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May nonprofit advocacy group support/oppose Trump’s picks?

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May nonprofit advocacy group support/oppose Trump’s picks?

As a nonprofit advocacy group, may we support or oppose President-elect Trump’s nominees for Cabinet posts?

This is a good question to show the distinctions among different types of nonprofit organizations.  (See Ready Reference Page:  “What Do We Mean When We Say ‘Nonprofit’?”) The answer depends on the tax status of the “nonprofit” involved.  Only if the organization is a 501(c)(3) charity is there likely to be a significant limit on its activity in this regard.  501(c)(4) social welfare organizations or 501(c)(6) trade associations do not face the same limitations on their political activity and can basically support or oppose nominees as much as they want.

A 501(c)(3) charity is effectively prohibited from endorsing or opposing a candidate for a public office, but the IRS concluded that attempting to influence the Senate confirmation of a federal judicial nominee does not constitute participation or intervention in a political campaign. (Notice 88-76)  

The IRS has concluded that attempting to influence Senate confirmation is “lobbying,” which a 501(c)(3) public charity is permitted to do so long as it is not a substantial part of its activities.  Although the Notice deals only with judicial appointments (and was particularly relevant to Supreme Court appointments at the time), the rationale is the same in dealing with any position requiring the advice and consent of the Senate.  “The Senate’s confirmation vote constitutes a vote on legislation” for purpose of this analysis, the Notice says.  Therefore, a public charity should not be afraid to voice its opinion for or against a Cabinet nominee or other person whose appointment must be confirmed by the Senate.  The organization just needs to be sure that it is not a substantial part of its activities or is within the expenditure limits of section 501(h).

A 501(c)(3) private foundation is generally not permitted to lobby in its own name and its direct involvement in seeking to influence Senate confirmation would constitute a taxable expenditure subject to an excise tax.

Tuesday, January 10, 2017
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Comments

If a private foundation signs a letter or petition opposing a cabinet nominee, there is no expense involved. It would violate the no lobbyjng rule, but there could be no tax imposed. So how illegal is that?

Illegal enough to be not worth the risk.  It may be true that signing a petition would not entail a great deal of expenditures, but the IRS could allocate some of the salary of the foundation managers who read the petition and decided to sign, plus any cost to communicate that signature to others.  Whatever it is, it could be enough to put the foundation on the IRS radar screen. 

The foundation's risk is not so much having to pay a tax for the individual taxable expenditure.The ultimate risk is that the IRS has the power to impose a "termination tax" equal to the lower of the aggregate tax benefit realized by the foundation since day one or equal to its net assets in the case of willful and repeated acts, or "a willful and flagrant act," giving rise to the initial tax on a taxable expenditure.  In other words, the IRS has the power to put willfully bad actors out of business altogether. 

If you really want to find out how illegal it is to knowingly violate the foundation requirments, be my guest.  But I wouldn't recommend it.  --Don Kramer

 

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