1. Terry Miller www.terrymiller.biz Terry@TerryMiller.biz Rules, Recordkeeping & Advanced Strategies Public Charity Lobbying

2. 1.Review IRC 501(h), 4911, & Regs Recordkeeping; Reporting Identifying Lobbying Excise Tax & Revocation 2.Describe & discuss advanced operational strategies Agenda

3. Overview public charities may lobby, within limits 2 tests: facts and circumstances test OR IRC 501(h) expenditure test expenditure test requires election : Form 5768 most, but not all, public charities are eligible (churches & certain affiliates, government units, supporting organizations to (c)(4,5,6) organizations, 509(a)(4) testing for public safety)

4. History: The Law Evolves 1930: Slee v. Commissioner of Internal Revenue 1934: no substantial part added to IRC 501(c)(3) 1954: prohibition on candidate intervention added to IRC 501(c)(3) 1976: IRC 501(h) and 4911 added to provide more certainty 1990: defining regulations adopted

5. Electing 501(h) v Non-Electing a) Note: 2008 990, b) narrative appears gone

6. 501(h) Recordkeeping: 3 Steps 1)Calculate Lobbying Allowances a/k/a Lobbying Nontaxable Amount 2)Identify Lobbying Activities Must keep in mind special rules 3)Calculate Lobbying Expenditures

7. Lobbying Allowances - the Formula 2 allowances: Total, and Grassroots Total allowance: sliding scale % of Exempt Purpose Expenditures 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

8. Exempt Purpose Expenditures Reg. 56.4911-4 Usually all expenses, EXCEPT: a)costs of separate fundraising unit (2 or more staff) b)payments to fundraising counsel or professional fundraisers c)capital expenditures (s/l depreciation OK) d)investment management expenses e)certain excise taxes f)certain transfers (see Reg. 56.4911-4(e))

9. Calculate Lobbying Allowance (lobbying non-taxable amount) Exempt Purpose Expenditures = $1,760,000 20% x 500,000 = 100,000 15% x 500,000 = 75,000 10% x 500,000 = 50,000 5% x 260,000 = 13,000 EPE 1,760,000 238,000 = total allowance x 25% 59,500 = grassroots allowance Example:

10. Identify Lobbying Activity Direct Lobbying is communication with legislator about specific legislative proposal, expressing a view, with intention to influence the legislation >> Reg 56.4911-2(b)(1) Grassroots Lobbying communication with the public, about specific legislative proposal, expressing a view, calling for action to communicate with a legislator to influence the legislation >> Reg 56.4911-2(b)(2)

11. Direct v. Grassroots Lobbying

12. Calls to Action Direct: 1.Tells recipient to contact legislator 2.Provides legislator contact info 3.Provides response mechanism Indirect: 4.Lists key, allied, opposed, or undecided legislators on a specific legislative proposal

13. What is NOT Lobbying? 1 1)Volunteer effort (501(h) is an expenditure test) >> Reg 56.4911-2(b)(4)(ii) 2)Attempts to influence executive branch matters >> Reg 56.4911-2(b)(1)(i) 3)Communications with the public expressing a view on specific legislation, with NO call to action >> Reg 56.4911-2(b)(2)(ii) 4)Communications with members expressing a view on specific legislation, with NO DIRECT call to action >> Reg 56.4911-5(b)

14. What is NOT Lobbying? 2 5)Communications about a Broad Social Problem are not a specific legislative proposal, by definition >> Reg 56.4911-2(c)(2) 6)Nonpartisan Analysis Study & Research >> Reg 56.4911-2(c)(1) substantial non-lobbying distribution, not just to one side of a proposal >> 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 only contain an indirect call to action >> Reg 56.4911-2(c)(1)(vi),(vii)

15. What is NOT Lobbying? 3 7)Requests for opinions, recommendations and Technical Advice by a legislative body, committee or sub-committee >> Reg 56.4911-2(c)(3) 8)Self-defense lobbying (affects existence, powers & duties, tax-exempt status, or deductibility of contributions) >> Reg 56.4911-2(c)(4), 2(d)(3)

16. What is NOT Grassroots Lobbying? 1)Communication with the public on ballot measures is DIRECT lobbying >> Reg 56.4911-2(b)(1)(iii) 2)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)

17. What MAY BE Lobbying? 1)Subsequent Use of Nonpartisan Analysis Study & Research within six months may render the earlier preparation costs grassroots lobbying >> Reg 56.4911-2(c)(1)(v) 2)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) 3)Also dont forget: Preparation for Lobbying (could be either type), Contact with executive branch officials to encourage action on specific legislation (direct), and accidentally saying in a membership communication so tell your friends and neighbors (grassroots)

18. Identifying Lobbying: Flowchart

19. Advanced Topics: Mixed Purpose / Mixed Audience >> Reg 56.4911-3 Allocate Lobby / non-Lobby Lobby: tell public Direct call to action Only indirect call to action Members Only (>85%) reasonable split 100% grassroots 100% direct0% lobby, 100% educ Primarily Members (>50%) reasonable split 100% grassroots split % mbrs: dir public: gr split % mbrs: educ public: gr Primarily non- Members (the Public) same specific subject; all grassroots 100% grassroots

20. Calculate Lobbying Expenditures Cost Allocation Basics Direct costs (travel, publications, lobbyist fees, mailing costs, media) Portion of mixed-purpose activities (case-by-case analysis & allocation) Staff cost (timesheets or incident reports) Proportionate share of Overhead Allocation must be fair and reasonable

21. Sample Timesheet 1 123456789101112131415Total Adopt a Kid Project 68784534449 Direct Lobbying 4239 GR Lobbying 33 Health Project 214532421 Direct Lobbying GR Lobbying Vacation Sick Leave 88 Total 8888889889890

22. Sample Timesheet 2 123456789101112131415Total Adopt a Kid Project Unadopted Kids Memo 6612 Adoption Day Event 28457430 Im adopted Ads 55 Tax Incentive Work 73414 Health Project214532421 Direct Lobbying GR Lobbying Vacation Sick Leave88 Total8888889889890

23. Staff MemberTotal HoursDirect Lobbying % of hours for Direct Grassroots Lobbying Executive Director 2010 44922.3% 111 Deputy Director 2000 1517.6% 58 Research Director 2150 1004.7% 99 Research Assistant 1901 00% 32 Special Program Coordinator 1939 00% 0 Total10,000 700 300 Percentage of Total Hours 7.0% 3.0% Sample Staff Time Summary % of hours for GR 5.5% 3% 4.6% 1.7% 0%

24. Cost Center or Workpaper? Always keep: contemporaneous source documents (time records) always best records on mailings and distributions samples of contents copies of Web pages, email alerts Cost center or Workpaper? Cost Center: allows for careful monitoring Workpaper: allows flexibility

25. Reporting: 990 Schedule A, Pg 2 a) Note: this is no longer the form as of the 2008 b) Form 990. A similar question (just yes/no) is now on c) Part IV of Core Form

26. Reporting: 990 Schedule A, Page 5 a) Note: b) 2008 c) Form 990 d) is very e) similar but f) this part g) is now in h) Schedule C

27. Reporting: non-Electing Charities, Part VI-B Line Items a) Note: 2008 Form 990 is very similar but this part b) is now in Schedule C

28. Reporting: Electing Charities, Part VI-A 4 year test 1 year test a) Note: b) 2008 c) Form 990 d) is very e) similar but f) this part g) is now in h) Schedule C

29. Excise Tax & Revocation Electing Charities excess lobbying, either type, in any one year: 25% excise tax (if both exceeded, the higher of the two) revocation only if exceed either allowance by 150% over any given four-year period State A.G. might have questions about excise tax as use of charitable funds Non-Electing Charities excess = revocation

30. Advanced Strategy Ideas

31. Use a (c)(4) bank Electing charity makes controlled grants, one for grassroots lobbying, one for direct lobbying to an affiliated or allied 501(c)(4) (or (c)(5) or (c)(6)) allied organization each year +fully spends allowance, no tax +prevents need to overspend in some years, paying tax on prior years +tidy; all lobbying done by affiliate Reg 56.4911-3(c)

32. Always make substantial non-lobbying distribution Electing charity always takes research results and prepares a study, which it distributes widely for public education purposes +assists with allocation of research efforts between lobbying and non-lobbying; documents that the primary purpose is not lobbying +Tip: maintain a list of professors & press & other nonprofits Reg 56.4911-2(b)(2)(v)(E)

33. Know Donors = Members Members are those who contribute more than nominal amount of time or money (and some honorary). All donors should be characterized as members; they need not vote on corporate business +Communications with members are favored as 1) direct lobbying even with a direct call to action, and 2) as education only if the call to action is merely indirect Reg 56.4911-5(f)(1)

34. Carefully Parse Your List Parse sub-lists in the database so that mailings can be structured / controlled as only to members (allows 15% other), primarily to members (over 50%) or primarily to the public as needed +The rules permit substantial flexibility in allocations between lobbying and non-lobbying if a mailing is to only, or primarily members +The rules treat communications to members without a direct call to action as mere education: unlimited +Careful parsing also facilitates making substantial non-lobbying distribution (professors, press, interested nonprofits – on all sides of an issue) >> Reg 56.4911-3, -5

35. Establish Annual Patterns Plan to engage in certain activities annually, establishing a pattern +most relevant to avoiding appearance of prohibited candidate electioneering: Is it electioneering to have banquet speaker who is allied officeholder seeking re-election? +annual voting record scoring tied to legislative cycle rather than election cycle: Is it lobbying? Electioneering? +polling and survey research on public opinion about relevant public policy issues: Is it annual research or lobbying preparation?

36. Adopt New Fiscal Year Adopt fiscal year-end that applies two annual lobbying allowances to: +one legislative session, or +preparation and campaigning on one ballot measure

37. Learn to do NPASR >> Reg 56.4911-2(c)(1) Non Partisan Analysis, Study, and Research is NOT lobbying, even if it reaches a conclusion about what legislative proposal is best, and even if it contains an indirect call to action +substantial non-lobbying distribution (at least as great as the lobbying distribution?) +cannot only distribute to one side or the other +educates the public, lays a base for later battles +easier to raise charitable money to support

38. Calculate and monitor the excise taxable amount and revocation ceiling Measure questionable transactions (is it preparation for lobbying?); if not reported as lobbying, verify these costs will not exceed allowance by 50% for a four-year period +think of it like a reserve account

39. Master Calls-to-Action direct? indirect? none? +NPASR: expresses a view, only has indirect call to action: NOT lobbying +communications with members that expresses a view about specific legislation and only has an indirect call to action: NOT lobbying +grassroots lobbying vs. public education: communication to general public that expresses a view on specific legislation but has no call to action: NOT lobbying +SOP 98-2: is it a feature or a bug? +if adopted for Form 990, allows lobbying activity to potentially hide as fundraising +some groups inadvertently issue lobbying calls to action in order to solve the 98-2 call to action as v. pure fundraising

40. Master Discussion of Broad Social Problems Master discussion of broad social problems and calling for action as part of the early stages of a larger debate and issue campaign

41. Train Staff Staff training: make sure that program staff know what is direct lobbying and what is grassroots lobbying +document the training efforts to show IRS in support of time records +add to employee manual certain controls? +allows staff to account for time accurately +allows staff to construct issue campaigns strategically

42. Train Members Member training: make sure members and financial supporters are trained in advance, and have an easy-to-save (refrigerator magnet?) list of legislators and policy- makers +later, communications to members about specific legislation, and expressing a view, even if including an INDIRECT call-to-action (key legislators), will not be lobbying, and the members will hopefully know what to do >> Reg 56.4911-5(b)

43. Issue Campaigns = 5 Year Planning Learn to do five-year planning and budgeting for the full arc of an issue campaign +begins with public education and calls for action on broad social problem +moves into specific lobbying +in some cases may move into candidate accountability

44. Plan for List ownership by an IRC 501(c)(4,5,6) if possible Arrange for the list to be held by an affiliated non-charity if possible; it allows much greater flexibility -CAUTION: cannot spend charitable money building the list if owned by non-charity +(c)(4,5,6) may provide use to (c)(3) for free, or charge fair market value +(c)(4,5,6) may do list enhancement merging in voter participation information

45. Arrange Invitations to give Technical Advice Technical Advice does not require the same full and fair exposition of the facts test that NPASR does +friendly committee chairs can often arrange to invite testimony in writing +helps create a substantial non-lobbying purpose for research costs

46. Understand the Macintosh rules for Private Foundations Private Foundation may provide support for a specific project that includes lobbying, so long as the grant is less than the non- lobbying portion +foundations may need education on this point +Alliance for Justice booklet: Foundation Support for Advocacy: Myth vs. Fact

47. Learn to recognize Self-Defense Lobbying Self-Defense exception is NOT about budget cuts or reductions in funding. Examples are: +attempt to repeal property tax exemption for charities through ballot measure or legislature +attempts to change deductibility of certain gift items such as highly appreciated stock +legislative or ballot measure efforts to make it harder for employers to allow charitable solicitation of employees for charities that lobby

48. Know when to revoke Section 501(h) election Authorities differ on this point, but possible scenarios for revocation include: +budget sufficiently large that 5% is well over $1M maximum 501(h) allowance +no direct lobbying, but grassroots is a bit over 5% +the IRS targeted audit program continues +cases where substantial non-lobbying VOLUNTEER effort would reduce the substantiality of lobbying under facts and circumstances

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