GRANT THORNTON
Political and lobbying activities by
not-for-profit organizations in an election year
The do’s and don’ts to protect your
tax-exempt status
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Original Publication Date: September 22, 2016
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© 2016 Grant Thornton LLP. All rights reserved.
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Presenters
Frank Giardini
Principal
Not-for-Profit and
Higher Education Practices
Mary Torretta
Senior Manager
Not-for-Profit and
Higher Education Practices
© 2016 Grant Thornton LLP. All rights reserved.
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Learning objectives
• Identify the IRS’ requirements on
lobbying and political activities by
tax-exempt organizations
• Express the types of transactions and
activities that could give rise to possible
tax exposure
• Explain the tax reporting obligations on
nonprofit organizations related to their
lobbying and political activities
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Agenda
• The general rules
• Section 501(c)(3) rules
• Sections 501(c)(4),(5) and (6) rules
• Association PACs
• Form 990 reporting
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The general rules
What is the tax landscape for political and lobbying activities
in a tax-exempt environment?
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The general rules
Lobbying: all activities intended to influence foreign, national, state or local legislation
• Actions by Congress, state and local legislatures
• Includes acts, bills, resolutions or similar
• Includes action by the public in referenda, ballot initiatives, constitutional amendments
or similar
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The general rules
• Lobbying does not include actions to be taken by executive, judicial or administrative
bodies
• Lobbying can be direct or indirect
• Direct – attempt to influence the legislators
• Indirect/"grassroots" – attempt to influence the public (which influences
legislators)
© 2016 Grant Thornton LLP. All rights reserved. 10
The general rules
Political campaign activities: all activities that support or oppose candidates for elective
federal, state or local public office
• Does not matter if they win
• Does not include voter registration or voter education as long as neutral in support
or opposition
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The general rules
Who cannot make political contributions?
• Corporations
• Foreign nationals
• Reimbursements
• Government contractors
Citizens United: Section 501(c)(4) organizations get a boost
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The general rules
Section 501(c)(3) public
charities and foundations
Sections 501(c)(4) and 501(c)(6)
associations
Political activity?
• None
(completely prohibited)
• Not primary purpose
• May contribute to candidates
(if allowed under state law)
• PACs
Lobbying activity?
• Not a "substantial part" of
total activities
• Issue advocacy allowed,
if not lobbying
• Unlimited lobbying and issue
advocacy
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Section 501(c)(3) organizations
Rules for public charities and private foundations
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Section 501(c)(3) organizations
Prohibition on all political campaign activities
• No endorsements
• No contributions
• No communications in support of or opposition to candidates
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Section 501(c)(3) organizations
Not including "issue advocacy"
Lobbying activities
• "Not a substantial part" test
• Undefined as to how much
• Issues with measurement — not just expenses
• Includes lobbyists paid for appropriations
Opportunity for 501(h) election by filling out Form 5768
• Most section 501(c)(3) organizations are eligible, but not churches or private foundations
• Revocable
• Minimum downside
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Section 501(c)(3) organizations
Educate on the issues
• Educate the candidates
• Candidate questionnaires
• Be careful to avoid endorsements
• Fairness
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Section 501(c)(3): Opportunities
Voter registration drives
• Nonpartisan
• Don't target a particular population that favors one candidate
• Civic obligation-minded
Avoid the appearance of endorsements by keeping it "fair and balanced"
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Section 501(c)(3): Opportunities
Invite the candidate to functions
• Invite all candidates
• Same opportunity
• Appearance of neutrality
Be careful: What is the positive of this for constituents and mission?
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Section 501(c)(3): Caveats
Instruct your leadership (officers and directors)
• "No speaking on behalf of organization"
• Hold events held off-campus
• Monitor your publications and communications
• Monitor your website
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Sections 501(c)(4), (5) and (6) organizations
Rules for associations
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Sections 501(c)(4),(5) (6) Organizations
Politics and lobbying cannot be "primary activity" of the organization
• 49/51 is too close
• Give a margin of safety
Other legal restrictions regarding expenditures (not contributions) and state limits on
amount of money
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Section 501(c)(4) specifics
Internal Revenue Bulletin 2013-52 (Dec. 23, 2013)
• Attempted to provide examples of "candidate-related political activity" (new phrase)
• Instead of facts and circumstances analysis
• Tries to tie in the IRS rules more closely to Federal Election Campaign Act rules
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Section 501(c)(4) specifics
Internal Revenue Bulletin 2013-52 (Dec. 23, 2013)
• Includes per se (direct and indirect contributions, communications that expressly
advocate)
• Activities that occur close in time and have greater potential to affect an election
("electioneering activities")
• Stricter than "facts and circumstances" test
• Determined based on its activities (even low-cost/volunteer activities), not just
expenditures
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Sections 501(c)(4) specifics
"Electioneering" activities
• Public communications (mass media intended to reach at least 500 people)
• Occurs within 60 days of a general election or within 30 days of a primary election
and identifies a candidate or political party.
• Intent to be neutral or an issue advocacy does not matter
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Segregated funds (PACs)
Rules for segregated funds of associations
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Segregated funds (PACs)
•
•
•
•
•
Discussing only IRC 527(f)(3) segregated funds today
PAC = political action committee
Regulated by the Federal Election Commission (FEC) and state law
Unlimited political activity (but other activities prohibited)
Lots and lots and lots of reporting requirements
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Segregated funds (PACs)
How to form a segregated fund PAC
• Choose a name, treasurer, governance, etc.
• Three steps
• Board approves the formation of segregated fund within the entity
• Open a bank account: interest vs. noninterest
• File FEC Form 1 within 10 days of formation
• Now you're ready to fundraise
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Segregated funds (PACs)
Restrictions on the bank account
• Do not intermix with association funds
• Must be opened with a contribution (not money from the association)
The association may pay the administrative expenses of the PAC
The association must make deposits timely
FEC reports must be made regularly
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Segregated funds (PACs)
PACs may receive a "voluntary contribution" of up to $5,000 per year
• Can solicit only from its restricted class (management-level employees and their
families; individual members), but not union-represented individuals
• Advance consent is required if members of the association are companies and only
one consent given per year
• Cannot solicit from other PACs (but can receive voluntary contributions)
Federal expenditure limits (know your state, too)
• First 6 months: $2,500 per election
• Later: $5,000 per election
• $5,000 to other PACs or political party
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Opportunities for tax planning
Too much lobbying?
• Think about a section 501(c)(4) entity
Too much political activity?
• Think about a PAC
Try to project a
few years out to
give time to plan
your structure
Can you collapse your current structure?
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Form 990 reporting
Schedule C for political and lobbying activities
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Form 990 – Political activities
What to complete?
• 501(c)(3): Parts I-A and I-B
• 501(c)(Other): Parts I-A and I-C
• 527 Orgs: Part I-A only
Try to project a
few years out, to
give time to plan
your structure
accordingly
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Form 990 – Lobbying, 501(c)(3)
Section 501(c)(3) organizations:
• Part II-A if IRC 501(h) election made and in effect
• Required even if no lobbying activities that year
• Special rules for affiliated groups (if other organizations have
decision-making power)
• Purpose is to calculate "excess lobbying expenditures"
• Part II-B if IRC 501(h) election not made
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Form 990 – Political/lobbying activities for
non-section 501(c)(3) organizations
IRC Section 6033: Member notification and proxy tax
Part IIIA
• Q1: 90% of member dues not deductible as a business expense (if "no," see if Q2 is also "no")
• Q2: In-house lobbying expenditures of $2,000 or less
• Q3: Agree to carry over expenditures from prior year (if "yes," Part III-B required)
© 2016 Grant Thornton LLP. All rights reserved. 35
Form 990 – Political/lobbying activities for
non-section 501(c)(3) organizations
Try to project a
few years out, to
give time to plan
your structure
accordingly
Calculates whether proxy tax due
• Note: Associations can always choose to pay the proxy tax
Based on notice sent to members, total member dues revenue and lobbying expenditures made
Opportunity to carry forward an excess and true-up in future (one year for sure, not certain about longer)
© 2016 Grant Thornton LLP. All rights reserved. 36
Form 990 –Political/Lobbying for Non
Section 501(c)(3) Organizations
Try to project a
few years out, to
give time to plan
IRC 6033: Member notification and Proxy Tax
your structure
Part IIIA
accordingly
• Q1: 90% of member dues NOT deductible as a business expense
(if "no", see if Q2
is also "no")
• Q2: In-house lobbying expenditures of $2,000 or less
• Q3: Agree to carryover expenditures from prior year (if "yes", Part III-B required)
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Questions?
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Contact information
Frank Giardini
Principal
Not-for-Profit and
Higher Education Practices
+1 215 656 3060
[email protected]
Mary Torretta
Senior Manager
Not-for-Profit and
Higher Education Practices
+1 703 847 7659
[email protected]
© 2016 Grant Thornton LLP. All rights reserved. 39
Disclaimer
This Grant Thornton LLP presentation is not a comprehensive analysis of the subject
matters covered and may include proposed guidance that is subject to change before it
is issued in final form. All relevant facts and circumstances, including the pertinent
authoritative literature, need to be considered to arrive at conclusions that comply with
matters addressed in this presentation. The views and interpretations expressed in the
presentation are those of the presenters and the presentation is not intended to provide
accounting or other advice or guidance with respect to the matters covered.
For additional information on matters covered in this presentation, contact your
Grant Thornton LLP adviser.
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