Avoid Election-Year Pitfalls

With the 2016 election approaching, nonprofit organizations wishing to become involved in the political process must conduct their political activities carefully to avoid running afoul of federal tax law. The rules differ for Section 501(c)(3) and Section 501(c)(6) organizations.

Section 501(c)(3) organizations are prohibited from engaging in political campaign intervention, including any direct or indirect activities that support or oppose any candidate. Penalties for violations include the imposition of excise taxes or loss of tax-exempt status. However, 501(c)(3) organizations may conduct certain nonpartisan activities in accordance with IRS guidance, including:

• get-out-the-vote and voter registration drives without bias for a particular candidate or party
• preparation and distribution of nonpartisan voter education materials, such as legislative scorecards and candidate surveys, to help voters compare candidates’ positions on a broad range of issues
• sponsorship of candidate debates and appearances, provided that the organization permits equal participation by all candidates seeking the same office and prohibits political fundraising
• advocacy on policy issues of interest to the organization without mentioning specific candidates.

Section 501(c)(6) organizations are permitted to endorse federal or state candidates for public office and may expressly advocate for or against specific candidates. These organizations may also:

• produce voter guides that contain express advocacy for particular candidates
• conduct partisan voter registration drives
• fund independent expenditures to support or oppose federal candidates, including television and radio commercials and other public outreach. However, these expenditures are subject to tax and must be reported on the association’s Form 990.

All association expenses related to political campaigns must be counted as lobbying for purposes of the federal lobbying tax law, under which membership dues paid to 501(c)(6) associations must be treated as nondeductible business expenses to the extent of the organization’s lobbying and political activity.

In addition to federal tax laws, political activities must comply with applicable federal or state campaign finance laws, many of which prohibit or limit the coordination of a corporation’s political activities with a candidate or political party. Nonprofit organizations should seek the advice of counsel to ensure that proposed political activity complies with all applicable laws.

[This article was originally published in the Associations Now print edition, titled “Play by the Rules.”]