The IRS has released its customary election-year bulletin reminding 501(c)(3) organizations that they may not conduct political campaign activities. As in previous election years, the bulletin notes that a (c)(3) "cannot endorse any candidates, make donations to their campaigns, engage in fundraising, distribute statements, or become involved in any other activities that may be beneficial or detrimental to any candidate," and warns that "the organization could lose its tax-exempt status" if found to be participating in such activities.

This year's bulletin has drawn particular interest due to the extraordinary scrutiny in recent months of nonprofits' political activities by the FEC and the news media. The warning from the IRS is substantively similar to its predecessors in most aspects, but it does break new ground by referring readers to Publication 1828, the Tax Guide for Churches and Religious Organizations, confirming suggestions from Harmon Curran and other practitioners that the guidance for churches provides useful tips for other (c)(3)'s to emulate. (See NN 9/02.)

The bulletin (including links to both the full Guide for Churches and a shorter document summarizing the Guide's information on lobbying and political activities) is available online at www.irs.gov/newsroom/article/0,,id=122887,00.html.

By Josh Sadlier





Minor candidates and voter education activities

Every election year we get questions about how charities conducting nonpartisan voter education work should handle independent, third-party, or other "minor" candidates for office. Does an organization sponsoring a nonpartisan candidate debate need to invite everyone running for a particular public office? Does a 501(c)(3) voter guide on the presidential candidates need to include the positions of everyone running for that office? What's an organization to do given the number of candidates and the limits on time, space, or other resources available? (So far more than 40 candidates have filed paperwork with the FEC for the Presidential race alone!)

Good news! 501(c)(3)s can exclude candidates from debates, voter guides, and other voter education activities if including all of the candidates would be impractical. It is essential that the organization set an objective standard for which candidates to include and exclude and apply that standard consistently. For example, a charity sponsoring a debate could choose to invite only candidates who have qualified to appear on the ballot or who have demonstrated a reasonable threshold of public support (5%? 10%? 15%?) in a reputable independent poll.

Of course 501(c)(3)s are not required to exclude minor candidates, and opening up a voter guide or debate to include their views may very well result in a deeper, more comprehensive discussion of important public policy issues.

Nonetheless, if it's just too difficult to include all of the candidates for an office, you can exclude them without putting your organization at risk.

By John Pomeranz





Back to basics in issue advertising

A Florida television station pulled an environmental organization's ad last month based on an accusation of misrepresentation, serving as a reminder to all organizations that engage in issue advertising to take precautions to ensure their ads are accurate and appropriately researched.

The ad featured pictures shot from outside a local Florida industrial plant mixed with footage of leaky pipes and barrels at similar plants. The plant requested that several television stations take the ad off the air, claiming it misrepresented the plant's actual situation. Upon reviewing documentation of the organization's evidence, four of five stations decided to continue running the ad. One station, however, claimed it was unsatisfied with the evidence provided, and subsequently pulled the ad.

This organization's misadventure is instructive for other organizations and provides an opportunity to remind us all of some of the basic rules of issue advertising: research, document, and verify.

First, ensure that all your allegations are backed up with solid documentation and fact-checking. This organization was successfully able to convince four out of five stations that its claims were valid due to its extensive documentation. Even the station that pulled the ad said that it would continue to do business with the organization, and would consider airing different ads that could be verified, thus showing the importance of being able to demonstrate your good faith efforts in research, even if they are not ultimately successful.

Having the ad pulled from the air is the mildest of penalties, however; more serious cases of misrepresentation may lead to lawsuits for defamation or libel. Again, thorough fact checking and documentation is both the best preventative and the best defense in this regard.

In addition, it is important to ensure that copyright issues are taken care of. For example, if an ad uses copyrighted footage, you may have to secure the owner's permission and/or pay royalties.

A final couple of reminders for political advertising in this contentious season: 501(c)(3)s should take into consideration that some advertising, if linked to legislation, may count as a grassroots lobbying expenditure, even if the advertisement does not include an explicit call to action. All 501(c) organizations should of course also be aware that if an advertisement mentions a current candidate for office, it may be considered political campaign activity. A recent Navigator article outlined some helpful advice offered by the IRS in this regard (see NN February-March 2004).

As always, the best advice is to have your advertisement vetted by your lawyer before it goes on the air.

By Eric Tars





Virginia joins 21st century with new tax-exemption procedure

Effective July 1, 2004, all Internal Revenue Code (IRC) Section 501(c)(3) and some Section 501(c)(4) organizations can qualify for a sales and use tax exemption in Virginia. A quick online application will replace a cumbersome process by which nonprofit organizations have had to seek legislative action for their exemptions through the Virginia General Assembly.

Nonprofit organizations that held a valid exemption certificate issued by the Department of Taxation prior to July 1, 2004 will remain exempt until their exemption expires, at which time they will be required to reapply under the new process.

Is your organization eligible?

Any nonprofit organization that is seeking a new exemption must meet certain eligibility criteria:

1. The organization must be exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code (IRC) or under Section 501(c)(4) of the IRC. If exempt under Section 501(c)(4) of the IRC, the organization must be organized for a charitable purpose. If not exempt, the organization can also qualify if it has annual gross receipts of less than $5,000 and is organized for charitable purposes.

2. The organization must be in compliance with all applicable state solicitation laws, and it may be required to provide appropriate verification of such compliance. For additional information, contact the Department of Agriculture and Consumer Services at (804) 225-3924.

3. The annual general administrative costs of the organization, including salaries and fundraising, may not exceed 40 percent of its annual gross revenue as determined under generally accepted accounting principles.

4. If the organization's annual gross revenue was $250,000 or more in the previous year, then the organization must provide a financial audit performed by an independent certified public accountant.

5. If the organization filed an IRS Form 990 or 990 EZ, or the successor forms to such forms, with the Internal Revenue Service, then it must provide a copy of such forms to the Department of Taxation.

6. If the organization did not file a federal 990 or 990 EZ tax form, or the successor forms to such forms, with the IRS, then the organization must provide the following information:

• A list of the Board of Directors or at least two responsible agents of the organization, with names and addresses;
• The location where the financial records of the organization are available for public inspection;
• An estimate of its total taxable purchases for the coming year and, where possible, the total taxable purchases made in the preceding year.

Harmon Curran is pleased to announce that two new lawyers have recently joined the firm. John Pomeranz worked for nearly six years as Nonprofit Advocacy Director at the Alliance for Justice, where he helped nonprofits around the country understand the laws governing lobbying and election-related activity by nonprofit organizations. Jenny Gillon previously served as Assistant Corporation Counsel for the American Cancer Society in Atlanta, Georgia, where she handled a wide range of legal issues. For details on John, Jenny, or any of our other attorneys, please visit www.harmoncurran.com/personnel.html.





This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required.

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