Nonprofit Advocacy: Lobbying and Election-Related Activities for 501(c)(3)s

Sponsored by:A Service

Of:

Nonprofit Advocacy:

Lobbying and Election-Related Activities for 501(c)(3)s

Gene Takagi & Emily Chan

April 18, 2012


Of:

Advising nonprofits in:

• Strategy

• Planning

• Organizational Development

www.synthesispartnership.com

(617) 969-1881

[email protected]

INTEGRATED PLANNING


Of:

Affordable collaborative data

management in the cloud.


Of:

Today’s Speakers

Gene TakagiManaging Attorney

NEO Law Group

Hosting:

Sam Frank, Synthesis Partnership

Assisting with chat questions: Riley Croft, Nonprofit Webinars

Emily ChanAssociate Attorney

NEO Law Group

Nonprofit Webinars

April 18, 2012

Presented by: Gene Takagi & Emily Chan

Nonprofit Advocacy: Lobbying and

Election-Related Activities for

501(c)(3)s

Copyright © 2012 Nonprofit Exempt Organization.. All rights reserved.

Agenda

• Introduction – exempt organizations

• Lobbying Hypothetical Case – review of basics

• Electioneering

• Affiliations of exempt organizations

• Citizens United


IRC Organizations

IRC Name Federal Tax

Exemption

Tax-deductible

Contributions

501(c)(3) Public Charity* Yes Yes

501(c)(4) Social Welfare

Organization

Yes, with limitations No

501(c)(5) Labor, Agricultural

& Horticultural

Organizations

Yes, with limitations No

501(c)(6) Trade Association,

Professional

Organizations

Yes, with same

limitations as

501(c)(4) orgs

No

527 Political Action

Organization (PAC)

Investment income

taxed

No


*This presentation does not addresses private foundations and special rules for churches

Charitable Deduction – 170(a)*

• Deductible if for general support (subject to limits)

• Not deductible if earmarked for lobbying

* Applies to most U.S. 501(c)(3) organizations


Business Deduction? – 501(c)(4) and (c)(5)

• No deduction for certain lobbying and political

expenditures – IRC §162(e)

• Organization may be required to disclose percentage

of dues used for lobbying and political activities

(with limited exceptions) – IRC §6033(e)(1)(A)


Tax-Exempt Organizations

• 501(c)(3)

• No substantial lobbying

• No electioneering

• 501(c)(4)

• Unlimited lobbying pursuant to its primary purpose

• Some electioneering* (may not be its primary activity)

• 501(c)(6)

• Unlimited lobbying pursuant to its primary purpose

• Some electioneering* (may not be its primary activity)

* subject to state & federal campaign finance laws


501(c)(3) Lobbying Limitation

• An organization is an action organization [not a

501(c)(3)] if a substantial part of its activities is

attempting to influence legislation by propaganda

or otherwise

• An organization will be regarded as attempting to

influence legislation if the organization:

• Contacts, or urges the public to contact, members of a

legislative body for the purpose of proposing,

supporting, or opposing legislation; or

• Advocates the adoption or rejection of legislation.


Legislation

• includes action by the Congress, by any State

legislature, by any local council or similar

governing body, or by the public in a referendum,

initiative, constitutional amendment, or similar

procedure


Lobbying Hypothetical Case

Prologue

• Evilcorp may be violating law by dumping Substance

X

• Kids getting sick

• We formed CHARITY to

help the kids


Chapter 1: No Substantial Lobbying

• Want to advocate against Evilcorp

• But no substantial lobbying – 501(c)(3)

• Lobbying includes:

• Drafting legislation

• Influencing legislators to introduce legislation

• Distributing lobbying materials to assist in the passage or

defeat of a bill

• Communicating with members and the public to encourage

their legislators to support or oppose legislation


Chapter 2: Non-lobbying Advocacy

• Influencing an admin agencyre: its regulations or rulings

• Meeting with EPA re: tightening regsor changing its policies

• Influencing the mayor/governor/Presidentre: executive decisions

• Meeting to get regulation changed


Non-lobbying Advocacy

• Influencing legislators on nonlegislative matters

• To conduct an investigative hearing

• Engaging in litigation

• To get a favorable judicial interpretation of the law


Chapter 3: Choosing One of Two

Standards

• Substantial Part Test – default rule

• 501(h) Expenditure Test – Form 5768

• N/A to churches, governmental units, public safety

organizations, and private foundations


Chapter 4: 501(h) – “Lobbying”

Lobbying

• Communication

• Principal purpose is to influence legislation

• Reflects a view on specific legislation

Two types of lobbying

• Direct – to member(s) of legislative body

• Grassroots – to member(s) of general public


501(h) – Not lobbying

• Nonpartisan analysis, study or research

• Examinations of broad social, economic and similar problems

• Technical advice or assistance

• Self-defense communications

- IRC §4911(d)(2)


Chapter 5: 501(h) Expenditure Limits

• Total lobbying expenditures

• 20% of first $500,000 of EPE

• 15% of next $500,000 of EPE

• 10% of next $500,000 of EPE

• 5% of remaining EPE (up to $1 million in total lobbying)

– Exempt Purpose Expenditures include all amounts a charity expends to accomplish its exempt purpose (e.g., program expenses, administrative overhead expenses, lobbying expenses, and straight-line depreciation of assets used for an exempt purpose). They do not include fundraising expenses of a charity‟s separate fundraising unit or an outside fundraiser, capital expenditures, unrelated business income expenses, nor investment management expenses.

• Grass roots expenditures – 25% of Total lobbying expenditures


Penalties for Exceeding the Limits

• In any year

• Excise tax of 25% of excess (whichever excess is larger –

direct or grassroots) – Form 4720

• Over any four year period

• If expenditures exceed either limit

by >50%, revocation and no possibility

of converting to a 501(c)(4)


CHARITY

$1.25 million in EPE

TOTAL LOBBYING EXPENDITURE LIMIT = $200,000

• 20% of first $500,000 = $100,000

• 15% of next $500,000 = $75,000

• 10% of next $250,000 = $25,00

GRASS ROOTS EXPENDITURE LIMIT = $50,000


Chapter 6: Special Circumstances

Ballot Measures & Initiatives, Referendum, Bond Measures

• Legislation includes action by public in referendum or ballot initiative

• Lobbying communications with public considered direct lobbying (public = legislature)

• Also considercampaign finance laws


Member Communications

• Not lobbying if it does not encourage members to

take action.

• Direct lobbying if it encourages members to

engage in direct lobbying.

• Grassroots lobbying if it encourages members to

engage in grassroots lobbying.


Paid Mass Media Ad about Highly Publicized

Legislation

• Presumed to be grassroots lobbying (even without a

call to action) if it:

• is made within 2 weeks before a vote by a legislative

body/committee;

• reflects a view on the general subject of the legislation;

and

• either refers to the legislation or encourages the public to

communicate with legislators on the general subject of

the legislation.

- Rebuttable by demonstrating that the timing of the

ad was unrelated to the upcoming legislative action.


Chapter 7: CHARITY’s Strategy

• Make the 501(h) election

• Spend $200,000 for lobbying (including $50,000 for grassroots lobbying)

• Produce and disseminate nonpartisan analysis of problem

• Organize thousands of volunteers to lobby


CHARITY’s Strategy

• Communicate with the EPA to ensure enforcement

of regs

• Petition mayor for an executive decision

• Communicate with city council re: conducting an

investigative hearing

• Sue Evilcorp over interpretation of law


Epilogue

• CHARITY‟s lobbying and non-lobbying advocacy

pays off

• Evilcorp forced to stop

dumping Substance X and

pay restitution to sick kids


Lobbying Ethics

• Legally compliant*

• In furtherance of the mission (not personal gain)

• Effective and efficient use of resources

• Use of accurate, truthful, not misleading information

• In a fair, respectful, and professional manner

• No quid pro quo (gifts to legislators)

• Full required disclosures

• No lobbying of close relatives or former, recent employees

• Not acting as a conduit for a donor


Lobbying Disclosure Act of 1995

• Registration and reporting

• Employee (in house) lobbyist

– 20% of compensated time over 3-month period

– >1 lobbying contact

• Expenditure test

– $11,500 threshold on lobbying activities during the

applicable quarterly period

– $3,000 threshold for outside lobbyists

• Issue: differing definitions of lobbying


CA Political Reform Act

• Don‟t forget!

• Required disclosures of contributions and

expenditures made to support or oppose state &

local candidates and ballot measures

• See CA Fair Political Practices Commission (FPPC)


501(c)(3) Electioneering Prohibition

IRC Section 501(c)(3) provides

federal tax exemption to a

charitable organization so long as

it “does not participate in, or

intervene in (including the

publishing or distributing of

statements), any political

campaign on behalf of (or in

opposition to) any candidate for

public office.”


In other words…

The IRS views electioneering as:

• Activities for or against a candidate for public

office

• On all levels – federal, state, and local


ABC’s of IRC Electioneering Rules

“Candidate”

Any individual who offers himself or herself, or is

proposed by others, as a contestant for an elective

public office.

No activities that support or oppose a candidate


ABC’s of IRC continued…

“Public Office”

Any office filled by a vote of the people on any level

– federal, state, or local


ABC’s of IRC continued…

“Nonpartisan”

Working definition: that which does not tend to help or hurt

the

chances for election of any particular candidate or group

of candidates, regardless of political party affiliation

(Alliance for Justice)

IRS provides for some exceptions


General points

No contributions

(cash or in-kind)

No endorsements

No coordination of activities

501(c)(3) organizations must act in a nonpartisan

manner.

No de minimis exception for 501(c)(3)s!


Rationale

The prohibition is an exchange for the “government

subsidy” of the benefits of the 501(c)(3) tax-exempt

status and tax-deductible contributions by

removing the “public subsidy” from campaign

activities. Therefore the larger the public subsidy

that is allowed, the less benefits you receive from

the IRS.

Alliance for Justice, Rules of the Game (2d ed.)


IRS Regulations

The IRS regulations on electioneering touch three

levels:

1. Campaign intervention activity

2. Tax-deductions for individuals

3. Taxable income of nonprofits


IRS Regulations for 501(c)(3)s and 501(c)(4)s

Campaign

Intervention

Activity

Tax-deductible

Contributions

Taxable income of

Nonprofit

501(c)(3) Public

Charity

Prohibited Yes None

501(c)(4) Allowed only so

long as it is not the

organization’s

primary purpose*.

* No numerical

definition

No Tax on investment

income if political

activities are not

paid from a separate

segregated fund.

Business proxy tax

may apply to

political expenses.


The IRS can consider any factors it finds relevant in a particular case.

When has the organization crossed the line from an educational activity to campaign intervention?


Facts and Circumstances Test


IRS Enforcement

Prior to 2004: Conducted audits of returns

Beginning in 2004: Political Activity Compliance Initiative (PACI)

“Fast track” targeted examinations

Purpose: (1) Notice/prevention and (2) Timeliness

IRS Political Activity Compliance Initiative, Procedures for 501(c)(3) Organizations


IRS Range of Penalties

Permanent revocation of tax-exempt status

Retroactive revocation of tax-exempt status

Intermediate penalty tax

Warning for minor or inadvertent mistakes?


What is the FECA?

The Federal Election Campaign Act (FECA) is

regulated by the Federal Election Commission

(FEC). FECA is triggered when a nonprofit is

engaging in federal elections.

FECA provides for civil and criminal penalties.


ABC’s of the FECA

“Public office”

= federal office


ABC’s of FECA continued…

“Candidate”

(a) raise contributions or (b) make expenditures

exceeding $5,000. 2 U.S.C. § 431(2)

Does not include individuals who are “testing the

waters”

However, if that individual later runs for an office,

FECA‟s requirements apply retroactively.


Rationale

The objective of the FECA is to restrict the political

influence of money and to expose all such influence

to public scrutiny. Therefore, FECA aims for a

system where money is either (1) voluntarily

contributed by individuals and fully disclosed or (2)

spent by groups and substantially disclosed.



Are there any permissible election-related

activities?


Issue Advocacy

Position on issues that are related to the

organization‟s charitable or exempt purpose

Risk: communications implicitly favor or oppose a

candidateRev. Ruling 2007-41


Voter Education

1. Appearances of Candidates

2. Candidate Questionnaires and Voter Guides

3. Candidate Forums and Debates

4. Internal Communications

5. Websites and Blogs

6. Distribution of Candidate or Party Materials – NO!

7. Endorsements – NO!Alliance for Justice, Rules of the Game (2d ed.)


Voter Registrations & GOTV Activities

Purpose: encourage voting by eligible

voters

Can target specific areas and criteria

Neutral and nonpartisan

Can include issue advocacy

Cannot indicate a partisan purpose


Candidate Education

1. Attempts to persuade candidates‟ policy positions

• Ethical persuasive tactics?

• FECA

2. Efforts to get issues on political party platforms


Business Activities

1. Special rules when organization‟s lists are used

for partisan activities

• Cost, Use, Rental, Notification, Content

• Receiving lists from candidates

2. Special rules for commercial transactions


Staff, Volunteers, and Board Members

First Amendment Free Speech and Association

Must be acting in individual capacity and not on

behalf of the organization

IRC – facts and circumstances

FECA – “agent” relationship


Fundraising

1. Fundraising for the 501(c)(3) „s advocacy efforts

2. Fundraising for political recipients – NO!


Are we there yet?... Not quite.

In addition to the IRC and FECA:

FCC

Office of Management and Budget (OMB)

State and local governments

Federal and state lobbying rules

Federal and state ethics rules

State tax-exemption laws (if applicable)


Affiliations of Exempt Organizations


c3

c3c4/

c6

c4/

c6

527

527

(c)(4) Tax on Political Activities

At the highest corporate rate on the lesser of:

• Net investment income; or

• Political expenditures

- IRC §527(f)

- Form 1120-POL ($100/$100)

OR FORM A SEPARATE SEGREGATED FUND (PAC or 527)

TO MINIMIZE OR AVOID THE TAX


Parent-Subsidiary Structures

• P is sole member of S

• P appoints __% of directors of S (under S‟s bylaws)

• P and S have some overlapping directors


Citizens United v. FEC

A U.S. Supreme Court ruling (5-4) that corporate funding of independent political broadcasts in candidate elections cannot be limited under the First Amendment

Struck down part of the McCain-Feingold Act that barred union- and corporate-paid issue ads in the election campaigns‟ closing days.

Allows corporations to spend from general treasury funds for independent public communications that “expressly advocate” the election or defeat or clearly identified candidates.

Citizens United v Federal Election Commission, 130 S.Ct. 876 (2010)


Did Citizens United affect 501(c)(3)s?

Short answer: NO

Why? FECA and IRC “speak” different languages

FECA makes no distinction among 501(c) orgs

IRC is a stricter set of rules because it makes distinction among 501(c) orgs

The 501(c)(3) electioneering prohibition restricts the express advocacy, independent expenditures, contributions, and some coordinated contributions that the FECA would potentially otherwise allow


Disclaimer

The information contained in this presentation has been prepared by NEO Law

Group and is not intended to constitute legal advice. NEO Law Group has used

reasonable efforts in collecting, preparing, and providing this information, but

does not guarantee its accuracy, completeness, adequacy, or currency. The

publication and distribution of this presentation are not intended to create, and

receipt does not constitute, an attorney-client relationship.

201 Spear St., Suite 1100San Francisco, CA 94105

415.977.0558www.NEOLawGroup.com

www.NonprofitLawBlog.com

[email protected]/gtak

[email protected]/emilychan



Of:

Find listings for our current season of webinars and register at:

NonprofitWebinars.com

Nonprofit Advocacy: Lobbying and Election-Related Activities for 501(c)(3)s

Business

Transcript of Nonprofit Advocacy: Lobbying and Election-Related Activities for 501(c)(3)s