Questions and Answers
Caplin and Drysdale answer frequently-asked legal questions on funding voter registration and education.
1. Can funders support voter registration programs?
Absolutely yes. As long as the programs are nonpartisan, the tax laws provide substantial opportunity for public charities and private foundations, corporations, and individuals to support voter registration activities.
2. But do the tax laws limit foundation support of voter registration?
There are some specific limitations on private foundation support of voter registration imposed by Section 4945(f) of the Internal Revenue Code (see Question 3), but nothing in the tax laws prohibits such support. Moreover, Section 4945(f) does NOT apply to community foundations, public charities, individual donors, or corporations making direct contributions (as distinguished from corporate foundations which are classified as private foundations for tax purposes). The only restriction on these funders is that the voter registration activities they fund must be nonpartisan. (See Questions 5-8 for further information and Question 13 for an additional issue involving grants by community foundations.)
3. Under what circumstances can my private foundation support voter registration activities directly?
If you want your grant to be earmarked for voter registration, then you and the grantee organization must both satisfy the following requirements of section 4945(f):
The grantee organization must be a charitable or educational organization with section 501(c)(3) tax-exempt status and must spend substantially all (generally 85%) of its income on a direct educational or charitable program of its own--although it can pay local groups to serve as its agents in conducting voter registration if it exercises control over those groups. To exercise the necessary degree of control, your grantee must monitor and guide the activities of the local groups sufficiently to ensure that they are really acting as agents of the organization you have funded. A grant by your grantee does not count as a direct expenditure.
The voter registration organization you fund must mount a nonpartisan program (see Questions 5-8) which is conducted in five or more states (see Questions 9 and 10) and is not limited to a single election period (see Question 11).
Such an organization must receive substantially all (again 85%) of its support, other than investment income, from exempt organizations, the general public, and governmental units. No more than 25% of this support may come from any one foundation or other exempt organization, no more than 50% of its support may come from investments, and none of the contributions it receives may be directed to specific geographic areas or election periods (see Questions 9-11).
4. How can my private foundation ensure that the group it is funding for voter registration meets the requirements of section 4945(f)?
A foundation may rely on a ruling obtained from the IRS by the grantee organization that it meets the section 4945(f) requirements. All you will need is a copy of that ruling and a statement signed by someone authorized to act for the group that it still meets those requirements. Of course, it is not necessary to have a ruling, and many private foundations do not require it. If there is no ruling, you will need to get a detailed statement from the organization outlining the facts showing that it meets the requirements, and evaluate for yourself whether the group will qualify under section 4945(f).
5. What does it mean for a program to be nonpartisan under section 4945(f)?
The IRS takes the position that a program is nonpartisan if it is designed solely to educate the public about the importance of voting and requirements for voter registration and does not show a preference for or against any candidate or political party.
6. Can an organization be nonpartisan and still register specific groups of people?
Yes. For example, the IRS has approved voter registration programs aimed specifically at blacks and other minorities, even though, as groups, they traditionally favor one party over another. However, in registering voters, the program cannot ask registrants their preferences or political parties.
7. Can a voter registration program be nonpartisan and address important issues?
Certainly. A program can provide information about important issues, and the organization can take a definite position on the issues involved. However, in addressing issues, it is essential that a program focus on a broad array of issues rather than on just one issue, and that the issues addressed do not separate the candidates in a pending election. The IRS has indicated that it may consider a program which focuses heavy attention on a specific issue that is clearly identified with one candidate to be supporting that candidate by inference and may, as a result, find the program to be partisan.
8. What if the organization we're funding to do voter registration also lobbies on some issues?
That's ok. The IRS does not interpret the nonpartisan requirement as barring public education or lobbying activities, as long as there is a clear and complete separation between these activities and the organization's voter registration activities. The grantee should put grant funds for voter registration activities into an account separate from the organization's other funds. Of course, private foundations generally cannot target funds for lobbying, so you should not support programs that combine voter registration and lobbying.
9. Can funds for voter registration activities be restricted to use in a specific geographic area?
Under no circumstances may a private foundation restrict its voter registration support geographically. Section 4945(f) also prohibits grantee organizations from accepting funds subject to restriction to a specific geographic area or election. On the other hand, with no prior agreement, a grantee organization may decide to concentrate its efforts in a specific geographic area if it does so on the basis of nonpartisan criteria so long as the five-state requirement is met. For example, the grantee may not target an area in the hope that it will favor a particular candidate or party, but it may choose to focus its resources in an area that has a history of low turnout or low registration, the best media resources, the greatest access to volunteers, etc.
10. Does the five-state rule require equal distribution of program activities in all five states?
No. Nothing in the law requires that program activities be even roughly of the same scope, but programs should have more than nominal efforts in at least five states.
11. Must a foundation support a grantee for more than one election period?
No. While a foundation cannot restrict use of its grant funds to a specific election period, the grantee may, at its own discretion and with no prior agreement with the foundation, use all of a grant during one election period, and the foundation is free -- but not required -- to support the grantee in a subsequent election period. The voter registration program needs to have operated during an election period prior to the one in which it is working OR be planning to operate in the next election period. (Election period could apply to municipal, state, congressional or presidential elections, among others.)
12. Are the requirements the same if my private foundation wants to provide general support to an organization that does some voter registration?
No, the restrictions imposed by section 4945(f) do not apply if you are making general support grants to a public charity doing voter registration as part of a broader program. However, there must be no written or oral agreement that the funds will be used for voter registration and the amount of the grant must not exceed the total amount the organization spends on activities other than voter registration.
13. How do the rules in the tax law apply to community foundations, public charities, individual donors, and corporations (other than corporate foundations)?
As noted above, they don't. Community foundations, public charities, individual donors and corporations can make grants to fund voter registration activities without regard to the special restrictions imposed by section 4945(f) as long as those activities are nonpartisan (see Questions 5-8). In fact educating people about voter registration and encouraging them to register has long been an established and proper charitable activity. As a general rule, community foundations and other public charities can support a nonpartisan voter registration program even though it is not conducted by a tax-exempt organization and does not have activities in five states, provided that the funder complies with the general legal requirements applicable to all grants by section 501(c)(3) organizations. Section 4945(f) will, however, affect community foundation grants if the community foundation is required by its charter to restrict use of its grant funds to its local community, since a grantee which has received section 4945(f) grants from private foundations will be barred from accepting such a restricted community foundation grant for voter registration and vice versa.
14. Is there a penalty if a foundation is deemed to have broken the rules for conduct in this area?
The IRS has imposed few if any penalty taxes for violation of the voter registration rules. A private foundation which makes a grant in good faith to an organization which has received a section 4945(f) ruling will have a large measure of practical protection from legal liability. If a foundation makes a grant for voter registration activities to an organization which does not satisfy the requirements of section 4945(f) or itself violates the requirements of section 4945(f) (for example, targets the funds for use in a specific election or geographic area), it can incur a first-level penalty tax equal to 10% of the grant amount. Unless the foundation recovers the grant amount or otherwise "corrects" the improper expenditure within a specified period, it can also incur a second level penalty equal to 100% of the grant amount.
Generally, correction is deemed to have been accomplished by recovering the grant funds "to the extent possible." If trustees and/or foundation managers knowingly and without reasonable cause approve a grant to an organization outside the private foundation guidelines described here, they too may be subject to a penalty tax. However, the IRS may abate all such taxes where "correction" has occurred and, in the case of the first-level taxes, the expenditure was due to reasonable cause, not willful neglect.