The Chicago-area Northwest Herald recently ran an article highlighting the problems that 501(c)(3) organizations face if they become involved in political advocacy. The subject of the article, a charitable organization that delivers services to young adults with substance abuse problems, has come under scrutiny due to allegations of illegal politicking. According to the article, the public charity actively promoted political candidates on its Facebook page.
The article cites Ryan Oberly, one of the partners at Wagenmaker & Oberly, to explain the rule: “There is an absolute prohibition on intervening in political campaigns, such as activities for or against a particular candidate. It goes way beyond funding a candidate.” Indeed, any activity intended to influence a political campaign is strictly off-limits for 501c3 organizations. Because violations of this prohibition may result in significant penalties, not only for the organization but also for officers and directors, nonprofit leaders need to be aware of the limitations imposed on their exempt organizations.
The challenge facing many nonprofit groups is that the overlap between beliefs and politics is a very natural one. Nonprofit leaders who seek to promote their mission through politics, without getting into hot water, thus may want to consider forming a 501(c)(4) social welfare organization.
Section 501(c)(4) organizations have much greater latitude to engage in political activity, particularly lobbying. Unlike contributions made to 501(c)(3) organizations, however, contributions to 501(c)(4) organizations are not tax-deductible. Many of our clients are 501(c)(3) entities, which maximize use of tax-deductible contributions for their tax-exempt activities. These organizations’ leaders then develop 501(c)(4) entities to operate more as “action” organizations, engaging in lobbying and other political activities to promote their religious, educational, or charitable agendas. Through joint management agreements providing for allocation of employees, office equipment, and other resources, the two types of organizations can responsibly and efficiently operate in tandem.