New Jersey is home to many active and prolific non-profits. As we enter the homestretch of a crucial federal-election year, and as potentially sweeping policy changes are being contested across the country, it is more important than ever for New Jersey’s non-profits to understand what they can and can’t do in the world of politics.
A New Jersey non-profit corporation can encompass a few types of organizations, with tax-exempt status determined by the IRS. Some common tax-exemptions include a 501(c)(3) charitable organization, a 501(c)(4) social-welfare organization, and a 501(c)(6) trade association. The rules may be different for each organization type.
New Jersey law permits non-profits to conduct lobbying activities without limit. The one change to note at the state level is that a 501(c)(3) that conducts New Jersey lobbying is exempt from paying the annual fee (currently $575) for registered lobbyists. 501(c)(3) lobbyists must still file reports with ELEC, but they are exempt from paying the annual registration fee.
However, under IRS rules, a 501(c)(3) is permitted to engage in only limited lobbying (all of which must further the organization’s charitable purpose). There are different IRS tests to determine how much lobbying is too much, but for purposes of this column it is sufficient to note that there are limits on how much lobbying a 501(c)(3) can conduct.
In contrast, the IRS permits a 501(c)(4) or a 501(c)(6) to conduct lobbying without limits provided that the lobbying furthers the organization’s mission.
The IRS strictly prohibits a 501(c)(3) from engaging in a any partisan political activity. This means that a 501(c)(3) may not make any political contributions, or even conduct any activity that can be understood as supporting or opposing any candidate or political party.
In contrast, the IRS has expressed a tolerance for a 501(c)(4) to engage in partisan political activity provided that political activity does not become the primary purpose of the organization. The IRS considers all facts and circumstances to determine when political activity becomes the primary purpose of a 501(c)(4), but many practitioners use a shorthand of 51% social-welfare activity and 49% political activity (or, conservatively, 60% – 40%) to refer to this concept.
New Jersey law permits corporations (including a 501(c)(4)) to make contributions within standard contribution limits. 501(c)(4)s should keep in mind that, should New Jersey political contributions become a major purpose of an organization, there may be scenarios where the organization would be required to register with ELEC as a New Jersey PAC or political committee. It is important, therefore, for a 501(c)(4) to consider all implications if it decides to make political contributions to New Jersey state or local candidates.
Under New Jersey law, there are no limits on what a corporation may spend on independent expenditures that support or oppose candidates, so long as the expenditure is not coordinated with the candidate or the candidate’s agents.
However, the IRS prohibition on 501(c)(3) political activity extends to independent expenditures as well. Therefore, 501(c)(3)s may not make any independent expenditures.
In contrast, a 501(c)(4) may choose to make independent expenditures as part of its limited budget for political activity. Such independent expenditures may be subject to ELEC reporting, and a consistent focus on political activity may again require a 501(c)(4) to register with ELEC as a Super PAC or political committee. In addition, non-profits should note that recently introduced New Jersey legislation would, should the bill become law, impose heightened registration and disclosure requirements for politically active 501(c)(4)s.
(Under recent changes to federal law, a 501(c)(4) that makes independent expenditures to support or oppose federal candidates may be required to disclose its independent expenditures and its donors to the FEC.)
All types of non-profits are permitted to educate the public and elected officials on policy topics consistent with their missions. However, it is possible for policy education to become partisan political activity if the education is conducted in a way that supports or opposes candidates, or in a way that encourages the organization’s supporters to associate the “correct” policy position with a given candidate or party. All non-profits must ensure that their policy efforts don’t transform into partisan political activity that may be prohibited in any amount (for a 501(c)(3)) or that may be subject to limits (for a 501(c)(4)).
Compliance Tip: Under New Jersey law, a 501(c)(3) or 501(c)(4) that solicits donations from New Jersey residents likely needs to register with the Attorney General’s Charities Registration Section. Once an initial registration is filed, an annual report must be filed within six months after the end of the organization’s fiscal year. More detailed filings may be required for organizations that receive more than $25,000 in gross donations in a fiscal year.
An earlier version of this post appeared in InsiderNJ.