With the 2024 election behind us, it’s critical for nonprofit leaders to reflect on whether their organizations engaged in any political activities last year and ensure they meet compliance requirements. This article breaks down the key types of political activity nonprofits may engage in and provides actionable steps to help your organization stay on track.
Advocacy Activities
Advocacy involves actions that raise awareness or encourage support for a cause, such as public campaigns or educational efforts. All nonprofits are permitted to conduct advocacy activities as long as they do not endorse specific candidates or political parties. While advocacy is generally not subject to additional compliance, nonprofits should ensure that their actions align with their mission and do not cross into prohibited political activity. Nonprofits should also clearly identify which activities are true advocacy activities and which ones go into the lobbying territory.
Lobbying Activities
Lobbying refers to efforts to influence legislation and is divided into two types:
- Direct Lobbying: Contacting legislators directly to advocate for or against specific legislation.
- Grassroots Lobbying: Encouraging the general public to contact legislators on a legislative issue.
Nonprofits structured as 501(c)(3) organizations (except for churches, private foundations, and other religious organizations) can engage in limited lobbying activities based on their total expenses, while 501(c)(4), 501(c)(5), and 501(c)(6) organizations face no such restrictions. However, all organizations must document their lobbying expenditures on Schedule C of Form 990 to maintain compliance.
Political Endorsements and Expenditures
Endorsing or opposing political candidates is a highly sensitive area for nonprofits.
- 501(c)(3) organizations are strictly prohibited from participating in any political endorsements or expenditures.
- 501(c)(4), 501(c)(5), and 501(c)(6) organizations may engage in these activities, but they are subject to additional compliance and may incur taxes on political expenditures.
Nonprofits that incur political activities expenditures must file Form 1120-POL if they have more than $100 in investment income. Failure to report these expenditures can result in late filing penalties and unexpected tax liabilities. Leaders should carefully review their activities to identify any political spending and report it accurately.
Voter Registration Initiatives
Voter registration drives and get-out-the-vote efforts are often mistaken for political activities but are generally permissible for all nonprofits. These initiatives focus on encouraging civic participation without endorsing specific candidates or parties. While they are not subject to the same restrictions as political endorsements, nonprofits must ensure that these efforts remain nonpartisan.
Next Steps for Nonprofits
To stay compliant, nonprofit leaders should take the following actions:
- Review Financial Activity: Evaluate 2024 expenditures to identify any spending related to advocacy, lobbying, political endorsements, or voter registration.
- Document and Report: Ensure all political expenditures are properly documented and reported on Form 990 or Form 1120-POL, as required.
- Understand Tax Implications: Be aware of potential taxes on political expenditures if your organization has significant investment income.
- Seek Guidance: Work with your accountant at Han Group to clarify any uncertainties about compliance or tax filings.
Han Group Can Help
Since the filing deadline for the 1120-POL is April 15 and the 990 deadline is May 15th, these deadlines are quickly approaching. That said, it is imperative to identify if any of your organization’s expenditures qualify as lobbying or political activities expenditures. More importantly with political activities as any tax due with the 1120-POL filing must be paid by April 15th regardless of whether an extension is being filed or not. Compliance requirements when it comes to lobbying and political activities can be complex, but if your organization has a solid understanding of these types of activities, it will help ensure accurate tax filings and help your organization stay ahead of the game. If you need further assistance, reach out to your tax professional at Han Group.
