lobbying rules nonprofits

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Deborah G. Kosnett

The Southern Building • 805 15th Street NW, 9th FloorWashington, DC • 20005

202-419-5111 • [email protected]

Lobbying Rules forNot-for-Profits

22nd Annual Not-For-Profit Organizations SymposiumGreater Washington Society of Certified Public Accountants

Washington, D.C. December 13, 2010

John Pomeranz

1726 M Street, NW, Suite 600 • Washington, DC • 20036202-328-3500 • [email protected]

Agenda

• 501(c)(3) Lobbying

• Lobbying by Other Tax-Exempt Organizations

• Federal Lobbying Disclosure Act

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501(c)(3) Lobbying: Two Tests

• “No Substantial Part” Test

• 501(h) Expenditure Test

No Substantial Part Test

• Lobbying must be “no substantial part” of overall activities

• Measures…– expenditures,

– volunteer and other cost-free activities,

– more…?

• Potential loss of exemption

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501(h) Expenditure Test

• Clear dollar-based limits– only expenditures count

– volunteers and other cost-free things don’t

• Clear definitions of lobbying

• Requires one-time election (Form 5768)

• Penalty for violations is generally an excise tax

501(h) Lobbying Limits

1. Calculate organization’s “exempt purpose expenditures”

2. Overall lobbying limit is:

20% of first $500,00015% of next $500,00010% of next $500,000

5% of remainder3. Grassroots lobbying limit is 25% of overall limit

Up to absolute

cap of $1M

Budget (for most organizations)

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All Lobbying(Direct & GR)

$240,000

Overall Lobbying Limit

$100,000+ $75,000+ $50,000+ $15,000

TOTAL = $240,000

501(c)(3) with $1.8M Budget

Grassroots$60,000

What is Lobbying?

Call to Action

General Public(Not “members”)

Specific Legislation

Expressing a View

Communication

Legislator (or other official or staffer involved in legislation)

Specific Legislation

Expressing a View

Communication

Grassroots LobbyingGrassroots LobbyingDirect LobbyingDirect Lobbying

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Key Point: Specific Legislation

More than just legislation that has been introduced…

• A bill

• Proposed legislation (e.g. model bills)

• Draft amendments

• Specific legislative policy proposals

• Congressional resolutions

• Treaties requiring Senate ratification

NOT Specific Legislation

• Administrative rules

• Court opinions

• Agency decisions

• Executive orders

• Private (non-government) actions

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Key Point: Call to Action

• Urging people to contact their legislator

• Providing contact information for a legislator

• Providing a postcard, petition, web link, or other means to contact a legislator

• Identifying legislators who are:

- Representing reader- Undecided on legislation- Opposed to legislation- Voting on legislation

Generally,no call to action, no grassroots lobbying

Lobbying Exceptions:Nonpartisan Analysis, Study or Research

• “Full and fair” discussion of the issue– Sufficient to allow independent conclusion

– OK to advocate a position

• Public distribution– Not just to allies

• No direct call to action

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Lobbying Exceptions:Request for Technical Advice

• Written request

• Government body

Other Lobbying Exceptions:

• Self Defense– lobbying on bill that would affect AVEF’s

existence or tax-exempt status)– NOT lobbying for earmarks

• Discussions of issues of broad social importance– NOT specific legislative proposals

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21235412Hard Truths Project

Direct Lobbying

9089889888888Total

88Sick Leave

Vacation

GR Lobbying

33GR Lobbying

9324Direct Lobbying

49843548786Better America Project

Total151413121110987654321May 2010

Sample Timesheet

In addition to allocating staff costs, use

aggregate of staff time data to allocate indirect

costs for lobbying

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© Copyright Tate & Tryon 2010

Lobbying: Section 501(c)(4), (5), (6)

The Rules Are DifferentNo lobbying limits, provided lobbying is related to purpose

§162(e) limits member dues deductibility, lobbying-dollar for lobbying-dollar (Federal, state, but not local lobbying)

Applies to §501(c)(4), (5) and (6) organizations (except for §501(c)(4) veterans organizations and §501(c)(5) labor unions)

Options:- Pass nondeductible lobbying costs through to members, via

limits on deductibility of dues paid

- Pay a 35% “proxy” tax on lobbying expenditures, so that members may deduct dues



Lobbying Includes Dollars Spent On . . . Influencing legislation through federal and state lobbying

communications (direct and grassroots), including any costs leading up to the communication

Local lobbying communications are exempt

Attempts to influence the general public, or segments of it, regarding legislation (grassroots)

Attempts to influence a “Covered Executive Branch Official”(CEBO) with regard to his or her official actions or positions

“Monitoring” is not lobbying . . . unless and until it leads to lobbying

Congressional intent is that communication compelled by subpoena or federal/state law is not lobbying . . . but pretty much everything else is.

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Who is a CEBO?Here’s the IRS list . . .

- The President and Vice President;- Any officer or employee of the White House office of the Executive Office of

the President;- The 2 most senior officials at each of the other Executive agencies;- Any individual serving in a Level I position of the Executive Schedule and

his/her immediate deputy; and- Any Cabinet head and his/her immediate deputy.

Or . . . you can just askRule also applies to LDA reporting . . . but the definition’s

different (broader)Be sure to specify which definition you need: IRS or LDA



Lobbying – Disclosure and TaxNo disclosure or proxy tax when:

- Less than $2,000 is spent (in-house lobbying costs only)

- Members can’t deduct dues anyway (least 90 percent of the annual dues are not deductible by members as a business expense)

Must keep records to substantiate!

- Members (persons, families, entities) pay de minimis dues ($101 or less in 2009 - §501(c)(4) or (5) only! (Indexed for inflation)

Proxy tax is an excise tax – no estimates needed; no “same accounting method” requirement

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Disclosure Rule to Avoid Proxy TaxProvide members with an annual reasonable estimate of

the portion of dues not deductible due to lobbying activity- Estimate must be provided at the time of assessment or payment

- Must be presented in a conspicuous and easily recognizable format



Lobbying ExpensesMay calculate lobbying expenditures using any reasonable

method

Nevertheless, IRS gives you two easy methods, one hard method- Gross-up method

- Ratio method

- §263A method

Don’t forget PAC admin expenditures - also included

Taxable political expenditures are not included

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Calculation Methods Gross-up method:

- Lobbying salaries x 175% (225% if not including admin)

- Add: T&E expense, dollars paid outside lobbyists, dues paid to other organizations that lobby, and PAC administrative expenses

Ratio method:

Lobbying labor hours

----------------------------- X Total cost of operations (excl o/s costs)

Total labor hours

- Add: T&E expense, dollars paid outside lobbyists, dues paid to other organizations that lobby, and PAC administrative expenses

263A method – usually not worth the effort



De minimis rules – all methods Time spent by an individual on lobbying activities may be treated

as zero, if less than 5%

Nevertheless, all hours spent by a person on “direct contact lobbying” may be counted as labor hours allocable to lobbying activities- “Direct contact lobbying” - meeting, telephone conversation, letter,

etc. with legislator or covered executive branch official

- Does not include time of those persons exclusively doing research, preparation, and other background activities

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Remember . . . Non-deductibility disclosure is always a prospective estimate

True it up each year: roll overage or under-age forward (both are permitted, at least informally) – this is the proxy tax waiver

Be sure to make a good-faith estimate, or else IRS could deny the waiver

In an association’s final year, any overage most likely will be subject to a proxy tax

Amount subject to proxy tax is capped at 100% of dues

Report and pay tax on Form 990-T

IRS rules may be used to comply with LDA reporting



Important Planning Tip! Even if you never, ever plan to lobby –

- Put a non-deductibility disclosure on your dues notices AND membership applications – even 0.01% should save you from the proxy tax

- Do NOT forget internet membership applications! Both interactive and PDF- Planning to dissolve? Aim for a lobbying expense “under-age” in your

dissolution year

Sample disclosure:“Dues payments, contributions or gifts to XYZ Association are not tax deductible as charitable contributions for federal income tax purposes. However, they may be deductible as ordinary and necessary business expenses subject to restrictions imposed as a result of XYZ's lobbying activities as defined by the Budget Reconciliation Act of 1993. XYZ estimates that the nondeductible portion of your 20XX dues -- the portion that is allocable to lobbying -- is 0.05%."

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Federal Lobbying Disclosure Act(LDA)

• Does not limit the amount of lobbying the organization may do

• Requires public disclosure of lobbying activities• Uses a different definition of “lobbying”

– Except charities using the 501(h) election may use that definition for some purposes

• Applies to all entities (although tax-exempt organizations have some special rules)

States (and some localities) have similar

disclosure laws

Lobbying: Tax vs. LDA

• Includes federal, state, NOT local

• Includes grassroots

• Includes executive branch actions by CEBOs

• Slightly different exceptions

• Includes federal, state, and local

• Includes grassroots

• No non-legislative actions (but exec. branch officials can be “lobbied”)


• Federal only

• No grassroots

• Includes executive branch actions (CEBOs plus)


501(c)(4), (5), (6)(IRC § 162(e))

501(c)(3)(IRC § 4911)

LDA

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LDA Registration

• One or more “Lobbyists”– 20% of time spent lobbying in 3 month period

– More than one lobbying contact

• $10,000 spent on lobbying in 3 month period– 501(h)-electing 501(c)(3)s may use that definition

– 501(c)s subject to 162(e) may use that definition

• Register via Form LD-1 (electronic)

LDA Reporting

• Quarterly (Form LD-2)– Due 4/21, 7/21, 10/20, and 1/20

– Report:• Lobbyist names

• Issue areas (both general and specific)

• Expenditures (nearest $10,000)

• Semi-Annual (Form LD-203)– Separate filings for organization and lobbyists

– Report political contributions and other info

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