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Nonprofit lobbying.

Lobbying laws for 501 (c) (3) tax exempt organizations have never been clearer or easier to apply, thanks to revisions to the Internal Revenue Code (IRC) in 1976 and clarifications made in 1990. Let's review standard definitions, how the new rules work, and what lobbying means.

A substantial issue. Since 1934, the law has disqualified an organization for tax exemption under IRC Section 501 (c) (3) if in any given year a substantial part of its activity was attempting to influence legislation-that is, lobbying.

The problem is to define substantial The Internal Revenue Service's test is vague and difficult to apply, with no clear delineation of how much lobbying is too much. Charities-and IRS auditors-must make a subjective evaluation of all the facts and circumstances.

Defining a limit. In response to criticism of the substantial part test, Congress enacted IRC sections 501(h) and 4911 in 1976. These permit publicly funded (c)(3) organizations (public charities and some associations but not private foundations) to elect out of the substantial part test and into a new expenditure lest that is more objective and sometimes more lenient. Electing means filing the simple, one-page Form 5768.

Under the expenditure test, an electing public charity may spend up to a defined percentage of its exempt purpose expenditures on lobbying without jeopardizing its exempt status (see table, "Tax-exempt Lobbying Limits"). Regardless of that amount, the maximum nontaxable direct lobbying expenditure is $1 million, and the maximum grassroots expenditure is $250,000. There is a 25 percent excise tax on excess expenditures. Revocation of exemption only occurs if an organization exceeds its permitted lobbying expenditures by 150 percent averaged over a four-year period.

Two sorts of lobbying. Direct lobbying generally means attempting to influence legislation by communicating with legislators, executive branch employees, and staff. Indirect or grass-roots lobbying means communicating with the public. IRS published final rules for the 1976 law in 1990 that distinguished the two, since the expenditure test allows more exempt expenditure for direct lobbying:

A communication is direct lobbying if and only if it refers to specific legislation and reflects a view on the legislation.

It is grass-roots lobbying if it refers to specific legislation or confirmation of executive branch nominees, reflects a view on that legislation, and encourages a specific action with respect to the legislation.

The term legislation includes action by Congress, any state legislature, any local council or similar governing body, or the public in a referendum.

Certain categories of communication are excepted from the term influencing legislation. These include nonpartisan analysis, study, or research; examinations and discussions of broad social, economic, and similar problems; requests for technical advice; and self defense communication. Testifying by official request is not lobbying. There are also special rules treating an electing charity's communication with its members more leniently than communication with nonmembers.

Advantages to electing. The substantial part test has only one sanction for excessive lobbying activities in a given year: revocation of 501 (c) (3) status. Charities that elect the expenditure test pay an excise tax on amounts above their defined limit but risk exempt status only if they spend an excessive amount over four years. Also, under the substantial part test the measure of lobbying activities includes lobbying endeavors of unreimbursed volunteers. Since there is no expenditure of funds for volunteers, such time would not be considered under the expenditure test.

Both electing and non-electing charities must report lobbying activities to IRS on Form 990 (Schedule A, Part 111); electing charities must compute direct and grass-roots lobbying separately. New for tax year 1991 is Schedule A, parts VlA and VI-B. Electing organizations report direct and grass-roots lobbying expenditures on A; non-electing groups may voluntarily itemize lobbying expenditures on B-and they will be required to do so for 1992.

Rules for 501(c)(6) organizations. Trade associations are not required by statute or regulation to refrain from carrying on propaganda or influencing legislation to be exempt under IRC 501 (c) (6). However, IRS has ruled that if a 501 (c) (6) trade association's sole activity is to influence legislation, it must be concerned with lobbying germane to the common business interests of its members to retain its exemption.

Dues paid by members that are used for exempt purposes are generally deductible (subject to the 2 percent floor on itemized deductions for individual taxpayers). If a substantial part of an association's activity consists of grass-roots lobbying and unrelated legislative activities, IRS allows the member to deduct only that portion of dues that can clearly be attributed to permissible 501 (c) (6) activities.
COPYRIGHT 1992 American Society of Association Executives
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Title Annotation:Legal
Author:Webster, George D.
Publication:Association Management
Article Type:Column
Date:Mar 1, 1992
Words:760
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