Form 990 Schedule C: Instructions & Guide

Form 990 Schedule C Instructions: A Comprehensive Guide

The Form 990 Schedule C is used by 501(c)(3) organizations (specifically, public charities) to report their direct or indirect political campaign and lobbying activities. Understanding these instructions is crucial to avoid penalties, maintain your tax-exempt status, and ensure ethical operation. The core solution involves carefully reviewing each section, scrutinizing key definitions, documenting activities throughout the year, and consulting a tax professional when unsure. This guide provides a basic understanding and addresses common issues.

Let’s dive into a detailed walkthrough of the Form 990 Schedule C instructions, offering practical tips and insights to help you avoid common pitfalls.

Understanding If You Need to File Schedule C

The first step is determining if your organization needs to file Schedule C. Not every 501(c)(3) organization engages in political activities that require reporting.

• Key Question: Did your organization engage in any direct or indirect political campaign activities or lobbying activities during the tax year?

  • If the answer is NO, you likely do not need to file Schedule C (but double-check with a tax professional).
  • If the answer is YES, then Schedule C is definitely required.

• Definition of Political Campaign Activities: These activities support or oppose a candidate for public office. Examples include contributions to candidates, endorsements, get-out-the-vote drives specifically targeting candidates, and public statements advocating for or against a candidate. Even non-partisan activities can be considered political if they show bias.

• Definition of Lobbying Activities: Lobbying refers to attempts to influence legislation. This includes direct lobbying (communicating directly with legislators) and grassroots lobbying (attempting to influence public opinion about legislation). Specific thresholds determine whether lobbying is ‘substantial’ and triggers different reporting requirements.

The Form 990’s Part VI, Question 4

Examine Form 990 Part VI, Question 4 closely. It asks: ‘Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?’ This is a key indicator!

Revenue Thresholds

Even if your organization engaged in political activities, the amount of revenue and expenses can affect your filing requirements.

Note: These are general guidelines. Always consult the official IRS instructions. Schedule C gets attached as necessary, so this chart helps determine what base form you are starting with.

Breaking Down the Schedule C Form: Line by Line

Once you’ve determined that you need to file Schedule C, carefully complete each section. Let’s walk through the sections:

Part I: Political Campaign Activities

This section specifically deals with activities related to political campaigns.

• Line 1: Contributions, Independent Expenditures, and Exempt Function Expenditures

  • Report the total amount of contributions your organization made to political candidates or committees.
  • Also, report independent expenditures. An independent expenditure is an expenditure for a communication that expressly advocates for the election or defeat of a clearly identified candidate and is not made in coordination with a candidate or campaign.
  • Report any exempt function expenditures, which are funds spent on political activities that further the organization’s tax-exempt purpose.
  • Detailed record-keeping is crucial for this section.

• Line 2: Other Political Campaign Activities

  • This line is a catch-all for other political campaign activities not covered in line 1, such as voter registration drives or get-out-the-vote efforts, if they are partisan.
  • Provide a clear description of these activities.

• Line 3: Total

  • Simply add lines 1 and 2 to arrive at the total amount spent on political campaign activities.

Part II: Lobbying Activities

This section reports on lobbying activities.

• Line 4: Legislatures/Legislative Bodies

  • Report on the amount spend to influence a legislative body directly through communicating with members or employees of the legislative body
  • Report the amount spent to influence legislation by attempting to affect the opinions of the general public or any segment thereof

• Line 5: Grassroots Lobbying

  • Report on the amount spent for the purpose of influencing legislation by attempting to affect the opinions of the general public or any segment thereof.

• Line 6: Total

  • Add lines 4 and 5.

Part III: Supplemental Information

This is where you provide additional details and explanations for any of the activities reported in Parts I and II. This section is critical for transparency and ensuring that the IRS understands the nature of your activities.

• Example: If you reported a large amount on Line 1 in Part I, use Part III to explain the specific contributions made and the candidates they supported. If you engaged in any controversial or unusual lobbying activities, explain them here.

My Experience & Quick Fix

I was personally tripped up by the distinction between ‘direct lobbying’ and ‘grassroots lobbying.’ I initially categorized all my organization’s advocacy efforts under ‘direct lobbying.’ My mistake was assuming any communication with legislators counted as direct lobbying, even if it was initiated by our members.

My quick fix was meticulously reviewing our communication logs and separating out communications initiated by our members (grassroots) from communications directly initiated by our staff or board (direct). This involved re-categorizing a significant portion of our activities and adjusting the figures accordingly. It also made me realize we needed a better system for tracking lobbying activities in the future. I ended up implementing a spreadsheet to track communications, classifying them as either direct or grassroots, and assigning costs.

Common Mistakes and How to Avoid Them

Based on my experience and observations, here are some common mistakes organizations make when completing Schedule C and how to avoid them:

1. Misclassifying Activities: As I mentioned, misclassifying lobbying activities is a common error. Carefully review the definitions of direct and grassroots lobbying.
2. Inadequate Documentation: Failing to keep accurate records of political and lobbying activities can make completing Schedule C a nightmare. Implement a robust tracking system from the beginning.
3. Ignoring the Instructions: The IRS instructions are your best friend. Read them carefully, even if they seem daunting. Refer to them frequently as you complete the schedule.
4. Ignoring the Aggregation Rules: Remember to aggregate all related costs. For instance, if a staff member spends time on both lobbying and non-lobbying activities, you need to allocate their salary accordingly. Keep careful time logs.
5. Missing the Deadline: Filing Schedule C late can result in penalties. Mark your calendar and start preparing early.
6. Failing to Report All Activities: It’s tempting to downplay or omit certain activities, but this can lead to serious consequences. Be transparent and report everything accurately.

Additional Resources and Where to Find Help

• IRS Website: The IRS website is the primary source for all information related to Form 990 and Schedule C.
• IRS Publications: Search for IRS publications related to tax-exempt organizations and political activities.
• Tax Professionals: Consult with a qualified tax attorney or CPA who specializes in non-profit organizations.
• National Council of Nonprofits: The National Council of Nonprofits offers resources and guidance on compliance issues.
• State Attorney General’s Office: Your state’s Attorney General may have resources for non-profit organizations operating within the state.

Long-Term Strategies for Schedule C Compliance

Beyond just filling out the form correctly, here are some longer-term strategies to ensure consistent Schedule C compliance:

• Implement a Clear Policy: Develop a written policy outlining the organization’s approach to political and lobbying activities. This policy should include clear guidelines for staff and board members.
• Provide Training: Conduct regular training for staff and board members on compliance requirements.
• Establish a Review Process: Before filing Form 990, have a qualified professional review Schedule C to ensure accuracy.
• Monitor Legislation: Actively monitor legislative developments that could impact the organization’s mission.
• Maintain Detailed Records: Establish and maintain a comprehensive record-keeping system for all political and lobbying activities.

Here’s a sample table of costs an organization might incur and how they should be categorized:

This schedule C stuff is dense and can be incredibly frustrating. The key takeaway is to focus on proactive record-keeping, meticulous attention to the IRS instructions, and seeking professional advice when needed. Don’t wait until the last minute to tackle Schedule C. Start early, stay organized, and don’t be afraid to ask for help. You’ve got this!