Tax exemption recognition and Political campiagning do not go together for non profit organizations. Nonprofits that seek 501(c)(3) tax exemption are not allowed to support or affiliate to any political group. Nonprofits that intend to indulge in political campaigns must instead seek recognition under section 527 of the IRS rules. The rules for lobbying are not as strict as those applicable to political campaigning.
Listed below are some of the specific provisions applicable to different types of non profit organizations
1) Public Charities – Public charities that are recognized under section 501(c)(3) are required to stay clear of political activities. IRS rules states that an organization recognized under Section 501(c)(3) can lose its tax-exempt status and its eligibility to offer tax deductions for donations recieved if it is found to be attempting to substantially influence legislation.
However if a public charity wants to participate in lobbying activities – it is advisable for the organization to seek recognition under 501(h) of the IRS code by filling up form 5768.
Section 501(h), permits certain recognized 501(c)(3) organizations to elect to spend a limited portion of their funds to influence legislation. Any spend exceeding the limited allowed amounts is then subject to payment of excise tax under section 4911 of the IRS code
A 501(h) organization may also lose its recognition under section 501 (c)(3) if it spends more than 50% of the permissible amount on lobbying over the 4-year period after it elects to opt for 501(h) status.
The reporting rules for 501(h) exempt organizations are more stringent than those recognized under 501(c) (3) but in turn it allows the organization to spend a higher proportion of its funds on lobbying activities.
2) Private foundations – Private foundations that are recognized under section 501(c)(3) are also not allowed to participate in any lobbying activity except when the pending legislation is expected to directly influence the functioning of the private foundation.
If one wants to start a nonprofit organization solely for the purpose of lobbying, it is better to start a social welfare organization under section 501(c)(4) of the IRS code. On the other hand, if one wishes to start a nonprofit organization solely for political campiagning, it is advised to start a political organization – the rules for which are entirely different than those applicable to typical nonprofit organizations.
Engaging in political activites may lead to severe penalties or even loss of recognition as a tax exempt organization for a nonprofit.