Read a hypothetical example of how a church could jeopardize its 501(c)(3) status.

Learn why cool heads and sound judgment must prevail in decision-making.

Election years come and go, but when is the last time one started at a simmering boil?? Simmering boil is an oxymoron, but American politics are saturated in one now. Eventually, cooler heads will prevail. In the meantime, 501(c)(3) churches and nonprofit organizations must be careful not to get involved in political activity, lest they jeopardize their 501(c)(3) status and/or face penalties.

Section 501(c)(3) of the Internal Revenue Code provides two main benefits for certain categories of nonprofit organizations that meet, register, and maintain compliance stipulated in the Code. Those two benefits are #1 tax-exempt status and #2 donations to a 501(c)(3) nonprofit organization may be tax-deductible. Many 501(c)(3) nonprofits depend on the first benefit to survive financially. Recent changes in tax law have dialed back the practical application of the second benefit for smaller donors. Nonetheless, the second benefit is still very impactful to the financial stability of 501(c)(3) nonprofits which depend on key donors making large contributions. If you have 501(c)(3) status, you want to keep it.

Political activity with even a hint of bias or partisanship is absolutely prohibited under IRC 501(c)(3). Refer to irs.gov and read further detail under “The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations.” Still, some 501(c)(3)’s will test the limits, knowingly or unknowingly.

Let’s consider a hypothetical scenario created for instructive and discussion purposes only. Suppose a neighborhood church’s youth group, under the supervision of the youth minister, volunteers to teach English as a Second Language to families living in a local shelter. Many kids in the youth group form friendships with the people they are helping. The youth are upbeat, the church is engaged in a hands-on community mission, all is well. At the same time, a candidate for city council is also volunteering at the shelter. The candidate is likable, energetic, and skilled at personal interaction. Before long, the church youth group is distributing door-to-door campaign literature for the candidate. Soon, campaign signs promoting this candidate pop up in the front yard of the church. Next, the church’s youth group room becomes a mini-campaign headquarters. Electronic campaign flyers for this candidate are even being emailed from the church’s email address.

The above scenario is enlightening. It highlights the goodness of focused youth in helping others learn English. It exposes the vulnerability of youth to exploitation by an adult peer volunteer in a normal setting. It reveals how well-meaning adults can get carried away in the moment and lose touch with the guiding principles of legitimate church activities.

Let’s walk through the elements in this hypothetical and determine where/when the church likely violated compliance with IRC 501(c)(3):

1. The charitable mission of a church youth group teaching English to people in the shelter aligns with the purpose and operations of a church maintaining 501(c)(3) status.

2. Interacting with the political candidate volunteering at the shelter is not an issue respects 501(c)(3).

3. The door-to-door distribution of partisan campaign literature by church representatives violates 501(c)(3) regulations. The church youth group is under the supervision of the church youth minister. All 501(c)(3) organizations are prohibited from direct or indirect participation in a political campaign.

4. The existence of a mini-campaign headquarters on church property is a clear violation of 501(c)(3) rules.

5. The use of the church’s email address to send out campaign flyers would be very unfavorable for the church if the IRS was asking questions or doing an audit.

What is hypothetical today could become a reality tomorrow. The consequences of the 2020 simmering boil are as of yet unknown, but political activity is trolling in uncharted waters.

Protect your church/nonprofit organization 501(c)(3) status by being true to your mission and grounded in legitimate guiding principles. Staff and volunteers must be properly trained, activities evaluated, and responsible leadership must know what is going on under its roof. If you are unsure about what activities may present a problem for maintaining 501(c)(3) status, consult an attorney.

Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for coolheaded insurance advice and quality insurance coverage for churches and nonprofit organizations.