Spring 2012 issue of Horizons

How Politics Can Affect Your Not-For-Profit By Jim Ritts, CPA

local paper, listing the name of the hospital President and several other prominent healthcare officials in the area. The individuals’ employers and their positions are listed in the ad, along with a statement that indicates that the titles and affiliations of the individuals are listed for identification purposes only. In this case, since the ad was not paid for by the hospital, and it was not listed in an official publication of the hospital, the IRS concluded that the endorsement was made by the hospital President as an individual and therefore the hospital did not intervene in a political campaign. RubinBrown recommends that not-for- profit entities, especially Section 501(c) (3) organizations, carefully analyze any activities that might be considered intervening or participating in a political campaign. If the only time a not-for-profit engages in an activity is close in time to an election, it might be political. When an event is conducted in a manner that tends to benefit one candidate over another, it might be political. The IRS does investigate organizations, particularly if they receive complaints from the public. So, even the appearance of political activity could result in the not- for-profit bearing costs of an IRS exam. We have only addressed a few of the federal tax aspects of political activity. There are numerous state and federal rules that may also require the attention of a not-for-profit.

This can be a very subjective determination, and different people may come to different conclusions concerning the same activity. Due to the subjective nature of these determinations, there is little authoritative guidance for Section 501(c)(3) organizations to rely on. However, the Internal Revenue Service (IRS) has issued a ruling (Revenue Ruling 2007-41) that contains 21 hypothetical fact situations and the IRS’s determination of whether the organization would be considered to have been participating or intervening in a political campaign. Two of these examples are summarized below: • The incumbent and a challenger are running for a seat in a state legislature. The candidates take different positions concerning various environmental issues. A Section 501(c)(3) environmental educational organization supports the positions of the challenger. The organization sponsors a phone bank to call registered voters in the district. The calls made first provide information on the importance of environmental issues, then solicit the voter’s views on the issues. If the voter appears to agree with the incumbent’s positions, the call is ended. If the voter appears to agree with the challenger, the organization stresses the importance of voting in the election and offers to provide transportation to the polls. In this situation, the IRS concluded that the organization was engaged in a political campaign. • In another example, the President

In addition to our U.S. presidential election, 2012 brings many state and local election campaigns. Many of these races could have a significant impact on not-for-profit organizations and/or their missions; however, the Internal Revenue Code prohibits or limits the political activities that can be performed by not-for-profit entities, and, in particular, Section 501(c) (3) organizations. Political activity costs of several types of not-for-profit organizations (e.g. Section 501(c)(4) Civic Leagues and Social Welfare Organizations and Section 501(c) (6) Business Leagues) must be reported to membership or the organization will be subject to taxes on political expenditures. The activities of some not-for-profit entities might subject them to disclosures under Campaign Finance legislation. Section 501(c)(3) organizations, however, are prohibited from participating or intervening in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to a candidate for public office. Ignoring this prohibition could result in the loss of the organization’s tax exempt status. The prohibition does not encompass all activity related to elections. Section 501(c)(3) organizations can participate in or sponsor voter education events. They can also engage in insubstantial amounts of lobbying activity, as long as the lobbying does not involve participating or intervening in a political campaign. In planning activities, especially in a major election year, Section 501(c) (3) organizations must consider whether an activity constitutes permissible voter education or lobbying versus whether the activity constitutes becoming involved in a political campaign.

of a Section 501(c)(3) hospital is well known in the community. A candidate for local office takes out and pays for an advertisement in a

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