Don’t Get Trumped – By Politics

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The Associated Press recently reported that a nonprofit organization may have tread into dangerous waters when they invited presidential candidate Donald Trump to appear at their fundraising event. Veterans for a Strong America, a section 501(c)(4) social welfare organization that had just lost its tax-exempt status for failure to file annual IRS Form 990s, hosted Trump for a foreign policy speech at their recent event. The organization’s endorsement and financial support may have crossed the line of legally permissible nonprofit activity. This incident demonstrates the importance of knowing what a nonprofit organization may and may not do with respect to political candidates’ event appearances.

Know Who You Are - And What That Means

For federal tax purposes, nonprofit organizations can fall into at least three categories:  section 50(1c)(3) public charities, to which tax-deductible contributions may be made; section 501(c)(4) social welfare organizations; and section 527 “political action committee” organizations, or PACs.

Public charities are absolutely prohibited from “directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office” (although they may engage in limited lobbying regarding legislation). Social welfare organizations, on the other hand, may engage in unlimited lobbying and some political campaign activities. PACs must be exclusively dedicated to political campaign activities.  Although public charities face the most stringent restrictions on political involvement, political activity by social welfare organizations and PACs are still subject to significant reporting requirements and other restrictions.

In Trump’s case, it appears that Veterans for a Strong America may have had Trump appear as part of overall fundraising activity connected to its event, which is legally permissible.  But if the organization solicited funds for Trump’s campaign, then it may have crossed the legal line- particularly if the nonprofit coordinated with Trump’s campaign committee. (And issues are further confused because of the organization’s prior loss of tax-exempt status.)

Know What You May Do – Especially for Section 501(c)(3) Public Charities

As election-season campaigns ramp up, political involvement may seem unavoidable. However, the stakes are especially high for public charities, which can lose their tax-exempt status for any amount of political campaign involvement (as well as more than “substantial” lobbying).  It is imperative for public charities and social welfare organizations to understand the applicable legal limits in order to avoid this risk.

In general terms, political campaign involvement includes endorsement of candidates, contributions to any election campaign, and public statements for or against a candidate.  Consequently, while a public charity representative may mention a candidate’s name or speak of an upcoming election, he or she may not speak in favor or against the candidate or otherwise encourage the listeners to vote for or against a candidate.  In addition, it would be unlawful to make the organization’s charitable resources available to a candidate, except in limited circumstances such as an election debate forum for which all candidates are allowed equal access.

What about inviting a political candidate to speak at a nonprofit fundraiser, as occurred recently with Trump and the veterans’ group?  A public charity may legally do so.  However, careful safeguards should be followed scrupulously to avoid IRS scrutiny and even loss of tax-exempt status.

Before handing over the microphone to a political candidate, the organization’s leadership should address the following areas:

  • The speaker should be chosen to speak for reasons unrelated to his or her candidacy, such as a candidate’s long-time support of the nonprofit.  A nonprofit would be wise to document such reasons and to communicate them to the attendees in the introductory remarks.
  • The candidate may speak only in a non-candidate capacity, with clear and thorough instructions beforehand (preferably both in written form and orally reiterated).
  • No mention of the person’s candidacy or election may be made at the event.
  • No campaign activity whatsoever may occur at the event.
  • The event itself should have an entirely non-partisan tone.
  • Appropriate clarity is evident throughout the event regarding the person’s appearance in his or her non-candidate capacity. (E.g., as an expert on a pertinent topic, as a community leader, or as featuring some other leadership attribute.)
  • Absolutely no fundraising for the candidate should occur!

Would Trump’s appearance have been permissible for a public charity?  Perhaps – but definitely not if the funds raised went to his campaign; any endorsement of him would have been flat-out illegal. A nonprofit seeking to feature a political candidate as a speaker thus needs to (a) clearly understand its applicable legal constraints (based on tax classification), and then (b) make the above restrictions abundantly clear to the candidate/speaker.