501(c)(3)s and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

There are many obvious benefits to earning the designation of a 501(c)(3) charitable organization—the organization is exempt from tax and donations are deductible. But the Internal Revenue Code places a key limitation on all 501(c)(3) organizations by prohibiting them from engaging in any political activity. Violation of this prohibition on political activity may lead the IRS to refuse or revoke 501(c)(3) status. A 501(c)(3) therefore must avoid any partisan activity that supports or opposes political candidates or political parties.

A 501(c)(3) generally MAY NOT:

  • Make political contributions (monetary or in-kind).
  • Issue a statement that supports or opposes a candidate (e.g., stand-alone statements, statements in newsletters, or material on a website).
  • Endorse a candidate.
  • Ask a candidate to sign a pledge on any issue.

However, a 501(c)(3) may generally engage in non-partisan activity that is related to the democratic process. Therefore, a 501(c)(3) generally MAY:

  • Engage in non-partisan election-related activities such as get-out-the-vote and voter registration drives.
  • Engage in limited lobbying (related to the mission of the organization), including ballot-measure advocacy.
  • Educate all candidates on issues within the purview of the organization.
  • Conduct non-partisan public-education and training sessions about participation in the political process.
  • Prepare and disseminate non-partisan candidate questionnaires and sample ballots.

However, the officers, directors, and employees of a 501(c)(3) retain the right to personally engage in political activity (just as we described in our recent post on political activity for corporations). A 501(c)(3) must simply be careful to avoid allowing organization resources (from mailing lists to letterhead) to be used for political activity or permitting individuals to engage in political activity that suggests the support or endorsement of the organization.

Corporations and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

One of the key principles of federal campaign-finance law is that corporations are prohibited from making political contributions to federal candidates, political action committees, and party committees. This means not only that corporations are prohibited from writing checks to federal candidates, political action committees, or parties, but that a corporation should not use its resources—or allow its resources to be used—for any federal election purpose (though some exceptions exist for a corporation’s federal connected PAC). This prohibition on the corporation’s activity must be balanced, though, with the individual political activity of a corporation’s employees. Although a corporation may not make federal political contributions, a corporation’s employees have a First Amendment right to engage in the political process.  To maintain this balance, corporations should keep the following guidelines in mind:

Employees MAY:

  • Make individual political contributions with personal funds.
  • Volunteer or work for a political campaign on their own time.
  • Run for political office.

Employees may NOT:

  • Be reimbursed for any political contributions they make.
  • Use any corporate resources (including letterhead, printers, conference rooms, and mailing lists) for federal-election purposes.
  • Provide even individual volunteer services for a federal campaign during normal business hours—the corporation’s time is itself a resource of the corporation.
  • Take even unpaid leave to work or volunteer for a federal campaign if the leave is granted in a way that demonstrates a preference for one candidate or political party.
  • If an employee runs for political office, the corporation may not endorse the candidate or indicate support through such avenues as a newsletter or website.

Because the scope of what is prohibited is so broad, it is important for corporations to adopt and enforce political-activity policies to ensure that employees are not unknowingly making prohibited political contributions by performing work for a political campaign during paid business hours or by using corporate resources for political purposes. Similarly, corporations should have a plan in place to govern how and when employees are entitled to take unpaid leave to work or volunteer for a federal campaign.

Corporations may be faced with navigating these and other challenges in this heated political season. It is therefore important for corporations to begin thinking about how to navigate between the federal prohibition on corporate political contributions and the First Amendment right of a corporation’s employees to engage in the political process.

In Proposed Amendments to Pay-to-Play Rules, the New Jersey State Investment Council Explains Indirect Violations

Comments are due today on proposed amendments to the New Jersey State Investment Council (“SIC”) Pay-to-Play Rules.   One of the proposed changes addresses “indirect violations” of the rules.

Currently, the rules prohibit covered investment management firms, investment management professionals and third party solicitors from “directly or indirectly, through or by any other person or any means whatsoever, do[ing] any act” which would constitute a violation of the contribution restrictions set forth in the SIC rules.

The current rules do not define “indirect” violation.  The proposed amendments include a non-exclusive list of indirect violation examples:

  • Having a family member or other person make a political contribution to a covered recipient;
  • Making a contribution to a federal party committee or other political committee or organization “for the purpose of influencing State or local elections” governed by the SIC rules; and
  • A third party solicitor making political contributions in order to encourage the engagement of an investment management firm for which the lobbyist is not directly soliciting business from the Division of Investment.

Although the SIC has already addressed contributions by family members in a clarification statement, the coverage of contributions to federal committees as indirect violations appears to depart from prior SIC policy.

Perhaps the proposal is intended to cover federal contributions only when the intent to circumvent the SIC restriction is unambiguous.  In addition to potentially complex evidentiary issues, a government regulation of political activity that turns on an assessment of corporate intent poses a thorny set of constitutional issues.