Why is KFC not allowed to say chicken?

There is no evidence that KFC cannot use the Word "chicken." It is much more likely that when PepsiCo acquired Kentucky Fried Chicken from Colonial Sanders, changing the name to KFC was simply a rebranding strategy.

Apparently, the rumor that they could not use the Word "chicken" started with an email that circulated the internet which claimed the chickens used by KFC "are kept alive by tubes inserted into their bodies to pump blood and nutrients throughout their structure. They have no beaks, no feathers, and no feet," which is totally unreasonable and would actually increase the production costs. The email also stated that KFC uses "genetically modified organisms" that 'are not real chickens," and the government forbid them to use the Word "chicken" because of this. Though there are chickens that have been "genetically enhanced" to grow faster and to produce more meat, and chickens, like other animals, are often raised in overly crowded, unhealthy conditions, this is not something that the government has condemned. There is simply no foundation for the rumor that KFC cannot use the Word "chicken."