. The following factors are used to demonstrate that a communication results in political campaign intervention:

  • The statement identifies one or more candidates for a given public office.
  • The statement expresses approval or disapproval for one or more candidates’ positions and/or actions.
  • The statement is delivered close in time to the election.
  • The statement refers to voting or an election. 
  • The issue addressed in the communication has been raised as an issue distinguishing candidates for a given office.
  • The communication is not part of an ongoing series of communications by the organization on the same issue that are made independent ofthe timing of any election.
  • The timing of the communication and identification of the candidate are related to an electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.

Voter Education, Voter Registration and Get-Out-the-Vote Drives

Finally, the Ruling affirms earlier rulings stating that tax-exempt organizations may conduct certain voter education activities, such as registering voters and organizing get-out-the-vote drives, if these activities are carried out in a non-partisan manner.

While the positions expressed in the Ruling do not depart significantly from the IRS’s previous recommendations in its 2006 fact sheet, the IRS has given exempt organizations a firm roadmap on which they can rely in negotiating these situations. Section 501(c)(3) organizations that have not already done so should consider adopting or amending relevant policies and procedures to incorporate safeguards drawn from the Ruling to avoid inadvertently proceeding in a manner contrary to the Ruling’s examples.

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