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Lobbying Rules for Not-for-Profits

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

Washington, D.C. December 13, 2010

Deborah G. Kosnett

Deborah G. Kosnett The Southern Building • 805 15 t h Street NW, 9 t h

The Southern Building • 805 15 th Street NW, 9 th Floor Washington, DC • 20005 202-419-5111 • dkosnett@tatetryon.com

John Pomeranz

20005 202-419-5111 • dkosnett@tatetryon.com John Pomeranz 1726 M Street, NW, Suite 600 • Washington, DC •

1726 M Street, NW, Suite 600 • Washington, DC • 20036 202-328-3500 • jpomeranz@harmoncurran.com

Agenda

• 501(c)(3) Lobbying

• Lobbying by Other Tax-Exempt Organizations

• Federal Lobbying Disclosure Act

Agenda • 501(c)(3) Lobbying • Lobbying by Other Tax-Exempt Organizations • Federal Lobbying Disclosure Act

501(c)(3) Lobbying: Two Tests • “No Substantial Part” Test

• 501(h) Expenditure Test

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

Measures… – expenditures, – volunteer and other cost-free activities, – more…? • Potential loss of exemption

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

definitions of lobbying • Requires one-time election (Form 5768) • Penalty for violations is generally an

501(h) Lobbying Limits

Budget (for most organizations)
Budget (for most
organizations)

1. Calculate organization’s “exempt purpose expenditures”

2. Overall lobbying limit is:

20% of first $500,000 15% of next $500,000 10% of next $500,000

5% of remainder

Up to absolute cap of $1M
Up to
absolute
cap of $1M

3. Grassroots lobbying limit is 25% of overall limit

10% of next $500,000 5% of remainder Up to absolute cap of $1M 3. Grassroots lobby

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

Overall Lobbying Limit

$100,000

+ $75,000

+ $50,000

+ $15,000

TOTAL = $240,000

Grassroots $60,000
Grassroots
$60,000
All Lobbying (Direct & GR) $240,000
All Lobbying
(Direct & GR)
$240,000
$100,000 + $75,000 + $50,000 + $15,000 TOTAL = $240,000 Grassroots $60,000 All Lobbying (Direct &

What is Lobbying?

DirectDirect LobbyingLobbying

GrassrootsGrassroots LobbyingLobbying

Communication

Communication

Expressing a View

Expressing a View

Specific Legislation

Specific Legislation

Legislator (or other official or staffer involved in legislation)

General Public

(Not “members”)

 

Call to Action

other official or staffer involved in legislation) General Public (Not “members”)   Call to Action

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

• 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

• Administrative rules • Court opinions • Agency decisions • Executive orders • Private (non-government) actions

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:

- Voting on legislation

- Undecided on legislation

- Opposed to legislation

- Representing reader

Generally, no call to action, no grassroots lobbying
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

conclusion – OK to advocate a position • Public distribution – Not just to allies •

Lobbying Exceptions:

Request for Technical Advice

• Written request

• Government body

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

– NOT lobbying for earmarks • Discussions of issues of broad social importance – NOT specific

Sample Timesheet

May 2010

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Total

Better America

                               

Project

6

8

7

8

4

5

3

4

8

49

Direct Lobbying

                   

4

2

 

3

 

9

GR Lobbying

                 

3

         

3

Hard Truths

                               

Project

2

1

4

5

3

2

21

Direct Lobbying

                               

GR Lobbying

                               

Vacation

                               

Sick Leave

                       

8

   

8

Total

   

8

8

8

8

8

   

8

9

8

8

9

8

90

8     8 Total     8 8 8 8 8     8 9
In addition to allocating staff costs, use aggregate of staff time data to allocate indirect
In addition to allocating
staff costs, use
aggregate of staff time
data to allocate indirect
costs for lobbying
In addition to allocating staff costs, use aggregate of staff time data to allocate indirect costs
Lobbying: Section 501(c)(4), (5), (6) The Rules Are Different  No lobbying limits, provided lobbying

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-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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Lobbying Includes Dolla rs Spent On  Influencing legislation through

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

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

Congressional intent is that communication compelled by

unless and until it leads to lobbying

subpoena or federal/state law is not lobbying everything else is.

but pretty much

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Who is a CEBO?  Here’s the IRS list -

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

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

Rule also applies to LDA reporting

you can just ask

different (broader)

but the definition’s

Be sure to specify which definition you need: IRS or LDA

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Lobbying – Disclosure and Tax  No disclosure or proxy

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 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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Disclosure Rule to Avoid Proxy Tax  Provide members with

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

Disclosure Rule to Avoid Proxy Tax

Provide 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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Lobbying Expenses  May calculate lobbying expenditures using any reasonable

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

Don’t forget PAC admin expenditures - also included

Taxable political expenditures are not included

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Calculation Methods  Gross-up method: - Lobbying salaries x 175%

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 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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) De minimis rules – all methods  Time spent by

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

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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Remember  Non-deductibility disclosure is always a prospective estimate 

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

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

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6) Important Planning Tip!  Even if you never, ever plan

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

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%."

© Copyright Tate & Tryon 2010
© Copyright Tate & Tryon 2010

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
States (and some
localities) have similar
disclosure laws
(although tax-exempt organizations have some special rules) States (and some localities) have similar disclosure laws

Lobbying: Tax vs. LDA

LDA

501(c)(3)

501(c)(4), (5), (6) (IRC § 162(e))

(IRC § 4911)

• Federal only

• Includes federal,

• Includes federal, state, NOT local

• No grassroots

state, and local

• Includes executive branch actions (CEBOs plus)

• Includes grassroots

• Includes grassroots

• No non-legislative actions (but exec.

• Includes executive branch actions by CEBOs

• Slightly different

• Slightly different exceptions

branch officials can be “lobbied”)

• Slightly different exceptions

exceptions

different exceptions branch officials can be “lobbied”) • Slightly different exceptions exceptions

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)

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

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

(Form LD-203) – Separate filings for organization and lobbyists – Report political contributions and other info