Lobbying, Advocacy and the Law for Nonprofits under section 501(c)(3)

1. Lobbying, Advocacy and the Law for Nonprofitsunder section 501(c)(3)

2. Lobbying can be an effective means through which a nonprofit can achieve its mission. • Lobbying is a form of advocacy that focuses on changing laws that affect individuals’ lives and issues communities care about. • Lobbying is an appropriate way to educate and even influence government and has resulted in many important policies from clean air, civil rights, labor laws, foster care and recognition for arts and culture. www.clpi.org

3. Nonprofit Lobbying Laws:Common Myths • Lobbying is not legal • Even if lobbying is legal it will make an organization subject to audit by the IRS • There are no clear definitions of what is lobbying and what is not lobbying This tutorial will address these myths www.clpi.org

4. Is lobbying legal? • YES! Lobbying by charitable nonprofits -- tax-exempt under section 501(c )(3) of the Internal Revenue Code -- is absolutely legal. www.clpi.org

5. What do I need to know to follow the IRS rules for lobbying by 501(c)(3)s? • Organizations have a choice between two sets of rules to follow… • The Substantial Part Test and the Expenditure Test, also known as the 501(h) election • One set of rules is generally preferable for most charities – The Expenditure Test enacted in 1976 www.clpi.org

6. What is the “substantial part” test? • Lobbying cannot be a substantial part of your organization’s activities. • If it is, your organization may lose its tax exemption and with it the right to receive tax deductible contributions. www.clpi.org

7. What is the expenditure test? • The Expenditure test was enacted in 1976 and implemented by IRS rules in 1990 to provide clear ceilings for lobbying expenditures by 501(c)(3)s and clear definitions of what is and is not lobbying. • Frequently known as the 501(h) lobby election, the expenditure test did not replace the older substantial part test but is an alternative to it. www.clpi.org

8. Who does the expenditure test apply to? • Only charitable nonprofits that “elect” to come under it (or section 501(h) of the Internal Revenue Code). • Lobbying expenditures are to be reported annually on tax Form 990 Schedule A www.clpi.org

9. No certain and definite allowable amounts of lobbying expenditures A single year violation may result in the loss of tax-exempt status Importance of an issue is a relevant factor in determining permissible lobbying activity Possible additional reporting burden on tax form 990 Clear and specific definitions of lobbying Certain and definite allowable amount of lobbying expenditures Safe harbor exceptions No jeopardy to tax-exempt status for a single year violation Importance of an issue is not a factor in measuring permissible lobbying activities Possibly less reporting burden than substantial part test The Choice: Substantial Part vs. Expenditure TestSubstantial Part Expenditure Test www.clpi.org

10. Expenditure Test rules in detail As stated before the expenditure test rules are preferable because they provide clear expenditure limits and definitions of lobbying for 501(c)(3) organizations. By default, 501(c)(3) organizations are under the vague, substantial part test until they affirmatively “elect” the expenditure test. www.clpi.org

11. How much can my organization spend on lobbying under the expenditure test? • A generous amount: • 20 percent of the first $500,000 of annual expenditures; • 15 percent of the next $500,000; • And so on up to $1 million a year. See the Nonprofit Lobbying Guide p.55 http://www.clpi.org/BOOK/nonprofitlobbyingguide.pdf www.clpi.org

12. Grassroots lobbying expenditures • Charitable nonprofits may spend 1/4 of the total amount of their lobbying budget on grassroots lobbying. • See the Nonprofit Lobbying Guide p. 55 http://www.clpi.org/BOOK/nonprofitlobbyingguide.pdf . www.clpi.org

13. Example of ABC Nonprofit ABC charity has annual expenditures of $250,000. • 20% of $250,000 = $50,000 = Direct lobbying limit • 25% of $50,000 = $12,500 = Grassroots lobbying limit Nonprofits can spend a significant amount on lobbying under the expenditure test. www.clpi.org

14. What is Direct Lobbying? Direct Lobbying is when an organization attempts to influence specific legislation by stating its position or urges a legislator to support, oppose or otherwise take action on a bill or proposed legislation. www.clpi.org

15. Direct Lobbying: Examples • A state association of human service organizations takes a position to support legislation to increase the state’s budget for human service programs. Staff of the association then meet with members of the legislature and encourage them to support the pending legislation. www.clpi.org

16. Direct lobbying examples continued • A local housing organization takes a position against proposed legislation that would change the eligibility of families for affordable apartments. The organization sends a letter to each of its bona fide members who are residents, asking that they contact their City Council member and provides them contact information and some sample text to include in their letter. www.clpi.org

17. What is Grassroots Lobbying? • When an organization urges the public to take action on specific legislation • Key elements of grassroots lobbying are: • Refer to specific legislation; • Reflect a point of view on its merits; • Encourage the general public to contact legislators; and • Supply the public with legislative contact information. www.clpi.org

18. Ballot Initiatives and Referenda • When a nonprofit urges the public to vote for or against a ballot initiative or referendum. • Lobbying communications for or against ballot initiatives may be conducted through the media or other means. • Lobbying for or against ballot initiatives and referenda is considered direct lobbying, not grassroots, because the public becomes the legislature. www.clpi.org

19. Grassroots lobbying examples • A state arts organization sends a letter to people and organizations who are not their members, asking them to contact their Representatives to urge them to support a bill that would expand state funded arts education programs. The cost of the time it took to create and disseminate the letter would count against the lobbying budget of the organization. www.clpi.org

20. Grassroots lobbying examples continued • An association of land trust organizations prepares sample letters and a fact sheet and uses them to send out an action alert by email to landowners in several counties asking them to email and call their elected officials to oppose a new bill related to property taxes. The expense of the time it took to prepare the materials and send out the message count toward the association’s lobbying budget. www.clpi.org

21. How can a 501(c)(3) organization elect? • Simply fill out IRS form 5768 that informs the IRS that you have elected to follow the expenditure test for lobbying. • It is only one-page and need only be filed once. www.clpi.org

22. Where can this form be obtained? • It is available from Center for Lobbying in the Public Interest at www.clpi.org/pdf/f5768.pdf or from the IRS Web site at hwww.irs.gov/pub/irs-pdf/f5768.pdf. www.clpi.org

23. Will IRS “red flag” a 501(c)(3) for an audit if it elects? • Absolutely not. • An IRS letter (2000) to Center for Lobbying in the Public Interest states clearly that election does not expose nonprofits to an increase audit risk. • See a copy of this important letter at www.clpi.org/doc_pdf/clpiIRS.pdf . www.clpi.org

24. Will a 501(c )(3) organization’s tax status be affected if we elect the expenditure test? • No. • Unlike the “substantial part” test, there is no jeopardy to tax-exempt status for a single year’s violation under the expenditure test. www.clpi.org

25. May nonprofits use federal funds to lobby? • No. Except in certain situations, federal grants cannot be used to lobby on legislative matters at the federal or state levels. • Federal contract funds cannot be used to lobby at the federal, state or local levels. • Federal funds also cannot be used for electioneering purposes. www.clpi.org

26. May nonprofits use private foundation funds to lobby? • Yes. Nonprofits may use “non-earmarked” or general purpose funds to lobby. • However, private foundations cannot earmark grant funds for lobbying. • Community foundations can earmark grants for lobbying (they are exempt under 501(c)(3) and not private foundations). www.clpi.org

27. Important exclusions to lobbying • Most public policy work is not lobbying. • The IRS regulations on lobbying further exclude key legislative related activities: www.clpi.org

28. Not Lobbying • Self-Defense Lobbying: Matters affecting a nonprofit’s own status. • For example: • Opposing proposals to curtail nonprofit lobbying; • Lobbying in support of a nonitemizer charitable tax deduction. • Not self-defense lobbying: • Lobbying for programs in the nonprofit’s field (e.g., health, welfare). E.g., a children’s nonprofit lobbying for increased school appropriations. www.clpi.org

29. Not Lobbying • Contact with Executive Branch employees in support of, or opposition to, proposed regulations. www.clpi.org

30. Not Lobbying • Communications to organization members on legislation -- even if the organization takes a position on the legislation -- so long as it doesn’t directly encourage members or others to lobby. www.clpi.org

31. Not Lobbying • Response to written requests from a legislative body for technical advice on pending legislation, even if the organization takes a position on the legislation. • E.g., a request to provide testimony at a hearing. • Cannot be a request from an individual legislator. www.clpi.org

32. Not Lobbying • Discussion of broad social, economic and similar policy issues whose resolution would require legislation. • Even if specific legislation on the matter is pending. • So long as the discussion does not address the merits of specific legislation. www.clpi.org

33. Not Lobbying • Making available the results of nonpartisan analysis, study or research on a legislative issue, even if the organization takes a position on the merits of the legislation. • So long as ... www.clpi.org

34. Nonpartisan analysis, study, research (continued) …so long as: • the information is made generally available; • the information contains the facts needed to enable the readers to form an independent opinion; and • the material does not include a direct call on the audience to contact legislators (for grassroots). www.clpi.org

35. Not Lobbying • Lobbying by volunteers only to the extent the nonprofit does not incur expenses associated with the volunteers’ lobbying. • Example: A YWCA holds a “lobby day” at the state capitol where volunteers visit with their Representatives about the Y’s position on pending legislation. As long as the Y does not pick up the volunteers’ costs it does not incur lobbying expenditures. This exception allows for organizations to significantly increase their lobbying capacity by involving volunteers as spokespersons. www.clpi.org

36. Is it lobbying? • A local nonprofit dedicated to education issues organizes a breakfast at which various public leaders are invited. The nonprofit’s board chairperson makes a presentation about school reform that includes a recommendation in opposition to school vouchers. • There is a Congressional bill currently pending to implement school vouchers. • Is it lobbying? www.clpi.org

37. Answer: • No, it is not lobbying as long as the board chairperson was making general policy recommendation but not necessarily urging support or opposition to specific legislation. www.clpi.org

38. Is it lobbying? • The same nonprofit runs an ad in the local newspaper calling for parents in the community to speak up and oppose the proposed school vouchers legislation. • The ad instructs citizens to call specific members of Congress today and gives the legislators’ phone numbers. • Is it lobbying? www.clpi.org

39. Answer... • Yes, it is lobbying. • The ad referred to specific legislation and contained a call to action. www.clpi.org

40. Is that all we need to know about the regulations? • It depends. If you plan extensive lobbying, you should be well-acquainted with the regulations. • Keep in mind that lobbying latitude under the expenditure test is generous. • Further questions about lobbying? • Contact CLPI at (202) 387-5048 or at centerforlobbying@clpi.org. www.clpi.org

41. We hope this tutorial was helpful. Contact CLPI staff at (202) 387-5048 or at centerforlobbying@clpi.org. WWW.CLPI.ORG