Lobbying for Your Chamber: Legal and Tax Pitfalls American Chamber of Commerce Executives Presented by George E. Constantine, III, Esq. Venable LLP Washington, DC

George E. Constantine, III, Esq. Counsel to tax-exempt trade associations, professional societies, chambers of commerce Former Staff Counsel for the American Society of Association Executives Concentrates practice on tax, contracts, intellectual property licensing, election law, corporate governance and other issues affecting tax-exempt, nonprofit corporations. geconstantine@venable.com, 202/344-4790

Today’s Program What is Lobbying? State Laws Federal Laws Lobbying vs. Political Activities Tax Compliance Issues Common-sense Compliance Tips Conclusion

What is Lobbying? Congress shall make no law … abridging the freedom of speech … or the right of the people … to petition the Government for a redress of grievances. Constitutionally-protected right Nonetheless, subject to numerous rules and regulations on both the state and federal levels. “Disclosure” of activities not unconstitutional Denial of tax deduction for lobbying activities not unconstitutional

Lobbying Restrictions and Regulations — State Law ALL states require registration of lobbyist. All but three (Montana, Wisconsin, Wyoming) require the filing of regular reports. Commonly, a state will have enacted a registration and reporting scheme that (1) defines “lobbying”; (2) sets a minimum level of lobbying activity (usually measured by expenditures) for registration and reporting; and (3) establishes frequency levels for reporting.

Lobbying Restrictions and Regulations — State Law (continued) Secretary of State, Office of Elections, etc. All states have also enacted restrictions on gifts to legislators and others — often criminal, some with easy standard (“appearance of impropriety”) Bottom line — become familiar with the applicable state law

Lobbying Restrictions and Regulations — Federal Laws Lobbying Disclosure Act requires registration and reporting for certain entities. Organizations, not individuals, register; Employ an in-house “lobbyist”; and Spend at least $24,500 in a semiannual period on lobbying activities. Semi-annual reporting required.

Lobbying Restrictions and Regulations — Federal Law Until recently, enforcement has been non-existent. Now, failure to file is being pursued vigorously. Publicly available information.

Lobbying vs. Political Activities Distinction between state and federal restrictions Be wary of the distinctions between the two activities — political activities generally are considered activities in support of or in opposition to one more identified candidates for office; lobbying is generally the attempt to influence legislation, regulation or other actions of a government body.

Lobbying vs. Political Activities (Continued) Federal campaign finance law Corporations are PROHIBITED from participating in political activities under federal election law. Note the definition of political activities is very narrow as interpreted by the courts. Note that organizations can have related PACs and have those PACs participate in political activities.

Lobbying vs. Political Activities (Continued) Note federal election law restrictions on “issue advocacy.” Many states (e.g., Virginia) allow for limited corporate political activities — meaning that a chamber can often give some money out of its general treasury fund in support of or in opposition to a candidate. Many other states, however, require PACs.

Lobbying vs. Political Activities (Continued) Tax code takes different approach on political expenditures: Allows 501(c)(6) organizations to participate politically, as long as such participation is not the primary activity of the organization. Creates tax regime — corporations that pay for political activities in effect pay a tax on such expenditures.

Tax Compliance Issues Section 501(c)(6) generally allows for unlimited lobbying levels (unlike 501(c)(3)). Nondeductibility of dues to the extent such dues pay for lobbying. Member dues notification; or Proxy tax payment.

Tax Compliance Issues (Continued) “Any attempt to influence any legislation through communication with any member or employee of a legislative body…” Includes research, preparation, planning, etc. Includes communications with many other government officials. Includes lobbying at the state level.

Tax Compliance Issues (Continued) Counting lobbying expenditures for tax purposes: Preparation work Multiple purpose documents IRS-approved methods (ratio method, gross-up method, allocation method) Reporting nuances Prediction on future expenses At the time of billing or receipt Should also include notice about payment not being deductible as a charitable contribution.

Common Sense Compliance Tips Get familiar with applicable laws on lobbying and political activities. Establish a time reporting system — daily is preferable. Pay close attention to activities of volunteers in the name of the organization (particularly with regard to political activities). Meet with outside help (CPAs, attorneys, contract lobbyist) to ensure consistency in reporting. Revisit from time to time.

Questions????