Nonprofit Lobbying- Legal Parameters

Event Title: Nonprofit Lobbying- Legal Parameters
Sponsors: InterAction
Location: InterAction
Date: September 27, 2006
Time: 3:00 PM – 4:30 PM
Approximate number of Attendees: 14
Intern Attending: Ashley Smith

Featured Speaker: Jim Hudson, Program Director for the Center for Lobbying in the Public Interest

Jim Hudson began by discussing the effects of public opinion on legislative decision-making and emphasizing the importance of civic engagement. He added, “If you’re not at the table, you’re on the table.”

On the topic of nonprofit lobbying constraints, while nonprofit lobbying is perfectly legal, it is important to note legal distinctions between organizations operating as 501(c)(4)s and 501(c)(3)s. As a 501(c)(4), there are no restrictions on lobbying activities, members may endorse candidates, but are generally not allowed campaign expenditures, and contributions to these organizations are generally not tax deductible. For 501(c)(3)s, there are lobbying restrictions, members cannot endorse candidates, they also are not allowed to financially support campaigns, and contributions are generally tax deductable.

For 501(c)(3)s to adhere to IRS lobbying rules, one of two “tests” must be administered, the substantial part test (given by default) or the expenditure test. The expenditure test has two parts – direct lobbying (when an organization directly addresses legislators about a specific piece of legislation) and grassroots lobbying (when an organization uses the public to address legislators about legislation). For direct lobbying, 501(c)(3)s may spend 20 percent of the first $500,000 of annual expenditures, 15 percent of the next $500,000, 10 percent of the next, and 5 percent for any following. For grassroots lobbying, 501(c)(3)s may spend up to 25 percent of their total allowable lobbying expenditures. The substantial part test says simply that lobbying cannot be a substantial part of the organization’s activities, without actually specifying what constitutes “substantive”. If the IRS deems that lobbying activities are a “substantial” part of a nonprofit’s activities, it can lose its tax exempt status.

When calculating lobbying costs, it is important to factor in all related activities. For example, if an international is flown in to speak on an issue, the airfare and any other associated costs should be factored into the total allowable lobbying expenditures. Certain things that do not count towards total expenditures include lobbying by volunteers, testimony given when requested by committee, discussion of broad social issues, and nonpartisan analysis on a legislative issue.

During election year campaigns, it is permissible for nonprofits to take stances on issues, but they are not allowed to endorse individual candidates. Nonprofits may sponsor candidate forums, get out the vote activities, and candidate questionnaires, but only if all candidates are treated fairly. In addition, letter writing for members and non-members is allowed, as is meeting with public officials, testifying at public hearings, and providing research and analysis to constituents and legislators alike. As a safeguard, it is recommended that organizations maintain a hard copy of invitations to speakers which clearly state that the invitation is extended not to endorse the candidate, but simply to inform the public.