A Guide for Nonprofit Leaders During Election Season

Whether you are an executive director of an art museum, dance company, a faith based organization or sports league, if you run a nonprofit organization, election season presents some challenges. The federal primary elections are heating up, and this is a great time to revisit the rules for nonprofit organizations regarding political activity. 

Under the Internal Revenue Code (the “Code”), public charities are wholly prohibited from participating in any political campaign on behalf of - or in opposition to - a specific candidate for office.  This prohibition is against direct or indirect activity.  Also, it should be noted that these rules do not pertain only to federal elections, state and municipal elections and candidates are also covered by this rule. 

Participation can mean the contribution of political campaign funds, or any public statement or advocacy specific to any candidate for public office.  Violation of this rule may result in the revocation of the nonprofit’s tax exempt status. 

Certain activities are permitted, however:

  1. Voter education activities in a nonpartisan manner;
  2. Voter registration drives;
  3. Get out the vote drives; 

However, if any of the above activities are undertaken with evidence of bias in favor of - or against  - a particular candidate, then such activity would arguably constitute campaign intervention and thus be prohibited activity. 

Specifically of interest for nonprofit executive directors and CEOs, the prohibition against campaign intervention is not intended to restrict your first amendment rights as a private citizen.  Best practices in this circumstance are to preface any comments you make publicly (whether verbal or in print) that they are your personal beliefs and not intended to represent the views of your organization.  Nonprofit leaders should avoid, however, making any partisan statements at official organization events. 

If you have any questions about political campaign activity and your nonprofit, please contact us today

Bryan Tuk Named to Board of Directors of Pittsburgh Youth Chorus

Bryan Tuk has been named to the Board of Directors of the Pittsburgh Youth Chorus.  "We are delighted to welcome Bryan Tuk to our board of directors." said Edwina French, Executive Director of the Pittsburgh Youth Chorus.  "His legal expertise, coupled with his knowledge and personal experiences working with non-profits, will be a tremendous asset to Pittsburgh Youth Chorus as we work to increase our outreach in the Pittsburgh region."

"Engaging in the community is incredibly important.  With TLO's continuing expansion into Pittsburgh, this is a terrific opportunity to support a worthy nonprofit arts organization that is doing great work there," said Bryan Tuk. 

As the Pittsburgh region’s leading and premier choral ensemble for young singers, Pittsburgh Youth Chorus is dedicated to enriching lives through professional-level choral education and performance.  Pittsburgh Youth Chorus provides opportunities for a diverse group of children to realize their innate artistic potential and share experiences that enrich their lives while benefiting their families and communities. Over the years, more than 2200 children and teens have participated in PYC's progressive program of choral education, mastering challenging choral repertoire in a variety of genres and languages and receiving a solid education in music theory and vocal production.

Nonprofit Law Update: Pennsylvania Creates Nonprofit LLCs and Benefit Companies

Nonprofit leaders have some new options when it comes to how to organize their business.  Recent changes to Pennsylvania law have paved the way for the easier creation of charitable entities. 

On February 21, 2017, PA Act 170 of 2016 went into effect with the stated purpose modernizing, clarifying, and replacing outdated laws.  Act 170 amends Title 15 (Associations Code) and Title 54 (Names) of the Pennsylvania Consolidated Statutes.  

In general, Act 170 replaces the 1914 version of general partnerships, limited partnerships and limited liability companies with the Uniform Partnership Act (UPA), the Uniform Limited Partnership Act (ULPA) and the Uniform Limited Liability Company Act (ULLCA). These changes create better consistency between an LLC and Corporation, and clarify taxation and owner protection. 

The big news for nonprofit leaders, however are the provisions of Act 170 which are specifically related to nonprofits, namely the creation of Nonprofit LLCs and Benefit Companies.

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Churches, Charities, and Elections

These are highly charged political times.  The level of public political discourse is not the most erudite and leaves much to be desired.  To put it mildly, there is more heat than light these days. 

Times like these are such that nonprofit leaders must be more vigilant than ever about the prohibition against nonprofit organizations from engaging in political campaign activity

Under the Internal Revenue Code, 501(c)(3) organizations, including charities and churches, are prohibited from engaging in political campaign activity.  This was enacted by Congress in 1954 and later strengthened over the years to include a prohibition against issuing statements opposing individual candidates. 

The concept of the prohibition arises from a close reading of Section 501(c)(3), which defines a 501(c)(3) organization as one "which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

One may ask why nonprofit leaders should be concerned about violating this rule.

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Donor Advised Funds: A New Challenge for Nonprofit Fundraising?

DAFs are a relatively new creature, a creation of Wall Street, and while DAFs attract large dollars, they almost certainly siphon dollars from NPOs that legitimately need the cash.  In a profile in the The American Prospect, it is revealed that a Wall Street DAF tops the Chronicle of Philanthropy's newly released annual list of the nation's top grossing charities.  

The winner?  Fidelity Investments' Fidelity Charitable, which raised $4.6 Billion in 2015 alone, $900 Million more than the second place fundraiser. 

Now The Chronicle of Philanthropy’s newly released annual list of the nation’s top-grossing charities threatens to give the sector yet another black eye. Released on October 27, the report does contain some feel-good news about American generosity—overall giving is up by 7 percent, for example. But the ranking contains a startling revelation that could intensify scrutiny of the sector: The growth in what some have dubbed a “Wall Street takeover” of charity.
The report is sure to add plenty of fuel to an already heated debate about so-called donor-advised funds, a philanthropic vehicle that has been popularized by the financial industry. Known as DAFs, the funds function like charitable checking accounts, permitting donors to put money aside for philanthropic purposes, take an immediate tax break, and then “advise” the sponsoring institution on which charitable causes they want to support with that cash. Their exploding financial-sector use means that the nation’s most popular charity in terms of donated dollars is no longer a group like the Red Cross or the Boys & Girls Club of America, but rather Fidelity Charitable, a DAF sponsor created in 1991 by the Boston-based financial firm.
Having raised $4.6 billion in 2015 alone, Fidelity Charitable occupies the number one spot on the Chronicle’s top charities list for the first time ever. The fund took in nearly $900 million more than second-place United Way Worldwide, which had until now held the top spot for all but one of the last 25 years. Two other sponsors of DAFs administered by financial firms—Schwab and Vanguard—also now crowd the ranks of the 15 largest U.S. fundraising organizations. Others that made the top 15 include Catholic Charities USA, the Salvation Army, and Stanford University.

Full story is here. 

Nonprofits Can Share Fundraising Duties

The lifeblood of Nonprofit Organizations (NPOs) is fundraising.  Fundraising is often a mysterious and daunting task for smaller NPOs, and in fact a whole industry has sprung up to service that need with professionals who can, for a fee, create and direct your NPOs fundraising strategy.  Now, a newer model emerges in NPO management circles that calls for spreading the fundraising responsibilities throughout the NPO staff - not just the development team.  

A good read on this topic can be had here

Nonprofit Law Update: Princeton University Settles Taxpayer Litigation

Princeton University had been engaged in a years long state court battle with a group of Princeton Borough residents who were challenging the University's tax exempt status.  

The gist of the lawsuit was that the residents alleged that because Princeton University distributes millions of dollars of profit from patent royalties to its faculty that the University is not entitled to claim exemption from local property tax.  The Plaintiffs' theory was that they all ended up paying more in taxes because of the University's exemption. 

The University reached settlement with the resident group, and agreed to:

  •  contribute $2 million in 2017 and $1.6 million in the following five years to a fund that will distribute the money to Princeton residents who received a homestead benefit under the New Jersey Homestead Property Tax Credit Act;
  • give $416,700 each year from 2017 through 2019 to the Witherspoon Jackson Development Corporation, which helps fund housing for economically disadvantaged residents; and
  • make a $3.5 million annual contribution to the town of Princeton in 2021 and 2022.

These are large dollars to be sure but obviously represented a way for the University to control the outcome of the litigation.  The loss of real estate tax exemption would have cost the University vastly more than the settlement amount.