Top Ten Tips for Election Year Engagement by Nonprofits James P. Joseph Arnold & Porter LLP Lauren W. Bright Bill & Melinda Gates Foundation 1
Agenda Who does this apply to? Review different types of tax-exempt organizations What is it? Explain IRS definition of political activity or electioneering Which rules apply? Describe electioneering rules for each type of tax-exempt organization What should an organization do? Provide tips for avoiding campaign intervention problems during an election season 2
Types of Tax-Exempt Organizations IRC Section 501(c)(3) Private foundations Public charities IRC Section 501(c)(4) Social welfare organizations IRC Section 501(c)(6) Trade associations IRC Section 527 527s (not PACs) Political action committees (PACs) Independent-expenditure only PACs (SuperPACs) 3
Types of Tax-Exempt Organizations Purpose Examples Tax Benefits 501(c)(3) Private Foundation Charity, education, religion or science Contributions from limited sources Gates Foundation Ford Foundation Tax exemption Contributions deductible Gift tax deduction 501(c)(3) Public Charity Charity, education, religion or science Sierra Club Foundation American Red Cross Heritage Foundation Tax exemption Contributions deductible Gift tax deduction 501(c)(4) Social Welfare Org Social welfare or advocacy (lobbying) Sierra Club National Rifle Association Crossroads GPS Tax exemption Gift tax exemption 527 Political Org Political Sierra Club Political Committee EMILY s LIST American Crossroads Tax exemption Gift tax exemption Lobbying None Limited Unlimited Rare (and usually taxable) Election-Related Activity Can t support or oppose candidates Nonpartisan activities OK Can t support or oppose candidates Nonpartisan activities OK Partisan activity cannot be primary activity May be taxable Primary purpose is partisan activity Note: 501(c)(4)s and 501(c)(6)s have the same rules for these purposes. 4
Election-Related Activity Certain election-related activity does not amount to campaign intervention if it does not support or oppose candidates Permitted election-related activity for c3 charities, c4s and c6s (that is not electioneering): Educational programming Issue advocacy, taking positions on public policy issues Lobbying Nonpartisan voter registration or get-out-the-vote efforts 5
Electioneering Any participat[ion] or interven[ion] in any political campaign on behalf of (or in opposition to) any candidate for public office is considered electioneering or political activity However, no clear statutory or regulatory definition given Applies to US and non-us elections Determined instead under a facts and circumstances test IRS has provided examples of what is or is not political, as well as factors it will consider IRS guidance in Revenue Rulings 2004-6 and 2007-41 Basic inquiry Is the organization signaling, through the content or delivery of its communications or activities, that it favors or disfavors any candidate or political party? 6
Electioneering (cont d) Electioneering Expressly support or oppose candidates Endorse candidates Contribute to candidates Rate or score candidates on the issues Compare organization s position to candidate s Provide other assistance to candidates (in-kind contributions) Support other organizations political activity Not Electioneering Register voters Educate voters about candidates Take positions on issues Legislative scorecards Educate candidates Get out the vote But only if you do so in a fashion that does not favor one candidate or another 7
Electioneering (cont d) IRS Facts and Circumstances Analysis Good Facts No reference to candidate or elections External factor driving timing Broad range of issues History of similar work on issue Ongoing communication about central issue of organization Bad Facts Reference to candidate (as candidate) Timing motivated by election Politically motivated targeting Compare preferred candidate to candidate position Wedge issues 8
Electioneering (cont d) How much political activity, if any, can each type of taxexempt organization conduct? 501(c)(3) private foundations and 501(c)(3) public charities Political activity strictly prohibited Any amount can result in penalties or loss of tax exemption 501(c)(4) advocacy groups and 501(c)(6) trade associations Political activity cannot be its primary purpose should be some amount less than 50% but not clear how much is too much May be taxable 527 political organizations Primary purpose ( exempt function ) is political activity Non-political activity may be taxable 9
Planning for Election Season Focus on good facts/bad facts IRS electioneering analysis Understand the specific political activity rules for your tax-exempt organization (c3, c4, c6, or 527) Plan ahead for communications and activity during election season, consider: Subject: what issue is addressed? Timing: how close in time to the election? Audience: general public or more targeted groups? Purpose: why is the organization saying it? Follow Ten Tips for engaging during an election season... 10
Ten Tips on Campaign Intervention 1. Don t support or oppose candidates when commenting on issues raised in an election. 11
Commenting on Issues/Candidates Can comment on or take positions on public policy issues, even in an election year, But, if the organization comments on issues in a way that supports or opposes candidates, even indirectly, that is electioneering c3s should avoid this altogether For c4s and c6s, counts as political activity Monitor website links 12
Commenting on Issues/Candidates (cont d) Good Facts Use opportunity to restate org s position, not to comment on candidate s position Issue is central to org s mission Org consistently comments on similar statements by other candidates and noncandidates Comment does not refer to candidate s characteristics or qualifications for office Candidate made statement in non-candidate capacity Issue is not wedge issue Timing of comment motivated by nonpartisan reason (e.g. pending legislation) Comment is response to outside inquiry or news development Other indicia of nonpartisanship (e.g. urging all candidates to speak out on issue) Bad Facts Compares preferred position to candidate s position Issue is tangential to org s mission No history of commenting on similar statements Comment refers to candidate s characteristics or qualifications for office Reference to candidate or election Candidate made statement in candidate capacity Issue is wedge issue Timing of comment motivated by election Comment is on the org s own initiative Other indicia of partisanship (e.g. language such as holding elected officials accountable that may, in context, suggest electoral intent) 13
Ten Tips on Campaign Intervention 2. Purpose of candidate events and appearances must be clear. 14
Candidate Appearances Events that host all or most candidates and are balanced/fair to all candidates are not electioneering But, only hosting one or a few candidates, or suggesting support for or opposition to candidates through the event, may be electioneering Again, depends on all the facts and circumstances of the event 15
Candidate Appearances (cont d) As Candidate Invite all candidates Concern if only one candidate accepts invitation No favoritism in: Timing Setting Introduction Questions/Issues Coverage Non-Candidate Role Equal opportunity not required Don t hold too close to the election Instruct guest no campaigning or fundraising 16
Candidate Appearances (cont d) Guidelines for candidate debates, forums Invite all candidates to participate (at least the major ones) Moderator or panel Ask broad range of questions Don t suggest the correct answer Impartial, fair to all candidates Candidates must be given equal opportunity to respond Audience composition Don t distribute tickets in a way Federal and some state campaign finance laws also have rules governing candidate debates that favors one candidate 17
Ten Tips on Campaign Intervention 3. Voter guide or legislative scorecard must be broad, neutral, and inclusive. 18
Voter Guides Voter guides present candidate positions on the issues Nonpartisan voter guides are not electioneering c4s and c6s can produce partisan voter guides, but this counts as electioneering Guidelines for nonpartisan voter guides Include all candidates (at least the major ones) Address broad range of issues IRS position: cannot be limited to narrow focus Don t suggest which position the 501(c)(3) favors, based on: How questions are phrased How candidates positions are displayed Whether organization s view is included as point of comparison Avoid allegations of bias Impartial voter education purpose Objective information sources 19
Legislative Scorecards Legislative scorecards report the votes of current elected officials Do you want to? 501(c)(3): send to everyone 501(c)(3): send to members Rate or score the legislators or their individual votes? Safe harbor based on IRS Revenue Rulings 78-248 and 80-282. Focus only on a few issues of key importance to your organization? Time the release of the scorecard to coincide with the election? 20
Ten Tips on Campaign Intervention 4. Requesting a candidate pledge is campaign intervention (e.g., Candidate X, sign this pledge to not raise taxes). 21
Candidate Pledges Asking candidate to pledge or promise certain position if elected is campaign intervention 501(c)(3) may not secure candidate pledges But c3 can ask candidates to state their positions on certain issues if c3 does not suggest approval or disapproval of candidates positions Concerns Implicit support for candidates who sign the pledge Implicit opposition to candidates who don t sign the pledge 22
Ten Tips on Campaign Intervention 5. 501(c)(3)s cannot conduct a voter registration or get-out-the-vote (GOTV) effort that supports or opposes a candidate for office. 23
Voter Registration & GOTV Voter registration or GOTV efforts are electioneering if they favor one or more candidates or a political party No screening : using issue screen or targeting voters based on partisan criteria For 501(c)(3), must seek to encourage people, in nonpartisan manner, to exercise their right to vote Guidelines Select location and audience based on nonpartisan criteria OK: disadvantaged or underrepresented group OK: natural constituency of organization Not OK: voters likely to support or oppose a particular candidate or party Discuss broad range of issues (or no issues) Don t suggest a correct position Don t connect with existing advocacy 24
Voter Registration & GOTV (cont d) Probably OK Maybe OK Not OK A church registers the members of its congregation A day care center drives its kids parents to the polls An environmental group registers voters at an Earth Day event A civil rights group registers African American voters A health care group registers people in a district because it s represented by an unchallenged senator who chairs the committee overseeing the state s Medicaid program To demonstrate the political power of its constituency, a group registering new citizens targets a district expected to be a closely, fought, high-profile primary in which the candidates have similar views on immigration A children s group registers parents of young children in a district because it s represented by a senator who opposes Head Start funding A student group urges registered Democrats to vote 25
Private Foundation Grants for Voter Registration CAUTION: Section 4945(f) of the federal tax code generally prohibits private foundations from earmarking grants for voter registration Foundations may make grants for voter registration to 501(c)(3)s that meet specific requirements, notably: Grantee operates in five or more states over more than one election period None of the funds grantee receives from any source for voter registration work are subject to a condition that they be used in a particular jurisdiction or in a specific election period Grantee can show that funding comes from diverse sources, as defined in regulations At least 85% of grantee s income spent for active conduct of charitable mission Grantees may choose to use other grants (e.g. general support) for voter registration within discretion permitted by grant agreement 26
Voter Registration and State Law Many states (and some localities) are increasingly regulating voter registration activities Some of this appears to be motivated less by sound public policy and more by deliberate, strategic efforts to limit participation by some segments of the electorate Make sure your organization is aware of and compliant with applicable laws that may govern State laws may apply to: Completion and submission of voter registration forms Compensation for people engaged in voter registration Use of personal data collected in voter registration efforts 27
Ten Tips on Campaign Intervention 6. Giving some candidates or one party special benefits or preferred access to your organization s resources may amount to campaign intervention. 28
Organization Resources 501(c)(3)s cannot provide cash or in-kind support to candidates or parties Not electioneering if c3 makes resources available to all candidates; same content, on the same terms FEC rules also prohibit corporations, including tax-exempts, from making contributions to federal candidates Applies to c4s and c6s organized as corporations 29
Organization Resources (cont d) Permitted 501(c)(3) makes its resources available to all candidates on the same terms Publicly available Fair market value (or free if generally made available for free) Made available previously, not only after particular candidate asks Not Permitted Cash to candidates In-kind support for candidates Facilities (office space, meeting rooms) Staff time (paying staff to do work for campaigns) Intangible resources (donor lists, polling data) Consulting services 30
Ten Tips on Campaign Intervention 7. Supporting or opposing a ballot measure counts against a 501(c)(3) s lobbying limits. 31
Ballot Measures 501(c)(3)s may urge people to vote for or against ballot measures (initiatives, referenda, etc.) Private foundation rules apply But state law may treat orgs working on ballot measures as political committees Counts against 501(c)(3) s lobbying limits 501(c)(3)s permitted to engage in a limited amount of lobbying will be measured under an expenditure or facts-and-circumstances test Lobbying is categorized as direct or grassroots lobbying Because voters are legislators, 501(h)-electing charities treat activity as direct, not grassroots, lobbying Permits more partisan tactics Message focuses on single issue, states position on that issue Target communications to voters likely to vote the way the 501(c)(3) wants Single topic event, doesn t present both sides of the issue 32
Ten Tips on Campaign Intervention 8. Special FEC rules rules apply to electioneering communications (for c3/c4/c6s) and independent expenditures (for c4/c6s). 33
Electioneering Communications Defined and regulated by FEC Definition Broadcast, cable, or satellite communication publicly distributed for a fee Clearly identifies a candidate for federal office 30 days before a primary election, convention, or caucus of a political party or 60 days before a general election For House or Senate candidates, targets the voters of the relevant congressional district or state that the candidate seeks to represent 34
Electioneering Communications (cont d) Rules Corporations (including nonprofits) cannot coordinate an electioneering communication with a political candidate, campaign, or party Organizations spending more than $10,000 on electioneering communications must report to the FEC Report within 24 hours of communication Include expenditures associated with communication and donors who made contributions to fund that specific electioneering communication Many states have enacted similar laws that may define more broadly what communications are subject to restrictions and reporting requirements 35
Independent Expenditures Defined and regulated by the FEC Definition Public communications (by c4s and c6s) that contain express advocacy Uses magic words (vote for or re-elect), or Reasonable minds could not differ as to whether the communication, as a whole, encourages a candidate s election or defeat No coordination with candidate, campaign, or party permitted 36
Independent Expenditures (cont d) Rules Report expenditures/donors to FEC Reporting requirements depend on person or entity making the independent expenditure, expenditure amounts, and proximity to election For example, person (not registered as PAC) must report to FEC if makes more than $250 in independent expenditures for an election in a calendar year, and disclose donors contributing over $200 for the specific communication 37
Ten Tips on Campaign Intervention 9. Don t let your related 501(c)(4) organization, or grantee, get your 501(c)(3) in trouble. 38
501(c)(3) and Related 501(c)(4) c4s (and c6s) can engage in a certain amount of electioneering that is off-limits to 501(c)(3)s c3 cannot do indirectly what it cannot do directly, i.e., c3 cannot use related c4 to conduct non-c3-appropriate activity c4 and c6 can also engage in unlimited lobbying Need to separate c3 and c4 so that c3 does not subsidize or support, or even appear to support, c4 electioneering Project descriptions in c3 contracts and grants should be clear, as explicit as possible Be mindful of coalition activities 39
501(c)(3) and Related 501(c)(4) (cont d) Guidelines for Separating c3 and c4 Activity Expenses Develop cost-sharing agreement Ensure c3 prohibits any funds transferred to c4 for electioneering purposes Fundraising Safest to keep c3 and c4 solicitations separate Timing Limit or pause c3 efforts when c4 is active in election activities Staffing Designate different staff for c3 and c4 programs If same employees, keep track of time on c3 and c4 programs Create firewall to prevent sharing of certain information Branding c3 materials should look different than c4 materials (emails, newsletters, websites, etc.) Good practice to keep charitable and political activity two clicks away on websites Communication Make clear if statement is coming from c3 or c4 40
Coalition/Partnership Activities General rule: a tax-exempt organization cannot engage in coalition activities that it could not do directly or by providing funds/other support Risks of coalition activity: Activities of coalition, or individual members, may be attributed even where a coalition member has not participated in, endorsed or provided funds or other support to the specific activity Attribution of coalition members with different tax statuses, and different legal restrictions on permissible lobbying and political activity, can result in non-compliance (e.g., a public charity which has already conducted lobbying activities up to its permissible maximum or a lobbying attributed to a private foundation) 41
Coalition Safeguards Protective measures include Control over use of funds or resources segregate contributions from coalition members that may not be used for lobbying or political activities Control over member meetings if meetings will involve members with different tax statuses, distribute agenda in advance/adhere to agenda and enable members to leave when meeting content is inappropriate Control over branding coalition members should enter into an agreement regarding use of any separate coalition name, as well as the names of members (e..g., only use c3 s logo with c3 s specific approval) Control over use of coalition website agreement regarding structure of website, what content may be displayed 42
Ten Tips on Campaign Intervention 10. Don t let personal activities get your 501(c)(3) in trouble. 43
Personal Activity Employees, officers, and other agents of c3 can conduct personal, volunteer political activity Make sure that personal political activity is not subsidized by, or attributed to, the c3 No more than de minimis time spent at the office or de minimis use of c3 resources Employees should not suggest they are representing the c3 in any way 44
Personal Activity (cont d) Permitted Volunteer on your own time for candidate of your choice Make personal contributions to candidates if you choose Clarify that any such political activities are in your personal capacity Not Permitted Use 501(c)(3) resources to help candidates Display support for candidates while working Create the appearance of support or political activity by the organization Do anything else partisan in your capacity as an employee 45
Putting it All Together Tax exempt organizations can conduct and fund activities during an election period, but rules vary if seeking to influence Analysis of good and bad facts is essential to compliance Think beyond IRS rules before engaging (e.g. state and FEC rules) Organization restrictions do not apply to personal engagement 46
James P. Joseph Arnold & Porter LLP 202.942.5355 james.joseph@aporter.com Lauren W. Bright Bill & Melinda Gates Foundation 202.662.8138 Lauren.Bright@gatesfoundation.org 47