With another political season upon us people are organizing to support causes they care about. One means of doing that is to form a so-called social welfare organization, a type of nonprofit that meets the requirements for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code. Unlike most other types of nonprofit, a social welfare organization is allowed to lobby for legislation as its main activity. But the law places sharp limits on a 501(c)(4) organization’s ability to participate in political campaigns.
“Lobbying” is a permitted primary function of social welfare organizations
A social welfare organization’s exclusive purpose needs to be the promotion of social welfare, which is described as operating “primarily to further the common good and general welfare of the people of the community.” Provided that the group’s activities are for this purpose and not in a direct or indirect way simply a method for enriching certain people, its tax exemption should hold. In other words, organizers are free to decide for themselves what they believe is appropriate to promote their community’s general welfare.
A 501(c)(4) organization can be primarily organized to lobby for legislation that would further its social welfare mission. Lobbying can be conducted at any level of government and can include commenting on proposed regulations or drafting model rules. The IRS defines lobbying as contacting or urging the public to contact members or employees of a legislative body for purposes of proposing, supporting, or opposing legislation, or advocating the adoption or rejection of legislation. Note that conducting activities that are educational, such as holding public meetings or preparing and distributing educational literature, is not generally a form of lobbying.
Political campaigns are not “lobbying”
The law treats lobbying for legislative change as a legitimate way to pursue “social good.” But it draws a dotted line at an organization’s efforts to influence partisan political campaigns. The line is dotted because a 501(c)(4) organization is still allowed to do some work in connection with a campaign, but such activities need to be a relatively small part of what it does.
Political activity generally includes efforts to influence the election or appointment of an individual to a public office. The scope of activities that are potentially “political” is quite broad, and include:
- Public endorsement or opposition of a candidate.
- Publishing or distributing literature that promotes or opposes a candidate.
- Contributing money, resources, or staff time to a candidate, a political party, or a political action committee (PAC).
Bear in mind that political activity can be direct or indirect. For example, donating to a nominally nonpolitical group with the clear understanding that the group will use the funds to support a campaign may be considered “political activity” that raises flags.
An organization is still allowed to do some political activity without risking its tax-exempt status. The rules defining how much political activity is “too much” are deliberately vague. The IRS will look at things like how much time or budget is consumed by the activity to evaluate if it is in fact the organization’s primary purpose.
The Church Law Center of California can help
Before embarking on political activity of any scale it’s a good idea to consult with an experienced nonprofit attorney to analyze how political work may affect a nonprofit’s tax treatment. The Church Law Center of California provides guidance to secular, religious, and political nonprofits. Call us today at (949) 689-0437 or reach out to us through our contact page.