Lobbying Guidelines for Tax-Exempt Organizations
Determination
Before embarking on political lobbying activities, tax-exempt organizations must first determine if their lobbying would constitute a substantial portion of their activities. There are several factors that need to be considered to make this determination including, but not limited to, the percentage of employees’ time devoted to lobbying, the nature of the organization and its mission, the percentage of the lobbying in the organization’s annual budget, whether the activities are continuous or sporadic, and how controversial the organization’s position would be in the activities. Tax-exempt organizations should be aware and limit their activity so this test is easily passed so as not to raise issues with the IRS and potentially jeopardize their tax-exempt status. Certain activities, such as paying annual dues to organizations which perform lobbying on behalf of their members as well as paying an outside, independent company to perform lobbying on their behalf, are allowable as the tax-exempt organization is not directly influencing or advertising their position with respect to any political position, stance or legislation.
Types of Lobbying
There are two types of lobbying. Direct lobbying is the communication of views to a legislator, or a staff member of a government employee, who may assist in developing legislation on a specific issue. If members of the organization, those contributing more than a nominal amount of time and money, are asked to lobby, it is considered direct lobbying. Furthermore, attempting to influence the public on specific political initiatives is direct lobbying as the public would be considered the legislator.
The second type of lobbying is grassroots lobbying which is an attempt to influence specific legislation by encouraging the public to contact legislators and others concerning legislation. This type of lobbying may also be referred to as a call to action. Grassroots lobbying involves communication that encourages readers to contact a legislator and sometimes even provides a legislator’s address or phone number.
Restrictions
The action of influencing legislation, which includes Congress, state and local councils and similar governing bodies, is prohibited for tax-exempt organizations. Influence, for this purpose, includes participating or intervening in a political campaign on behalf of or in opposition of a candidate vying for public office. It also includes distributing materials and providing or soliciting financial or other support to a candidate.
As stated in the First Amendment, every individual has a right to freedom of speech. Therefore, board members and executives have the right to actively support a candidate, but need to be careful to not utilize the resources or name of the tax-exempt organization for which they are affiliated. Additionally, tax-exempt organizations are prohibited from being involved and creating Political Action Committees (“PAC”). Prohibited PAC activities include, but are not limited to, endorsements, referring patients, providing lists of donors, providing the organization’s trademark for use or having employees or executives be compensated for serving on the board of the PAC.
Organizations may get involved with political issues without jeopardizing their tax-exempt status by actively engaging in lobbying through holding educational sessions or distributing educational materials. As long as it is educational in nature and does not promote a political view or attempt to influence anyone, this type of involvement would be deemed acceptable under the IRS rules and regulations for tax-exempt organizations.
In order for the IRS to be able to monitor lobbying and political activities, tax-exempt organizations that participate in lobbying are required to complete Schedule C, Lobbying, when filing their annual Form 990, Return of Organization Exempt From Income Tax. In addition to the IRS limitations placed on lobbying activities, tax-exempt organizations are also governed by state and federal lobby disclosure laws which require certain organizations and individuals to register when they begin to engage in lobbying and to file periodic reports with respect to their lobbying activities.
Internal Revenue Code §501(h) Election
Pursuant to current IRS rules and regulations outlined on its website, www.irs.gov, organizations other than churches and private foundations may elect the expenditure test under IRC §501(h) as an alternative method for measuring lobbying activity. Under the expenditure test, the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided its expenditures, related to such activity, do not normally exceed an amount specified in IRC §4911. This limit is generally based upon the size of the organization and may not exceed $1,000,000.
In addition, organizations electing to use the expenditure test must file Form 5768, Election/Revocation of Election by an Eligible IRC §501(c)(3) Organization to Make Expenditures to Influence Legislation, at any time during the tax year for which it is to be effective. The election remains in effect for succeeding years unless it is revoked by the organization. Revocation of the election is effective beginning with the year following the year in which the revocation is filed.
Finally, pursuant to IRS rules and regulations, under the expenditure test, an organization that engages in excessive lobbying activity over a four-year period may lose its tax-exempt status, making all of its income for that period subject to tax. Should the organization exceed its lobbying expenditure dollar limit in a particular year, it must pay an excise tax equal to 25 percent of the excess.
Conclusion
If a tax-exempt organization pays anyone such as a staff member, outside lobbying firm or a volunteer who is reimbursed for expenses, to influence legislation or administrative rules, it is recommended that the organization explore the extent to which these laws may apply. It is understood that all individuals are able to voice their personal opinions regarding issues that are important to them, whether or not they are political in nature. However, it is important that tax-exempt organizations understand the IRS rules and regulations and educate their employees so that they are able to personally become involved with these types of activates, if they wish to do so, without jeopardizing the organization’s tax-exempt status.
Resources
2013 Instructions for Schedule C: Political Campaign and Lobbying Activities
Schedule C: Political Campaign and Lobbying Activities
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