January 04, 2013

Corporate Counsel quotes Jeff Tenenbaum and George Constantine on nonprofit organization differences

2 min

Venable partners Jeff Tenenbaum and George Constantine were quoted in a January 3, 2013 Corporate Counsel article on differences between nonprofit organizations. Specifically, the article focuses on differences between 501(c)(3) and 501(c)(4) organizations. While both are tax-exempt, 501(c)(3) organizations are more limited particularly in the political arena and lobbying. They cannot support or oppose political candidate and can only engage in limited lobbying. A 501(c)(4) organization is not as limited in the political arena and can use all of its money for lobbying. Support or opposition to a particular political candidate cannot be the organization’s primary purpose and they must follow state and federal election laws.

The article noted the importance of distinguishing between related organizations to keep a tax-exempt status out of jeopardy. Tenenbaum said governance structure and money matters were two most “sensitive areas” for separate, but related nonprofits. “The reality is, there are no bright-line rules,” Tenenbaum said. He recommended “having at least some separate board members, some separate key officers, as well as holding separate board meetings and keeping separate board minutes.”

Another area of importance to help distinguish nonprofits is through web presence and communication. In a 2009 memo, the Internal Revenue Service (IRS) took issue with a 501(c)(3) organization that housed its affiliated 501(c)(4) website on its own. The article quoted Constantine’s analysis of the memo in the February 2011 issue of Association Law and Policy. “Given the fact that the 501(c)(4) pages looked ‘virtually indistinguishable’ from the 501(c)(3) pages,” Constantine wrote, “the IRS concluded that it would treat the statements and communications on those pages as the communications and statements of the 501(c)(3) organization, with potentially significant adverse tax consequences to the 501(c)(3).”