If an organization engages in prohibited political campaign activity, it may face severe consequences, including the denial or revocation of its tax-exempt status under section 501(c)(3) of the Internal Revenue Code. Additionally, the organization may be subject to an excise tax on the amount of money spent on the prohibited activity.
Legal Reasoning and Rationale:
- Prohibition on Political Campaign Activity:
- Section 501(c)(3) explicitly prohibits organizations from participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office. This includes the publishing or distributing of statements.
- Consequences of Violation:
- Revocation of Tax-Exempt Status: Engaging in political campaign activity can lead to the IRS revoking the organization's tax-exempt status. This means the organization would lose its federal income tax exemption and could no longer receive tax-deductible contributions.
- Excise Tax: The organization may also be subject to an excise tax on the amount spent on the prohibited political activity. According to Section 4955, a tax of 10% of the political expenditure is imposed on the organization, and an additional tax of 2.5% may be imposed on any organization manager who knowingly agreed to the expenditure.
- Examples and Precedents:
- Rev. Rul. 2007-41: This ruling provides examples of activities that constitute prohibited political campaign intervention, such as endorsing candidates, distributing biased voter guides, and using organizational resources for political purposes.
- TAM 200446033: In this technical advice memorandum, the IRS ruled that a nonprofit's administration of a payroll deduction plan for contributions to a political action committee constituted prohibited political campaign activity, leading to the imposition of excise taxes.
- IRS Guidance and Enforcement:
- The IRS provides detailed guidance on what constitutes political campaign intervention and the consequences of such activities. Organizations are encouraged to review these guidelines to ensure compliance and avoid jeopardizing their tax-exempt status.
In summary, engaging in prohibited political campaign activity can result in the loss of tax-exempt status and the imposition of excise taxes, making it crucial for organizations to strictly adhere to the restrictions set forth in section 501(c)(3).
Sources:
§ 501. Exemption from tax on corporations, certain trusts, etc.
Rev. Rul. 2007-41
Publication 1828 (8/2015)
TAM 200446033
