Nowadays it seems everything anyone says or does seems to land on one side or another of a political divide, whether they intend to or not. This can be emotionally challenging for everyone, and business owners are no exception. We all have causes and issues we’re passionate about and you may be tempted to throw the resources of your business behind them. But if your business is a nonprofit, using it to dive into politics could put your 501(c)(3) status in jeopardy and potentially lead to fines and penalties.

Here are the rules and the pitfalls you need to watch out for as a non-profit trying to navigate a political landscape.

What Is a 501(c)(3) (Nonprofit) Organization?
A 501(c)(3) organization is a nonprofit entity recognized for federal tax-exempt status because it is organized and operated exclusively for charitable, religious, educational, scientific, literary, or certain other specified purposes. Donations to 501(c)(3) public charities and private foundations are generally tax-deductible to donors. To maintain tax-exempt status, these organizations must meet strict requirements regarding their purposes, operations, and use of funds—including significant limitations on political activities.

Legal Restrictions on Political Activities

1. Absolute prohibition on partisan political campaign intervention. A 501(c)(3) may not, directly or indirectly, participate in or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office. This prohibition is absolute and applies to all levels of government. It covers the organization’s official activities, the use of its resources, and statements made or disseminated in the organization’s name.

2. Limited lobbying; no substantial part of activities may be lobbying. A 501(c)(3) may engage in some lobbying to influence legislation, but such activities cannot constitute a substantial part of its overall activities. Organizations may elect to measure lobbying under an expenditure test by filing a [Section 501(h)] election which provides clearer dollar-based limits; otherwise, the “substantial part” test applies, which is facts-and-circumstances based.

3. Strict separation from individual and affiliate activities. Leaders and staff may engage in personal political activities on their own time and with their own resources, but they must not use organizational resources, titles, facilities, or mailing lists, and should include clear disclaimers that they speak in their personal capacity.

4. No earmarked or restricted funds for political purposes. Tax-deductible contributions and organizational funds and assets cannot be used for partisan activities or for lobbying beyond permitted limits.
What Counts as “Political Activities”?

The following examples illustrate activities that constitute political campaign intervention (prohibited) and lobbying (limited):

1. Prohibited partisan political campaign intervention: a) Endorsing or opposing a candidate, including public statements, social media posts, or website content made in the organization’s name. b) Rating, scoring, or publishing voter guides that favor or oppose a candidate or party, or that use issue criteria designed to influence voters toward or against specific candidates. c) Coordinating with a campaign, political party, PAC, or candidate, including sharing resources, strategy, or nonpublic plans. d) Making contributions—money, in-kind goods or services, staff time, facilities, or mailing lists—to a candidate, party, or PAC. e) Hosting a candidate event that is not conducted in a neutral, nonpartisan manner, or that provides a platform preferential to one candidate. f) Publishing communications close to an election that identify candidates and take positions on their character or qualifications, or that compare candidates on issues in a way that suggests how to vote.

2. Permissible nonpartisan activities (with guardrails): a) Voter registration and get-out-the-vote drives conducted in a strictly nonpartisan manner, without targeting based on party or candidate preference. b) Candidate forums or debates that invite all legally qualified candidates, apply objective criteria, use neutral moderators, cover a broad range of issues, and avoid editorializing or signaling a preferred candidate. c) Issue advocacy that does not refer to candidates, elections, or voting, or that avoids timing, messaging, and targeting that could be reasonably viewed as influencing an election.

3. Lobbying (permitted within limits): a) Direct lobbying: communications to legislators or their staff that express a view on specific legislation. b) Grassroots lobbying: communications to the public that refer to specific legislation, express a view, and include a call to action. c) Nonpartisan analysis, study, or research may be outside the lobbying definitions if it presents a full and fair exposition of the facts and is made available broadly, without advocating a specific legislative outcome.

Consequences of Violating the Restrictions

1. Loss of tax-exempt status. Engaging in prohibited campaign intervention can result in revocation of 501(c)(3) status, converting the organization into a taxable entity and jeopardizing donor deductibility.

2. Excise taxes and penalties. The organization and responsible managers may be subject to excise taxes for political expenditures and potentially for lobbying in excess of permitted limits under an expenditure election.

3. Repayment and corrective action. The IRS may require disgorgement of amounts spent on prohibited activities and impose corrective measures, including adoption of compliance procedures.

4. Reputational, grantmaking, and state-law risks. Violations can harm credibility with donors and the public, trigger grant clawbacks, and invite scrutiny from state charity regulators, attorneys general, and funders.
Importance of Maintaining Compliance

Compliance preserves mission focus, protects the organization’s tax-exempt status and donor confidence, and ensures eligibility for grants and partnerships that require adherence to nonpartisanship. Clear boundaries also safeguard staff and volunteers from inadvertently exposing the organization to risk during election cycles.

Click here to download a list of compliance tips.

Key Takeaways

• 501(c)(3) organizations must remain strictly nonpartisan; any campaign intervention is prohibited.
• Limited lobbying is permitted within defined thresholds; exceeding limits or engaging in partisan activity risks severe penalties, including loss of exemption.
• Robust policies, training, pre-clearance, and recordkeeping are essential to maintain compliance, especially during election seasons.

For tailored guidance or to review proposed activities, organizations should consult counsel and implement a compliance plan suited to their mission, resources, and risk profile.

What other types of 501(c) organizations can engage in political activities?
501(c)(4) organizations can engage in political activities, but with limitations. While 501(c)(3) organizations are strictly prohibited from supporting or opposing candidates for public office, 501(c)(4) organizations are permitted to engage in electioneering activities, provided that these activities do not constitute the organization’s primary purpose and use less than half of its resources. Additionally, 501(c)(4) organizations must ensure that most of their work is focused on their primary social welfare purpose, which includes activities that could be conducted by a 501(c)(3) organization, such as lobbying

Are there prohibitions on political activities for social enterprises?
No, social enterprises are not subject to the same prohibitions on political activities as 501(c)(3) organizations, but they face different restrictions. While 501(c)(3) organizations are absolutely prohibited from participating in or intervening in political campaigns for or against candidates for public office, social enterprises, like other for-profit companies, are restricted in their political activities primarily by federal, state, and local campaign finance laws.