How to Guide Your Nonprofit Through Election Season… With Your Tax-Exempt Status Intact
As the days until the 2020 presidential election tick down, many nonprofit leaders are feeling significant pressure. Some have a desire to speak out on issues of social justice; others are dealing with pressure from major donors. Still others have a desire to support candidates and political parties that value and support their mission. All nonprofits dealing with political issues must consider numerous variables: their mission, their donors, their employees and the population they serve. One of those variables must be avoiding actions that would put the nonprofit’s tax-exempt status at risk.
Nonprofit leaders should be aware of the so-called Johnson Amendment, which is included in 26 U.S.C. § 501(c)(3) and applies to entities that are tax-exempt under section 501(c)(3) of the Internal Revenue Code. The statute provides tax-exempt status for certain entities, provided that the entity “does not 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.” This language was proposed by then-Senator Lyndon Johnson in 1954 during a campaign in which his opponent was receiving significant financial support from tax-exempt entities. The language was included in the final bill signed into law by President Eisenhower and remained in place during future overhauls of the tax code.
It is worth noting that the Johnson Amendment has been in the news as of late. President Trump has repeatedly stated that he “got rid of” the Johnson Amendment, likely a reference to a 2017 executive order related to religious liberty. Despite these statements, legislative efforts to repeal or weaken the Johnson Amendment have failed and the executive order did not “get rid of” the legislation. Since the 2018 mid-term election, efforts to repeal or weaken the Johnson Amendment have gained little traction.
If your nonprofit enjoys tax-exempt status under 501(c)(3), then it is critical that you are aware of and carefully follow the mandates of the Johnson Amendment. Although the prohibitions of the legislation are seldom enforced, certain actions are absolutely prohibited, including:
- Contributions to political campaigns on behalf of the organization.
- Public statements (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office, even if only inferred.
- Voter education or voter registration with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates.
Although these restrictions are clear-cut, the mandate against political activity is not absolute. Nonprofits are allowed to participate in voter education activities, such as sponsoring a public forum or publishing a voter education guide. Similarly, nonprofits often encourage people to participate in the electoral process through voter registration opportunities and “get out the vote” drives. This type of activity is allowable so long as it is conducted in a non-partisan manner and is not “masked candidate advocacy.” For example, compiling and distributing the voting records of legislators is permissible, but nonprofits cannot include editorial commentary suggesting approval or disapproval of votes.
If you’re not sure whether your nonprofit’s political activities run afoul of the Johnson Amendment, consider these factors identified by the IRS:
- Does a communication identify a candidate by name?
- Does a communication approve or disapprove of a candidate’s actions?
- How close is election day?
- Does a communication include explicit references to an election?
- Does a communication involve a wedge issue?
- Does your organization have a history of advocacy on the issue?
- Are there non-electoral reasons for the timing?
- Who is the audience?
It is also critical to keep in mind that the above restrictions involve actions taken by a 501(c)(3) nonprofit in support of or against a candidate for public office. The law does not prohibit a nonprofit or religious leader from making such statements, so long as the advocacy is clearly taking place in the leader’s personal capacity. For example, a nonprofit should not post a Biden or Trump sign in the yard or on the building, but there is nothing prohibiting the nonprofit’s leaders or board members from displaying such a sign at their residence. In addition, nonprofits may speak on political issues that are not tied to a specific candidate. For example, it is permissible for a nonprofit to place a “Black Lives Matter” sign on its building, although it would be inappropriate to include a candidate’s name on or near the sign. Nonprofits should exercise caution if it is difficult or impossible to separate an issue from a specific candidate or political party.