Introduction
The prohibition against tax-exempt nonprofit electioneering concerns candidates who are running for public office. This means that the ban itself does not speak to navigating “issues” (ballots) but is directed at those running for public office. Ballot measures are handled by IRS lobbying tests. The difference in how these two aspects of political activity are outlined below.
Candidates Running For Public Office – Representative Democracy
The Section 501(c)(3) prohibition applies directly here. Nonprofits are expected to maintain complete neutrality with regard to candidate campaigns, elections for candidates, and any other activity connected to political candidates.
A helpful way to think about this is to apply the idea of Representative Democracy:
- When citizens elect individuals to represent them; for example, on a public decision-making body, such as a school board, city council, state legislature, or Congress.
Ballot Measures – Direct Democracy
Lobbying as a nonprofit is legal so long as the organization does not spend a “substantial” amount of their activities lobbying. In 1934, Congress enacted a statute 26 U.S.C. § 501(c)(3) which outlines the specifics of tax-exempt nonprofits. In this statute, it specifies that “no substantial part of the activities of” the nonprofit organization is for “carrying on propaganda, or otherwise attempting, to influence legislation….”. The “substantial” piece was not clearly defined and as a result, nonprofits shied away from lobbying on ballot measures.
To answer this lack of clarity, in 1976 Congress established 26 U.S.C. § 501(h). This statute allows nonprofits to take the 501(h) election which has clearly defined financial amounts that can be used to test how much lobbying a nonprofit does. By opting to take this election, nonprofits can set internal guidelines to know how much can be spent on lobbying efforts.
A helpful way to think about this is to apply the idea of Direct Democracy:
- When citizens make laws directly by voting on issues, such as whether to approve or reject proposed initiatives or referenda or amendments to a state constitution.
Drawing The Line
The prohibition applies to activities that are categorized as Representative Democracy.
Lobbying limits apply to activities that are categorized as Direct Democracy.