Nonprofits and politics don't always mix. And navigating this area can get complicated. So if you're looking for advice, better seek out a lawyer with relevant expertise.
This seems to be the lesson from a brouhaha that erupted in December, when Karen Handel gave a speech in which she suggested that Planned Parenthood ought to be investigated by the Internal Revenue Service. Handel is perhaps best known as the former VP for public policy at the Susan G. Komen for the Cure foundation. She sparked an uproar in February 2012, when the Komen foundation yanked funding from Planned Parenthoodbefore quickly reversing course (and accepting Handel's resignation).
In December it was a speech Handel delivered to the Family Research Council that ruffled feathers in the nonprofit world. In it, Handel wondered whether campaigning by Planned Parenthood's advocacy arm was running afoul of IRS rules.
After it was reported in the press, Abby Levine, legal director for advocacy at the Alliance for Justice, was amazed. "As I read her speech, what struck me was the misunderstanding about how different types of nonprofit organizations operate," says Levine, who posted a corrective to Handel's comments on the blog of the AFJ, which promotes advocacy by nonprofits.
Handel was baffled, apparently, that the Planned Parenthood Action Fund was able to campaign for Democratic candidates in the November election, given Planned Parenthood's status as a tax-exempt 501(c)(3). "How is that not a violation of campaign finance and IRS rules?" Handel asked, according to the Huffington Post .
Here's how: Planned Parenthood Federation of America, a 501(c)(3), and the Planned Parenthood Action Fund, which is actually a 501(c)(4), are what's known as affiliated nonprofits. So, for example, are the National Rifle Association of America, a 501(c)(4), and the NRA Foundation, one of no fewer than four 501(c)(3)s affiliated with the NRA. Even though the organizations share part of their names, "they are separate," says Levine. (Similarly, the Komen organization has one of each kind.)
There's a big difference between what each type of organization is allowed to do. Both 501(c)(3) and 501(c)(4) organizations are tax-exempt, but only donations made to a (c)(3) are deductible to a donor. "As a result, 501(c)(3)s are more limited in what they can do," Levine says.
In particular, they're more limited in the political sphere: 501(c)(3)s are not allowed to support or oppose political candidates, and they're only allowed to engage in limited lobbying. By contrast, 501(c)(4)s "can use all their money for lobbying, if they want to," says Levine. They're also allowed to support or oppose political candidatesalthough that can't be the organization's primary purpose.
But to keep an organization's tax-exempt status out of jeopardy, it's important to distinguish between related organizationsespecially when it comes to funding. "The goal is to make sure the 501(c)(3) organization is not subsidizing or paying for" the activities of an affiliated (c)(4), says Levine.
She says it's important for related organizations to have separate boards of directors, separate bank accounts, and separate employee ID numbers. Shared staff should make use of time sheets to distinguish hours worked for each entity. If the entities share office space, entering into a cost-sharing agreement for things like rent and telephone service is another common practice. "It's a contractual agreement between two separate organizations," says Levine.