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7/31/2019 Lobbying Rules for Nonprofits
1/15
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-ExemptOrganizations
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 ofoverall 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 dont
Clear definitions of lobbying
Requires one-time election (Form 5768)
Penalty for violations is generally an
excise tax
501(h) Lobbying Limits
1. Calculate organizations 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 toabsolute
cap of $1M
Budget (for mostorganizations)
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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 orstaffer 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 beenintroduced
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 alegislator
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, nograssroots 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 AVEFs
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 TruthsProject
Direct Lobbying
9089889888888Total
88Sick Leave
Vacation
GR Lobbying
33GR Lobbying
9324Direct Lobbying
49843548786Better AmericaProject
Total151413121110987654321May 2010
Sample Timesheet
In addition to allocatingstaff costs, use
aggregate of staff timedata to allocate indirect
costs for lobbying
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Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
The Rules Are Different
No lobbying limits, provided lobbying is related to purpose
162(e) limits member dues deductibility, lobbying-dollarfor lobbying-dollar (Federal, state, but notlocal lobbying)
Applies to 501(c)(4), (5) and (6) organizations (except for501(c)(4) veterans organizations and 501(c)(5) laborunions)
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
Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying Includes Dollars Spent On . . .
Influencing legislation through federaland statelobbyingcommunications (direct and grassroots), including any costsleading up to the communication
Locallobbying 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 bysubpoena or federal/state law is not lobbying . . . but pretty mucheverything else is.
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Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Who is a CEBO? Heres the IRS list . . .
- The President and Vice President;
- Any officer or employee of the White House office of the Executive Office ofthe 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 andhis/her immediate deputy; and
- Any Cabinet head and his/her immediate deputy.
Or . . . you can just ask
Rule also applies to LDA reporting . . . but the definitions
different (broader) Be sure to specify which definition you need: IRS or LDA
Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying Disclosure and Tax
No disclosure or proxy tax when:
- Less than $2,000 is spent (in-house lobbying costs only)
- Members cant 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 minimisdues ($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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Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Disclosure Rule to Avoid Proxy Tax
Provide members with an annual reasonable estimate ofthe portion of dues not deductible due to lobbying activity- Estimate must be provided at the time of assessmentor payment
- Must be presented in a conspicuous and easily recognizable format
Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying Expenses
May calculate lobbying expenditures using any reasonable
method
Nevertheless, IRS gives you two easy methods, one hard
method
- Gross-up method
- Ratio method
- 263A method
Dont forget PAC admin expenditures - also included
Taxable political expenditures are notincluded
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Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Calculation Methods Gross-up method:
- Lobbying salaries x 175% (225% if not including admin)
- Add: T&E expense, dollars paid outside lobbyists, dues paid toother 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 toother organizations that lobby, and PAC administrative expenses
263A method usually not worth the effort
Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
De minimisrules 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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Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Remember . . .
Non-deductibility disclosure is always a prospectiveestimate
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 associations finalyear, 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
Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Important Planning Tip! Even if you never, everplan to lobby
- Put a non-deductibility disclosure on your dues notices AND membershipapplications 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 yourdissolution 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 maybe deductible as ordinary and necessary business expenses subject torestrictions imposed as a result of XYZ's lobbying activities as defined by theBudget Reconciliation Act of 1993. XYZ estimates that the nondeductibleportion of your 20XX dues -- the portion that is allocable to lobbying -- is0.05%."
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Federal Lobbying Disclosure Act
(LDA) Does not limit the amount of lobbying theorganization 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-exemptorganizations have some special rules)
States (and somelocalities) have similar
disclosure laws
Lobbying: Tax vs. LDA
Includes federal,state, NOT local
Includes grassroots
Includes executivebranch actions byCEBOs
Slightly different
exceptions
Includes federal,state, and local
Includes grassroots
No non-legislativeactions (but exec.branch officials canbe lobbied)
Slightly differentexceptions
Federal only
No grassroots
Includes executivebranch actions(CEBOs plus)
Slightly differentexceptions
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