This month’s Emerging Leaders Networking lunch featured Jeff Narabrook and David Zeller speaking on the subject of nonprofits and voter engagement. Many 501c3 nonprofit organizations err on the side of caution because they want to guard carefully their right to perform mission-related work as a tax-exempt organization eligible to receive tax-deductible gifts. Either public charities (aka 501(c)(3) nonprofits) do not know that they can or do not know the extent to which they can participate in the political process.
Federal law, as it stands, does not forbid public charities from involvement with government. The problem, as outlined in the book A Voice for Nonprofits, is that 501c3s are not actively engaging in the political process and speaking for their constituents to the extent that they are allowed by law.
So what can a nonprofit do to provide valuable information to the public in an election year without jeopardizing its 501(c)(3) status?
*Disclaimer: I am not an expert, lawyer, or IRS employee (although I consulted and learned from a few to write this post), so please do the proper research before acting on what you read here!
A quick & dirty background: Nonprofits, tax status, and political involvement
All nonprofit organizations recognized by the federal government enjoy a reprieve from paying corporate income tax because of the benefits they provide to the public. There are more than 30 different types of tax-exempt organizations under the current federal tax code, but you likely know and work for 501c3 public charities (see Arnsberger et al for more on the tax code). In the nonprofit sector, it is often highly desirable to be a 501c3 for its one distinct privilege: donors’ contributions are tax-deductible (if donors itemize their taxes).
Because of the intertwined relationship between nonprofits and government (through exemptions and deductions some consider government subsidies), 501c3s face heightened scrutiny over how they spend funds. Nonprofits must carefully account for the activities to which they allocate funds, and mid-size to large nonprofits must report this information to the IRS on the annual Form 990 (e.g., was money spent on delivering programs or on advocating against a ballot measure?).
All types of tax-exempt organizations face different regulations about government involvement. 501c4s, c5s, c6s and 527s are allowed more leeway in political activity and lobbying, but cannot receive tax-deductible donations. The IRS defines nonprofit “political activity” in three ways: political campaign activity, lobbying, and general (or grassroots) advocacy. 501c3s are forbidden to conduct campaign activity, but are allowed to lobby as an unsubstantial activity and conduct unlimited grassroots advocacy with the intent to educate.
Other exempt designations permit differing amounts of each activity, with an increased ability to participate in the political process. Public charities trade the ability to participate actively in government for the ability to receive tax-deductible donations (see the IRS and Minnesota Participation Project resources for more specifics on political activity).
So, why are we even talking about this? What’s the problem?
It appears that most nonprofits, however, are not even close to surpassing legal limits in their attempts to influence politics. Public charities, which are best positioned to represent the interests of under-served minorities, suffer unjustly from heightened public scrutiny and distrust in the age of the Super PACs and other heightened partisan activities. But, as Jeff Narabrook from the Minnesota Council of Nonprofits pointed out at lunch, 501c3s work every day with the constituent groups who are least likely to vote. A politician spends most of his or her campaign efforts trying to persuade already-likely voters to vote for him or her. Nonprofits, who already have direct contact and often trusting relationships with clients, might be able to enable a citizen to vote, when he or she would not have gone to the polls otherwise. 501c3 agencies already serve a vital role in federal, state, and local government, and could serve the public good in an even greater capacity if fear and uncertainty were not stopping many organizations from conducting more political activity.
What can my nonprofit do in this election year?
Remember, 501c3 rules differ from the other types of nonprofits. Here are some Do’s and Don’ts for public charities that we discussed at the ELN lunch:
Your organization is not obligated to get involved in politics in an election year, or at any other time, but our system (and your nonprofit) may benefit from your efforts to engage in the political process.
I want more information. Where should I turn?
The Minnesota Council of Nonprofits’ Minnesota Participation Project can offer guidance and support for your nonprofit’s voter engagement efforts. Check out the next free training, Get-Out-the-Vote: What Works (And What Doesn’t) and Why on September 14, 2012.
If you’d like to read more, here is where to find the resources I consulted:
- Paul Arnsberger, Melissa Ludlum, Margaret Riley, and Mark Stanton. (2008). “A History of the Tax-Exempt Sector: An SOI Perspective.”
- Jeffrey M. Berry and David F. Arons. A Voice for Nonprofits. (2003). The Brookings Institution Press: Washington, D.C.
- Judith Kindell and Justin Lowe. (n.d.). Internal Revenue Service.“Rules for Exempt Organizations During an Election Year.”
- Minnesota Participation Project. (n.d.) “Understanding 501(c)(3) Election Rules.”
- Elizabeth J. Reid. (2006). “Advocacy and the Challenges It Presents for Nonprofits.” Nonprofits and Government: Collaboration and Conflict. The Urban Institute Press: Washington, D.C.
How has your nonprofit organization engaged in the political process? Do you have any resources or advice to share about your experience with this topic?