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Cryptocurrency, Crooks, Clawbacks ... and Charities
08.29.2024 | Linda J. Rosenthal, JD
As part of our series on some of the dicier aspects of the political campaign intervention ban in section 501(c)(3), we’ve used Revenue Ruling 2007-41 as a guide.
In Part 1 and Part 2 of this series, we reviewed certain categories of activities that are outside the scope of the politics ban; that is, (1) voter-registration and “get-out-the-vote” drives (conducted in a neutral, nonpartisan manner); and (2) candidate participation in nonpartisan forums or voter-education events. We used examples primarily from IRS Revenue Ruling 2007-41.
In Part 3, we discussed the “dicier situations that can arise by a candidate attendance at events where the person’s candidacy is not mentioned or is irrelevant, or a candidate’s attendance at 501(c)(3)-sponsored events that are open to the public.” In Part 4, we covered the distinction between “advocacy” and “political campaign intervention.”
Here, in Part 5, we consider “whether an activity constitutes participation or intervention in a political campaign” in connection with a “business activity” of a 501(c)(3), “such as selling or renting of mailing lists, the leasing of office space, or the acceptance of paid political advertising.”
Section 501(c)(3) of the Internal Revenue Code is the definitional section that describes which entities are eligible for this highly favorable category of tax exemption. It is brief; just 132 words.
The politics ban is the final phrase, here bolded: “Corporations, and any community chest, fund, or foundation, organized and operated exclusively for […exempt…] purposes … no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. (emph. added)”
The section in Revenue Ruling 2007-41 that deals with “Business Activity” includes an explanation of “some of the factors to be considered in determining whether the organization has engaged in political campaign intervention.” They “include the following:
Two hypotheticals illustrate the application of these factors:
Situation 17 gets a “thumbs-up” from the Internal Revenue Service, while Situation 18, below, gets a “thumbs-down.”
While business activities may not ordinarily be considered a form of political campaign activity, in certain circumstances, it can spell trouble for the sponsoring 501(c)(3) organization.
— Linda J. Rosenthal, J.D., FPLG Information & Research Director