Politics and Charitable Nonprofits

Amidst our nation’s current political climate, the National Council of Nonprofits reports that nonpartisanship, an essential principle of charitable nonprofits, has fallen under scrutiny with our country’s leaders in Washington, D.C.

The organization is asking for all those concerned with the prosperity and efficiency of the nonprofit community to express support for increased protection by signing the Community Letter in Support of Nonpartisanship.

Nonpartisanship defines as being free from any party affiliation or designation. And though the IRS allows political participation from exempt organizations, there are strict regulations regarding lobbying and its expenditures. According to the National Council of Nonprofits, Congress is introducing bills that could repeal or substantially weaken current protections making charitable organizations more susceptible to endorse or oppose candidates running for an elected office.

The detrimental issue the Council points out is that being more impressionable towards political activities will redirect funding from an organization’s charitable mission to supporting election campaigns. Such legislation could also expose nonprofits and foundations to demands from candidates for political endorsements and contributions which will take funds from charitable work and eventually afflict the public trust of exempt organizations.

Ultimately, the Council states that the proposed changes are entirely unnecessary. They assure that there are already many legal ways for a nonprofit’s staff, board members, and volunteers to express their individual views on public policy issues. If you or any other nonprofit, charity, private foundation, or religious groups are interested in showing support or signing the Support of Nonpartisanship letter, you can visit GiveVoice.org or the Protecting Nonprofit Nonpartisanship website.

For any other questions or concerns about how lobbying and political activities can affect your organization, contact a local tax professional or reach out to the IRS Tax-Exempt Hotline at 877.829.5500.

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How to Report Lobbying Expenditures on IRS Form 990/990-EZ

Reporting additional information about political campaign activities or lobbying activities requires exempt organizations to file a Schedule C along with their IRS Form 990 or 990-EZ. 501(c)(3) organizations needing to complete a Schedule C are those that

• Participate in lobbying activities
• Have a Section 501(h) election in effect during the tax year
• Engage in political campaign activities either on behalf or opposition to candidates for public office

Public charities with valid section 501(h) elections can spend a certain amount of its exempt purpose expenditures to influence without paying taxes or losing exemption status. Part II-A of the Schedule C allows any nonprofit organization with a 501(h) election in effect to report lobbying expenditure - even if the organization didn’t engage in lobbying activities for that filing year.

Affiliated Groups
The first section of Part II-A confirms whether the filing organization belongs to an affiliated group with Box A. If so, you need to complete both columns for this section:

• Column A for the filing organization’s totals
• Column B for the affiliated group totals

Tax-exempt groups with limited control provisions need to check Box B and should only complete column A for this section. Organizations that don’t check Box A should not check Box B either.

Later, in Part IV, you can provide a list of each affiliated group member’s name, address, EIN, and expenses. You also need to indicate which members made the election under 501(h), and include the share of the excess lobbying expenditures for each electing member on your list.

Limits on Lobbying Expenditures
The second section is to determine if your organization’s current year lobbying expenditures are subject to tax under section 4911. If so, the IRS requires you to file Form 4720 and pay the excise tax. Complete Lines 1a through 1i in Column A, and any for Column B, if applicable.

For Line 1a, enter the amount the organization spent on grassroots lobbying communications, and then for Line 1b, enter the expense for direct lobbying communication. Add Line 1a and 1b to get your amount for Line 1c. Enter all other amounts, minus lobbying, that your organization spent to achieve its exempt purpose. And then add Line 1c and 1d to get Line 1e, which is the organization's total exempt purpose expenditures.

Follow the table provided on the Schedule C to answer Line 1f and enter 25 percent of that amount on Line 1g. For Line 1h, subtract your value of Line 1g from Line 1a - if there is a negative difference, just enter zero. On Line 1i, subtract Line 1f from Line 1c and put zero if the amount is negative.

If you don’t have any excess lobbying expenditures on Line 1h or 1i for Column B, you should treat each electing member of the affiliated group as having none. But if there are amounts listed for Column B on those lines, then each electing member has that amount for excess lobbying expenditures. In that case, the IRS requires each electing member to file Form 4720 and pay the tax on its share of the affiliated group’s excess lobbying spending.

You can enter proportionate shares in Column A for Line 1h, 1i, or both. And in Part IV, you can show what amounts apply to which group member. For Line 1j, indicate whether your organization filed Form 4720 to report section 4911 tax for the filing year if the amount on Line 1h or 1i is other than zero.

Lobbying Expenditures During 4-Year Averaging Period
Line 2 is to determine whether your organization exceeded lobbying spending limits during a 4-year averaging period. Any exempt organization with a lobbying expenditure election in effect during the filing year must complete Columns A through E for Lines 2a through 2f except for the following circumstances:

• If the filing year is the first year the organization is tax-exempt, you won’t need to complete any of Lines 2a through 2f
• If any of the tax years were before the organization became exempt, you wouldn't need to complete Lines 2a through 2f
• If the filing year is the first year the organization has a section 501(h) election in effect, then you must complete Line 2a for Columns D and E
• If the filing year is the second or third year the organization’s first section 501(h) election is in effect, then you’re required to complete only the columns for the years the election was in effect and enter the totals for those years in Column E

Important: Check the Schedule C Instruction Sheet for more detailed information about these exceptions.

Complete Line 2a through 2f as follows for the filing year and applicable prior years based on the Schedule C for each respective year:

• Line 2a - Enter the amount from Part II-A, Line 1f
• Line 2c - Enter the amount from Part II-A, Line 1c
• Line 2d - Enter the amount from Part II-A, Line 1g
• Line 2f - Enter the amount from Part II-A, Line 1a

Once you finish, you need to enter the total for each line in Column E. If your organization belongs to an affiliated group, you should input the appropriate group totals from Column B, Lines 1a through 1i when entering Line 2a through 2f. If you have any questions regarding details about your organization’s section 501(h) election, spending limits, or affiliated groups, please contact a tax professional or reach out to the IRS Tax-Exempt Hotline at 877.829.5500.

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Political Participation from Exempt Organizations

According to the IRS, political and legislative activities are two separate types of operations within exempt organizations. Each has their set of rules and consequences based on the following criteria:

• The scope or amount of the activity conducted
• The type of operated activity - Political or Lobbying
• The type of tax-exempt organization - Section 501(c)(3) or Private Foundations

Restrictions on Political Activities
The Internal Revenue Code strictly prohibits your typical section 501(c)(3) organizations in taking part in any political campaigns with a candidate running for an elective public office. Furthermore, any contributions to political campaign funds for an electoral candidate violates IRS policy and can lead to loss of exemption status.

While the IRS approves certain activities and expenditures that are mildly political, there are also specific types of exempt organizations that are allowed to participate in political campaigns fully - their involvement is carefully regulated as well.

Restrictions on Political Contributions
Exempt organizations like trade associations, labor unions, or similar groups can contribute to a political candidate, campaign committee, or newsletter fund; however, these donations are not tax deductible. Any expenses such as an advertisement or admission benefiting a political party or candidate are also non-deductible.

These tax-exempt organizations involved in politics and lobbying are also ineligible for getting tax-deductible, charitable contributions - this means that if a taxpayer donates to organizations like these, the amount isn't considered deductible for the taxpayer’s personal tax return.

Monetary Limits
There’s only so much the law allows organizations to contribute towards a political cause. Both parties - the one giving and the one receiving - are equally responsible for not exceeding past the limits.

An organization can donate a maximum of:

• $100 in cash to any political committee
• $33,400 per calendar year to a national party committee
• $10,000 per calendar year to a state or local party committee
• $5,000 per calendar year towards a political action committee
• $2,700 per election to a federal candidate or campaign committee

If your tax-exempt organization is eligible to participate in lobbying activities or give political contributions, you are required to submit a Schedule C along with your IRS Form 990 or Form 990-EZ. With ExpressTaxExempt.com, schedules are automatically generated based on your form interview answers - the information you enter loads onto the proper schedule and is transmitted with your 990 form directly to the IRS.

For any questions or help with your e-filing experience, call our U.S. - based, customer support team at 704.839.2321, Monday through Friday from 9 a.m. to 6 p.m. EST or reach us 24/7 with support@ExpressTaxExempt.com.

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Form 990 for Social Welfare Organizations

Do social welfare organizations need to e-file IRS Form 990?

Yes! And we’re here to cover the bases.

What Is a Social Welfare Organization?

In order to be considered a social welfare organization classified as tax exempt under Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare.

What Is the Purpose of a Social Welfare Organization?

Well, basically they need to operate primarily to further the common good and general welfare of the people of the community. This is usually by bringing about civic betterment and social improvements.

What Is the IRC Section 501(c)(4)?

The Internal Revenue Code section 501(c)(4) provides for the exemption of two very different types of organizations with their own distinct qualification requirements. They need to be social welfare organizations or local associations of employees.

What Differs Between Community and Private Benefit?

Basically, the earnings of a section 501(c)(4) organization may not benefit any private shareholder or individual. If the organization earns excess profits with a person having substantial influence over the organization, an excise tax might be imposed on the person or organization.

There is one exception, though. If an organization is seeking legislation germane to their program, it is a permissible means of attaining more income for social welfare purposes.

This allows a section 501(c)(4) social welfare organization to further its exempt purposes through lobbying without jeopardizing its exempt status.

If you have any questions about your social welfare organization and e-filing Form 990, reach out to our customer service experts by phone at 704.839.2321 or by email at Support@ExpressTaxExempt.com.

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Lobby Party

“You gotta fight / for your right / to Lobbbbby!”

Well, not so much in this case. While your tax-exempt organization can participate in lobbying activities, but too much lobbying can lead to the risk of losing your tax-exempt status. Generally, no organization can qualify for tax-exempt status if a substantial part of its activity is pursuing to influence legislation aka lobbying.

Legislation
As defined by the IRS, legislation includes action by Congress, any state legislature, any local council, or similar governing body, in regard to acts, bills, resolutions, or similar items like legislative confirmation of appointive office, or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure; however, it does not include actions by executive, judicial, or administrative bodies.

Your organization can be seen as attempting to influence legislation if you contact, or urge people to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if your organization advocates the adoption or rejection of legislation.

Principal Registration and Reporting
If you wish for your organization to lobby, you must register your organization as a “Principal” before engaging in any lobbying activities. As Principal, your organization must provide a name its “Designated Lobbyist” and any other lobbying on behalf of your organization.

The Secretary of State has to be notified if any change of information occurs within five business days of the change, and your organization must notify any person it lists as a lobbyist and have them register with the Secretary of State and provide reports. In addition, as a Principal, your organization will also provide annual reports renew its registration every two years - up until you want your organization to no longer lobby.

Types of Lobbyists

Designated Lobbyist Registration and Reporting
Each principal has to have a “Designated Lobbyist.” Their responsibility is to file the Lobbyist Registration and Lobbyist Quarterly Expenditure Reports along with the registration and Annual Expenditure Reports for the Principal.

An individual or a professional lobbying firm can act as a Designated Lobbyist. Whoever is appointed the title, they sign all reports for themselves as well as the represented Principal.

Lobbyist for Compensation
This is either an individual or firm compensated by the Principal and whose sole job responsibility is to lobby for the Principal. It’s also required by this lobbyist to file a Lobbyist Registration form and to file Lobbyist Quarterly Expenditure Reports with the Secretary of State.

Authorized Lobbyist
Any other lobbyist you have, other than the Designated Lobbyist or Lobbyist for Compensation, is considered as an Authorized Lobbyist. This lobbyist could be a paid staff member or a volunteer for the Principal and is seen as registered when listed on the Principal’s registration. This person reports expenditures only to the Designated Lobbyist.

Employees of Lobbyists
These people are lobbyists that are employed by either firms or other lobbyists and they are registered by whomever employed them. They do not file expenditure reports directly to the Secretary of State, but their reports are included in their employer’s Lobbyist Quarterly Expenditure Report.

Outside from general lobbying, tax-exempt organizations can participate in issues of public policy without it being considered as lobbying. For example, your organization can plan educational meetings, prepare and hand out educational materials, or simply just consider public policy issues in an educational manner.

As with any lobbying activity, large or small, it must be reported within your Form 990 or Form 990-EZ under Schedule C. Keep the party going by e-filing your Schedule C, along with the rest of your 990 form, with Express990. We offer a safe, secure, and accurate e-filing process, backed by expert professionals that will save you time and money.

For assistance with e-filing any of our available 990 forms, contact our live support by phone Monday through Friday from 9am to 6pm, Eastern Standard Time, at (704) 839-2321, by email at support@expresstaxexempt.com, or by live chat at the Express990 website

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