Summary of Federal Laws
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Miscellaneous Tax Issues
Legislative and Political Activities
In order to maintain their tax-exempt status under 501(c)(3), private colleges and universities must not engage in prohibited political campaign or lobbying activity. Failure to follow these proscriptions could result in loss of tax-exempt status for the institution, or imposition of an excise tax underI.R.C. § 4955. The rules that apply with respect to lobbying activities are set forth atI.R.C. § 501(h) and 26 C.F.R. § 1.501(c)(3).
Tax-exempt organizations cannot provide more than an insubstantial benefit to private parties, including political candidates and organizations. Sanctions are set forth at I.R.C. §§ 4955, 6852, and 7409. Depending on the severity of the offense and how quickly it is corrected, the organization may be subject to either a 10% tax on the amount of the political expenditure or a 100% tax. Organization managers may also be taxed in certain circumstances (i.e., knowing and willful action). The IRS may also seek to enjoin further political expenditures. See Treasury Regulations at 26 C.F.R. §§ 53.4955-1(b)(2) et seq. and 301.6852-1(a) et seq. Under the Omnibus Budget Reconciliation Act of 1993, lobbying costs generally will not be deductible.
A 501(c)(3) organization is prohibited from intervening in political campaigns. This prohibition is absolute. Current tax authority is that it is a risk for a university to endorse any committee or student group that has as one of its purposes the support of a particular candidate. This includes granting official status to the group, funneling student fee money to the group, accepting money on behalf of such a group, or allowing the university to in some way function as a conduit for the group. The regulations (which are sparse on this particular point) are set forth at26 C.F.R. § 1.501(c)(3)-1 and26 C.F.R. § 1.501(h). On July 5, 2000, the IRS released an advisory (IR-2000-47) entitled "Charities May Not Engage In Political Campaign Activities." This advisory is a short but useful summary of the prohibitions on endorsing candidates, donating to campaigns, engaging in fund raising, distributing statements, or becoming involved in any other activities that may be beneficial or detrimental to any candidate. The advisory also summarizes the penalties that a Section 501(c)(3) organization may be subject to for violating the above. The document can be downloaded from www.IRS.gov under the publications section (search for the keyword "charities").
If the activity supports the purpose of the exempt organization, there are instances in which the activity will be forgiven. Suppose, for example, a tax-exempt university supports a student newspaper, and that paper endorses a political candidate. Assume also, as is most often the case, that the newspaper is not subject to extensive control by the university. There will not be a violation of the law, because student newspapers support the educational mission of the university. The same would be true with an elective political science course that requires student participation in a political campaign (as long as the student gets to choose the candidate). See Rev. Rul. 72-512 and 72-513, 1972-2 C.B. 246.
For a summary of the rules surrounding political activities on campus, see Independent Institutions of Higher Education and I.R.C. 501(c)(3): Guidelines for Conducting Political Campaign Activities on Campus, 49 Baylor L. Rev. 129 (1997), written by Gregory Baird. The Code denies tax exemption for organizations that "participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office." Four elements must be met before prohibited activity will be found. The activity must include:
for public office;
a political campaign; and
participation or intervention of the college or university.
Debates and public forums on campus are allowed as long as the university refrains from endorsing, supporting, or opposing a political candidate or party. The university, in this instance, must also comply with Federal Election Committee rules on sponsoring debates or forums. See 11 C.F.R. §§ 110.13(a) and 114.4.
Generic groups such as College Democrats and College Republicans, which do not exist to support a particular candidate, are not a problem as long as guidelines are provided for those groups.
The official IRS statement on this type of activity can be found at 94 Tax Notes Today (TNT) 70-28, April 12, 1994, which contains the full text of the IRS Exempt Organizations CPE Technical Instruction Program Textbook: Chapter N: Election Year Issues.
Part of the text is as follows:
What are the rules relating to colleges and universities?
As IRC 501(c)(3) organizations, colleges and universities are prohibited from participating or intervening in any political campaign on behalf of or in opposition to a candidate for public office. In order to constitute participation or intervention in a political campaign, however, the political activity must be that of the college or university and not the individual activity of its faculty, staff or students. . . . Colleges and universities frequently make facilities available to student groups and others. Whether the provision of facilities to a group for the conduct of political campaign activities will constitute participation or intervention in a political campaign by the college or university will depend upon all the facts and circumstances, including whether the facilities are provided on the same basis that the facilities are provided to other non-political groups and whether the facilities are made available on an equal basis to similar groups.
Proposed Guidance for Tax Exempt Social Welfare Organizations on Candidate Related Political Activities, 78 Fed. Reg. 71535, Nov. 29, 2013
See ACE letter (2-27-14) gelow under resources for summary on how the proposed new rules would restrict civic engagement on campus.
Congressional Research Service Report: Sept. 10, 2103 501(c) (3)s and Campaign Activity: Analysis Under Tax and Campaign Finance Laws by Erika Lunder and L. Paige Whitaker
Political Ads: Issue Advocacy or Campaign Activity Under the Tax Code? by Erika K. Lunder, Congressional Research Service, August 29, 2012: Discussion of when issue advocacy can cross the line into campaign activity.
IRS Memo on Political Activities on the Internet: Dated July 28, 2008 and directed to all Exempt Organization Revenue Agents: This memo addresses the issue of whether or not an exempt org will be deemed to have participated or intervened in a political campaign through its Internet activities. The context for the link on the organization's Web site matters, as does the directness of the links between the section 501(c)(3) organization's Web site and a Web page favoring or opposing a candidate. The number of "clicks" that separate the objectionable material from the section 501(c)(3) organization's Web site -- is a significant consideration.
Charities, Churches and Educational Organizations: Political Campaign Intervention: IRS web page with fact sheet, news release and reports on this topic.
Election Year Activities and the Prohibition on Political Campaign Intervention for Section 501(c)(3) Organizations Feb. 2006 FS-2006-17 The Internal Revenue Service (IRS) is releasing this fact sheet to provide information to help section 501(c)(3) organizations stay in compliance with the federal tax law. Many of the types of political intervention activities addressed in the fact sheet were those that came under scrutiny during the 2004 election cycle. The contents reflect the IRS interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions.
Nonprofit Lobbying and the Law : addresses the 501(h) Election
7-27-16 New Hogan Lovells Memo added
CCR updated CFR links 6/22/15