Section 501(c)(3) is quite clear in prohibiting charities from engaging in political activity. There is no exception for de minimis political activity. The IRS is also clear about this prohibition, with very clear public statements stating that a Section 501(c)(3) organization that engages in political activity will lose its exempt status. Whether there is a de minimis exception at the audit level isn’t clear, but the clear lore is that the one thing a charity cannot do is to engage in any political activity.
On Sunday, June 13, 2004, the Washington Post ran an article indicating that Ralph Nader’s campaign is
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leasing office space from Citizen Works, an apparent Section 501(c)(3) organization that is associated with Ralph Nader. Mr. Nader claims that the arrangement has been reviewed by outside legal counsel and that the lease is at fair market value. Mr. Nader asserts that there is not a problem.
Others in the article reach different conclusions. One concern is expense allocations. People questioned whether the parties had adequately addressed overhead and utility allocations, indicating that the Federal Election Commission will take a close look at these and related issues when they audit the Nader campaign. Still others seemed to believe the relationship, even if fair value is paid and there is scrupulous accounting, is inherently problematic. Furthermore, some of the discussion in the article suggests that there may be overlapping personnel.
LESSONS: Lesson One is quite simple: Your Section 501(c)(3) organization cannot engage in political activity if it wants to maintain its exempt status. The IRS website has extensive information on this issue, including an excellent CPE article that runs several hundred pages. See IRS Letter to Exempt Organizations. When in doubt, review these materials and consult with a knowledgeable attorney.
Lesson Two. If your organization wants to play close to the line on this issue, assume you will be challenged. The IRS might not uncover the issue in an audit. But you can bet the opposition candidate will bring the activity to the attention of the Federal Election Commission, the IRS, and the media.
We probably shouldn’t admit this, but we have not been a big fan of Ralph Nader’s since we read his book about Citibank. We can only wonder how Ralph Nader would characterize this activity if a large corporation were involved. In short, we find Mr. Nader’s willingness to push the rules this far hypocritical given his prior demands for others to adhere to the spirit, as well as to the letter of the law.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
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