Compliance Corner: Policy Law Update for New Jersey Nonprofits
New Jersey is home to many active and prolific nonprofit organizations. As we enter the home stretch of a crucial federal election year and potentially sweeping policy changes are contested across the country, it’s more important than ever for New Jersey nonprofits to understand what they can and cannot do in the world of politics.
A New Jersey nonprofit 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) business association. The rules may be different for each type of organization.
New Jersey law allows nonprofits to conduct lobbying activities without limit. The only change of note at the state level is that a 501(c)(3) lobbyist in New Jersey is exempt from paying the annual fee (currently $575) for registered lobbyists. 501(c)(3) lobbyists must still file reports with the League, but they are exempt from paying the annual registration fee.
However, under IRS rules, a 501(c)(3) is only allowed to engage in limited lobbying (all of which must serve the organization’s charitable purpose). There are various IRS tests to determine how much lobbying is too much, but for the purposes of this column, it suffices to note that there are limits to the amount of lobbying a 501(c)(3) can conduct.
In contrast, the IRS allows a 501(c)(4) or 501(c)(6) to lobby without limits provided the lobbying furthers the mission of the organization.
The IRS strictly prohibits a 501(c)(3) from engaging in partisan political activity. This means that a 501(c)(3) cannot make any political contribution, or even conduct any activity that could be understood as supporting or opposing a candidate or political party.
In contrast, the IRS has expressed a tolerance for a 501(c)(4) to engage in partisan political activity provided the 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 shortcut of 51% social activity and 49% political activity (or, conservatively, 60% – 40%) to refer to this concept.
New Jersey law allows corporations (including a 501(c)(4)) to make contributions within standard contribution limits. 501(c)(4)s should be kept in mind that if New Jersey political contributions were to become a major objective of an organization, there could be scenarios where the organization would be required to register with of the League as the New Jersey PAC or Political Committee. It is therefore important for a 501(c)(4) to consider all the implications if they decide to make political contributions to the State of New Jersey or local candidates.
Under New Jersey law, there is no limit on what a company can spend on independent expenses that support or oppose candidates, so long as the expenses are not coordinated with the candidate or its officers.
However, the IRS’ prohibition on 501(c)(3) political activity also extends to independent spending. Therefore, 501(c)(3)s cannot make any independent expenditures.
In contrast, a 501(c)(4) can choose to make independent expenses within their limited budget for political activity. These independent expenses 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. Additionally, nonprofits should note that recently introduced legislation in New Jersey would, if the bill becomes law, impose increased registration and disclosure requirements for politically active 501(c)(4) .
(Under recent changes to federal law, a 501(c)(4) who makes independent expenses to support or oppose federal candidates may be required to disclose their independent expenses. and its donors at the FEC.)
All types of nonprofit organizations are permitted to educate the public and elected officials on political topics consistent with their missions. However, it is possible for political education to become a partisan political activity if the education is conducted in a way that supports or opposes the candidates, or in a way that encourages the organization’s supporters to associate the “correct” political position to a given candidate or party. . All nonprofit organizations must ensure that their political efforts do not morph into partisan political activities that may be prohibited in any amount (for a 501(c)(3)) or may be subject to limits (for a 501(c) (4)).
Compliance Council: Under New Jersey law, a 501(c)(3) or 501(c)(4) soliciting donations from New Jersey residents is likely required to register with the Charities Registration Section attorney general’s charity. Once the initial registration is filed, an annual report must be filed within six months of the charity’s fiscal year-end. More detailed reporting may be required for organizations that receive more than $25,000 in gross donations in a fiscal year.
Avi D Kelin is an associate in the Corporate Political Activities Law Group of Genova Burns LLC and Chair of the Firm’s Autonomous Vehicles Law Practice.
This column is for educational and informational purposes only and is not intended and should not be construed as legal advice. Readers are advised not to rely on this column, but to seek professional advice for individual questions.
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