The Albanian American Organization “Qendra” (AAOQ) will be an organization of the Albanian diaspora in the USA, with the purpose of performing
Charity
Advocacy (community organizing)
Defense of human and civil rights secured by law
on behalf of the Albanian American diaspora.
Ideally AAOQ will be a public charity, with a tax exempt status under section 501(c)(3) of the Internal Revenue Code.
The Internal Revenue Service (IRS) has allowed for the creation of tax-exempt charitable organizations. These groups manifest in one of two ways: as private foundations or as public charities.
A private foundation is a non-profit charitable entity, which is generally created by a single benefactor, usually an individual or business.
A public charity uses publicly-collected funds to directly support its initiatives.
The only substantive difference between the two is the manner in which funds are acquired.
Public Charities
The IRS requires that a public charity receive at least one third of its contributions from the general public, or meet the 10% facts and circumstances test. Therefore, while the foundation uses the income generated from its investments and its founding source, the public charity uses the publicly collected funds to directly support its initiatives. This difference in funding factors into the decision regarding which form the charitable organization might take.
The "public" in "public charity" refers to the solicitation of periodic donations from the community. The amount of these donations is used to determine a quantifiable intensity of public support, which is necessary in order to achieve status as a "public charity."
Concerning taxes, public charities generally have higher donor tax-deductible giving limits as well as the ability to attract support from other public charities and private foundations. From an individual perspective, public charities are desirable due to the flexibility accorded in making donations. This allows for the customization of tax strategies tailored to personal preference.
Maintaining the tax exempt status
A charity organization, while advocating for the community, must pay attention to operating within the confines of its tax-exempt status. As a result, it is very important for the organization to understand the range of advocacy related activities charities can conduct, and the considerations theys must take into account when conducting those activities. Charities will often avoid some types of advocacy activities, or at least do far less than is allowed by their tax-exempt status, because of the fear and misunderstanding that exists around the restrictions imposed on section 501(c)(3) organizations.
This article provides an overview of the most common advocacy activities charities conduct, and the issues with those activities that could endanger an organization’s federal tax-exempt status:
Introduction
Charities receive significant levels of public subsidy, both in the form of tax deductibility for gifts and in exemption from tax on most forms of income. As a result, charities are subject to significant restrictions on their activities to ensure that they exist to benefit public rather than private interests. Those restrictions include an absolute prohibition on engaging in campaign intervention activities for or against a candidate and a requirement that a public charity can conduct only insubstantial amounts of lobbying.
For those seeking to fund or fundraise for advocacy activities, section 501(c)(3) organizations are often more desirable vehicles than other types of tax-exempt organizations because their activities can be funded with tax-deductible contributions. In addition to the funding advantages charities provide, they arguably should also have an even stronger drive to engage in policy and advocacy activities because the constituencies charities serve are often some of the least likely to have a voice in the policy arena.
Lobbying activities
One of the most common types of advocacy activities that charities conduct is legislative lobbying. Lobbying is understood to occur when an organization contacts, or urges the public to contact, legislators in order to propose, support, or oppose legislation or otherwise advocates the adoption or rejection of legislation. Legislation includes an act, bill, resolution, or similar proposal before Congress, a state legislature, local councils, or similar governing bodies (including legislative bodies in foreign countries), or before the public in a referendum, constitutional amendment, or similar procedure. As mentioned above, whether a charity can lobby depends on its foundation status. Public charities can lobby, but the amount of lobbying they can conduct depends in large part on which lobbying test they are under (see below). Private foundations cannot engage in any lobbying.
The default test that all charities are subject to unless they affirmatively elect otherwise is the no-substantial-part test. There is no clear definition of “substantial,” but it is generally understood that, if lobbying activities are anywhere from five percent to 20 percent of an organization’s total activities, it may be determined to be substantial. It should also be understood, however, that the no-substantial-part test is not a pure percentage or expenditure test of an organization’s lobbying activities. The no-substantial-part test looks at other factors, including time spent on lobbying activities, physical space devoted to lobbying activities, volunteer labor used for lobbying activities, and other factors that help understand the scope of lobbying activities as compared to the organization’s other activities.
If a public charity governed by the no-substantial-part test is determined to have exceeded its lobbying limits, the penalty is revocation of its tax-exempt status. Public charities under the no-substantial-part test may use certain exceptions to exclude certain activities from the definition of lobbying. Those exceptions are discussed in further detail below:
Other public charities may elect to be governed by the expenditure test under sections 501(h) and 4911 (and the associated Treasury Regulations), which provide a specific calculation of the total amount of lobbying activities that may be conducted. The expenditure test provides additional definitions that are not available under the no-substantial-part test that help to exclude a much broader array of activities from the definition of lobbying. A 25-percent excise tax is imposed on organizations that exceed the total or grassroots lobbying amounts, but the organization’s exempt status in most cases is not subject to revocation.
Political activities
Both public charities and private foundations are subject to an absolute prohibition on political campaign activities, which is enforced through excise taxes and the revocation of an organization’s tax-exempt status. The definition of “political campaign activities” (also frequently referred to as campaign intervention or electioneering) is much broader than the election law/campaign finance law definition of “political activities.” Unfortunately, despite recent efforts to clarify this arena, there is no clear statutory or regulatory definition of what qualifies as campaign intervention. The IRS will look at all of the facts and circumstances to determine whether the charity is signaling or implying support for a candidate or party through its communications and activities. This context-driven identification of prohibited political campaign activities often causes organizations to be overly cautious. Many activities not intended to result in campaign intervention could be viewed that way by the IRS. For example, campaign intervention can very easily arise, particularly in an election year, as a result of an organization’s lobbying and issue advocacy. However, it can also be found as a result of business transactions the organization enters into, such as selling advertising, or even via its website and social media communications. Given that the context of the communications or the activities controls the analysis, many activities of an organization not directly connected to its advocacy programs could still result in a finding that the organization engaged in impermissible campaign activities.
Some of the relevant factors specifically referenced by the IRS in guidance include (not an exhaustive list): whether the statement identifies a candidate by name (or any other identifier that clearly indicates it is referencing the candidate); whether it is delivered close in time to the election (clearly a factor that currently weighs in favor of an organization); whether the timing of the communication or action is related to specific legislation or policies; whether the communication or action is addressing the individual as an officeholder or a candidate; whether it is an issue the organization historically has worked on; and whether it relates to the organization’s mission.
Illegal Activities
A charitable organization that promotes violations of the law or public policy cannot be operated in compliance with the requirements of section 501(c)(3), for example sponsoring nonviolent protest demonstrations as a primary activity at which members are encouraged to commit acts of civil disobedience. Charitable organizations can, however, conduct activities such as strikes, economic boycotts, picketing, mass demonstrations, etc. as a means of furthering educational or charitable purposes so long as the activities are not illegal or contrary to clearly defined public policy.
Litigation as a Charitable Activity
Organizations may be able to conduct litigation as a means of advocacy and in furtherance of their charitable purpose without jeopardizing their tax-exempt status. Most commonly seen are organizations that litigate to enforce environmental legislation, consumer protection, and to defend human and civil rights secured by law. Therefore, it is not uncommon to see significant litigation during periods of political unrest and significant changes in public policy. In order to qualify as charitable, litigation must be conducted for a public, rather than a private, purpose. This does not mean that a nonprofit cannot represent individual plaintiffs; however, the litigation should be expected to have a significant impact beyond the interests of the specific plaintiffs represented by the nonprofit.
Attribution Issues
Charitable organizations must take precautions to prevent activities that could jeopardize exemption from being attributed to the charity as the result of the actions of individual staff or directors, members, or organizations with which the charity is affiliated or works in coalition. Individuals associated with charitable organizations do not lose their free speech rights when they are speaking outside of official organization functions and publications. However, attribution from staff member or director’s actions can occur when it could be inferred that speech from the individual is made under the authority of the organization or the action is ratified by the organization. Individuals associated with charities, particularly individuals who are generally viewed as speaking on behalf of an organization, should take care to clarify when they are speaking in their individual capacity. That care should be taken not just in more traditional modes of public communication such as speeches, op-eds, interviews, etc., but also in the individual’s social media communications (particularly if they use personal social media accounts to engage in organization-related or organization-endorsed speech).
Charities that organize their membership and supporters to engage in protests and other public demonstrations are not generally going to be held accountable for the unauthorized activities of individuals who engage in illegal activities as a part of a march or demonstration sponsored by the charity. However, if the organization encourages, authorizes, or otherwise ratifies the illegal activities of the individual members, such action may jeopardize the organization’s charitable status.
Similarly, organizations that work in coalition with other groups that are not 501(c)(3)s, including organizations that the charity may be closely affiliated with, must take care to ensure that activities of the coalition members that the charity cannot conduct itself are not attributed back to it.
Conclusion
There are many ways, in addition to those discussed above, for charities to advocate for policies and positions that advance their charitable purposes and benefit their charitable constituency. All organizations engaging in advocacy activities should understand the compliance issues inherent in each type of activity, but particularly organizations that are newly engaging in a certain type of advocacy in response to political and public-policy changes. It is often necessary for charities to involve themselves in policy to ensure that communities lacking a voice (or a loud enough voice) in the political process are able to have their voices amplified and heard, particularly in these political times.
The source: https://www.americanbar.org/groups/business_law/publications/blt/2017/06/04_robertson/
Parid Turdiu, January 2022
