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Non-Profit Lobbying Rules
An Outline of the Rules and Regulations for Non-Profits to Influence Federal Legislation
By: Anne Daymut, Watershed CoordinatorMarch 2016
Non-Profit Lobbying Rules
• Focus on the Federal Rules for 501(c)3 non-profits
• Why your organization should Lobby• General Definitions• How the amount of lobbying is measured• The role of funders• Brief overview of PA’s Lobbying Laws• Quiz
Why Lobbying is Important to Your Organization
• Legislative actions directly impact your organization’s ability to achieve its goals
• No one is going to lobby on your behalf • Who knows your community’s issues better than
you? • If you aren’t lobbying, you are missing out on the
most effective way to promote your organization’s missions.
• It’s your right and responsibility!
General Definitions
• Advocacy – Publically supporting and/or recommending a particular cause or policy
• Lobbying - Attempting to influence legislation by contacting, or urging the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or by advocating the adoption or rejection of legislation.*
501(c)3 Non-Profit Status
• In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation. *
• A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.*
Lobbying Definition (Repeated)
• Lobbying - Attempting to influence legislation by contacting, or urging the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or by advocating the adoption or rejection of legislation.*
Influence
• Contacting, or urging the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.
Legislation
Action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure. It does not include actions by executive, judicial, or administrative bodies.
Lobbying Exemptions• Nonpartisan analysis, study or research that presents all
sides of an issue• Conducting educational meetings• Preparing and distributing educational materials • Responses to written requests for assistance from
committees or other legislative bodies• Challenges to or support for legislative proposals that
would change the organization’s rights or its right to exist• Examinations and discussions of broad social, economic,
and similar problems
2 ways to Measure Amount of Lobbying Activity
• Substantial Part Test• Insubstantial Part Test, aka Expenditure Test,
aka 501(h) election
Substantial Part Test
• IRS considers time devoted (by both compensated and volunteer workers) and the expenditures devoted by the organization to the activity, when determining whether the lobbying activity is “substantial”.
• Must report on Form 990 activities of all staff and volunteers with regards to lobbying
• But…What is Substantial?
Penalties of Too Much Lobbying
• Losing tax-exempt status, resulting in all of its income being subject to tax.
• Excise tax equal to five percent of their lobbying expenditures for the year in which they cease to qualify for exemption.
• Tax equal to five percent of the lobbying expenditures for the year may be imposed against organization managers, jointly and severally, who agree to the making of such expenditures knowing that the expenditures would likely result in the loss of tax-exempt status.
Expenditure Test* If the amount of exempt purpose
expenditures is: Lobbying nontaxable amount is:
≤ $500,000 20% of the exempt purpose expenditures
>$500,00 but ≤ $1,000,000 $100,000 plus 15% of the excess of exempt purpose expenditures over $500,000
> $1,000,000 but ≤ $1,500,000 $175,000 plus 10% of the excess of exempt purpose expenditures over $1,000,000
>$1,500,000 $225,000 plus 5% of the exempt purpose expenditures over $1,500,000
• may not exceed $1,000,000• 25% of your limit may be spent on Grass Roots
Lobbying
Expenditure Test
• Easier– Form 5768, less detailed reporting• You don’t have to record, prepare, or file a detailed
description of activities• Allows for better planning of activities and finances
Expenditure Test
• Safer– More precision/less guessing– More freedom– Does not increase likelihood of audit– Less frightening penalties for exceeding allowance
• Lose tax exempt status after 4 years of excessive lobbying• After first year, excise tax equal to 25% of the excess• No personal penalty for individual managers of an
electing charity that exceeds its lobbying expenditures limits (not so for those in non-electing charities)
Expenditure Test• Additional Exemptions not included in the substantial test
– Making available the results of nonpartisan analysis, study, or research; Providing technical advice or assistance (where such advice would otherwise constitute the influencing of legislation) to a governmental body or to a committee or other subdivision thereof in response to written requests by such body…;
– Appearing before, or communicating to, any legislative body with respect to a possible decision of such body which might affect the existence of the organization, its powers and duties, tax-exempt status, or the deduction of contributions to the organization [otherwise known as “self-defense communications”];
– Communications between the organization and its bona fide members regarding legislation or proposed legislation of direct interest to the organization and such members [other than communications that “directly encourage” the members to engage in direct or grass roots lobbying]; and Any communications with a government official or employee” that are not for the purpose of influencing legislation. (See 26 USC Section 4911)
Expenditure Test
• No limit on lobbying activities that do not require expenditures, such as unreimbursed activities conducted by bona fide volunteers (not true for non-electing charities)
• Higher lobbying dollar limits and fewer items which count toward the exhaustion of those limits (unlike the miniscule and artificial restrictions adopted by some nonelecting charities)
Expenditure Test* If the amount of exempt purpose
expenditures is: Lobbying nontaxable amount is:
≤ $500,000 20% of the exempt purpose expenditures
>$500,00 but ≤ $1,000,000 $100,000 plus 15% of the excess of exempt purpose expenditures over $500,000
> $1,000,000 but ≤ $1,500,000 $175,000 plus 10% of the excess of exempt purpose expenditures over $1,000,000
>$1,500,000 $225,000 plus 5% of the exempt purpose expenditures over $1,500,000
• may not exceed $1,000,000• 25% of your limit may be spent on Grass Roots
Lobbying
Types of Lobbying• Direct - In general, any
attempt to influence any legislation through communication with a legislator, an employee of a legislative body or other government official, which:
• (1) refers to specific legislation; and
• (2) reflects a view on such legislation.
• Grassroots lobbying -- any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof. A grassroots lobbying communication is one which:
• (1) refers to specific legislation;• (2) reflects a view on that
legislation; and• (3) encourages the recipient to
take action with respect to the legislation
Encourages the recipient to take action with respect to the legislation…(cont.)
• (a) directly urging the recipient to contact legislators or other government officials in order to influence legislation;
• (b) including the address, phone number or similar information about a legislator or government official;
• (c) providing a petition, postcard or other prepared message to send to a legislator or government official in order to influence legislation; or
• (d) identifying one or more legislators who will vote on the legislation as opposing the organization's view; being undecided; being the recipient's representative in the legislature; or being a member of the legislative committee that will consider the legislation. Encouraging the recipient to take action does not include naming the main sponsor(s) for the purposes of identifying the legislation.
Exempt Purpose Expenditures
• include everything a charity spends to accomplish its exempt purpose, but excludes certain expenditures for fundraising, capital expenses, unrelated business activities, and other purposes not connected to carrying out the organization’s charitable purposes. For many organizations, all of the organization’s expenditures qualify as exempt purpose expenditures.
• https://www.law.cornell.edu/cfr/text/26/56.4911-4
The Role of the Private Foundation• Foundations are allowed to prohibit the use of their funds for lobbying.• Foundations are not allowed to earmark or designate funds for lobbying!• Foundations may make general support grants to charities whether or not
the charities are currently lobbying, have lobbied in the past, have made the 501(h) election, or even use the grant for lobbying purposes. The grants will not be taxable expenditures by the foundation as long as they are not earmarked for lobbying. The regulations do not require a private foundation to seek information about a charity’s lobbying budget when the charity applies for a general support grant.
• Foundations can give specific project grants to fund projects that include lobbying, so long as an individual foundation’s total grants for the same project and year do not exceed the amount the grantee had budgeted for the nonlobbying portion of the project. In making this determination, foundations may rely upon the budgets provided by grantees.
Other Funding Considerations
• Community Foundations are treated like all other 501c3, with the same limits and penalties
• All other funding sources are allowed to prohibit the use of funds for Lobbying– EPA 319 grants– State Grants
Prohibited Activities
• strictly prohibited by the IRS from participating in campaigns for (or against) political candidates to public office
• No partisan political activities
State and Local Lobbying
• State and municipal lobbying disclosure laws impose additional reporting requirements on all organizations—not just on 501(c)(3) organizations—that lobby a certain amount at the state or local level. – Pennsylvania Lobbying Disclosure Law – Only
applies to PAID lobbying at the State Level
PA Lobbying Disclosure Law
• Paid Lobbying does not include volunteers or Board of Directors but does include paid staff and reimbursement of expenses.
• Requires Registration and Reporting (depending on time and money spent)
• Definitions, allowances, and penalties go well beyond the Federal Law
Local Lobbying Laws
• Pittsburgh and Philadelphia • Townships and Municipalities
QUIZ
• Organization M writes to its Congresswoman requesting that she contact an administrative agency regarding a proposed regulation.
Quiz• A pamphlet distributed by organization Y states that the
“President’s plan for a AMD-Free America” should be passed, and encourages readers to “write or call your senators and representatives and tell them to vote for the President’s plan.”
• Assume the same facts as above except that the pamphlet encourages readers to “write the President to urge him to make the bill a top legislative priority” rather than encouraging readers to communicate with members of Congress.
• Assume the same facts as above, except that the pamphlet does not encourage the public to write or call legislators or the President, but does list the members of the committee that will consider the bill.
Quiz
• In each edition of its newsletter, Organization E, an environmental organization, routinely summarizes and reports on the status of environment-related bills pending in Congress. The newsletter identifies each bill by a bill number and the sponsor’s name. Although the summaries and status reports refer to, and often reflect a view on, specific legislation, they do not encourage readers to take action with respect to any of the bills.
Quiz
• Organization Z prepares a paper on a particular state’s environmental problems. The paper does not reflect a view on any specific pending legislation nor on any specific legislative proposal which Z supports or opposes.
Quiz
• The President nominates X for a position in the President’s cabinet. Organization Y opposes this nomination and sends a general mailing requesting recipients to write to four Senators on the Senate Committee that will consider the nomination.
Quiz
• A pamphlet distributed by organization L discusses the dangers of drugs and encourages the public to send their legislators a coupon printed with the statement, “I support a drug-free America.” The term “drug-free America” is not widely identified with any of the many specific legislative bills regarding drug issues. The pamphlet does not refer to any of these bills, nor does the organization support or oppose a specific legislative proposal.
Quiz
• Organization B researches, prepares and prints a code of standards booklet of minimum safety requirements for electrical wiring. B sells the booklet to the public and it is widely used by professionals in the installation of electrical wiring. Occasionally, B lobbies state legislators for passage of the code of standards for safety reasons.
Quiz
• Organization R’s monthly newsletter contains an editorial column that refers to and reflects a view on specific pending bills, but does not encourage readers to take action with respect to these bills. R sends the newsletter to 10,000 nonmember subscribers, including Senator Doe.
Quiz
• The Organization places an advertisement that specifically identifies and opposes a bill that it asserts would harm the Waste-Coal industry. The ad is not a mass media communication described in the special rules for certain mass media advertisements, but it does state that Senator Y favors the bill.
• Assume the same facts as above except that instead of identifying Senator Y by name, the advertisement identifies the “junior Senator from State Z” as favoring the legislation.
In Closing
• Lobbying is your Right and Responsibility!• The Federal Rules of non-profit lobbying have recently
become more clear and safe with the ability for 501(h) election
• Just be careful how much of each type of lobbying you do
• Consider who your funding sources are and if they have placed lobbying restrictions on the funds
• And look into the state and local laws if your mission is impacted by state and local policy
Helpful Organizations
• *www.irs.gov• Independentsector.org/lobby_guide• Allianceforjustice.org• Bolderadvocacy.org• PA State Ethics Commission
Additional Resources
• Worry Free Lobbying for Non-Profits: How to Use the 501(h) Election to Maximize Effectiveness, Alliance for NonProfits
• Lobbying by NonProfits in Pennsylvania: The Rules of the Road, 2014, Philadelphia Bar Association
