1. Lobbying by All Types of Exempt Organizations Terry Miller Session 68 1

2. 2 TAX OVERVIEW Tax: 501(c)(3) Public Charities (PC) Non-substantial part of activity; choice of two tests Limit on Legislative lobbying (not Executive or Judicial) Tax: 501(c)(3) Private Foundations (PF) Prohibitively taxed, with some exceptions for issue advocacy Tax on Legislative lobbying only (not Executive or Judicial) Tax: 501(c)(4), (5) & (6) Organizations ((c)(4,5,6)) Unlimited Business dues may be nondeductible or a proxy-taxable expenditure for the (c)(4,5,6) Legislative AND Executive branch officials actions or positions

3. 3 OVERLAYS Lobbying Disclosure Act (LDA) & similar state or local legislation Different definitions; likely to include influencing executive branch. Registration triggers. Bipartisan Campaign Reform Act (BCRA) a/k/a McCain Feingold Blackout prior to elections on TV/Radio lobbying issue ads naming Federal candidates by corporations and unions (covers (c)(4,5,6)) = prohibited electioneering communications.

4. 4 Public Charities OVERVIEW Public charities may lobby, within limits Choice of 2 tests:* facts and circumstances test or* IRC 501(h) expenditure test Lobbying definition varies depending on test chosen Expenditure test requires election via Form 5768 ( IRC 501(h), Reg. 56.4911 ) Most, but not all, public charities are eligible to elect 501(h) (not eligible: churches & certain affiliates, government units, supporting organizations to (c)(4,5,6) organizations, 509(a)(4) testing for public safety

5. 5 NON-electing PCs: Lobbying Defined ? Facts and Circumstances No expenditure level is guaranteed safe Volunteer effort counts Impact may count May not rely on electing charity definitions

6. 6 ELECTING PCs: Lobbying Defined Direct Lobbying is expenditure for communication with legislator, about specific legislative proposal, expressing a view, with intention to influence the legislation ( Reg. 56.4911-2(b)(1) ) Grassroots Lobbying is expenditure for a communication with the public, about a specific legislative proposal, expressing a view, and calling for action to communicate with a legislator to influence the legislation ( Reg. 56.4911-2(b)(2) )

7. 7 Electing PCs: Direct vs. Grassroots

8. 8 PCs: Excise Tax & Revocation ( IRC 501(h) ) Electing Charities excess lobbying, either type, in any one year: 25% excise tax (if both exceeded, the higher of the two) revocation only if spend over 150% of allowance over any given four-year period Non-Electing Charities excess lobbying = revocation

9. 9 Electing PCs: Lobbying Allowance ( IRC 501(h), Reg. 56.4911 ) 2 allowances: Total and Grassroots Total allowance: sliding scale % of Exempt Purpose Expenditures (EPE) 20% of first $500K 15% of next $500K 10% of next $500K 5% over $1.5M Maximum allowance = $1M (occurs at $17M EPE) Grassroots allowance is 25% of total allowance

10. 10 Electing PCs: Exempt Purpose Expenditures (Reg. 56.4911-4) EPE: Usually all expenses, EXCEPT costs of separate fundraising unit (2 or more staff) payments to fundraising counsel or professional fundraisers capital expenditures (s/l depreciation OK) investment management expenses certain excise taxes certain transfers (to affiliates, to boost EPE, to (c)(non-3s) if not controlled grant) ( Reg. 56.4911-4(e) )

11. 11 Electing PCs: Cost Allocation Reasonable cost allocation, including Direct costs of lobbying (e.g. lobbyists, publications) Staff time for lobbying Reasonable share of overheads and operating costs ( Reg. 56.4911-6 )

12. 12 Electing PCs: Not Lobbying 1 Volunteer effort (501(h) is an expenditure test) ( Reg. 56.4911-2(b)(4)(ii) ) Attempts to influence executive branch matters ( Reg. 56.4911-2(b)(1)(i) ) Communications with the public expressing a view on specific legislation, with NO call to action ( Reg. 56-4911-2(b)(2)(ii) ) Communications with members expressing a view on specific legislation, with NO DIRECT call to action ( Reg. 56-4911-5(b) )

13. 13 Electing PCs: Not Lobbying 2 Communications about a Broad Social Problem are not a specific legislative proposal, by definition ( Reg. 56.4911-2(c)(2) ) Nonpartisan Analysis Study & Research ( Reg. 56.4911-2(c)(1) ) requires substantial non-lobbying distribution, not just to allies ( Reg. 56.4911- 2(b)(2)(v)(E) ) full exposition of the facts ( Reg. 1-501(c)(3)-1(d)(3) ) may express a view, but may only contain an indirect call to action ( Reg. 56-4911-2(c)(1)(vi),(vii) )

14. 14 Electing PCs: Not Lobbying 3 Requests for opinions, recommendations and Technical Advice by a legislative body, committee or sub- committee ( Reg. 56-4911-2(c)(3) ) Self-defense lobbying (affects existence, powers & duties, tax-exempt status, or deductibility of contributions) ( Reg. 56-4911-2(c)(4), 2(d)(3) )

15. 15 Electing PCs: Not Grassroots Lobbying Broad communications that are DIRECT lobbying: Communication with the public on ballot measures ( Reg. 56.4911-2(b)(1)(iii) ) Communication with members encouraging them to make a DIRECT lobbying contact (but NOT encouraging them to tell your friends and neighbors) ( IRC 4911(c)(3)(A) )

16. 16 Electing PCs: May Be Lobbying Subsequent Use of Nonpartisan Analysis Study & Research materials within six months may render the earlier preparation costs grassroots lobbying ( Reg. 56.4911-2(c)(1)(v) ) Mass Media advertisements within 2 weeks of a highly publicized vote by legislative body or committee even with NO call to action ( Reg. 56-4911-2(b)(5) ) Also dont forget: Preparation for Lobbying (could be either type), Contact with executive branch officials to influence action on specific legislation (direct), and Accidentally saying in a membership communication so tell your friends and neighbors (grassroots)

17. 17 NON -Electing PC: Reporting narrative Form 990, Schedule C, Part II-B Line Items

18. 18 ELECTING PC: Reporting 4 year test 1 year test Form 990, Schedule C, Page 2, Part II-A

19. 19 Private Foundations OVERVIEW Lobbying is a (Prohibitively) Taxable Expenditure ( IRC 4945(d)(1) & Reg. 53.4945-2 ) Some lobbying excepted from taxable expenditure Flexible rules on grantmaking to charities that lobby Grants should NOT prohibit lobbying, need only avoid earmarking

20. 20 PF: Lobbying Defined Lobbying for Private Foundations (PF) is defined in Reg. 53.4945-2(a)(1) by direct reference to the definition of lobbying for electing public charities at Reg. 56.4911-2 Direct and grassroots lobbying; specific legislative proposal, not just existing legislation Not executive or judicial branch matters Not the identical set of exceptions as public charities

21. 21 PF: Excise Tax on Taxable Expenditures Tax on Taxable Expenditure ( IRC 4945(d)(1) & Reg. 53.4945-2 ) initial tax on expenditures, 20% on foundation lesser of 5% or $10K on foundation managers additional tax if not corrected 100% on foundation lesser of 50% or $20K on foundation managers Initial foundation tax may be abated for reasonable cause and not willful neglect AND corrected timely ( Pub 578, Pg 1 ) Managers tax abated if foundation tax is abated, AND if action was not knowing and willful, or was due to reasonable cause or was based on written advice of counsel ( Reg. 53.4945-1(a)(2) ) all %s and amounts doubled in Aug 06 PPA

22. 22 PFs: NOT Taxable Expenditure Communications about jointly-funded projects with government officials ( Reg. 53-4945-2(a)(3) ) Nonpartisan Analysis Study & Research ( Reg. 53.4945-2(d)(1) ) Requests for opinions, recommendations and Technical Advice by a legislative body, committee or sub- committee (Reg. 53.4945-2(d)(2) ) Self-defense lobbying (affects existence, powers & duties, tax-exempt status, or deductibility of contributions) ( Reg. 53.4945-2(d)(3) )

23. 23 PF: Reporting Tax Form 990-PF, Page 4, Part VII-A, Line 1a Form 990-PF, Page 6, Part VII-B, Line 5

24. 24 PF: Paying Tax Form 4720, Page 4, Schedule E

25. 25 PFs: Advocacy Allowed Examination and discussion about a Broad Social Problem are not a specific legislative proposal, by definition ( Reg. 53.4945-2(d)(4) ) General support grants to public charities that lobby, provided there is no written or verbal earmarking of the grant for lobbying ( Reg. 53.4945-2(a)(6)(I) ) Project support grants to public charities where the project includes lobbying, but the grant is not earmarked, and is less than the non-lobbying portion of the project budget ( Reg. 53.4945-2(a)(6)(ii) )

26. 26 PF Advocacy Summary PFs may still advocate on public policies: Communications about broad social problems Executive and judicial branch advocacy Exceptions for nonpartisan analysis, self-defense, technical advice, jointly-funded projects Communications to public without call to action General support to charities that lobby, not earmarked Project support not earmarked, below non-lobbying amount

27. 27 501(c)(4,5,6) OVERVIEW 501(c)(4,5,6) may engage in unlimited lobbying (related to organizations exempt purpose) However, membership dues and similar amounts used for lobbying activities may be either: Non-deductible to the member (Notice of Disallowance required from the (c)(4,5,6)) or Taxable to the (c)(4,5,6) (Proxy tax)

28. 28 (c)(4,5,6) Lobbying includes Direct lobbying: Federal and State legislation Grassroots lobbying: at any level of government Administrative lobbying: Lobbying communications with certain high-level Federal Executive Branch officials to affect their actions or positions (c)(4,5,6) Lobbying Defined

29. 29 Businesses may not deduct most lobbying – IRC 162(e) No deduction for indirect lobbying via association dues or similar amounts (since 1965) ( IRC162(e)(3) ) OBRA 1993: placed disallowance notice requirements on many (c)(4,5,6) organizations ( IRC 6033(e) ) Dues and similar amounts do not require that members be voting, and do include voluntary payments, assessments for operating costs, and special assessments for lobbying ( Rev Proc 98-19, §5.01 ) (c)(4,5,6) Dues Non-deductible

30. 30 (c)(4,5,6) Notification of Disallowance (c)(4,5,6) Organizations, unless excepted, must either: estimate the amount of dues to be used for lobbying (and political campaign) activities, and notify members of NON- deductibility with their dues bill, OR pay a proxy tax on dues used for lobbying at highest corporate rate ( IRC 6033(e) ) If estimated total is LESS than actual lobbying, carry forward to next years disallowance or pay proxy tax on difference (IRC 6033(e)(1)(C)(ii)) If estimated total is MORE than actual lobbying, informal guidance is to carry forward as credit against next years disallowance or proxy tax ( IRS CPE 2003, Pg L29 )

31. 31 (c)(4,5,6): Excepted Organizations Not ALL (c)(4,5,6) Organizations must comply. Excepted Organizations: ( IRC 162(e)(3) & Rev. Proc. 98-19 ) 1.501(c)(4) veterans organizations 2.501(c)(5) labor organizations 3.More than 90% of dues from (c)(3)s, governments, or IRC 115 orgs 4.More than 90% of dues non-deductible by members Organizations who maintain records (or get a PLR) that more than 90% of dues are non-deductible by members Safe Harbor: (c)(4) social welfare organizations and (c)(5) agricultural and horticultural organizations receiving more than 90 percent of annual dues from members paying annual dues of $97 (2008) or less Reporting: if get dues or similar amounts, Core Form Part IV, Line 5 will drive you to Schedule C Part III Excepted organizations check Yes on Sched C, Part III-A, Line 1 (and need not track or report lobbying): Were substantially all dues nondeductible by members?

32. 32 (c)(4,5,6) Direct Lobbying 1 Direct Lobbying ( IRC 162(e) & Reg. 1.162-29 ) Definition of direct lobbying is essentially identical to that for 501(c)(3) organizations Any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation Influencing legislation explicitly includes planning, preparation & coordination for a lobbying communication ( Reg. 1.162-29(b)(1)(ii) ) No specific exceptions as with electing public charities (nonpartisan analysis, technical advice, self-defense)

33. 33 (c)(4,5,6) Direct Lobbying 2 Direct Lobbying (cont) ( IRC 162(e) & Reg. 1.162-29 ) Federal and State only: legislative bodies do not include local councils and similar governing bodies De Minimis exception: in-house expenditures < $2,000 Similar to the rules for electing public charities, legislation includes a specific legislative proposal prior to being active legislation ( IRC 162(c)(4)(B) refers to 4911(e)(2); also Reg. 1.162-29(b)(5) ) Comments on broad social problems are not specific legislation ( 1.162-29(b)(7) Example 5 )

34. 34 (c)(4,5,6) Grassroots Lobbying Grassroots Lobbying Broader definition than for electing public charities. Definition of grassroots lobbying does not require calls to action. Test is attempt to influence. No exception for LOCAL (IRC 162(e)(2)(A)) No exception for DE MINIMIS (IRC 162(e)(5)(B)(ii))

35. 35 (c)(4,5,6) Executive Branch Administrative Lobbying Direct communication with covered executive branch officials in an attempt to influence their official actions or positions Covered are President, Vice President, Cabinet Officers, deputies, and certain other specified high-level employees ( IRC 162(e)(6) ) State and Local exception: Federal officials only De minimis exception: in-house expenditures < $2,000 (IRC 162(e)(5)(B)(ii))

36. 36 (c)(4,5,6) De minimis Exception De minimis exception (NOT applicable to grassroots lobbying) If organization incurred only in-house expenses of $2,000 or less, not counting overhead, it need not comply ( IRC 6033(e)(1)(B)(ii) & Rev Proc 98-19 ) Excepted organizations check Yes on Sched C, Part III-A, Line 2: Did the organization make only in-house lobbying expenditures of $2,000 or less?

37. 37 (c)(4,5,6) Other Activity Exceptions Planning and preparation for lobbying communications that dont happen are not lobbying, and if reported as lobbying in one year, may be backed out of the next year as a carry forward credit ( Reg. 1.162-29(e) ) Activities Not Treated As Lobbying ( Reg. 1.162-29(c)(3) ) Compliance with the requirements of any law Reading publications available to the general public Viewing or listening to other mass media communications Merely attending a widely attended speech

38. 38 Calculating Lobbying Costs Cost Allocation Methods are much more specific than for electing public charities; rules allow any reasonable method but specify three safe methods (Reg. 1.162-28) Ratio method Gross-up method Method based on uniform capitalization rules

39. 39 (c)(4,5,6) 990 Reporting Form 990, Schedule C, Pg3, Parts III-A and IIII-B If paying Proxy Tax: Form 990-T, Pg 2, Part III, Line 37

40. 40 LDA: OVERVIEW Federal Lobbying Disclosure Act (LDA) of 1995; amended effective 1/1/8 by Leadership and Open Government Act of 2007 Ethics-based: disclose money-in-government Applies to nonprofits; registers individuals and organizations (was just organizations); churches exempt Has trigger point when registration required in 45 days: At least one staffer more than 20% devoted to Federal direct lobbying (in a Qtr), AND Qtrly expenditures over $11.5K or outside lobbyist over $5K Covers both Legislative and Executive Branch contacts Filing requirements: quarterly, Clerk of U.S. House and Secretary of the U.S. Senate; online, e-signature verification takes time LDA is Federal only, but similar laws exist in some states, and even some local governments

41. 41 LDA: Lobbying Defined Lobbying activities include preparation, research, planning, coordination with allies, contacts made to arrange a lobbying contact Lobbying includes work on: Federal legislation Federal rules, regulations, executive orders, and other executive branch positions Nominations subject to US Senate confirmation

42. 42 LDA: Other Details Certain specific exclusions from lobbying activity, including: Materials made available to public or mass media Mere request for meeting or information Testimony before a committee or subcommittee Responding to a specific written request from a covered official Responding to a published request for comment Covered officials are specified; high-level, includes military Associations can lead to disclosures by members (a bit like tax rules) if contribute more than $5,000 toward the registrants lobbying activities (either directly to the registrant or indirectly through the client) in a quarterly period and actively participate in the planning, supervision, or control of such lobbying activities.

43. 43 LDA: Other Details Electing Public Charities may use hybrid LDA/501(h) definitions to determine both trigger point expenditures, and lobbying activity costs; all other nonprofits use the LDA only Quarterly reporting by organizations, semi-annual reporting of [certain political] contributions by organizations and lobbyists (staff or contract) and certification of no prohibited gifts or travel

44. 44 BCRA Bipartisan Campaign Reform Act (BCRA) a/k/a McCain Feingold, a/k/a McConnell v. FEC Prohibits unions and corporations (e.g. (c)(4,5,6)) from broadcast media ads that promote, support, attack or oppose a candidate for Federal office [Some modifications from Wisconsin Right to Life v. FEC] 30 days before primary or 60 days before general Criminal act ERGO: Blackout dates in certain markets for lobbying messages that name an officeholder / candidate The Future? As of this writing, (5/4/04), FEC plans are to leave (c)(4,5,6) alone, focus on issue-based IRC 527 organizations

45. 45 RECAP Tax: 501(c)(3) Public Charities (PC) Non-substantial part of activity; choice of two tests Legislative lobbying is limited (not Executive or Judicial) Tax: 501(c)(3) Private Foundations (PF) Prohibitively taxed, with some exceptions for issue advocacy Tax on Legislative lobbying only (not Executive or Judicial) Tax: 501(c)(4), (5) & (6) Organizations ((c)(4,5,6)) Unlimited, but business dues may be nondeductible or proxy-taxable Legislation AND Executive branch officials actions or positions BCRA prohibits certain messages Lobbying Disclosure Act (LDA) & similar legislation Different definitions; likely to include influencing executive branch

46. 46 END Thank you! Terry Miller www. TerryMiller. biz Terry @ TerryMiller. biz