Legal News & Developments for Nonprofits 2017 Issue 1 Direct Action and Civil Disobedience for Exempt Organizations
By: Sarah Fisher
In anticipation of the upcoming presidential inauguration, many nonprofit organizations are
considering more nontraditional approaches to combatting the incoming administration’s agenda
as they plan for the next four years. Direct action will play a role in the strategies of some
organizations that oppose Trump administration policies, particularly in light of Republican
control of both the House of Representatives and the Senate. Marches, sit-ins, and other direct
action activities have already made headlines nationwide as individuals and organizations alike
are searching for ways to oppose the drastic policy changes proposed by the president-elect. Direct action, particularly civil disobedience and other forms of protest that violate the law, carries
legal risks both tax-related and otherwise, but there are guidelines a nonprofit can follow to
reduce (but not eliminate) these risks and still use these tactics to effect change. Of course,
organizations involved in these activities would be wise to consider all potential legal
implications — including criminal and civil consequences — prior to supporting or engaging in
any direct action campaign. As the guidelines discussed below are not intended to address legal
difficulties beyond maintaining tax-exempt status, we strongly encourage organizations to seek
further guidance on legal issues that could arise as a result of involvement in either civil
disobedience or legal protest. 501(c)(3) organizations are permitted to engage in activities that are not considered to further
their exempt purposes so long as those activities do not constitute a “substantial” amount of an
organization’s operations. If non-exempt activities (which may include direct action) make up
more than a “substantial” portion of an organization’s overall activities, it risks losing its
exemption. This benchmark is ambiguous, and it can often be difficult for 501(c)(3)s to determine
the types of activities that should be categorized as non-exempt. Generally, 501(c)(3)s may support vigils, peaceful marches, and similar legal protest activities
that further their exempt purposes. Promoting legal protest activities, recruiting speakers for
events, and producing educational materials for distribution at such events would generally be
considered activities that further an organization’s charitable or educational purposes. Legal
direct action that furthers organizations’ exempt goals would thus not count towards the
“substantial” threshold that limits non-exempt activities. While supporting direct action in violation of the law is not typically cause for immediate
revocation of exemption, 501(c)(3) organizations should exercise caution when engaging in
these activities. The IRS views illegal activity as beyond the scope of 501(c)(3) organizations’
charitable and educational exempt purposes, even if illegal forms of direct action play a powerful
advocacy role in furthering some organizations’ missions. Therefore, 501(c)(3) organizations
should operate under the assumption that any support of direct action in violation of the law
counts towards the “substantial” threshold that limits a 501(c)(3)’s non-exempt activities. If a
501(c)(3) engages in considerable amounts of illegal activity, the organization’s tax exempt status
may be threatened. The IRS would likely consider three factors when determining whether an
organization’s exemption should be revoked on the basis of support for illegal activity: first, the
substantiality of the organization’s illegal activities; second, whether the activities are clearly attributable to the organization; and finally, whether there has been a judicial determination of
illegality in regards to the activities. Substantiality is both a quantitative and qualitative measure. An organization would likely have to
engage in many minor illegal acts—such as trespassing—to lose exemption, whereas a single
instance of serious illegal activity—such as planned violence—would likely outweigh the
organization’s exempt activities. The IRS would also only consider activities that were conducted
under the authority of the organization; the Service generally does not hold nonprofits
responsible for the independent actions of their members, employees, or volunteers. However, if
an organization’s board approves an illegal activity as part of the organization’s operations, or if
an organization encourages its employees to participate in illegal activities conducted by others,
those actions would likely be attributed to the organization. Given the limited amount of IRS guidance on this issue and the risk of exemption revocation, the
safest course of action for an organization considering direct action in violation of the law is to
instead have a related 501(c)(4) (or other non-501(c)(3)) organization conduct such activities.
501(c)(4) organizations are permitted to conduct non-exempt activities so long as they are
secondary to the organization’s social welfare “primary purpose.” Therefore, while 501(c)(4)
organizations must still comply with a limit on non-exempt activities, the “primary purpose”
threshold provides more leeway than the “substantial amount” limit placed on 501(c)(3) entities. However, we realize not all 501(c)(3) organizations have connected 501(c)(4) organizations
capable of supporting these activities. Under these circumstances, an organization desiring the
greatest legal protection may opt not to sponsor illegal direct action itself. If individuals
associated with the organization choose to undertake these activities in their personal capacity,
they should take steps to shield their organizations from potential consequences by distancing
themselves from their 501(c)(3) positions. Participating individuals should make it clear that they
are acting independently, in their personal capacity, and not in any official capacity. They should
also avoid notifying their organizations of their planned activities beforehand, as advance
knowledge could make an activity more likely to be attributed to the organization. In situations where the organization deems the effort to be of particular importance to the
organization’s mission, a 501(c)(3) organization may occasionally be willing to accept a greater
risk that illegal activities will be attributed to the organization. For example, an organization may
feel a need to publicize powerful acts of civil disobedience undertaken by leaders or other staff
or volunteers of the organization. Even here, it is possible to reduce the risks to the
organization. The organization could issue statements about the purpose of the disobedience
and the underlying issues being addressed without explicitly suggesting support for the illegal
acts themselves. The individuals who engage in the illegal activities may identify themselves with
their organizational titles, but could still emphasize their actions were independently motivated
and not directed by the organization. Even if the promotion and statements of support of the
illegal activity are treated as non-exempt purposes attributable to the organization, it may still be
possible to argue that the actual acts of civil disobedience are those of the individuals involved.
Given the possibility of 501(c)(3)-associated individuals participating in direct action in violation of
the law, many nonprofit organizations are wondering if exempt organization funds can be used to
pay legal fees that individuals incur as a result of their involvement. Both 501(c)(3) and 501(c)(4)
organizations should be aware that soliciting donations for and directly paying legal fees or fines
would count towards the “substantial” or “primary purpose” limit on nonexempt activity. Similarly,
encouraging donors to contribute to an independent legal defense fund would fall outside an
organization’s exempt purposes. (It should also be made clear to any donors that contributions to
such an independent fund could not be claimed as a deductible charitable contribution.) Paying
costs incurred by protestors also increases the likelihood that the action will be attributed to the
organization. While it is unlikely these activities would rise to the level of threatening an
organization’s exemption status, 501(c)(3) and 501(c)(4) organizations should be mindful when
deciding to allocate resources to individuals’ legal defense. Direct action is an effective advocacy tool that 501(c)(3) and 501(c)(4) organizations alike are
turning towards in the face of the incoming administration. While an exempt organization can
never fully eliminate the risks of supporting direct action in violation of the law, there are steps an
organization can take when apparent association with or involvement in illegal direct action might
jeopardize the organization’s tax-exempt status. Please contact Harmon, Curran for more information about exempt organizations’ involvement in
direct action activities. This publication is designed to provide accurate and authoritative information about the subject
matter covered. It is not distributed with the intent to render legal, accounting, or other
professional advice. The services of a competent professional should be sought if legal advice or
other expert assistance is required.
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