Defining nonprofit political activity through bright lines and safe harbors

No, instead we have learned that whether or not the IRS agents in Cincinnati were politically motivated, they were clearly poorly guided. And we have learned that the IRS’s interpretations of the definition of “political intervention” are so extraordinarily confusing that not even its employees know how to properly apply them (though this does not mean their actions while attempting to do so were acceptable).

The problem was starkly evident when Former IRS Acting Commissioner Steven T. Miller was asked in May by members of Congress if he could define when a group applying for tax exemption as a 501(c)(4) “social welfare organization” was being too political. He replied that he could not say for sure. If the former acting commissioner of the IRS cannot answer this question, it is unreasonable to expect frontline IRS employees – or groups applying for 501(c)(4) status – to understand what kind of political activity is allowed and what is prohibited or limited.

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Fortunately, a group of nonprofit leaders and tax law experts have been seeking to draw lines to define political activity under the tax code for the past four plus years, aptly naming their work the Bright Lines Project. The team’s work, now spearheaded by Public Citizen, has become even more important since the controversy began in May.

Nonprofit organizations are granted tax-exempt status because they provide a social good or represent a particular group, interest or policy issue. Charities organized as 501(c)(3) organizations, the largest group of tax-exempt organization, cannot directly or indirectly support or oppose a political candidate or party.. However, they are allowed to partake in certain nonpartisan activities that can strengthen our democracy, such as encouraging voter engagement, educating the public or engaging in grass roots lobbying. But because the IRS does not clearly define what is allowable political activity and what is not, many nonprofits are discouraged from legitimate civic participation because they fear violating the law and potential consequences from the IRS.

Other types of nonprofits, such as 501(c)(4) social welfare groups or trade associations, are permitted to engage in political activity as long as it is not the primary purpose of the organization. But the lack of clarity allows some of these groups to discount the risk and raise millions from donors to finance campaign ads by manipulating vague IRS tests on “issue” advocacy. Most disturbing, this money is hidden because tax exempt organizations are not required to disclose their donors.

The Bright Lines Project proposal offers six rules that seek to establish a new definition of political campaign activity through bright lines and safe harbors. Not having an objective definition for political intervention would be akin to playing a football game and telling the players they cannot go out of bounds, but then not establishing the boundaries. These rules make it clear that tax-exempt charitable organizations cannot endorse or contribute to the campaign of a political candidate or party. More importantly, they create a roadmap with clear pathways for nonprofit organizations to play a genuine role in our democracy without fear of IRS audits or sanctions.

It is time for Congress and IRS to address the vague definitions by applying bright lines and safe harbors to encourage civic participation while also stopping potential abuses.

Halloran is project coordinator for Public Citizen’s Bright Lines Project.