Using 501(c)(4)s to Navigate Political Activity Within the Nonprofit Realm

Among the entities that are granted tax exempt status under section 501(c) of the Internal Revenue Code of 1986, as revised, (the “Code”), 501(c)(4)s stand out as entities with a unique blend of social advocacy and political engagement. While these organizations are often recognized for their social welfare initiatives, there’s an interesting dimension to their activities that involves political participation. In this blog post, we’ll delve into the fascinating world of 501(c)(4)s, exploring the political activities they can engage in and the impact they can have on shaping public policy.

 

Understanding 501(c)(4) Organizations:

 

501(c)(4) organizations, classified under the Code, are nonprofit entities that primarily focus on promoting social welfare or a local association of employees. To promote social welfare, the organization needs to be a nonprofit that is organized for the promotion of social welfare. Examples of these organizations are the National Rifle Association, the American Civil Liberties Union, and the Sierra Club.  To be a local association of employees, the employees must be limited to a particular municipality and the earnings must be devoted to a charitable, educational, or recreational purpose.  This post will focus on organizations organized to promote social welfare.  Unlike their more well-known counterparts, 501(c)(3) organizations, which are restricted in engaging in political activities, 501(c)(4)s have a bit more leeway in this regard.

 

Political Activities Permissible for 501(c)(4)s:

 

Issue Advocacy:

 

Because 501(c)(4) organizations are social welfare organizations whose purpose may be achieved through legislation.  Thus, 504(c)(4) organizations are permitted to engage in issue advocacy, allowing them to take a stance on various social and political issues. This may involve promoting awareness, educating the public, and advocating for specific policy changes.  As examples of these we see the NRA following the ideology of gun rights; the ACLU focusing on freedom of speech; and the Sierra Club campaigning for the natural world. This said, 501(c)(4) organizations cannot expressly endorse or oppose candidates for public office.  Such a position would go against the nonprofit tenant of getting involved in political activities.  It should also be noted that there may be different taxes that apply to lobbying efforts, please consult with your accountant for specific tax questions.

 

Grassroots Lobbying:

 

These organizations can participate in grassroots lobbying efforts, mobilizing their members and the general public to communicate with lawmakers about specific issues. “Grass roots lobbying is defined as appeals to the general public or segments of the general public to contact legislators or take other specific action as regards legislative matters.[1] A common form of grass roots lobbying seen is the use of a direct mailing campaign. Generally, grass roots communications must include a “call to action” regarding a specific piece of legislation. There are other limitations on grass roots campaigning, some of which are time based. Grass roots lobbying remains a powerful tool for influencing legislation, as long as the 501(c)(4) conforms to the legal requirements.

 

Public Policy Advocacy:

 

501(c)(4) organizations have the flexibility to engage in broader public policy advocacy, influencing the development and implementation of laws and regulations. This can involve research, analysis, and public communication to shape the public discourse around specific policy issues.  With this flexibility there are the following challenges and considerations:

 

Financial Disclosure:

 

While 501(c)(4)s enjoy greater flexibility in their political activities, they must be cautious about financial disclosure.  As any Form 990 filed by a tax-exempt organization is open to public viewing using the tax exempt entity search tool from the IRS.  This means any bias will be widely shown. Also, certain political expenditures may require public reporting, and organizations need to navigate these requirements transparently.

 

Primary Purpose Test:

 

The IRS imposes a “primary purpose” test.  This test states that the primary purpose of a 501(c)(4) organization must be social welfare, not political activity. While engaging in political activities is permissible, it cannot become the organization’s main focus.  If an organization fails this test then it may lose its tax exemption status.

501(c)(4) organizations play a unique role in the nonprofit sector, marrying social welfare objectives with a certain degree of political engagement. As advocates for change, these entities have the potential to shape public opinion and influence legislative outcomes. By understanding the permissible political activities and navigating the associated challenges, 501(c)(4)s can effectively contribute to the betterment of society while exercising their right to participate in the political arena.

This blog is for general information purposes only and should not be relied upon as specific legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. If you have any questions or would like to learn more, please contact us or visit our blog. You might also like to read, 501(c)(3) Political Campaigns and President Trump’s Executive Order.

[1] Hopkins, The Law Off Tax-Exempt Organizations, 10th edition

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