In the last few years there has been a lot of news coverage about IRS investigations into churches and charities regarding their political activities. One local church, Pasadena’s All Saints Episcopal Church, is actively resisting IRS subpoenas regarding an anti-war/anti-Bush sermon given just a few days before the 2004 Presidential election. These recent occurrences demonstrate just how important it is for Mosques and other non-profits to ensure that their political activities are within the limits of U.S. Tax Law, an issue this article addresses.
The most common form of organization for Mosques and other non-profits is called a 501(c)(3), after the section of the tax law that grants their tax exempt status. Donations made to these groups, unlike those made to politicians or political groups, are deductible by the donor. Because donors to 501(c)(3)s are able to deduct their contribution, the organization is forbidden from “substantially” engaging in lobbying and absolutely prohibited from participating in any political campaign.
The difference between lobbying and a political campaign is that lobbying is an attempt to influence legislation and a political campaign elects a specific person to a governmental position. Here in California we have referendums or propositions, which are laws voted on by the public. These are considered legislation by the IRS and a 501(c)(3) can attempt to influence the outcome, as long as their efforts are not “substantial.”
Unfortunately, the definition of “substantial” can be unclear. The IRS will examine the time devoted by staff & volunteers and the expenditures made in support of legislation. It is within the discretion of the IRS, however, to determine whether the contributions and efforts of the group were substantial.
Charities, other than religious institutions, can elect to use the expenditure test under IRC 501(h). This allows them to avoid the subjective IRS test and instead rely on their actual expenditures. The organization would then be allowed to expend up to 20% of the first $500,000 spent in a given year, with the allowable percentage decreasing up to a total of $1,000,000 spent on legislative campaigns. Though this does create some additional paperwork for the charities, because it lets charities know exactly how much they can spend, it might be wise for non-profits with substantial legislative activities to consider.
The prohibition against non-profit involvement in political campaigns, those in which a person is elected, is much stricter. Non-profits are completely prohibited from participating in these campaigns. Of course Mosques and charities can participate in election activities, such as voter registration drives or candidate forums, but they are absolutely prohibited from supporting any candidate.
If a non-profit does wish to hold a candidate forum, they need to ensure that all candidates are the opportunity to speak at the same or similar events, that no one from the organization expresses direct support of any candidate, and that no fundraising occurs. Alternately, candidates can speak at non-profits as non-candidates, i.e. because of their position in the community, current elected office, or other reason. In these situations, however, both the candidate and representatives of the non-profit are forbidden from mentioning the election and that the speaker is running for office.
Obviously, the regulation of non-profits can be complex. Hopefully this article has helped some community leaders understand exactly what Mosques and charities can and cannot do in connection with politics. If any detailed questions arise, the IRS website has good resources, or you can consult with a qualified attorney.
Originally published in InFocus Newspaper