Memorandum on Tax Laws and Campaign Activities

A version of this memo was sent to a conference president  in response to an inquiry. Because the information in the memo may be useful to others, it is included here in generic form.

Disclaimer: This memorandum provides a summary of general principles for permissible 501(c)(3) activities during an election year. Election-related activities are governed by complex tax and election laws, and a correct legal determination often depends on the specific facts and circumstances of a particular case. Consultation with a lawyer familiar with these issues and with your situation is always important.

September 24, 1998

To: Conference president
College Town, Anystate

From: Director, AAUP Government Relations

You asked about the legal constraints on activities that your state conference might undertake with respect to a campaign for public office. For purposes of this letter, I am assuming that the state AAUP conference has a 501(c)(3) tax status. (That is, the conference is not liable for federal taxes and people who donate money to the conference can claim a charitable tax deduction.) The activities the conference might undertake as a 501(c)(3) organization would be restricted by federal tax law and by federal and state election laws. (I will prepare a separate memo, similar to this one, that sets out the activities that would be permissible for a 501(c)(4) organization under tax and election laws.)

This letter relies heavily on a guide called "The Rules of the Game: An Election Year Legal Guide for Non-Profit Organizations," by Gregory L. Colvin and Lowell Finley. The guide is published by The Alliance for Justice, 11 Dupont Circle NW #200 Washington, DC 20036-1206 (e-mail afj@afj.org), and can be ordered for $30.

A. Tax laws.

1. If a charitable organization (the generic term for an organization with 501(c)(3) status) gives money to another group to support an activity, it is just the same as if the charitable organization had done the activity itself.
2. Charitable organizations cannot participate in campaigns for public office. They cannot support or oppose candidates for public offices or incumbents in those offices or undertake activities to help or hinder, explicitly or implicitly, the campaigns of candidates or incumbents.
3. Charitable organizations cannot form PACs or give money to PACs that support or oppose candidates for public office.
4. Unlike the rules about lobbying, the rules about participation in political campaigns do not allow for even a "little bit" of participation. The tax law definitions of "candidate" and "public office" are very broad; much broader than the more technical definitions in federal election laws.

The IRS can enforce these restrictions in at least two ways:

1. By taking away the tax-exempt status of the charitable organization, permanently or temporarily, and/or
2. By fining (taxing) the organization and/or its officers and board members individually. (Sec. 4955)

B. Federal election laws.

In almost all cases, the IRS "election prohibition" for 501(c)(3)s means that the Federal Election Campaign Act (FECA) never comes into play. FECA governs specific actions of other non-profit corporations (such as 501(c)(4)s) that are permitted to engage, to a limited degree, in certain kinds of political campaign activities.

C. What a 501(c)(3) can do in relation to an election.

1. Keep it general. Charitable organizations are allowed to use the electoral season to draw public attention to their issues. This is called "issue advocacy." Educational pieces about the importance of higher education in your state, or the importance of supporting a full-time professoriate, for example, would be fine. However, if the piece refers to the upcoming election, and gives some kind of clue as to which of the candidates would best carry out the concerns of the sponsoring group, then the piece may become "political intervention" and would be considered a violation of the group’s tax exempt status.
2. Continue lobbying. If a charitable organization has been engaging in some lobbying all year long, and has been communicating with the public about the votes and actions of legislators all along, the organization does not need to stop that activity completely, simply because an election is coming up. The group may continue to criticize or praise legislators, including incumbents, for their votes and activities in the legislature. The group may not, however, increase the level of criticism, devote one whole issue of a newsletter to an incumbent’s bad (or good) record, or provide for a significantly wider distribution of the newsletter around the time of the election.
   
   A note of caution here: The circumstances surrounding your lobbying and communications could change their character from permissible reporting to impermissible endorsement of a candidate. For example, if you have been lobbying for higher education, and one of the candidates has become "the higher education candidate," your continued public communications about that candidate's record on higher education could be construed by the IRS as an endorsement of that candidate.
3. Sponsor candidate forums and debates. Just be sure that nothing about the event indicates the organization’s support for or opposition to a candidate. All the candidates should be given an equal opportunity to appear (not necessarily at the same event.) No fundraising should be permitted. An independent panel should prepare the questions for a debate (so that they do not favor one candidate over another.) The debate/forum should address a range of issues, including, but not limited to those of particular interest to the sponsoring group. (This is a wonderful time to cosponsor an event with other groups that have compatible but different issue interests.)
4. Sponsor voter registration and get-out-the-vote drives. Just be sure that nothing in the design or implementation of the drive indicates support for or opposition to a candidate or a political party. You can target certain populations, e.g. students, but you can’t target people according to their party, the way their precinct voted in the last election, or their district.
   
   Issue advocacy is OK for 501(c)(3)s, and voter registration drives are OK. But when combined, they can cross the line into "political intervention." The IRS looks at the language of your materials, the groups you targeted, your purposes as reflected in correspondence and in the minutes of board meetings, the timing of the campaign and other circumstances. Under this test, a message like "Vote Green -- Register Here" may be unacceptable, while a more neutral message such as "The future of higher education in this state will be decided next November. Register to vote now" might be acceptable.
5.  Distribute legislative score cards. If a charitable organization has been informing its members every year about how legislators vote on issues of interest to the organization, it may continue to do so in an election year. But the organization may not start such a project or increase the distribution of the report in an election year.
   
   Under federal election law, non-profit organizations that are not c(3s) may distribute a voter guide, which is a side-by-side comparison of candidates on issues. It should be prepared independently of a candidate or his or her campaign, and the expenditures must be disclosed under federal election laws.
   
   But a 501(c)(3) cannot prepare such a voter guide. It can publish a legislative score card, as described above and in #2.
6.  Develop a candidate questionnaire. A 501(c)(3) can distribute a questionnaire to all viable candidates, soliciting their views on a wide range of topics. The group can then publish the responses, without editorial comment or "scoring," using the candidates’ own words. All candidates have to be presented in an even-handed manner (same kind of placement in the publication, same length of article, same kind of headline.) Candidates’ answers to questionnaires with yes/no or multiple choice responses can also be published.
7. Set up a separate organization. This wonderful reminder is in "Rules of the Game": "You have a constitutional right to engage in political activities, but not through a 501(c)(3) organization." So, many 501(c)(3)s decide to set up a separate affiliate under the rules that govern 501(c)(4)s.

What do you lose? Like 501(c)(3)s, (c)(4)s are not required to pay income taxes on their charitable income. But unlike (c)(3)s, (c)(4)s may not receive tax-deductible contributions. In other words, people who contribute to the organization may not take a charitable tax deduction for their contributions. Also, (c)(4) status may limit the organization’s ability to garner grant and foundation funding.

What do you gain? If the organization wants to engage in some candidate-related political activity, the rules governing (c)(4)s are much more amenable to such activities. Setting up a (c)(4) is a little complicated, but not impossibly so. There are a variety of ways to structure the two organizations to ensure that tax-deductible contributions to the (c)(3) are not used to pay for ineligible activities of the (c)(4).

A 501(c)(4) can engage in unlimited lobbying. It can engage in unlimited support or opposition ballot measures. It can support or oppose candidates, as long as this activity is not its primary purpose. It can set up (sponsor) a PAC -- as long as the PAC is clearly separate from the (c)(4)'s affiliated (c)(3). The (c)(4)'s political activities (referring to elections of candidates to public office) must not be the primary purpose of the (c)(4). In other words, don’t organize a (c)(4) just for the purpose of sponsoring a PAC.

Words to the wise...

First, be sure to check your state election and tax laws. In some states, federal laws permit activities that state laws forbid, or state laws require different kinds of reporting.

Second, once you settle on an activity or collections of activities that would be legal for the conference to undertake, send a letter accompanying any contribution you might make for these purposes. The letter should outline your understanding as to how the funds will be used, and how they will not be used. For example, you might say:

"We are sending a contribution of xxx for the voter education campaign that we have been discussing at recent meetings. Consistent with federal law, we understand that none of our contribution will be used to advocate on behalf of (or in opposition to) any candidate or political party, and that the voter education campaign will be part of our continuing efforts to hold members of the state legislature accountable to the public for their actions on education issues. We understand that no part of our contribution will be given to any candidate or any candidate’s campaign, or to any PAC..."