Nonprofits and Political Activities

Today, according to NPR (and many other outlets), “more than 30 pastors across the country are expected to preach a sermon that endorses or opposes a political candidate by name. This would be a flagrant violation of a law that bans tax-exempt organizations from involvement in political campaigns.”

I’ve previously discussed two pillars of nonprofit structure: Incorporation (and Discretionary Conception) and Tax Exemption. So today lets talk about Restrictions on Political Activity for nonprofits.

Section 501(c)3 of the Tax code is relatively clear on prohibiting candidate endorsement: organizations are prohibited, directly and indirectly from participating in, contributing to, or speaking on on behalf of (or in opposition to) any candidate for elective public office. on behalf of (or in opposition to) any candidate for elective public office.

Nonprofit organizations are allowed though:

Neutral and non-partisan voter education and registration activities. For example, an organization could indicate how candidates voted in the past or a survey of opinions on an issue, so long as all candidates were included no preference was given to the outcomes.
Lobbying, so long as “no substantial part” of their activities may be that of attempting to influence legislation. Lobbying rules are complicated but the The Nonprofit Lobbying Guide makes it all very clear.

So how did this all come about: some sources place responsibility upon the shoulders of Lyndon Johnson and reactionary, red-baiting, 1950s politics.

In 1952, the Cox Committee was formed to determine “whether foundations have been infiltrated by communists, as well as whether tax-exempt groups are using their money for stated purposes and are not endangering our existing capitalistic structure.” The committee found that foundations weren’t infiltrated, but were vulnerable. Foundations were powerful and could exercise “thought control” and through this could “materially influence public opinion”(OMB Watch).

Echoing today’s nonprofit criticisms (other than the fear of communist leanings) foundations were knocked for their arrogance, insular and irresponsible mismanagement, cronyism, and ignorance of sound practice—existing tax rules did not compel compliance, “as interpreted by the courts, permits far too much license.” Said one former fund advisor, testifying before the Cox Committee:

“Not a single member of the staff [of The Ford Fund for the Advancement of Education], from the president down to the lowest employee, has had any experience, certainly none in recent years, that would give understanding of the problems that are met daily by the teachers and administrators of our schools…. As a former member of the so-called Advisory Committee I testify that at no time did the administration of the fund seek from it any advice on principles of operation, nor did it hospitably receive or act in accordance with such advice as was volunteered.”

(This quote, along with many others, can be found in the right-leaning American Mercury article “Tax Exempt Subversion”, kindly hosted by BibleBelievers.org.au. The full transcript here.)

Jump ahead to 1954, when Sen. Johnson, having been colorfully elected by 87 votes in 1948, was seeking reelection. He was dogged by 2 nonprofit groups attacking him and his liberal agenda as communism. Supported by the findings of the Cox Committee (and however much of LBJ’s election saga you wish to include) Lyndon Johnson proposed an amendment to the tax code on June 2, 1954 prohibiting nonprofits from engaging in any political campaign activity. The amendment was adopted without hearings or testimony and has been subsequently upheld by courts.

In 1987 Congress clarified the rule, explicitly prohibiting endorsing and opposing candidates; added an excise tax on any private foundation that seeks to affect the outcome of any public election, non-partisan registration drive, or other non-charitable purpose; and provide for the assessment of tax, or an injunction against organizations in violation of these rules. (IRS explanation)

Some Analysis

Based upon some of my previous writing, it’s not difficult to rationalize why tax-exempt, nonprofit organizations should not be engaged in political activities. Based upon the subsidy model—that tax-exemption is equivalent to significant government subsidy—it’s clear that the US Treasury and public-coffers should remain neutral in political affairs. Upon the sovereign model—that a nonprofit exists in corollary, rather than in subjugation to the government—it makes sense that there is a prime distinction between the realm of government and that of a nonprofit. That the rules governing this prohibition of political activity should evolve in the manner it did does call into question the distinct purposes for which they serve.

That the impetus for writing this (though it was on my to do list), should come from a topical event, and a religious one at that, is also interesting. As far as I can tell, the majority of analysis and rhetoric around the 1954 Amendment and subsequent prohibition on political activity comes from churches and religious organizations. This is interesting because, unlike charity organizations, churches need not incorporate (though they lose the protections of incorporations) to receive granted tax-exemption (and donor deduction) automatically under Section 508 of the Tax Code. Despite this, according to one source, less than 10% of US Churches are unincorporated; Virginia and West Virginia do not even allow churches to incorporate. The reasons why a church would apply for 501(c)3 have been varied, from “everyone is doing it”, to stronger guarantees that donations are deductible and properly managed. (A more religious explanation of incorporation and tax exemption is here.)

Structurally and most interesting, is that religious nonprofits seem to view the structural forces as more fluid than other nonprofit organizations. I have found no concerted effort by non-religious nonprofit organizations to contest the ground-rules of being a nonprofit. As I discussed in an earlier posting, non-profits are a legal and regulatory construction. Religious nonprofits seem much more adept at reaching the conclusion of this: laws and regulations can be influenced for self-benefit. While failed, the The Houses of Worship Political Speech Protection Act of 2004 and 2005 sought to remove 1954 Amendment as it applied to churches.

island⁹⁴

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