22 August 2018

Political Activity Limitations for 501(c)(3) Organizations: Where Are We Now?

***This article appeared in the Summer 2018 issue of the Michigan Business Law Journal.***

Changes to political activity limitations for 501(c)(3) organization has been the subject of much debate, particularly over the last two years. The Johnson Amendment and its favorability to charitable organizations have been hotly contested. The Johnson Amend­ment was proposed by Lyndon Johnson in 1954 when he was running for re-election as a U.S. senator. It is an amendment to section 501(c)(3) of the Internal Revenue Code, which prohibits nonprofit organizations, which are tax-exempt under section 501(c)(3) of the Internal Revenue Code (“501(c)(3) organiza­tions”) from participating in or intervening in any political campaign for public office.1 This amendment is not limited to religious or any other organizations. It applies broad­ly to all 501(c)(3) organizations. Those who oppose the Johnson Amendment cite free speech limitations, particularly for churches and other religious groups. Their goal is to allow pastors and other religious leaders to speak freely from the pulpit without censor­ship from the federal government, which could result in revocation of tax-exempt sta­tus for their organizations. Those who favor the Johnson Amendment argue that, without it, political contributions would effectively become tax-deductible. They argue that this favors churches because churches have fewer reporting requirements to the IRS. They fur­ther argue that charities can be more effective because of the Johnson Amendment because it allows them to rise above partisan politics and focus their limited resources on charita­ble and other tax-exempt purposes. Further, they argue that donations may dwindle if donors fear that their donations may be used for the benefit of an opposing candidate.

Shortly after President Trump’s inaugura­tion, three bills were introduced in the House or Senate, which proposed to eliminate all or a portion of the Johnson Amendment.2 Once referred to committee, none of these bills progressed further.

On May 4, 2017, President Trump signed an Executive Order intending to limit the enforcement of the Johnson Amendment against churches and religious organiza-tions.3 However, a lawsuit was filed by the Freedom From Religion Foundation claim­ing that the Executive Order allowed church­es to engage in politics to the exclusion of secular 501(c)(3) organizations.4 In response, the Department of Justice filed a Motion to Dismiss based on language in the Executive Order which limits the relief provided to reli­gious organizations “to the extent permitted by law,” signaling that the current laws in effect, including the Johnson Amendment, still applied to these organizations. The Department of Justice also argued that the Executive Order simply states that religious organizations cannot be subjected to adverse actions that cannot be imposed on a secular 501(c)(3) organization. This Motion clarified that the Johnson Amendment is still in effect for all 501(c)(3) organizations, including reli­gious organizations.

Despite all of this recent activity, the John­son Amendment and other political activity limitations remain in effect without modifi­cations, at least for now.

Because these limitations remain in effect, it is important for 501(c)(3) organizations to be familiar with them. Many 501(c)(3) orga­nizations are specifically created to conduct issue advocacy, education of the public and to influence positive change in their commu­nities. But often the line between issue advo­cacy and political activity becomes blurred. It is imperative that 501(c)(3) organizations know the difference so they can use their limited resources to fulfill their tax-exempt purposes without running afoul of political activity limitations.

The limitations on political activity for 501(c)(3) organizations can be divided into two primary categories: Political campaign­ing and lobbying.

Political Campaigning
What Is It?

Political campaign activity is defined as influencing the outcome of any specific pub­lic election, or to carry on, directly or indi­rectly, any voter registration drive.5 This includes “the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposi­tion to…a candidate.”6 An example of the fine line between issue advocacy and politi­cal campaigning, is a medical society which was found to have engaged in impermissible campaign activity in support of a candidate by indicating in its newsletter that certain candidates were members of the medical organization and that these candidates sup­ported the fight against socialized medicine.7

Exceptions to Prohibition on Political Campaigning

The prohibitions on political campaign activ­ity are a complete ban. There are no allow­ances for insubstantial involvement in a political campaign.8 As a result, it is impor­tant to know what activities are permissible exceptions to political campaigning.

Nonpartisan Voter Registration Drives

The IRS has allowed public charities to con­duct nonpartisan voter education activities. Generally, voter education, voter registra­tion and get-out-the-vote drives are not a prohibited activity as long as they make no reference to a particular candidate.9 It should also be noted that conducting or paying for a voter registration drive limited to the geo­graphic area covered by the campaign is not considered to be nonpartisan and would be a prohibited political activity.10 Private foun­dations may provide grants to these public charities, and even earmark the grant for this activity, if the recipient public charity meets the following characteristics: (1) the organization is a 501(c)(3) organization; (2) the organization’s activities are nonpartisan, not confined to one specific election period, and carried on in five or more states; (3) the organization spends at least 85 percent of its income directly for the active conduct of its charitable purposes; (4) the organiza­tion receives at least 85 percent of its support from exempt organizations, the general pub­lic, and governmental units, with no more than 25 percent of such support from any one exempt organization; and (5) contributions to these organizations for voter registration drives are not subject to the condition that they be used in any specific state or jurisdic-tion.11

Nonpartisan Educational Materials

501(c)(3) organizations may distribute mate­rials that are nonpartisan and considered to be educational.12 The IRS has allowed the fol­lowing:

  1. A compilation of voting records of members of Congress on major leg­islation on a variety of subjects, with no editorial comments about their voting records;13
  2. A questionnaire sent to all candi­dates for a specific office, soliciting a brief statement on a variety of issues selected on the basis of importance and interest to the electorate, which showed no bias on any issue and all candidates received the same oppor­tunity to respond;14 and
  3. Organizations hosting a speech by candidates if presented in an even­handed manner to all candidates, even if one or more candidates decline to accept.15 Note that expres­sions of support for any single can­didate or a request by that candidate for votes would violate the Johnson Amendment limitations.

The IRS has prohibited the distribution of questionnaires which included questions

that showed bias on any issue.16 It has also prohibited a compilation of voting records on only one specific issue.17

Expressions of Individual Opinions By Foundation Officials

First Amendment free speech rights of indi­viduals are not limited by political activity limitations placed on 501(c)(3) organizations. A public charity or private foundation offi­cial may express his/her individual opinions on any candidate, provided it is made clear that he or she is speaking individually and not for the organization.18 The official should not use the organization’s facilities, employ­ees or resources in connection with this activ­ity and any expenses should be paid individ­ually and not by the organization.

What Is It?

Lobbying is carrying on propaganda or oth­erwise attempting to influence legislation,19 which is defined as an action by congress, state legislature, any local council or similar governing body, or by the public in a refer­endum, initiative, constitutional amendment or similar procedure.20 Lobbying includes attempts to influence legislation through: (1) directly contacting members of a legislative body, (2) encouraging the public to contact members of a legislative body, and (3) advo­cating a position on a public referendum. Note that the definition of legislation excludes action by executive, judicial or administra­tive bodies, such as school boards, housing authorities, sewer and water districts, zon­ing boards, and other similar federal, state or local special purpose bodies.21 As a result, the limitations on lobbying do not general­ly apply to attempts to influence actions by these governmental bodies.

Unlike the complete ban on campaign activities, lobbying is not strictly prohibited for public charities. However, even though public charities and private foundations are 501(c)(3) organizations, the tax code treats them very differently in many respects. Relating to lobbying limitations, the code essentially places a complete ban on private foundations.22 But for public charities, lobby­ing is allowed to the extent that any resourc­es used for this purpose are “insubstantial” in relation to all of the private foundation’s other resources and revenue.23 Historically, the IRS has considered 5 percent of an orga-nization’s resources to be “insubstantial.”24 However, some courts have rejected the per­centage test.25 The IRS has not recently used the percentage test, but rather has attempt­ed to evaluate the volume of the legislative activities in relation to the total activities on a case by case basis.26 This change in procedure was partly due to the fact that the percentage test tends to favor larger organizations over smaller ones since 5% of a large organiza-tion’s time and effort would have a compara­tively larger impact. Note that public chari­ties may elect to conduct lobbying activities in a more substantial way under IRC 501(h). Typically this election allows those public charities to conduct lobbying activities with up to 20 percent of the organization resourc-es.27

The most common forms of lobbying include direct lobbying and grassroots lob­bying. Direct lobbying includes communica­tion with a legislator or other governmental official regarding specific legislation and reflecting a view on that legislation.

Grassroots lobbying includes encourag­ing the general public to communicate with a legislator or other governmental official regarding specific legislation. Specifically, it is defined as: (1) a communication that refers to specific legislation that has already been introduced to a legislative body, that the organization either supports or opposes, (2) reflects a view as to the desirability of the leg­islation, and (3) encourages the recipient to take action by one of the following methods:

  1. Stating that the recipient should con­tact a legislator or employee of a leg­islative body or other governmental official who may participate in the formulation of the legislation;
  2. Stating the address, telephone num­ber or similar information of the leg­islator or employee of a legislative body;
  3. Providing a petition, tear-off post­card or similar material for the recip­ient to communicate his or her views to the legislator or employee of a leg­islative body; or
  4. Identifying one or more legislators who will vote on the legislation as opposing the organization’s view, being undecided on the legislation, being the recipient’s representative to the legislature, or being a member of the legislative committee that will consider the legislation.28

Certain mass media advertisements may also be prohibited as grassroots lobbying. A mass media advertisement violates the limitations on lobbying if, within two weeks before a vote by a legislative body on a highly publicized piece of legislation, the organiza­tion places a paid advertisement in the mass media that reflects a view on the general sub­ject and either (1) refers to the specific legisla­tion, or (2) encourages the public to commu­nicate with their legislators on the subject of the legislation.29

Exceptions to Lobbying Limitations

Similarly to the exceptions to political cam­paigning limitations, it is important for a 501(c)(3) organization to know what activi­ties are not limited by these political activity rules. Even private foundations, which are barred from participating in lobbying activi­ties, may conduct activities that fall outside of the scope of lobbying. There are several exceptions to lobbying activities. Activities

that fall within these exceptions may be con­ducted without limitation.

Nonpartisan Analysis, Study or Research

An independent and objective exposition of a particular subject matter, including any activity that is educational, is allowed. These organizations may advocate a particular viewpoint and engage in nonpartisan analy­sis, study or research and to publish those results to the public.30 An organization’s material is educational if:

  1. The content is educational;
  2. The material is prepared by methods generally accepted as educational in nature;
  3. The distribution of the materials is necessary or valuable to achieve the organization’s tax-exempt purpose; and
  4. The method of distribution is distin­guishable from ordinary commercial publishing practices.31

Essentially, this exception applies when the distributed material is designed to pres­ent information on both sides of the legisla­tive controversy and present a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent conclusion or opinion.32 The IRS will use a four-part test to determine whether the material is educational:

  1. Whether the presentation of view­points unsupported by a relevant factual basis constitutes a significant portion of the organization’s communications;
  2. To the extent viewpoints purport to be supported by a factual basis, whether the facts are distorted;
  3. Whether the organization makes substantial use of inflammatory and disparaging terms, expressing con­clusions based more on strong emo­tional feelings than objective factual evaluations; and
  4. Whether the approach to a subject matter is aimed at developing an understanding on the part of the audience.33

Technical Advice or Assistance

501(c)(3) organizations may provide techni­cal advice or assistance to a governmental body in response to a written request by such body.34 The request must be made by the governmental body as a whole, rather than an individual member of that body. Any response by the 501(c)(3) organization can be oral or written and must be made avail­able to every member of the requesting body. The response must be directly related to the materials requested, but they may also con­tain opinions and recommendations.35

Decisions Affecting the Existence, Powers and Duties of a Private Foundation

These organizations may also appear before or communicate with a legislative body con­cerning a potential decision of that body which might affect the existence of the pri­vate foundation, its current powers and duties, its tax-exempt status or the deduct­ibility of contributions to the organization.36 This is also called “self-defense lobbying”. It does not include authority to testify about the organization’s future program activities.

Examination and Discussion of Broad Social, Economic, and Similar Problems

A 501(c)(3) organization can discuss and expend resources to examine broad social, economic and similar problems as long as the discussion does not address a specific legisla­tive proposal and does not directly encour­age recipients to take action with respect to the legislation.37

Expressions of Individual Opinions By Foundation Officials

As stated above, these prohibitions and limitations do not hamper an individual’s First Amendment rights to free speech. As a result, organization officials may express their individual opinions on any piece of leg­islation and include a call to action, provided it is made clear they are speaking individu­ally and not for the organization. The official should not use the organization’s facilities, employees, or resources in connection with this expression and any expenses should be paid individually and not by the organiza­tion.

Treatment of Public Charity vs Private Foundation Under These Rules

For the most part, the rules above apply equally to public charities and private foun­dations, which are all considered to be 501(c) (3) organizations. However, as stated above, the tax code treats them differently on many levels, so it is important to know how they are treated differently under these rules.38 The primary differences relate to the 501(h) election, which is available only to public charities, and consequences for violation of these rules, which are more severe for private foundations.

Section 501(h) Election

Public charities, exempt under Section 501(c) (3), can make an election under Section 501(h) to expend up to 20 percent of funds/ resources on lobbying (rather than the 5% limitation or other insubstantiality test other­wise required).39 Note that this election does not allow any involvement in political cam­paigns. It relates solely to lobbying activities. This election is not available to private foun­dations.

Excise Tax On Violation of These Rules
Private Foundation Excise Tax

Private foundations are subject to an excise tax on taxable expenditures under IRC 4945. Any prohibited political activities mentioned above would be subject to this excise tax. The tax is issued in two tiers.

Tier 1 Tax on Private Foundations

The tier 1 tax is 20 percent of the amount of the taxable expenditure (or the value of the grant/resources spent on the nonqualify-ing political activities), due from the private foundation.40 An additional 5 percent tax is issued to the foundation manager(s) who knew of the taxable expenditure and agreed to the expenditure.41 Foundation managers liable for the tax are jointly and severally liable.42 The tax on foundation managers is capped at $10,000.43

Tier 2 Tax on Private Foundations

Private foundation will be given a deadline to correct the taxable expenditure. It must reverse the expenditure and/or return the funds and resources to the private founda­tion, to the extent possible. Where the return of funds and resources is not possible, addi­tional corrective action will be recommended by the IRS. If the private foundation fails to take the recommended corrective action, there will be a 100 percent tier 2 tax on the private foundation.44 An additional 50 per­cent tax will be issued to any foundation manager(s) who refuse to agree to all or part of the corrective action.45 Managers liable for this tax are jointly and severally liable.46 This tax on managers is capped at $20,000.47

Public Charity Excise Tax

Public charities, exempt under section 501(c) (3), are not subject to the excise tax set forth in section 4945. Rather, they are subject to a lower excise tax under section 4955,48 which imposes a tax on political campaign activities as follows:

Tier 1 Tax on Public Charities

The tier 1 tax is 10 percent of the taxable expenditure payable by the public charity and 2.5 percent payable by any managers who knew that the activities were prohibit­ed political activities.49 Managers are jointly and severally liable.50 The tax on managers is capped at $5,000.51

Tier 2 Tax on Public Charities

If not timely corrected, the tier 2 tax is 100 percent on the public charity and 50 percent on managers who refuse to agree to all or part of the corrective action. 52 Managers lia­ble for this tax are jointly and severally liable. 53 The tax on managers is capped at $10,000.54

Revocation of Tax-Exempt Status

Although as a last resort, the IRS can impose the ultimate sanction for violation of these rules, which is revocation of the organiza-tion’s tax-exempt status.

Other Rules Specific to Private Foundations Unrestricted Grants

Private foundations can make unrestricted grants to a public charity which has elected to do lobbying, as long as those grants are not earmarked for lobbying purposes.55 There can be no written or oral agreement that the grant will be used for lobbying purposes.56 A private foundation that follows these criteria is generally not held responsible if the public charity ultimately uses those funds for lobby­ing purposes.

Specific Project Grants

A private foundation may make a specific project grant to a public charity which has elected to conduct lobbying, as long as the amount earmarked for that special project does not exceed the budgeted expense to complete the non-lobbying project for which the donation was made.57 As detailed earlier in this article, a private foundation can ear­mark a grant for a public charity’s nonparti­san voter registration drive if the public char­ity satisfies several requirements.58

Jointly Funded Projects

Expenditures by a private foundation for carrying on discussions with officials of governmental bodies are allowed as long as the following requirements are met:

  1. The subject of the discussions is a program that is jointly funded by the foundation and government or a new program that may be jointly funded by the foundation and gov­ernment.
  2. The discussions are undertaken for the purpose of exchanging data and information on the subject matter of the program.
  • The discussions are not undertaken by foundation managers in order to make any direct attempt to persuade governmental officials or employees to take particular positions on spe­cific legislative issues other than the program.59

Subsequent Lobbying Use

If a public charity uses a private foundation grant to finance a nonlobbying communica­tion, then subsequently uses the same com­munication for lobbying purposes, the pri­vate foundation is generally not held respon­sible for that subsequent use unless:

  1. The private foundation’s primary purpose in making the grant was for lobbying; or
  2. At the time the grant was made, the private foundation knew (or should have known) that the public charity’s primary purpose in preparing the communication was for lobby-ing.60

Issue Advocacy and Activities Not Prohibited by Political Activity Limitations

As briefly mentioned at the beginning of this article, many 501(c)(3) organizations are spe­cifically created for issue advocacy, educa­tion of the public and to influence positive change in their communities. But often the line between issue advocacy and political activity often becomes blurred. It is impera­tive that 501(c)(3) organizations know the difference.

Technically speaking, an activity that does not fall within the specific prohibitions and limitations above would be an allowed activity, unless prohibited by other rules. But the distinction can be very subtle and, as stated above, the IRS evaluates these activi­ties on a case by case basis. To provide some general guidance, the IRS has allowed 501(c) (3) organizations to conduct the following activities, without violating political activity limitations.

  • Meet with legislators to discuss the scope and impact of the organiza-tion’s work;
  • Build relationships with legislators and sustain these relationships;
  • Educate legislators on a broad range of issues, without reference to a spe­cific legislative proposal;
  • Conduct public education cam­paigns that do not include a “call to action” which encourages the public to contact a legislator;
  • Conduct nonpartisan voter registra­tion and get-out-the-vote drives;
  • Conduct nonpartisan candidate debates;
  • Disseminate nonpartisan educa­tional information based on studies, research or other scientific analysis, which allows the reader to draw their own conclusions (including nonpartisan voter guides which include all candidates for a particu­lar public office, with no editorial comments);
  • Influence school board policies or policies of any other “special pur­pose body” that has limited juris­diction, such as housing authorities, zoning boards, sewer and water dis­tricts;
  • Convene nonprofits and other deci­sion-makers to discuss broad topics; and
  • Offer technical assistance to legisla­tors in response to a written request for oral or written testimony from a legislative ody.

This list is not exhaustive, but it is intended to provide general criteria to assist 501(c)(3)

organizations to focus their limited resourc­es on their tax-exempt purposes, including issue advocacy and education of the public, without running afoul of the political activity limitations.


1. IRC 501(c)(3).
2. HR 172 introduced on Jan 20, 2017 proposed to completely repeal the Johnson Amendment. HR 781 and S 264 were both introduced on Feb 1, 2017 and proposed to weaken the Johnson Amendment, but did not push for a complete repeal.
3. Fed. Reg. 2017-09574.
0. Freedom From Religion Foundation v Donald J. Trump, Case No 17-CV-330 (filed May 4, 2017, WD Wis).
4. IRC 501(c)(3) and 4945(d)(2). Sections 501(c) (3) prohibit this activity for all 501(c)(3) organizations. Section 4945(d)(2) specifically prohibits private foundations from any participation in political campaigns on behalf of or in opposition to any candidate for public office.
5. Treas. Reg. 1.501(c)(3)-1(c)(3)(iii).
1. Hammerstein v Kelley, 235 F Supp 60 (ED Mo 1964).
0. United States v Dykema, 666 F2d 1096 (7th Cir 1981). See also TAM 199907021.
6. Rev. Rul. 2007-41.
0. Treas. Reg. 53.4945-3(a)(2).
1. IRC 4945(f); Treas. Reg. 53.4945-3(b); see also PLR 201621016 and PLR 9751029.
2. Rev. Rul. 78-248 and Rev. Rul. 86-95.
3. Id.
4. Id.
5. Rev. Rul. 2007-41.
6. Rev. Rul. 78.248.
7. Id.
8. Rev. Rul. 2007-41.
9. IRC 501(c)(3) and 4945(d)(1); Treas. Reg. 1.501(c)(3)-1(c)(3).
10. Treas. Reg. 1.501(c)(3)-1(c)(3)(ii) and 56.4911¬2(d)(1).
11. Treas. Reg. 56.4911-2(d)(3).
12. IRC 4945.
13. IRC 501(c)(3). Note that registration and other requirements apply to true lobbying activities.
1. Seasongood v Commissioner, 222 F2d 907 (6th Cir 1955).
25 Christian Echoes Nat’l Ministry v United States, 470 F2d 849 (10th Cir 1972); Haswell v Commissioner, 500 F2d 1133 (Ct Cl 1974).
26. Exempt Organizations Determinations Manual, IRM (2-23-99).
14. Note that the 501(h) election imposes a sliding scale of allowed lobbying activities from 5 percent through 25 percent, depending on the monetary value of resources used and whether the lobbying activities are categorized as general or grassroots lobbying. If this election cannot be obtained or the limits are insufficient for the organization, it may want to consider applying to become a 501(c)(4) or 527 organization. However, these topics are outside the scope of this article.
15. Treas. Reg. 56.4911-2(b)(2)(iii).
16. Treas. Reg. 56.4911-2(b)(5).
17. Treas. Reg. 1.501(c)(3)-1(d)(3)(i) and 1.501(c)(3)-1(c)(3)(iv).
18. Rev. Rul. 77-4; Rev Rul 67-4.
19. Treas. Reg. 53.4945-2(d)(1)(vii).
20. Treas. Reg. 56.4911-2; Rev. Proc. 86-43.
21. Treas. Reg. and 53.4945-2(d)(2)(i) and 56.4911¬2(b).
22. Treas. Reg. 53.4945-2(d)(2)(ii).
23. Treas. Reg. 53.4945-2(d)(3) and 56.4911-2(b)(3).
24. Treas. Reg. 53.4945-2(d)(4) and 56.4911-2(b).
25. For example, IRC 4945 imposes a complete ban on lobbying activities for a private foundation, but this section does not apply to public charities, which can conduct insubstantial lobbying activities.
26. See Endnote 27 for additional details of this election, which is outside the scope of this article.
27. IRC 4945(a)(2); Treas. Reg. 53.4945-1(a)(2).
28. Treas. Reg. 53.4945-1(a)(2).
29. IRC 4945(c)(1); Treas. Reg. 53.4945-1(c)(1).
30. IRC 4945(c)(2); Treas. Reg. 53.4945-1(c)(2).
31. IRC 4945(b).
     27. Id.
32. IRC 4945(c)(1); Treas. Reg. 53.4945-1(c)(1).
33. IRC 4945(c)(2); Treas. Reg. 53.4945-1(c)(2).
34. Note that Section 4911 imposes an excise tax on public charities which made the 501(h) election for lobbying activities and have exceeded those limitations.
35. IRC 4955(a).
36. IRC 4955(c)(1).
37. IRC 4955(c)(2).
38. IRC 4955(b).
39. IRC 4055(c)(1).
40. IRC 4955(c)(2).
41. PLR 7810041.
42. Treas. Reg. 53.4945-2(a)(6)(i).
43. Treas. Reg. 53.4945-2(A)(6)(ii)(B).
44. IRC 4945(f); Treas. Reg. 53.4945-3(b); see also PLR 201621016 and PLR 9751029.
45. Treas. Reg. 53.4945-2(a)(3).
46. Treas. Reg. 53.4945-2(d)(1)(v)(B).
48. Note that Section 4911 imposes an excise tax on public charities which made the 501(h) election for lobbying activities and have exceeded those limitations.
49. IRC 4955(a).
50. IRC 4955(c)(1).
51. IRC 4955(c)(2).
52. IRC 4955(b).
53. IRC 4055(c)(1).
54. IRC 4955(c)(2).
55. PLR 7810041.
56. Treas. Reg. 53.4945-2(a)(6)(i).
57. Treas. Reg. 53.4945-2(A)(6)(ii)(B).
58. IRC 4945(f); Treas. Reg. 53.4945-3(b); see also PLR 201621016 and PLR 9751029.
59. Treas. Reg. 53.4945-2(a)(3).
60. Treas. Reg. 53.4945-2(d)(1)(v)(B).