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Political Aspects of §501(c)(3) Charitable Organizations
I. A "Charitable" Organization.
A. The term "charitable" is used in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of government; and promotion of social welfare, namely, (i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights; or (iv) to combat community deterioration and juvenile delinquency.
1. Focus of organization's purpose must be to benefit the community or society as a whole, not just the organization's members and their families or other select individuals. Enumerated purposes under §501(c)(3) include: religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.
2. Organizational tests. An organization is organized exclusively for one or more exempt purposes only if its articles of organization:
a. Limit the organization to one or more exempt (charitable) purposes;
b. Do not expressly empower the organization to engage, except to an insubstantial extent, in activities which in themselves are not in furtherance of one or more exempt purposes; and
c. Provide that the organization's assets, upon dissolution, would be distributed for exempt purposes to another §501(c)(3) organization, or to the federal, state or local government for a public purpose.
a. An charity will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more charitable purposes, and all non-charitable purposes are "insubstantial."
b. The primary activity of an organization cannot be to carry on a business in a manner similar to a for profit business. However, charities can engage in a business related to a charitable purpose and earn profits from it.
c. Neither can a charity be operated primarily as "a social club for the benefit, pleasure, or recreation of its members." However, social functions for the benefit of members may be carried out if incidental.
B. Private Foundation Classification.
1. All §501(c)(3) organizations are also classified by the IRS as to private foundation status under §509(a).
a. An organization is either a private foundation or it is a public charity. A charity has the burden of proof to show that it is not a private foundation.
b. Private foundations are subject to a number of special excise taxes on passive income, undistributed income, impermissible expenditures, etc.
c. The chief difference between a public charity and a private foundation is the source of financial support. A private foundation is funded by a small number of private sources, while a public charity is primarily supported by public sources.
2. There are four ways an organization can demonstrate that it is not a private foundation:
a. Traditional charities: churches, schools, certain hospitals and medical research organizations; collegiate support organizations; governmental units; and organizations funded at least 33% from public contributions and government grants.
b. Service providers: organizations receiving more than one-third of their support from contributions and revenues from related business enterprises (not counting revenues from certain major donors).
c. Support organizations: operated to benefit, perform the functions, or carry out the purposes of a separate public charity, and which are controlled by that charity.
d. An organization organized and operated exclusively for testing for public safety.
II. Governmental Activities.
1. A §501(c)(3) organization may not devote a substantial part of its activities for lobbying purposes.
a. Lobbying means carrying on propaganda or otherwise attempting to influence legislation.
b. Lobbying also includes urging individuals to contact their legislators to propose, support, or oppose legislation.
2. If substantial lobbying activities exist, tax exempt status is forfeited. Lobbying activities may be found to be substantial in the ten to twenty percent (10-20%) range of total nonprofit activities.
3. Sec. 501(c)(3) organizations other than churches, church auxiliaries, and certain affiliated organizations are permitted to make a special election under §501(h).
a. For electing organizations, lobbying expenses are limited to between five and twenty percent (5-20%) of their annual budget for exempt expenses.
b. A maximum limit on lobbying expenses of $1,500,000 applies, although an additional twenty-five percent (25%) of this amount is allowed for grass roots expenses.
B. Political Campaigning Activities.
1. A §501(c)(3) organization is absolutely prohibited from engaging in any political campaigning activities whatsoever, or else it will forfeit its tax exempt status.
a. Campaign activity includes participation or intervention in any political campaign on behalf of, or in opposition to, any candidate for public office. A candidate is any contestant for elective office.
b. Political campaign activities relate to individual candidates, whereas lobbying activities relate to social issues and laws.
c. Participation in a campaign includes publishing or distributing statements made either by a candidate or by someone else directed at a candidate.
2. Prohibited Political Activities.
a. The endorsement of candidates.
b. Making donations to a candidate's campaign.
c. Engaging in fund raising on behalf of a candidate.
d. Distributing statements supporting or opposing a political candidate.
e. Becoming involved in any other activities that may be beneficial or detrimental to any candidate.
PART 2 - Political Aspects of §501(c)(4) Social Welfare Organizations