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Technical Analysis & Engagement Management (For the Pro)Homeowner
Associations – Activities Affect Tax Status The
following are a few of the code sections that pertain to setting up your
homeowner association. These
comments are not exhaustive and must not be used as the only source of
information. Organizations that do not meet all of the Code Section 501(c)(3) criteria, including certain homeowners' associations, advocacy organizations, and junior chambers of commerce, may qualify as Code Section 501(c)(4) organizations. As such, they may engage in political activities -- including direct and grass roots lobbying -- so long as that is not their primary activity. But this benefit is accompanied by a significant disadvantage: Contributions to Code Section 501(c)(4) organizations are not deductible to the donors as charitable contributions.
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Commentary
TIP: To establish that an
organization is organized exclusively to promote social
welfare, one should submit evidence with the organization's application
showing that the organization will operate primarily to further in some
way the common good and general welfare of the people of the community,
such as by bringing
about civic betterment and social improvements.
Generally, the Service will disallow tax exemption if the benefits
are only for the members or homeowners and do not benefit the “community
as a whole”. TIP: If social activities are the primary purpose of an organization, it should not apply for an exemption as a social welfare organization. Rather, it should file for exemption as a social club described in Code Section 501(c)(7).
The following is a partial excerpt from the regs for Internal Revenue Code §4911: SECTION
56.4911-1. TAX ON
EXCESS LOBBYING EXPENDITURES. (a) IN GENERAL. Section 4911(a) imposes an
excise tax of 25 percent on the excess lobbying expenditures (as defined
in paragraph (b) of this section) for a taxable year of an organization
for which the expenditure test election under section 501(h) is in effect
(an "electing public charity"). An electing public charity's
annual limit on expenditures for influencing legislation (i.e., the amount
of lobbying expenditures on which no tax is due) is the lobbying
nontaxable amount or, on expenditures for influencing legislation through
grass roots lobbying, the grass roots nontaxable amount (see paragraph (c)
of this section). For rules concerning the application of the excise tax
imposed by section 4911(a) to the members of an affiliated group of
organizations (as defined in Section 56.4911-7(e)), see Section 56.4911-8. (b) EXCESS
LOBBYING EXPENDITURES. For any taxable year for which the expenditure test
election under section 501(h) is in effect, the amount of an electing
public charity's excess lobbying expenditures is the greater of--
(1) The amount by which the organization's lobbying expenditures
(within the meaning of Section 56.4911-2(a)) exceed the
organization's lobbying nontaxable amount, or
(2) The amount by which the organization's grass roots expenditures
(within the meaning of Sections 56.4911-2(a)) exceed the
organization's grass roots nontaxable amount. (c)
NONTAXABLE AMOUNTS--
(1) LOBBYING NONTAXABLE AMOUNT. Under section 4911(c)(2), the
lobbying nontaxable amount for any taxable year for which the
expenditure test election is in effect is the lesser of--
(i) $1,000,000, or
(ii) To the extent of the electing public charity's exempt purpose
expenditures (within the meaning of Section 56.4911-4) for that year, the
sum of 20 percent of the first $500,000 of such expenditures, plus 15
percent of the second $500,000 of such expenditures, plus 10 percent of
the third $500,000 of such expenditures,
plus 5 percent of the remainder of such expenditures.
(2) GRASS ROOTS NONTAXABLE AMOUNT. Under section 4911(c)(4), an
electing public charity's grass roots nontaxable amount for any
taxable year is 25 percent of its lobbying nontaxable amount for that
year. (d)
EXAMPLES. The provisions of this section are illustrated by the examples
in Section 1.501(h)-3.
The
following is from the Internal Revenue Manual:
Rev
Rul 78-248 Code Sec.
501 <<FULL
TEXT>> 26 CFR
1.501(c)(3)-1: Organizations organized and operated for religious,
charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to
children or animals.
Educational; political activity. Certain "voter
education" activities conducted in a nonpartisan manner by an
organization recognized as exempt under section 501(c)(3) of the Code will
not constitute prohibited political activity disqualifying the
organization from exemption; Rev. Rul. 78-160 revoked. REV. RUL.
78-248
Advice has been requested whether certain organizations, which
otherwise qualify for exemption from Federal income tax under section
501(c)(3) of the Internal Revenue Code of 1954, will be considered
"action" organizations and not exempt under section 501(c)(3) if
they undertake "voter education" activities in the situations
described below.
Section 501(c)(3) of the Code provides for the exemption from
Federal income tax of organizations that are organized and operated
exclusively for charitable purposes and that do "not participate in,
or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of any candidate for public office."
Section 1.501(c)(3)-1(c)(3)(i) of the Income Tax Regulations states
that an organization is not operated exclusively for one or more exempt
purposes if it is an "action" organization. Section
1.501(c)(3)-1(c)(3)(iii) defines an "action" organization as an
organization which "participates or intervenes, directly or
indirectly, in any political campaign on behalf of or in opposition to any
candidate for public office .... Activities which constitute participation
or intervention in a political campaign on behalf of or in opposition to a
candidate include, but are not limited to, the publication or distribution
of written statements or the making of oral statements on behalf of or in
opposition to such a candidate."
Whether an organization is participating or intervening, directly
or indirectly, in any political campaign on behalf of or in opposition to
any candidate for public office depends upon all of the facts and
circumstances of each case. Certain "voter education" activities
conducted in a non-partisan manner may not constitute prohibited political
activity under section 501(c)(3) of the Code. Other so-called "voter
education" activities, however, may be proscribed by the statute. The
following situations are illustrative:
SITUATION 1
Organization A has been recognized as exempt under section
501(c)(3) f the Code by
the Internal Revenue Service. As one of its activities, the organization
annually prepares and makes generally available to the public a
compilation of voting records of all Members of Congress on major
legislative issues involving a wide range of subjects. The publication
contains no editorial opinion, and its contents and structure do not imply
approval or disapproval of any Members or their voting records.
The "voter education" activity of Organization A is not
prohibited political activity within the meaning of section 501(c)(3) of
the Code.
SITUATION 2
Organization B has been recognized as exempt under section
501(c)(3) of the Code by the
Internal Revenue Service. As one of its activities in election years, it
sends a questionnaire to all candidates for governor in State M. The
questionnaire solicits a brief statement of each candidate's position on a
wide variety of issues. All responses are published in a voters guide that
it makes generally available to the public. The issues covered are
selected by the organization solely on the basis of their importance and
interest to the electorate as a whole. Neither the questionnaire nor the
voters guide, in content or structure, evidences a bias or preference with
respect to the views of any candidate or group of candidates.
The "voter education" activity of Organization B is not
prohibited political activity within the meaning of section 501(c)(3) of
the Code.
SITUATION 3
Organization C has been recognized as exempt under section
501(c)(3) of the Code by the
Internal Revenue Service. Organization C undertakes a "voter
education" activity patterned after that of Organization B in
Situation 2. It sends a questionnaire to candidates for major public
offices and uses the responses to prepare a voters guide which is
distributed during an election campaign. Some questions evidence a bias on
certain issues. By using a questionnaire structured in this way,
Organization C is participating in a political campaign in contravention of
the provisions of section 501(c)(3) and is disqualified as exempt under
that section.
SITUATION 4
Organization D has been recognized as exempt under section
501(c)(3) of the Code. It is primarily concerned with land conservation
matters.
The organization publishes a voters guide for its members and
others concerned with land conservation issues. The guide is intended as a
compilation of incumbents' voting records on selected land conservation
issues of importance to the organization and is factual in nature. It
contains no express statements in support of or in opposition to any
candidate. The guide is widely distributed among the electorate during
an election campaign.
While the guide may provide the voting public with useful
information, its emphasis on one area of concern indicates that its
purpose is not nonpartisan voter education.
By concentrating on a narrow range of issues in the voters guide
and widely distributing it among the electorate during an election
campaign, Organization D is participating in a political campaign in
contravention of the provisions of section 501(c)(3) and is disqualified
as exempt under that section.
Pursuant to the authority of section 7805(b) of the Code, the
conclusion of this Revenue Ruling will not be applied to taxable years
beginning before January 1, 1979, in the case of any section 501(c)(3)
organization holding an exemption letter that indicated in its Application
for Recognition of Exemption (Form 1023) that it would engage in the type
of "voter education" activities which constitute participation
or intervention in a political campaign under this ruling.
Rev. Rul. 78-160, page 153, this Bulletin, is revoked. <<END
RULING>>
Rev
Rul 80-282 Code Sec.
501 <<FULL
TEXT>> 26 CFR
1.501(c)(3)-1. Organizations organized and operated for religious,
charitable, scientific, testing for public safety, literary, or
educational purposes, or for the prevention of cruelty to children or
animals.
Political activity; newsletter publication. Certain publications of
congressional incumbents' voting records on selected issues in a
nonpartisan newsletter do not constitute participation or intervention in
any political campaign within the meaning of section 501(c)(3) of the
Code; Rev. Rul. 78-248 amplified. REV. RUL.
80-282 ISSUE
Would the publication of a newsletter, by an organization otherwise
described in section 501(c)(3) of the Internal Revenue Code, containing
the voting records of congressional incumbents on selected issues, in the
manner described below, constitute participation or intervention in any
political campaign within the meaning of section 501(c)(3)? FACTS
The organization is exempt from federal income tax under section
501(c)(3) of the Code. The organization engages in a number of different
educational and charitable activities. As one of its activities, the
organization maintains an office that monitors and reports on legislative,
judicial, administrative, and other governmental activities and
developments considered to be of important social interest. As part of the
offices activities, it distributes a monthly newsletter to interested
members and others, who together number only a few thousand nationwide.
The monthly newsletter contains expressions of the organization's
views on a broad range of legislative, judicial, and administrative issues
it considers significant. In discussing a particular issue, the reader is
sometimes encouraged to contact various governmental officials to express
his or her views on the issue.
As soon as practical after the close of each congressional session,
the organization intends to publish in an issue of its newsletter a
summary of the voting records of all incumbent Members of Congress on
selected legislative issues important to it, together with an expression
of the organization's position on those issues. Each member's votes will
be reported in a way which illustrates whether he or she voted in
accordance with the organization's position on the issue. The newsletter
is politically non-partisan, and will not contain any reference to or
mention of any political campaigns, elections, candidates, or any
statements expressly or impliedly endorsing or rejecting any incumbent as
a candidate for public office. No mention will be made of an individual's
overall qualification for public office, nor will there be any comparison
of candidates that might be competing with the incumbents in any political
campaign. The voting records of all incumbents will be presented and
candidates for reelection will not be identified. The newsletter will
point out the limitations of judging the qualifications of an incumbent on
the basis of a few selected votes and will note the need to consider such
unrecorded matters as performance on subcommittees and constituent
service.
Publication usually will occur after congressional adjournment and
will not be geared to the timing of any federal election. The newsletter
will be distributed to the usual subscribers, and will not be targeted
toward particular areas in which elections are occurring. LAW
Section 501(c)(3) of the Code provides for the exemption from
federal income tax of organizations organized and operated exclusively for
charitable purposes, no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting to influence legislation,
and which do not participate in, or intervene in (including the publishing
or distributing of statements), any political campaign on behalf of any
candidate for public office.
Section 1.501(c)(3)-1(c)(3)(i) of the Income Tax Regulations states
that an organization is not operated exclusively for one or more exempt
purposes if it is an "action" organization. Section
1.501(c)(3)-1(c)(3)(iii) defines an "action" organization as an
organization that participates or intervenes, directly or indirectly, in
any political campaign on behalf of or in opposition to any candidate for
public office. The regulations further provide that activities that
constitute participation or intervention in a political campaign on behalf
of or in opposition to a candidate include, but are not limited to, the
publication or distribution of written statements or the making of oral
statements on behalf of or in opposition to such a candidate. ANALYSIS
Whether an organization is participating or intervening, directly
or indirectly, in any political campaign on behalf of or in opposition to
any candidate for public office depends upon all of the facts and
circumstances of each case. Certain "voter education" activities
conducted in a non-partisan manner may not constitute prohibited political
activities under section 501(c)(3) of the Code. Other so-called
"voter education" activities, however, may be proscribed by the
statute. Rev. Rul. 78-248, 1978-1 C.B. 154, sets forth several situations
illustrating when an organization has or has not engaged in prohibited
political activities within the meaning of section 501(c)(3).
In Situation 3 of Rev. Rul. 78-248, the organization prepared a
questionnaire to all candidates for major public offices that contained
questions evidencing a bias on certain issues and made the responses
generally available to the public during an election campaign. It was
considered to be participating in prohibited political campaign activity.
In Situation 4 of Rev. Rul. 78-248, an organization primarily
concerned with land conservation matters published a compilation of
incumbents' voting records on selected land conservation issues and widely
distributed it to the electorate during an election campaign. It was held
that by concentrating on a narrow range of issues and widely distributing
the publication among the electorate during an election campaign, the
organization was participating in a prohibited political activity.
In this case the format and content of the publication are not
neutral, since the organization reports each incumbent's votes and its own
views on selected legislative issues and indicates whether the incumbent
supported or opposed the organization's view. On the other hand, the
voting records of all incumbents will be presented, candidates for
reelection will not be identified, no comment will be made on an
individual's overall qualifications for public office, no statements
expressly or impliedly endorsing or rejecting any incumbent as a candidate
for public office will be offered, no comparison of incumbents with other
candidates will be made, and the organization will point out the inherent
limitations of judging the qualifications of an incumbent on the basis of
certain selected votes by stating the need to consider such unrecorded
matters as performance on subcommittees and constituent service.
In view of the foregoing, other factors must be examined to
determine whether in the final analysis the organization is participating
or intervening in a political campaign. In the
instant case, the organization will not widely distribute its compilation
of incumbents' voting records. The publication will be distributed to the
organization's normal readership who number only a few thousand
nationwide. This will result in a very small distribution in any
particular state or congressional district. No attempt will be made to
target the publication toward particular areas in which elections are
occurring nor to time the date of publication to coincide with an election
campaign.
In view of these facts, Situations 3 and 4 of Rev. Rul. 78-248 are
distinguishable from the present case, and the organization will not be
considered to be engaged in prohibited political campaign activity. HOLDING
The publication of a newsletter, by an organization otherwise
described in section 501(c)(3) of the Code, containing the voting records
of Congressional incumbents on selected issues; in the manner described
above, will not constitute participation or intervention in any political
campaign within the meaning of section 501(c)(3). EFFECT ON
OTHER REVENUE RULINGS
Rev. Rul. 78-248 is amplified. <<END
RULING>>
Start of Revenue Procedures Section Start of Private Letter Rulings
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Engagement Status Letter ~ WARNING!
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Bob Parrish
Copyright © 1999,2000,2001 Bob Parrish. All rights reserved.
Revised: May 11, 2004
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