Political Activities and the dangers to tax exemption

TO: Department of Minnesota, the American Legion
SUBJ: Political Activities and the dangers to tax exemption
FROM: Department Judge Advocate
Our department constitution spells out clearly the position of this organization on the matter of politics. “The American
Legion shall be absolutely non-political and shall not be used for the dissemination of partisan principles nor for the
promotion of the candidacy of any person seeking political office or preferment.” Article Two, Section 2.
As my esteemed colleague from the sixth district, Paul Edwards, has stated, this provision of our constitution actually means
that our organization cannot be partisan, nor can we support candidates for office. The reality is that the American Legion at
the national and state level has used political means to accomplish important organizational objectives. We have a US
Department of Veterans Affairs, which exists due to heavy lobbying by veterans and this organization. Our department has
lobbied for over twenty-five years for the establishment of veterans cemeteries and more retirement homes for veterans. That
political activity is lawful given our status as a 501(c)(l9) veterans organization.
The importance of the distinction between political activity and partisan political action cannot be emphasized enough due to
its tax implications. There are two tax classifications that most posts in Minnesota have. Either a post is a 501(c)(3) or it is a
501(c)(19) under the Internal Revenue Code. According to several tax publications, a veterans organization classified by the
IRS as a 50l(c)(19) veterans organization may engage in lobbying and political activities to the same extent as that described
for 501 (c)(4) social welfare organizations. Tax Management, Tax-Exempt Organizations: Operational Requirements,
Bloomberg BNA, p A-93 A veteran’s organization can engage in a variety of political activities as long as it is nonpartisan and
it does not promote any candidate for public office. However, the wise leader of any veteran’s organization should be aware
that his or her organization will be safe from the IRS if the political activity is directed toward an objective that promotes the
interests of veterans.
Be aware of the distinction between non-profit tax status and non-profit corporate status. The IRS, a federal agency,
determines whether an organization qualifies for exempt tax status. State tax agencies usually defer and respect the decisions
of the IRS. Tax status has nothing to do with corporate status. States set forth the requirements for an organization to become a
non-profit corporation. Minnesota’s requirements appear in Minnesota Statute chapter 317A. Non-profit corporate status
protects members of an organization from liability in the event of lawsuits against their organization.
The penalties for violating the limitations set forth in tax law include loss of the tax exemption and penalties in the form of
excise taxes. Plenty of non-profits have been penalized in both ways.
An article worth reviewing online is entitled How Your Non-Profit Could Lose Its Tax Exemption by Joanne Fritz, updated
on May 24, 2020. It is summarized below:
An organization’s tax-exempt status is granted by the IRS. It can be lost if the organization allows private benefit or
inurement, engages in improper lobbying or political campaign activity, fails to file an annual tax information forms, or
fails to pursue its organization’s purpose.
· Charitable organizations can make a profit, but they cannot pay those profits to individuals. Profits must be given to
the organization. Reasonable salaries can be paid to staff.
· Private economic benefits to e board members, officers, or members is not permitted. This is inurement. The
IRS can take the organization’s exempt status, and those receiving benefits can be subjected to penalty excise
· Veterans organizations have considerable leeway when it comes to lobbying, but there are limits. Be aware of them.
· Political campaign activity that is not permitted is endorsing candidates and partisan political activity such as lawn
signs, holding fundraisers for a political party or candidate, or knocking on doors for a political party or candidate.
Not permitted if an organization wants to retain its tax exemption.
· Failure to file the proper papers each year can cost an organization its exempt status. Do what’s required.
An organization that pursues a new objective that is substantially different from its purpose statement in its articles of
incorporation or its charter or its constitution runs the risk of losing its tax exemption. As a veteran’s organization, we should
always be striving to fulfilling our four pillars: Americanism, National Security, Families and Children, and veterans.