A Cautionary Tale for Charitable Organizations

In this highly anticipated Michigan election season, with the state's economy still showing no real signs of improvement and almost all the Legislature and governor's seat up for election, it will be wise for charitable organizations to be careful. Intentionally or not, every election season there are charities that jeopardize their very existence by becoming involved in political campaigns. This article is designed to be a brief lesson in what is and isn't acceptable, so that your charity can stay on the right side of the law.

As an example, let's use the 64th district primary race for House of Representatives between Republicans Jane Grover and Earl Poleski. Looking at their campaign websites, we see that Grover is on the board of the Michigan Shakespeare Festival, and Poleski is on the board of the Jackson Symphony Orchestra. If either organization were to "reward" their valued board member by, say, posting something on the organization's website endorsing their board member as the preferred candidate, that organization would be putting its Federal tax-exempt status at risk. This is because Congress included in Section 501(c)(3) of the Internal Revenue Code a prohibition against a charitable organization participating or intervening in any political campaign on behalf of or in opposition to any candidate for public office. Further, the IRS, in Revenue Ruling 2007-41, has held that an endorsement message on an organization's website is participation in a campaign that would cause the organization to lose its tax-exempt status.

This prohibition extends to organizations that are not even directly connected to the candidate. For instance, Willis & Jurasek recently had an organization ask if it could organize some of its volunteers to go door-to-door on behalf of one of the above candidates. The answer was that the organization would potentially lose its tax-exempt status by involving itself in the campaign in that way, even though the candidate has nothing to do with that organization directly.

Even churches, which don't have to play by the same rules as most non-profits (no requirement to even apply for tax-exempt status or file Form 990), are subject to the prohibition against political campaign involvement. Let's say Reverend Ed Ross at First United Methodist Church were to speak from the pulpit in support of long-time parishioner Earl Poleski. This would be a violation of IRC Section 501(c)(3) and would be grounds for the church losing its tax-exempt status. A pastor may think he or she is safe doing this because they are "preaching to the choir" in support of a fellow member of the church. Not that the threat of being caught is what should compel a person to follow the law, but you never know who may be in the audience. True, maybe Poleski is a long-time member of the church, but maybe another member is a relative or neighbor of Grover, and takes offense. Or maybe there is an IRS agent in the congregation; there is a Jackson IRS office, after all.

In addition to the possible loss of tax-exempt status, there are excise taxes imposed on the organization and personally on any responsible officials within the organization if political campaign activity occurs. The tax is equal to at least 10% of the amount expended by the organization on the political campaign.

So, what if, after all the threat of sanctions against charitable organizations for political campaign activity, you are involved in an organization that absolutely wants to get involved in the political process? Through a combination of an IRC Section 501(c)(4) social welfare organization and a Section 527 political action committee, your charity can more safely get involved in the political process.

If you would like more information about this issue, or if you worry that your favorite charity or church may have already violated these laws, please contact us to discuss the particulars of your situation so that you can be on solid footing during this election season.